June 2021

CMBS Research

Showtime or Curtain Call for Movie Theaters? Screening the CMBS Exposure

The last year was not one to forget for the with the largest CMBS footprints. In total, there are over 20 industry. Most notably, theaters have been subject to not unique movie operators that appear in the CMBS servicer data. only social mitigation policies that completely halted movie going during the pandemic, but also now face increased AMC had the largest exposure, with the firm’s theaters competition from the rising number of streaming services that listed as a top-five tenant at at the collateral behind 83 loans are beginning to show movies shortly after their release date. totaling $12.4 billion. Despite this, AMC, one of the largest movie theater operators The retailer’s largest deal exposures by balance include in the world, was coined as a “meme” stock earlier this year the $750 million SASB Aventura Mall (AVMT 2018-AVM), yet continues to find ways to rally its stock price and raise the $231 million MSCCG 2015-ALDR, and the $355 million more capital, raising the question – what’s next for theaters? BAMLL 2020-JGDN. In the AVMT 2018-AVM deal, which is As of March 2020, there were 5,477 movie sites and 40,499 the largest of the 16 deals with Aventura Mall in Aventura, movie screens across the . A year later, the FL as part of its collateral, the allocated balance backed by number of sites and the total number of screens are down AMC is about $48.5 million or approximately 6.47% of the 1.3% and 0.4%, respectively. In the CMBS universe, 357 deal. MSCCG 2015-ALDR, another SASB deal backed by properties in Trepp’s database were identified as having the Alderwood Mall, has approximately 13.78% of the deal a movie theater operator as a top-five tenant – those backed by a 79,000-square-foot AMC, which brings to the properties back more than $33.9 billion in CMBS loans total exposure to the firm to $31.9 million. which are securitized across 337 deals. Approximately 9.8% The third-largest exposure to AMC belongs to the BAMLL of the deals are single-asset single borrower (SASB) ($11.4 2020-JGDN deal, which is solely backed by The Mills at Jersey billion) with sizable exposure to a movie operator tenant. Gardens. The 110,000-square-foot theater is the largest A dive further into the Trepp property databases show that tenant currently listed at the mall and backs approximately AMC, , and Cinemark are the movie operators 8.49% of the deal, equating to $30.2 million in exposure. Regal Cinemas, the operator with the second most theaters CHART 1: CMBS EXPOSURE BY MOVIE THEATER OPERATOR ($ BILLIONS) in the US, has a presence across 74 different loans with a total exposure balance of approximately $7.3 billion. The movie chain has experienced some of the woes of trying to operate a theater following major industry disruptions

OTHER: due to the pandemic. Regal’s largest deal exposure was $8.60 , 25% AMC: BMARK 2019-B14, which was backed by the $56 million $12.40 , 37% piece of The Essex loan. The sole retail unit in this New York multifamily property, the 65,000 square foot regal was shut CINEMARK: $5.60 , 16% down in March 2021 and still has not re-opened, with the REGAL CINEMAS: $7.30 , 22% theater working on a lease modification – abating their rents in 2020 and working out deferred rent payments in 2021.

AMC REGAL CINEMAS CINEMARK OTHER Regal also has $25 million in exposure to BMARK 2019- Source: Trepp www.trepp.com 1 CMBS Research June 2021

B15(2.97% of the deal) and $24.6 million in exposure to Movie Theater Exposure in CMBX 6 DBJPM 2016-C1(3.28% of the deal). Exploring Trepp data further led to a deeper investigation of The third-largest operator was Cinemark who currently the exposure in CMBX 6 to movie theaters. At securitization, operates 49 theaters backing CMBS loans, totaling 20 of the 25 deals in the index had some type of theater approximately $5.6 billion. Cinemark’s largest exposure is to exposure, with 28 loans and amounting to over $2.1 billion. $284 million BBCMSD 2018-CHRS through the A and B notes Of the CMBX 6 loans with theater exposure, 36% of them are that back Class A Christiana Mall in Delaware. Cinemark backed by a movie chain as the largest tenant. Additionally, leases 50,640 square feet and makes up 6.50% of the deal, all of the theaters listed as the number one tenant belonged totaling an exposure balance of approximately $18.5 million. to one of the “big three” retailers (or their subsidiary) and the theaters averaged 68,105 square feet per location. Another deal with movie theater operator listed as a top- Additionally, the $20.5 million Starplex Portfolio of COMM five tenant is the $681 million SRPT 2014-STAR which is 2012-CR4, which is part of CMBX 6, was secured against five solely backed by the Starwood Mall Portfolio. The portfolio theaters totaling 215,000 square feet and 62 screens across was valued at $1.07 billion at securitization but has since five properties in Texas. been re-appraised at $366.7 million. All four malls in the Ultimately the big three operators were responsible for 15 of portfolio are backed by a movie theater as a top tenant, the theater’s locations within CMBS index -averaging 64,929 including an 80,200-square-foot Regal Cinemas with $15 square feet per location. Another operator with CMBX 6 million in exposure to the $174.5 million MacArthur Center exposure worth mentioning is Pacific T heaters, whose (2.21% of the deal), and a 58,800-square-foot AMC with parent company Decurion Corp. recently announced they $17.5 million in exposure to the $160.6 million Northlake would be permanently shuttering 300 Pacific and ArcLight Mall (2.57% of the deal). The Starwood Mall portfolio has venues due to the pandemic. Currently, only a handful struggled since before the pandemic after being transferred of Pacific and A rclight theaters are present in the CMBS to the special servicer in late 2019 and recent DQ Loan universe, and one of the Pacific theaters is represented Status Reports note that appraisals and reviews were done in CMBX 6. The $206.6 million Northridge Fashion Center, prior to the impact of the pandemic being fully felt, as such which is securitized in the WFRBS 2012-C7 and WFRBS an acceptable resolution strategy is still being reached. 2021-C8 deals, has a shuttered Pacific Theater that leases 51,000 square feet and is currently listed as the second- In total, the big three movie operators are tenants in largest listed tenant at the mall. While there are rumors of properties backing over $25.3 billion in CMBS loans, which deals being formed that will bring Arclight screens back to amounts to more than half of all theater’s exposure in the light, the pandemic has had lasting effects on the movie universe. As the fallout from the pandemic continues to take theater business as we know it. shape, it will be important to follow retail properties with theaters attached and see if people return to their favorite theater with the same gusto as prior to March 2020.

TABLE 1: CMBX 6 LOANS WITH THEATER AS CURRENT LARGEST TENANT LARGEST TENANT CURRENT LOAN LOAN NAME LARGEST TENANT PROP SEC. SQUARE % OF GLA SQ. FT BALANCE ($) FOOTAGE The Waterfront AMC 117,248 765,155 15.32% 76,432,732 Eastview Mall and Commons Regal Cinemas 76,230 811,671 9.39% 210,000,000 Southpark Mall Regal Cinemas 68,958 397,596 17.34% 56,425,613 Florence Mall Cinemark Theater 68,324 384,111 17.79% 90,000,000 Clifton Commons AMC 65,043 187,927 34.61% 50,693,090 Solano Mall Edwards Cinemas (Regal) 62,871 561,015 11.21% 105,000,000 Louis Joliet Mall Cinemark Theater 48,167 358,518 13.44% 85,000,000 Salem Center Cinebarre Theater (Regal) 38,000 211,404 17.98% 28,926,053

Source: Trepp www.trepp.com 2 CMBS Research June 2021

Should Theater Operators Be Worried? CHART 2: BOX OFFICE VS. TICKETS SOLD (SINCE 2000)

$14.00 1.80 Even prior to the pandemic, movie theater operators 1.60 $12.00 ) began to look to alternatives to help increase margins. ) 1.40 One of the most prominent (and successful) options $10.00 1.20 was the re-thinking of the theaters themselves. The $8.00 1.00 larger cinema retailers have begun renovating their $6.00 0.80

properties, getting rid of the stiff, spring seats and Box Office (Billions 0.60 Tickets Sold (Billions replacing them with plush recliners and fully re-imagined $4.00 0.40 concession offerings. Gone, or at least de-emphasized, $2.00 are the nachos and the giant blue icees, replaced with 0.20 $0.00 0.00 full dinner menus and in some locations a stocked bar to 2000 2003 2006 2009 2012 2015 2018 2021 go with it. Total Box Office Tickets Sold

Source: The Numbers This trend has helped to justify what has been consistently rising average ticket prices ($9.16 now versus The evolution means a dramatically different theater window $5.39 in 2000), keeping the total box office revenues than before, with the theater exclusivity length dependent relatively even despite the total number of sold tickets on the studio. Besides Universe, Warner Bros. and trending downwards. have negotiated the window down to 45 days before being Despite this, the pandemic has changed how many available on a streaming service, with Paramount striking a think about the traditional theater experience. Large similar deal for its flagship movies. As the industry continues movie production companies like Warner Brothers and to morph, it will be important to see if more theaters shutter Universal have announced deals that will dramatically as consumers opt-in for more films from the comfort of shorten the window of exclusivity that movie theaters their homes, or if the experience of being in a theater will used to enjoy. Warner Brothers have already announced continue to steadily woo dedicated customers. that all of its 2021 movies would be simultaneously released on its streaming service – HBO Max – and Universal has an agreement in place with Cinemark to make movies that open at $50 million or more in the box office available on-demand after 31 days and other movies available after 17 days, down from the traditional 75-90 day theatrical window, rethinking a decade-old practice that some felt was antiquated.

For more information about Trepp’s commercial real estate data, contact [email protected]. For inquiries about the data analysis conducted in this research, contact [email protected] or 212-754-1010.

About Trepp Trepp, founded in 1979, is the leading provider of data, insights, and technology solutions to the structured finance, commercial real estate, and banking markets. Trepp provides primary and secondary market participants with the solutions and analytics they need to increase operational efficiencies, information transparency, and investment performance. From its offices in New York, San Francisco, and London, Trepp serves its clients with products and services to support trading, research, risk management, surveillance, and portfolio management. Trepp subsidiary, Commercial Real Estate Direct, is a daily news source covering the commercial real estate capital markets. Trepp is wholly-owned by Daily Mail and General Trust (DMGT). The information provided is based on information generally available to the public from sources believed to be reliable. 3