Dine-In Movie Theater Chain’s Exit of Some Leases Could Benefit Rival Operators, Executive Says

This article originally appeared in CoStar News written by Candace Carlisle on February 2, 2021 quoting Eric Horn. It is reprinted here with permission from CoStar News.

Studio Movie Grill, the first high-profile movie theater operator to file for Chapter 11 bankruptcy protection during the pandemic, has not found a buyer for the dine-in movie chain as the industry struggles with fewer customers.

Without any bidders, the auction for Studio Movie Grill, which had 37 venues across the country before the coronavirus struck, has been called off and the Dallas-based company plans to pivot and negotiate with creditors on a possible debt-equity swap, according to court documents filed this week in the Bankruptcy Court for the Northern District of Texas.

The debt-equity swap is a “highly risky” option and puts creditors as the new owners of the company, which has an uncertain operating future in light of the pandemic, said Eric Horn, an attorney at A.Y. Strauss law firm who is not involved in the Studio Movie Grill bankruptcy case but is familiar with retail bankruptcy cases.

Movie theater venues are hurting from capacity limits, competition from streaming services, as well as Hollywood holding out on releasing new movies in theaters until the end of 2021 or further into 2022.

One small movie theater operator is seeing a rare opportunity for growth during the pandemic-disrupted economy. Cinergy Entertainment, a Dallas-based company that has six venues it has built from the ground up, is changing up its business plan. The company is working on 8 to 10 long-term leases or management agreements with landlords to operate vacant movie theaters.

“It comes as no surprise that Studio Movie Grill was unable to find a buyer,” said Kade Pittman, vice president of real estate at Cinergy Entertainment, in a phone interview with CoStar News. “Any potential suitor already in the industry in the pandemic lacks the liquidity and is hoarding cash. I’m not surprised a buyer did not come forward, no matter how good of an opportunity it may have been.”

Pittman has not currently signed any deals for a former Studio Movie Grill theater but is keeping an eye on the bankruptcy, he said, like others in the industry. He declined to disclose the geographic locations where he is negotiating deals with landlords but said they are located throughout the United States, adding that he’s talking to numerous landlords reaching out to him in hopes of striking a deal.

“Everyone’s success or failure, as is always the case, is tremendously dependent upon what the studios will do and that remains to be seen as it’s a fluid situation,” Pittman added. “It’s very concerning, but hopefully the vaccine will be distributed widely enough for studios to be comfortable in releasing films. It will be tough this year, but industry officials say it could be better next year with a record year expected in 2023.”

Studio Movie Grill wasn’t the only company seeking a buyer without any interest in the pandemic. Other retailers and restaurants, including Pier 1 Imports, Modell’s Sporting Goods, the parent company of Chuck E. Cheese and California Pizza Kitchen, have all shopped their respective businesses, pushed into bankruptcy during the pandemic, to would-be buyers with varying results. Pier 1 Imports ended up selling its e-commerce business and intellectual property rights to a new owner and Modell’s ended up liquidating its business, while both Chuck E. Cheese and California Pizza Kitchen found new life outside of bankruptcy protection with the help of creditors.

“With no qualified bid, we plan to adjourn the sale hearing as there will be no auction,” said Frank Wright, a bankruptcy attorney representing Studio Movie Grill, during the court hearing Monday. The company didn’t comment beyond the court filing.

Studio Movie Grill plans an amended disclosure statement before a hearing scheduled for Tuesday, Feb. 9.