Cineworld filing for administration in the United Kingdom could cause a powerful ripple effect across British leisure and retail complexes as it looks to reshuffle its estate to improve performance.
CoStar News understands that, as part of its efforts to restructure the business, the operator has identified 30 sites across the United Kingdom that must be reworked to improve performance and reduce its debt pile, having emerged from Chapter 11 bankruptcy in the United States earlier this week. Of those 30 sites, experts have suggested that only "a handful" will close.
Though the world's second-largest cinema operator has insisted that it remains "business as usual" for its day-to-day operations, as it continues to welcome moviegoers to its venues, retail experts have warned the brand has "a hell of a lot of work to do" to improve its United Kingdom offering.
One expert who spoke to CoStar News suggested its regional venues with large numbers of screens would be the more likely destinations to be reconfigured, or to be let go of completely. They said: "You are talking about something that people want to spend their disposable income on and so, if you think about where [that] is the highest, it is normally around the South East of England. So [those] cinemas will be less exposed than the regional ones.
"I think there will also be a bit of a bias towards the sites that have lots of screens, so 15-plus screens. That's where they are going to focus most of their energy because you've just got all that space that is not being utilised by content."
Cineworld is now in discussion with its landlords as it explores ways to improve its United Kingdom business performance, including rental concessions, with the group trying to avoid a company voluntary arrangement, or CVA, the contentious restructuring tool loathed by landlords. They allow a proportion of a company's debts to be paid back over time and need 75% of the creditors, by value, to support the proposal.
But it has been suggested that Cineworld could still yet employ a CVA if its discussions with landlords to negotiate better rental terms fail.
"It's going to need to be a lot of hard conversations with landlords, which they have already been having. It's just whether the landlords are going to accept it. But, if they don't, and Cineworld goes into some sort of process" in the United Kingdom, "we will see big, big empty spaces on the high-street, if they do close a lot of their sites," another retail expert who declined to be quoted on record said.
Documents submitted to the Bankruptcy Court for the Southern District of Texas, Houston division, on 31 July indicate that Cineworld owed landlords around £26 million at 142 properties in the United Kingdom with unexpired leases to be assumed (meaning continued with) or rejected.
It is understood that total is what Cineworld owed United Kingdom landlords before it emerged from Chapter 11 bankruptcy, but this value could have since changed as it continues to negotiate with property owners.
Unsurprisingly, the venues where the group owes the largest amounts of rent are at its biggest cinemas in prime locations. For example, Cineworld owes circa £2.5 million in rent to the Bank of New York Mellon at the Five Ways Leisure Complex in Birmingham, where it leases 72,645 square feet, according to CoStar data. The cinema has 12 screens and also hosts a Starbucks cafe and a bar.
It owes around £1.9 million to Southside Nominees No.1 & Southside Nominees No.2 at Landsec's Southside Shopping Centre, in Wandsworth, South London, a 14-screen cinema, as well as close to £1.7 million at its Glasgow venue on Renfrew Street. That space, comprising 141,719 square feet, has 18 screens and is reported to be the world's tallest cinema, spread over six levels.
Approximately £1.5 million is owed to the Tesco Pension Trust at Jarman Square Retail Park in Hemel Hempstead, Hertfordshire, which operates a 17-screen venue. Other landlords named in the document include Aviva Investors Global, M&G Property and The Crown Estate.
Sources close to the talks around the Cineworld properties have said that there is at least one cinema operator that is looking at the possibility of taking over some of the sites currently leased by the brand. Meanwhile, other parties have identified some of the movie theatres as potential residential opportunities.
Cineworld's financial troubles were exacerbated by the pandemic, which forced screen closures for a number of months, hitting revenue. At the same time, retail experts have explained that the changing tastes of modern audiences, who now have the option of watching blockbusters at home within a few months, mean people want more of an experience when they go to the cinema.
Those trends have forced some cinema operators to be more creative with their offers to audiences, kitting them out with improved food halls and arcades, while some businesses now offer a food service during screenings and have fitted recliner seats to make users more comfortable.
In a statement issued on 29 June, Cineworld's then-chief executive Mooky Greidinger said the group was working to improve audience experience as part of the restructure. He added: "Cineworld remains focused on refining and growing our global business and cinemas for our guests around the world and delivering the most immersive and cutting-edge cinema experiences that make us the 'Best Place to Watch a Movie.'"
Cineworld was unable to comment further.