Movie Theater Closings Pose Another Challenge to Mall Landlords

Dealing with stores closing their doors and little demand for space, the last thing mall owners needed was an anchor tenant shutting down  

Yet, that’s precisely the news many received recently when the parent company of Regal Cinemas, UK-based Cineworld, announced that it would “temporarily suspend operations” at Regal theaters. 

Also, CNBC recently reported that B&B Theatres, the sixth-largest theater chain in the U.S, could declare bankruptcy in months. The other two leading theater chains, AMC Entertainment Holdings Inc. and Cinemark Holdings Inc. have said they plan to remain open, according to S&P.

Matthew Weinstein, leader of the real estate lease restructuring group at the law firm Cozen O’Connor, tells S&P Market Global Intelligence that the move does not guarantee an imminent bankruptcy protection filing. EFR Properties, with 16.7% of its rent coming from Regal, and RPT Realty and Realty Income Corp., who have 3.0% and 2.9% of their rent coming from the theater chain, are most exposed, according to S&P. 

Large theater chains, such as Regal, usually occupy regional or individual pad sites. If those theaters are in malls, their demise could trigger co-tenancy covenants, which would allow other tenants to terminate their leases or pay a percentage of their rent, according to S&P.

Some malls have taken theaters outside to the parking lot during the summer, but that probably isn’t a long-term solution.

Mason Asset Management, which buys distressed malls in partnership with Namdar Realty Group, is open to exploring turning its parking lots into movie theaters or concert venues, Elliot Nassim, president of the company, told GlobeSt in an earlier interview.

“We have an entire specialty leasing team now just focused on the parking lot and the ancillary income,” Nassim told GlobeSt in an earlier interview. “If you have good real estate, you have the potential to do so much with it, and we are excited to have new, non-traditional opportunities to continue adding value to our properties.”

Another option is new uses for theaters. If they were to stay closed, Weinstein told S&P that their square footage roughly matches that of grocery stores. Additionally, their dedicated parking would fit grocery needs.

Through the pandemic, grocers and other essential retailers, like pharmacies, have paid nearly 100% of rent payments. 

Another option for malls could be to add online fulfillment services, according to JLL in “Can online shopping help save malls? How landlords are making shopping centers part of the supply chain.” 

“Retail owners are increasingly looking at micro-fulfillment centers and logistics nodes that can sit right behind stores,” JLL said. “The model puts click-and-collect, in-store shopping, and the fulfillment of online and pick-up orders in one place, located close to where people live.”