Reading (RDI) Posts 10-K; Thesis Still Very Much Intact

Whopper is a deep value investor and the founder of whopperinvestments.com. He can be reached at [email protected]

Reading (RDI) is one of my core holdings- for those of you not familiar with it, you can find my write up on it here. They reported results last week, so I thought I’d post my thoughts. If you aren’t familiar with the name and just feel like seeing a quick summary, just scroll down to the last page. Overall, the results were pretty weak. This was driven mainly by a weak box office and tough comps versus Avatar. The weak box office will likely continue into Q1; however, the continued roll out of 3-D and a strong second half box office should drive substantial improvement later in the year. Of greater note, the company fails to disclose anything new from the sale of their Burwood property. Given the lack of public announcement from any progress on this sale in the past 8 months or so, I’m a bit worried that the sale has hit a rough patch or they may be having trouble finding a buyer willing to pay an appropriate price.

However, there was also a lot to like. From a balance sheet stand point, the debt forgiveness from one of their acquisitions took place, which wiped out $15m of debt. They also extended the maturity of their GE loan (from Feb. 2013 to Dec. 2015. GE also lent them an additional $8m ) and, after the year ended, refinanced their Australian line of credit with a new bank. In sum, they managed to strengthen their balance sheet and ensure they have plenty of liquidity to continue executing their business plan.

The most interesting part of the quarter was several new disclosures in the 10-K. While the lack of information around the sale of their Burwood property (discussed in my previous articles, the sale of this $60m+ property would unlock significant value and serves as the most imminent catalyst), the 10-K includes new disclosures relating to a sale of their Cinema 1,2,3 property and Taupo property, as well as new plans to develop Union Square and Courtenay Central. While the Taupo property is relatively small (total BV of ~$6m), it has enjoyed a good deal of rezoning and will likely have a nice gain. The Cinema 1,2,3 properties are worth significantly more (BV of ~$25m) and could be sold relatively quickly. Even assuming its sold just for book value (unlikely), the sale will allow the company to develop some more lucrative opportunities and could be used to pay down debt. Either way, it will likely unlock some value.

The development of Union Square and Courtenay Central are more interesting. The Union Square property, located in Manhattan, likely has substantially more value in a different form than today (as a theater), and they have reached out to several firms to discuss joint ventures. Depending on how the joint venture is structured, it could unlock substantial value for the firm with little to no additional capital cost. Most interesting is the Courtenay Central development. Courtney Central is a huge shopping mall/theater and parking garage they have already developed, currently on the books for ~$25m. They own substantial amounts of property around the mall. Developing this property will substantially increase the value of the parking lot and the shopping mall/theater and increase the value of the underlying land.

So, in sum, the results were weak. However, looking past the income statement reveals a substantiallystrengthened balance sheet, increased liquidity, and the beginning of some projects that will unlock or increase property values. I continue to believe the market is treating the company like a cinema company and assigning little to no value to the company’s incredibly valuable real estate holdings.

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