Film-Tech Forum ARCHIVE: "Value" of a Theatre Location (Question for Owners)

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Posted by Lyle Romer (Member # 1266) on 05-09-2005, 10:29 AM:

For a long time, I have wanted to own a theatre. I have been saving towards this goal for years. The thing that I realized recently is that I don't know what the goal is (money wise). I know that I'm basically looking to one day purchase an existing location but I'm having trouble figuring out what any given location is worth.

Obviously, if the theatre is profitable, there is the usual some factor times the yearly earnings. If the current owner owns the building and the land there is also the real estate value.

My big question is with leased locations. If the current owner leases the building, how do you figure out what the location is worth? Is it just the depreciated value of all furniture, fixtures and equipment plus some factor multiplied by yearly earnings?

Any advice will be greatly appreciated!

Posted by Mike Blakesley (Member # 26) on 05-09-2005, 01:09 PM:

A huge problem will be convincing your landlord that a movie theatre is not the same "use of space" that a retail store is. Landlords tend to want to get X dollars per square foot *no matter what.* But a theatre needs vast amounts of space that are empty a good share of the time, so the cost per SF for a theatre needs to be lower than, say, a donut shop would. This is one reason why you see so many theatre buildings that are NEAR malls, but not necessarily IN malls.

Posted by Lyle Romer (Member # 1266) on 05-09-2005, 01:43 PM:

Mike,

I guess my question wasn't clear. I'm asking about space that currently is a theatre. I'm hoping that I'm getting close to the point of having enough savings to purchase an existing theatre location (when one comes available). I'm trying to get an idea of what it will cost and how to make an offer.

What I'm saying is that I have a pretty good idea how to come up with an offer if the current operator owns the building and the land. What I'm having trouble with is figuring out what a theatre is "worth" if it is a leased building. I'm assuming that there will still be some time left on the existing lease.

Posted by Adam Fraser (Member # 1074) on 05-09-2005, 02:19 PM:

Around here the only theatres I know of are owned completely, real estate and all. A single screen currently operating may start as low as $150,000 and go up higher. But for that little money you would get a theatre that is probably in need of some major repairs or upgrades. A nicer single to five screen in my area, including land, would be in the $300,000-900,000 range including real estate, most include additional income property with the theatre.

Sorry, dont know much about leasing because it isnt common for theatres in this rural area, as property isnt nearly as expensive as in metro areas.

Posted by Mitchell Dvoskin (Member # 751) on 05-09-2005, 03:26 PM:

It has been a very long time since I was last a commercial theatre owner, so some of this may be out of date.

If you are buying a "profitable" open theatre from an independent owner, the going rate was a usually around 1½ times the yearly gross profit, plus the value of any equipment/seats/etc. that does not belong to the landlord. However, unless the theatre is very profitable, nobody actually pays that much. In most cases (execpt large multiplexes), you can get though the door for the cost of the used equipment, security deposits to the landlord, plus a few thousand to the prior owner. You also should have an extra 50k in the bank to cover bookings, taxes, payroll, advertising, etc. It's not that you can't get by with less, but let's say you are booking 4 screens and hit a few months of duds, you can eat up your reserve very quickly.

Landlords, even big ones, ultimately live by supply and demand. If they currently have a tenant under lease, or one that just pulled out, they are going to want top dollar for the space. On the other hand, if the theatre has been closed for a while, it is not unheard of for a landlord to rent it for the cost of taxes plus a percentage of the boxoffice. While landlords want top dollar, remember, it is going to cost a lot of money to level the floor and convert the space to other retail.

My suggestion would be to find a location that is closed, or just getting by, study it, and decide what YOU could do better than the current operator. Then come back and ask on Film-Tech if your ideas make sense.

Posted by Mike Spaeth (Member # 524) on 05-09-2005, 04:09 PM:

DO NOT buy a closed location - in most cases there is a REASON that the location closed ... plus the minute you shut the doors, you lose 50% of the customers or more should you re-open. A good rule of thumb is 3x-6x annual net profit (after all expenses) for a currently operating location (leased or not). Obviously, if it's leased, the rent expense has an effect on the bottom line, and would thusly affect the selling price.

Posted by Dennis Benjamin (Member # 1137) on 05-10-2005, 04:46 PM:

I have seen some big chains close theatres that were making a profit, just because they could.

There are a few ex-Regals out there that are making money with the new independant owners. Simply because they are being run by a local and they are no longer part of a big chain.

I still maintain the belief that any theatre could make a profit (or at least break even) if managed correctly and there isn't a bad lease deal. The lease situations seem to be the deciding factor when a chain decides to close them down.

Posted by Dylan Marchetti (Member # 2764) on 05-16-2005, 06:24 PM:

I disagree that any location will profit if managed correctly. It's a huge part of the equation, but only part of it. There are a host of factors, some out of your control, that will determine if crowds show up. What is the competition like? Has a new theatre recently opened in the area? If so, the location is likely closed because it was inferior to the new one, and the crowds fled to the new theater. What's the neighborhood like? Are there restaurants and bars in the area that can drive walk-up business?

Another factor you should strongly consider is the state of the building. To be competitive in today's market, any closed location that was built over 7-8 years ago will likely require expensive renovations. If you don't have stadium seating and digital sound (at the minimum), your odds of success are very low. If someone were to open a new theatre anywhere near you, your business takes a hit. If they've got all the new amenities, and you've got old seats, sloped floors, and bad sound, that hit will probably be fatal.

The worst thing you can do is simply throw open the doors on an existing complex. The theatre closed for a reason, and audiences have been going somewhere else. Without a compelling reason to come back, things can turn very bleak very quickly.

Posted by Ramin Hashemi (Member # 2694) on 11-27-2005, 03:40 PM:

are you still looking for a location?

Posted by Mike Spaeth (Member # 524) on 11-28-2005, 12:05 AM:

We're always looking for new locations, if the situation is right.