The coronavirus outbreak has had a huge impact on movie theaters, and at this point, many may not manage to hang on. In fact, Cineworld Group (LSE: CINE), the parent company of Regal Cinemas, has been struggling in the course of the pandemic, and many investors initially feared it was headed for bankruptcy.
But in late November, Cineworld was thrown a lifeline. Lenders will be extending a $450 million loan to help the movie theater owner stay afloat over the next number of months, and it will also be granted more flexibility on its existing debt. All told, Cineworld is getting $750 million of added liquidity that will, for now, help it avoid filing for bankruptcy.
Clearly, all of this is good news for investors. But while Cineworld may have more flexibility in the near term, it’s still unclear as to whether it can hang on long enough to come out on the other side of the pandemic.
Movie theaters are facing challenges
Earlier this year, movie theaters were forced to shut down as part of the wave of restrictions on nonessential U.S. businesses. Cineworld, after months of closures, managed to reopen its theaters in August, but two months later, it announced plans to shut down all its U.S. and U.K. locations.
The decision boiled down to a lack of content more than a lack of consumer demand. Many movie releases have been delayed in the course of the pandemic. If Hollywood continues to lag, theaters will be forced to remain shuttered in the absence of having new releases to screen. Compounding the issue is that some studios have been sending new movies straight to streaming services, thereby excluding theaters from the start.
Cineworld is not the only movie theater operator in financial trouble. In October, AMC Entertainment (NYSE: AMC) filed a bleak update with the Securities and Exchange Commission where it effectively admitted it could be out of cash by the end of 2020 or early 2021.
Of course, if movie theater chains start filing for bankruptcy and shutting down permanently, it could be a major blow to real estate investors. Malls, which are already losing retail tenants, frequently house movie theaters, and shopping centers often rely on them as anchors. Real estate investment trusts (REITs) that derive revenue from theaters will suffer if movie houses shut down in droves.
The good news is that there are several promising coronavirus vaccine candidates that could be rolled out to the general public in the early part of 2021. But those vaccines won’t be a magic bullet. It will take time to deploy them, and a large chunk of the population will likely resist getting them. So it could be quite some time until movie theaters can open their doors at full capacity and welcome guests without worry.
The Millionacres bottom line
The question is: Will Cineworld and its competitors manage to hang on long enough to reach that point, or will the pandemic ultimately do them in? It’s too soon to know, but the latter is a scenario that investors should, at the very least, prepare for.