Grim picture for US malls as crisis in movies business takes toll

The crisis in the movies business is spreading through US shopping centres as cinema closures hit footfall for restaurants and other tenants, exacerbating financial problems for already struggling malls.

Before the pandemic, mall owners turned to movie theatres — among other businesses such as health clinics — to fill sites as the rise of online shopping prompted retailers to vacate shops. More than a third of the country’s top-quality malls house cinemas, usually as “anchor” tenants, which occupy particularly large spaces and are supposed to draw customers.

But coronavirus disruption has hit cinemas even harder than the retail sector. Hollywood studios have postponed big releases such as No Time to Die, the latest James Bond film.

AMC, the world’s largest cinema chain, warned this week it could run out of cash by the end of the year, raising fears of more closures after rival Cineworld this month shut indefinitely its more than 530 Regal screens.

Retail properties suffering the fallout include Oviedo Mall in suburban Orlando, Florida, where Regal is an anchor tenant. The cinema drove 600,000 customers to the site each year, said Kevin Hipes, a commercial real estate consultant and broker who manages the mall.

“The food court is suffering, as that was one of the main traffic drivers,” he said. “Theatres and entertainment are critical to the turnround of old malls.”

Malls are already under pressure from store closures and bankruptcies of retailers, which during the pandemic have lost more market share to ecommerce. Morgan Stanley this week forecast that between 30 and 35 per cent of US malls will close within five years.

Movie theatres have faced big restrictions across the US since March and, as a result, paid even less rent during the pandemic than hard-hit retailers.

Retail Properties of America, a listed real estate investment trust that owns 102 properties, received just 9 per cent of rent due from movie theatres in the second quarter.

Cineworld, which had $4.2bn worth of lease liabilities on its balance sheet as of June 30, said last month that it had renegotiated scores of leases to defer or reduce its rent bill.

Movie theatres occupy large sites — typically between 45,000 and 65,000 sq ft — and pay rent in the region of $20-$30 per sq ft. That is significantly more than department stores, which pay very little rent since they secured generous deals with developers when the shopping centres were built decades ago.

Cinemas tended to arrive later, but in recent years have become increasingly important to retail landlords. AMC is the seventh-largest contributor to rent for National Retail Properties, another Reit.

“Movie theatres are now an important part of the mall ecosystem and have been a popular ‘backfill’ option over the past five years,” said Vince Tibone, retail sector head at commercial property advisers Green Street. “There’s been a huge shift from just selling goods. The hot word has been ‘experiential’.”

About 90 of the 240 high-quality ‘A’ malls in the US house cinemas, according to Green Street, while about 170 of the 700 lower-quality ‘B’ and ‘C’ centres have them.

Regal has described its closures as “temporary”. Permanent closures would pose an even bigger headache for landlords, since exits of mall “anchors” can trigger clauses for other tenants that allow them to secure lower rent or get out of their leases altogether.

Cinemas leaving for good also require landlords to invest considerable sums to convert the spaces for use by other tenants, Mr Tibone added. “It’s fairly costly to turn a former movie theatre into a different tenant. There’s no other use that requires sloped floors.”

Mooky Greidinger, Cineworld’s chief executive, said the company would not reopen Regal until it had a “full slate” of blockbusters for at least two months ahead — which may not be the case until well into next year.

Mr Hipes, who as well as managing the Oviedo mall also owns a burger outlet in the property, said his own restaurant was performing well despite the cinema closure. “If you’re an entrepreneur, you figure it out.”

He is confident the mall’s Regal theatre will ultimately reopen. “They’re not going to walk away from this good a location. They just have to wait for the movies to come out.”

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