A U.S. bankruptcy judge is allowing the parent company of Regal Cinemas to retroactively reject 17 real estate leases throughout the country in a move offering landlords clarity even as other would-be rejected movie theater leases remain tied up in bankruptcy proceedings.
Cineworld Group, based outside of London, and 104 affiliates involved in the Chapter 11 bankruptcy case, was trying to walk away from at least 26 leases throughout the United States but Judge Marvin Isgur signed a court order during a hearing Friday approving the retroactive rejection of only 17 of those leases.
Attorneys representing the landlords of the 17 leases did not dispute the lease rejections. According to court documents, the leases were deemed "unnecessary and burdensome to the debtors' estates" and will reduce high-fixed operating costs.
Landlords of the remaining nine properties where Cineworld is asking to reject its leases are expected to dispute the lease rejections in some way at a future hearing.
Cineworld filed for bankruptcy protection last month in the U.S. Bankruptcy Court for the Southern District of Texas in Houston. The company hopes to exit bankruptcy proceedings by the end of the first quarter.
The retroactive rejection of the 17 leases, with rejection dates ranging from Sept. 7 to Sept. 30, opens the door to new possibilities for the landlords of the theaters at a time when there has been limited new retail construction in the country, said Bob Young, executive managing director for Dallas-based Weitzman, a retail brokerage firm.
"When landlords lose control of leases as it relates to their property, it's not good, but the clarity of their status gives landlords an opportunity to start rethinking and move forward with new merchandising plans for those boxes," Young, who has decades of experience and has seen the fallout of retail bankruptcies over the years, told CoStar News. "There's not a lot of new product to date, so existing real estate that is unencumbered that can be repurposed or backfilled is at a premium."
Like fitness centers or gyms, theaters can be more difficult to lease to a new tenant given they were purpose-built for a cinema operator, said Young, who is not involved in Cineworld's bankruptcy case. However, with movie chains looking to diversify their business and pitching theaters as corporate retreats and educational centers during non-peak hours, properties in prime locations could do better without a Regal Cinemas lease.
"Part of the evolution and renaissance of retail is tweak it until you find someone that can use the space," Young added. "Existing real estate controlled by a landlord is better than encumbered property in bankruptcy. Without a lot of new construction and Regal Cinemas theaters being in good trade areas, landlords might be able to backfill them with other opportunities."
Here are the locations of the 17 leases Cineworld was approved to reject by the bankruptcy judge:
California: 8030 E. Santa Ana Canyon Road in Anaheim Hills; 3351 W. Shaw Ave. in Fresno; 4767 Commons Way in Calabasas; 2525 San Ramon Valley Blvd. in San Ramon; 3735 Alton Parkway in Irvine.
Connecticut: 495 Union St. in Waterbury.
Florida: 12884 City Center Blvd. in Jacksonville.
Missouri: 754 Gravois Bluffs Blvd. in Fenton.
Nevada: 8880 South Eastern Ave. in Las Vegas.
North Carolina: 750 SW Greenville Blvd. in Greenville.
Ohio: 18348 Bagley Road in Cleveland.
Oregon: 15995 SW Tualatin Sherwood Road in Sherwood.
Pennsylvania: 185 North West End Blvd. in Quakertown.
Texas: 8275 Amarillo Blvd. W in Amarillo; 9828 Great Hills Trail in Austin; 700 West Oaks Mall in Houston.
Washington state: 5910 South 180th St. in Tukwila.
Cineworld asked to reject the leases after it "undertook an extensive analysis of their U.S. lease portfolio." The company plans to continue to identify unprofitable U.S. theater locations, Cineworld said in court filings. A&G Realty Partners is negotiating on behalf of Cineworld with landlords on potential lease modifications.