Real Estate Progress & Strong Q3 Results For Reading International

Recent Q3 disclosures concerning movie theater operator and real estate developer Reading International (RDI) illustrate continuation of the company’s operational growth, a conservative balance sheet, and progress towards redevelopment and monetization of the company’s undervalued and underutilized real estate. Yet, RDI shares have appreciated only modestly, up around 10% this year. This disconnection between Reading’s stock price and the company’s lower net debt levels and increasing cash flows provides an inexpensive entry point for an investment in RDI shares.

Reading International lacks research coverage from sell-side entertainment, consumer non-durable, or real estate industry analysts. This is likely because Reading’s business activities extend over three countries and two discrete (though synergistic) lines of business: cinema exhibition and real estate. This creates analytical complexity many analysts choose not to tackle. However, for a diligent and skilled analyst, Reading’s extensive SEC disclosures combined with information available from resourceful Internet research provide a roadmap of value creation. Perhaps Reading’s recent August 2013 Midwest IDEAS conference presentation and the roll-out of Reading’s new website might attract some initial analyst work and consideration.

Reading’s two businesses produce $259MM of LTM revenues generating consistent operating performance from large cinema market shares in Australia (#4), New Zealand (#3) and the United States (#11.) In addition, the company has 330.5-acres, or approximately 14MM sq ft, of undeveloped real estate that does not yet generate any meaningful revenue. During Q3 2013, steps toward converting some of this non-cash-flowing real estate into either recurring cash flow or sales proceeds were achieved.

Reading trades at a far lower multiple of stated book value/share than any of the three larger and analyst-recommended US publicly-traded theater exhibitors, Regal Cinemas (RGC), Cinemark Holdings (CNK), and Carmike Cinemas (CKEC), even while this book value understates the underlying intrinsic value of Reading’s long-held and up-zoned real estate. As Reading continues to grow its sustainable cash flows and unlocks (through sale and/or joint venture) the appreciated value in its geographically diversified real estate holdings, investors will close the substantial “value gap” that presently exists in RDI shares.