AMC, major movie chains, are more than just meme stocks to real estate bond investors


“Nowhere special. I always wanted to go there, ”said Gene Wilder’s character in Mel Brooks’ 1979 parody western“ Blazing Saddles, ”a film NPR credited with“ the gold standard ”for the interracial buddy comedy“ with its exaggerated bumps on racism and Hollywood. “

The thrill of almost leaving somewhere Fleeing home – and extreme heat scorching western states – has deepened as more people in the US are fully vaccinated against COVID. But a cinema? Investors in commercial real estate bonds were not always enthusiastic about the niche buildings even before the outbreak of the pandemic.

“We didn’t like movie theaters in general, even before COVID,” said Dave Goodson, Head of Securitized Investments at Voya Investment Management, adding that the large, box-shaped buildings can be expensive to maintain before even thinking about retrofits might be needed to attract a different type of tenant when a theater chain goes dark.

“Space uncertainty accelerated by COVID,” Goodson told MarketWatch. “It forces us to be more careful.”

Around $ 34 billion in real estate loans have a movie theater operator as the top five tenants when looking at the broader US commercial mortgage loan market of $ 600 billion, according to data provider Trepp.

Trepp estimated that the competitive AMC Entertainment Holdings Inc. AMC,
a popular meme stock, had the largest real estate footprint of 20 operators in the industry at 37%, followed by Regal Cinemas at 22% and Cinemark Holdings Inc. CNK,
at 16%.

Cinema exposure


“At AMC, we ran out of cash five different times in a month or week between April 2020 and January 2021,” said CEO Adam Aron on the company’s first quarter conference call on May 6, emphasizing that AMCMC’s outlook has ” radically improved ”, also because more theaters reopened during the pandemic.

The cash-burning AMC reported that it had raised approximately $ 2.95 billion in fresh capital through equity or bond offers and received approximately $ 1.2 billion in landlord or creditor concessions as part of its earnings report.

AMC’s shares rose 2.5% on Friday, up nearly 3,000 year over year, while the S&P 500 SPX index,
traded about 0.8% lower for the session, but so far 9.2% in 2021. US stock indices DJIA,
most were set to see weekly declines after the Federal Reserve on Wednesday offered a slightly more restrictive policy update that also included benchmark Treasury yields TMUBMUSD10Y,

AMC did not immediately respond to a request for comment on this article.

AMC boss Aron went to Twitter TWTR,
this week to urge shareholders to agree to sell 25 million new shares in about six months.

Aron has built a lively following on social media with the meme stock crowd, but as a former CEO of Starwood Hotels & Resorts, he also has extensive real estate and commercial finance experience.

Wall Street has been a major financier for owners of shopping malls, hotels, office buildings, and other types of commercial property since the late 1990s when the rate of borrowing bundled into bonds accelerated.

A typical commercial mortgage loan deal could reach $ 1 billion and theoretically involve loans for around 70 buildings of various types of property from coast to coast, a feature that can help protect investors from the downturn that hits a particular region or asset class.

For bondholders, that means movie theaters as well, while large tenants on most properties often only serve as part of the tenant mix, including the $ 34 billion in mortgage debt tied to AMC and similar chains, which could be a salvation.

“Not everything is specifically tied to theaters,” said Jen Ripper, mortgage bond investment specialist at Penn Mutual Asset Management. “In any case [bond] Deal would be a theater in the overall picture of a diversified conduit deal. “

Even so, Ripper said it’s worth keeping an eye on cinemas, especially since it is unclear what or how long it will take for seats to be filled at 2019 levels, or if that’s even possible.

“There’s a lot of competition with streaming services,” she said. “But I think people like to go to the movies to have that experience. Star Wars fanatics will likely go to the theater. “

And while empty malls are their own problems for investors, Goodson sees an additional risk in owning real estate debt in malls that include movie theaters.

“We need to recognize that the consumer is still in the midst of a change in the way we consume, be it services or goods or clothing,” he said. “We will generally forecast less recovery if the mall has a theater.”

See also: The streaming wars have a winner – in this real estate sector


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