Shares of movie theater operator Cinemark Holdings (CNK -2.02%) fell more than 10% at the open on Oct. 13. Following along was theater-owning real estate investment trust (REIT) EPR Properties (EPR -1.88%), which dropped nearly 8% in early trading on Wall Street. The drop in both stocks was driven by negative news out of AMC Entertainment (AMC), which itself was down as much as 11% early on.
In a Securities and Exchange Commission filing, AMC noted that it might run out of cash by the end of 2020 or in early 2021. A large part of that trouble is related to the broader movie industry. Specifically, AMC noted that movie studios were delaying key release dates, which was helping to depress movie attendance. In fact, in some cases, movie studios are canceling theatrical releases altogether and going directly to streaming options. That has resulted in dramatically reduced revenue for AMC (down 85% year over year, according to the filing) and put it in a precarious financial situation. Of course, all this relates back to the economic impact of COVID-19, which has consumers staying home and continues to keep some nonessential businesses shut, including movie theaters in California and New York.
It doesn't require particularly deep analysis to figure out that these issues are also a problem for Cinemark. Thus, it fell in sympathy with AMC. Cinemark, for its part, has been stressing customer satisfaction with the safety precautions the chain has taken, clearly in an attempt to calm the nerves of movie patrons that have decided to stay home. If AMC is any indication, that won't be enough to lure customers back. Also caught up in the downdraft, meanwhile, was EPR, which generates roughly 45% of its rents directly from movie theaters. In 2019, AMC alone represented roughly 17.5% of EPR's top line. The ongoing troubles at AMC don't bode well for EPR's portfolio.
There's no easy fix for what ails AMC, Cinemark, or EPR Properties. The world needs to not only figure out a way to deal with COVID-19 but also regain the confidence needed to return to more normal levels of activity. There's no clear sign when that will happen or whether or not these companies can muddle through in one piece until the tide turns. AMC has clearly explained just how bad the situation is. Investors are logically assuming that Cinemark and EPR Properties are struggling just as badly, which is probably not a bad call given the circumstances. Conservative investors should probably stay on the sidelines for now.