Property experts have said a company voluntary arrangement, a contentious restructuring tool, looks "inevitable" for Cineworld as it starts to renegotiate rents at around half of its UK venues.
The world's second largest cinema operator confirmed last week that it was exiting from six out of its 100 UK sites, labelling them "commercially unviable". It also said that it was seeking to negotiate rents at other marginal and lossmaking cinemas to restore profitability.
But one property expert has said more closures and a CVA look certain, after a letter sent to landlords outlining its Restructuring Plan and seen by CoStar News revealed that it is asking for rent-free deals at half a dozen sites and seeking turnover rents at an additional 10.
The letter shows that Cineworld's UK arm is hoping to negotiate changed rental terms at a total of 49 venues to put them on a "viable footing". The changes would see those venues generate earnings before interest, taxes, depreciation, and amortisation of more than zero, according to the company.
Cineworld wants to agree a reduction of rent to estimated rental values on 33 leases, labelling them Class B. These stores are generating positive rebased EBITDA, but their rents require negotiation to put them on a "viable long-term footing", according to the business.
They include an 11-screen venue at Birmingham NEC, where the operator leases circa 40,000 square feet from Kuala Lumpur-headquartered landlord Genting. It is also looking to secure a new deal at the 14-screen Cineworld Silverburn in Glasgow, where it leases circa 50,000 square feet, and a nine-screen venue at Watford's Atria shopping centre, where it has a lease with Global Mutual, as asset manager to the bondholder owners.
Other landlords of properties in the Class B category include Landsec, L&G Life and Quintain, in addition to Barnsley and South Oxfordshire District councils.
Cineworld's UK business is also looking to secure lease terms at turnover rent for 10 venues, labelling them Class C1. The company says the changed terms would help put the stores on a viable footing in the short term and long term.
Class C1 venues include a 19-screen store at AEG's The 02 in London's Greenwich, where it leases 134,000 square feet, and a 12-screen cinema comprising 73,000 square feet on Birmingham's Broad Street, where the landlord creditor is listed as Bank of New York Mellon.
The company also wants to negotiate rent free leases at a final six locations, referred to as Class C2. Those stores are in Bury St Edmunds, Haverhill, Weymouth, Wood Green (London), York and Glasgow. A total of 38 cinemas across its UK portfolio are unaffected.
Jonathan de Mello, chief executive and founder of JDM Retail, told CoStar News that landlords are likely to be unimpressed by the terms being suggested by Cineworld as it looks to improve its financial health after entering administration in the UK last year.
He said: "The venues where Cineworld is asking for rent-free leases are likely to close, with the proposals unlikely to fly with landlords. Although there may be better sentiment towards a reduction of rent to ERV, a CVA looks inevitable at this point."
Sky News reported earlier this month that Cineworld was set to implement a CVA after holding initial talks with potential buyers for its business in the United Kingdom, with the brand remaining tight-lipped on this speculation.
The latest letter to creditors shows that none of the 42 parties that Cineworld's advisors AlixPartners approached earlier this year were prepared to make an offer, with "no ongoing discussions" with related parties happening. The group has concluded that a sale of the shares in the UK group is "not a viable option".
A Cineworld spokesperson told CoStar News: "We are implementing a restructuring plan that will provide our company with a strong platform to return our business to profitability, attract further investment from the group, and ensure a sustainable long-term future for Cineworld in the UK."
Should Cineworld's proposed restructuring plan be approved by the court, it will receive £35 million of additional investment from the US to spend on refurbishing "viable cinemas", according to the document. The plan is expected to become effective in late September 2024.
Last year the company suspended its listing on the London Stock Exchange and appointed several new directors to its board, including Ann Sarnoff, who is the former chair and CEO of Warner Bros.