Cineworld Threatens to Remove Seats if Landlords Reject Rent Cuts

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In a bold move to restructure its UK business, Cineworld, the cinema chain operating across 128 sites in the UK and Ireland, has taken a firm stance against its landlords. The company is awaiting a crucial High Court verdict this week that will determine whether it can commence negotiations to radically restructure its UK operations. If successful, this could result in significant losses for cinema owners, including several local councils that have invested taxpayers’ money in these properties.

Cineworld’s secretive hedge fund owners have taken control of film projectors and even theatre seating to pressure UK landlords into accepting substantial rent reductions. The company struck a deal with lenders last year, exchanging billions of pounds of debt for shares in the business. However, the identities of these new shareholders remain closely guarded, with some advisers within the deal unaware of their names.

The cinema chain announced the closure of six sites in July after failing to secure a buyer. Cineworld now claims it cannot afford to pay its current rent and seeks to restructure its leases, asserting that failure to do so will render the UK business insolvent. The company’s US parent emerged from bankruptcy protection last year and has since provided liquidity and headroom for the group’s financial indebtedness. However, while this allowed the US group to terminate or amend non-viable leases, it did not address the UK group’s lease liabilities.

Cineworld attributes the limited new film releases to the scriptwriters’ and actors’ strikes in 2023, resulting in lower attendance at its UK cinemas. Despite this, the Marvel movie Deadpool & Wolverine has been a bright spot, grossing £43.7 million at the UK and Irish box office so far.

Under the proposed restructuring plans, six of Cineworld’s multiplexes would move to a “zero rent” agreement, while ten others would switch to turnover rents, receiving approximately 50p for every ticket sold. Rents at 33 other sites would be reduced to “market levels” as determined by Cineworld’s advisers. Landlords argue that these proposed terms are below market rates and would allow the company’s hedge fund owners to benefit from increased profitability as new releases hit the screens in early 2025.

The restructuring is being proposed under a relatively new arrangement where at least three-quarters of just one class of creditors can agree to the deal and “cram down” other classes. Cineworld has divided its creditors into more than 30 different classes. Landlords’ last resort would typically be to take back their properties, but Cineworld has the right to remove fixtures and fittings, including projectors, audio systems, and seating, making it challenging for landlords to quickly install their own operators to run the cinemas.

Many of the affected landlords are traditional property investors, but several sites have been built with taxpayers’ money to generate returns for local authorities. Among the council landlords facing rent cuts under Cineworld’s restructuring proposals are Barnsley, South Oxfordshire, Monmouthshire, Huntingdonshire, Wakefield, Warrington, Derbyshire, West Suffolk, and Hinckley & Bosworth in Leicestershire.

The legal hearing this week marks the first step in the restructuring process, with talks between each group of landlords to follow before a creditor vote in September. Cineworld has pledged to invest £35 million in the business if landlords agree to the rent cuts, although sources close to the landlords highlight that this would only occur after property owners have forfeited tens of millions of pounds due to the restructuring.