Executive Summary / Key Takeaways

• Strategic Pivot Underway: Reading International, Inc. (RDI) is executing a critical strategic pivot, aggressively monetizing non-core real estate assets to reduce a substantial debt load and enhance liquidity, while simultaneously revitalizing its core cinema exhibition business through operational efficiencies and enhanced customer experiences.
• Cinema Recovery Gaining Momentum: Despite a challenging Q1 2025, the cinema segment demonstrated significant strength in Q2 2025, with global revenue increasing 29% year-over-year to $56.8 million and operating income turning positive to $5.5 million, marking its best Q2 since 2019, driven by a robust film slate and innovative F&B programs.
• Real Estate as a Financial Anchor: The real estate segment, while seeing some revenue decline due to strategic asset sales, delivered a 56% increase in Q2 2025 operating income to $1.5 million, primarily from strong U.S. live theater performance and high occupancy rates in its remaining Australian/New Zealand portfolio, providing crucial liquidity for debt reduction.
• Enhanced Customer Experience as a Differentiator: RDI is investing in "film exhibition technology and amenities" such as TITAN LUXE screens, luxury recliner seating, and an industry-leading Food & Beverage program, which consistently outperforms competitors in "Spend Per Patron" metrics, aiming to solidify its competitive moat and drive repeat attendance.
• Outlook for 2026 and Beyond: Management anticipates a "much stronger 2026 and beyond" driven by an "exciting, diverse and very promising" film slate, coupled with expected improvements in interest rates and the successful execution of its debt reduction and cinema upgrade initiatives.

A Reimagined Script: From Legacy to Lean Growth

Reading International, Inc. (RDI) is a company with a rich, multi-decade history, originally rooted in railroad operations and later diversifying into entertainment and real estate. Incorporated in 1999, RDI's foundational strategy, established through a master lease deal over two decades ago, centered on leveraging cash flows from its cinema operations to fuel real estate development across the United States, Australia, and New Zealand. This integrated model, however, faced unprecedented challenges over the past five years, including the COVID-19 pandemic, subsequent interest rate hikes, inflation, and the disruptive 2023 Hollywood strikes. As a microcap public company, RDI was notably ineligible for U.S. federal funding programs, forcing a profound strategic re-evaluation.

The company's current narrative is one of aggressive adaptation: a strategic pivot towards debt reduction through targeted real estate asset monetization, coupled with a rigorous focus on operational efficiency and an enhanced customer experience within its cinema segment. This dual approach is designed not only to preserve stockholder equity but also to position RDI for sustainable growth as industry headwinds subside.

In the competitive landscape, RDI occupies a unique niche. Unlike pure-play cinema giants such as AMC Entertainment Holdings, Inc. (AMC) or Cinemark Holdings, Inc. (CNK), RDI's integrated business model, combining cinema exhibition with real estate ownership and development, offers a diversified revenue stream. While larger rivals benefit from scale in film distribution negotiations and broader market presence, RDI's strategy allows for localized, community-focused entertainment hubs, particularly in Australia and New Zealand. Its specialty cinema brands, like Angelika Film Center, also cater to a discerning art-house audience, differentiating it from mainstream multiplex operators. Against technology-focused players like IMAX Corporation (IMAX), RDI's "technology" is less about proprietary projection systems and more about the holistic, immersive experience it crafts within its venues.

RDI's operational technology and customer experience enhancements are central to its competitive strategy. The company has invested significantly in upgrading its cinema circuits with advanced amenities. This includes the deployment of TITAN XC and TITAN LUXE premium screens in 26 locations across 32 screens, alongside luxury recliner seating in 33 locations covering 198 screens. These physical upgrades are complemented by a robust Food & Beverage (F&B) program, which management considers a "main focus." This program has seen the expansion of liquor licenses, with beer and wine available in 100% of U.S. cinemas (and liquor in all but three), 86% of Australian cinemas, and 38% of New Zealand cinemas (with two pending). The F&B strategy also includes movie-themed menus and the sale of movie-themed merchandise, particularly successful in the U.S.

The tangible benefits of this customer-centric "technology" are evident in RDI's performance metrics. In Q2 2025, the U.S. F&B Spend Per Patron (FB SPP) reached an impressive $9.13, marking the "highest quarter ever" for its fully operational U.S. circuit and notably "exceeded the results of other major publicly traded exhibitors." Similarly, Australia and New Zealand recorded their highest-ever quarterly FB SPP at $8.26 and NZD 7.14, respectively. These figures underscore RDI's ability to drive ancillary revenue and enhance profitability per patron, a critical differentiator in a competitive market. The strategic intent behind these initiatives is to create a compelling "big screen experience" that draws audiences back to theaters, fosters loyalty, and provides a competitive moat against both direct cinema rivals and indirect streaming services. RDI's R&D in this context is less about inventing new hardware and more about continuous innovation in service delivery, menu offerings, and immersive venue design, with the stated goal of maximizing per-patron revenue and overall operational efficiency.

Financial Resilience and Strategic De-leveraging

RDI's recent financial performance reflects the dual impact of a recovering cinema industry and its aggressive de-leveraging strategy. For the second quarter ended June 30, 2025, global total revenue surged by 29% year-over-year to $60.4 million, primarily driven by a strong film slate that boosted cinema attendance across all three operating countries. This marks a significant turnaround from the challenging Q1 2025, where global revenue was 11% lower than the prior year due to lingering effects of the Hollywood strikes and a softer film slate. For the six months ended June 30, 2025, consolidated revenue increased by 9% to $100.5 million.

The cinema exhibition segment, which historically serves as RDI's core cash flow generator, demonstrated remarkable resilience. In Q2 2025, cinema revenue increased by $13.8 million, or 32%, to $56.8 million compared to Q2 2024. This growth was fueled by global increases in attendance, higher Average Ticket Price (ATP) across all markets (U.S. ATP at $13.44, Australia at $16.34, New Zealand at NZD 14.70), and the success of the enhanced F&B program. Consequently, cinema segment operating income swung from a loss of $4.6 million in Q2 2024 to an income of $5.5 million in Q2 2025, its best Q2 operating income since 2019.

The real estate segment, while experiencing a 7% revenue decrease in Q2 2025 to $4.7 million due to strategic asset sales, saw its operating income increase by 56% to $1.5 million. This improvement was largely attributed to the strong performance of RDI's U.S. live theater business, with the Minetta Lane Theatre reporting a 201% increase in attendance and a 215% increase in theater-level cash flow, driven by successful productions. The remaining Australian and New Zealand real estate portfolio maintains a high occupancy rate of 99%, providing a stable revenue base.

Despite these operational improvements, RDI faces a critical liquidity situation. As of June 30, 2025, the company had $38.2 million of debt due within the next twelve months, with cash and cash equivalents of $9.1 million and a negative working capital of $109.2 million. This necessitates an aggressive plan for asset monetization and refinancing. RDI has made significant progress, repaying over $102.5 million of debt since June 2020.

Recent actions include the sale of Wellington, New Zealand properties for NZD38 million (USD equivalent $21.5 million) in January 2025, used to repay Westpac (WBC) and Bank of America (BAC) debt, and the sale of Cannon Park properties in Australia for AUD32 million (USD equivalent $20.7 million) in May 2025, which repaid a NAB (NAB) bridging facility and reduced Bank of America debt. The company has also secured extensions for several key loans, including the Bank of America facility to May 2026, the Santander (SAN) loan to June 2026, and the Emerald Creek Capital loan to November 2026.

Outlook and Risks

Management's outlook for RDI is cautiously optimistic, underpinned by expectations for a robust film slate and continued strategic execution. The company anticipates a "significant slowdown" in Q3 2025 but holds "very high hopes for the fourth quarter" and beyond, citing an "exciting, diverse and very promising" lineup of films, including TRON: Ares, Wicked: For Good, Zootopia 2, and Avatar: Fire and Ash. The 2026 film slate is also highly anticipated, featuring major franchises such as Spider-Man: Brand New Day, Toy Story 5, and Jurassic World. This consistent flow of quality content is crucial for driving cinema attendance and revenue.

RDI's capital allocation priority for 2025 remains debt reduction. However, plans are in motion to upgrade at least four theaters—one in Australia, two in the U.S., and one in New Zealand—with luxury recliner seating and premium screens. These upgrades are contingent on box office strength and successful asset sales, demonstrating a disciplined approach to capital deployment. The reopening of the Courtenay Central cinema in Wellington, New Zealand, targeted for late 2026 or early 2027 after seismic upgrades and extensive renovations, is expected to be a "best-in-class" cinematic experience. Furthermore, a new state-of-the-art cinema in Noosa, Australia, is in the planning stages, with a projected opening around 2027.

Despite the positive momentum, RDI faces several risks. The "going concern" uncertainty, stemming from negative working capital and upcoming debt maturities, remains a key concern, though management's aggressive asset monetization plan aims to alleviate this. Macroeconomic pressures, including elevated interest rates, inflation, and increased labor costs, continue to impact profitability. The volatility of the film slate, despite recent improvements, always poses a risk, as delays or underperforming titles can significantly affect cinema revenues. Litigation risks, including putative class actions under the Video Privacy Protection Act (VPPA) and construction damage claims, could also lead to unexpected liabilities. Finally, a material weakness in internal controls over financial reporting, identified as of June 30, 2025, necessitates ongoing remediation efforts to ensure financial reporting accuracy.

Conclusion

Reading International is in the midst of a transformative period, strategically shedding non-core assets to fortify its balance sheet while simultaneously investing in the experiential "technology" and operational efficiency of its core cinema business. The strong Q2 2025 performance, particularly in its cinema segment, signals a tangible recovery driven by a compelling film slate and RDI's differentiated approach to customer engagement through enhanced F&B offerings and premium amenities. This operational resurgence, coupled with a disciplined approach to debt reduction through asset monetization, forms the bedrock of the investment thesis.

While significant liquidity challenges and macroeconomic headwinds persist, management's clear roadmap for debt repayment, strategic cinema upgrades, and an optimistic outlook for future film releases provide a compelling narrative for long-term value creation. The company's ability to execute its asset sales, secure favorable debt refinancing, and continue innovating its cinema experience will be critical indicators of its success. As the global cinema industry continues its post-pandemic rebound and interest rates potentially stabilize, RDI's reimagined script for growth, anchored by its unique blend of entertainment and real estate assets, offers a compelling, albeit high-risk, opportunity for discerning investors.