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TOPIC: Lease in a 4-Screen Theater

Re: Lease in a 4-Screen Theater 01 Sep 2011 20:34 #36894

  • JPRM
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Thanks for all the thoughts and feedback. Now, I don't want y'all to worry about me TOO much. If I weren't the cautious type, I'd have bought a theater a year ago. These decisions are best made based on math, not emotion.

So, speaking of math, we're talking (barely) south of $10k per month just for the nets on a space of about 24,000 sq. ft. I'm not crazy about paying 10% of gross sales on top of that, BUT at least it leaves me room to adjust pricing to allow for that expense. If my large popcorn is $5 instead of $4.50, it's still about 4 bucks less than the popcorn at the chain. (I do want y'all to tell me if that's a horrible strategy.)

What else? The theater operators in this instance are not the landlords; I'd be taking over the lease. My take is that the current lessee (the theater) is getting a very sweet deal so the landlord can keep someone in the space on a month-to-month basis. I don't know what rent is among other retailers and restaurants in the immediate area, but I'd guess that they're THE highest in town. This is downtown among your Hiltons, Nordstrom, fine dining, etc., but also just blocks from a university, which I like.

I'm well aware of the need to be ready for digital, of course, but I also wouldn't refer to exisiting 35mm projectors as 'scrap.' They'll show movies for the time being, at least. I'm told the building MAY be set up for digital in a couple of screens already, but I'd be surprised if that were true.

I'll fill y'all in with more in a bit. It's a bit of an odd market, I have to say.
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Re: Lease in a 4-Screen Theater 05 Sep 2011 15:41 #36900

  • rufusjack
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Another thing to keep in mind is that a landlord/tenant relationship can be difficult to manage. The 10% makes things worse as it throws in a significant trust factor. The landlord will have a tendency to not trust you.

Plus, to get to a 15% lease cost, you would need to do $2.3 million in revenue. If you have a strong per cap due to beer/pizza, you still would have to do over $500,000 in ticket sales. $125,000 per screen for a discount house seems pretty high to me. But maybe someone else can chime in here if they have a feel for that.

Other lease rates in the area: You should be able to find that out in 30 minutes either by an internet search or a couple of phone calls.

Sweet deals: Are usually not made when you are taking over a rented property but rather when the property has been empty for a couple of years. Just my experience.
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Re: Lease in a 4-Screen Theater 06 Sep 2011 14:27 #36904

  • slapintheface
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PLEASE --PLEASE -Don't sigh a deal with a % . Paying a % on the gross is a non starter. Gross is not profit .
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Re: Lease in a 4-Screen Theater 06 Sep 2011 16:59 #36906

  • JPRM
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Man, I appreciate the concern! Really, don't worry too much here. I have a good, experienced booker and a solid accountant to look at the numbers. Even if I'm a gullible rube, they're not.

Now, I hope y'all understand that I don't see this deal as "sweet." I'm referring only to what I assume the CURRENT tenant is getting. With TWO newer, shinier theaters downtown (which both have more screens) the current tenant is in this property on a month-to-month basis. I can't imagine they'd still be there if the landlord weren't cutting them a deal.

This raises the question: why would the landlord prefer to rent to me? To make more money...and to ensure income over a longer period of time. I'm not as dumb as I look. Almost, but not quite.

I am, however, quite naive, so any thoughts relative to this equation (or not) are truly appreciated. I don't know that the rents for other tenants in this part of town matter so much. I'm sure they're paying a lot more than 4 bucks a square foot, but that doesn't help me if my numbers don't add up, right? Getting a better deal than Banana Republic doesn't do me any good if I'm losing money.

So what do you think? What I could use, I guess, are thoughts on what a 4-screen, second-run theatre can expect to take in (or what I NEED to take in) in a large-market, downtown location.

I do see the proposal as it sits now as a first draft, not a done deal. Remember, that first $10k per month is just the nets! My best guess is that the landlord is in a bit of a bind with this property. If they don't want to spend a LOT of $$$ on renovation, this place has to remain a theatre. Again...just a guess.
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Re: Lease in a 4-Screen Theater 07 Sep 2011 11:36 #36914

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I think you hit on the right thing when you said "what I NEED to take in". Projecting actual income is the more difficult part of the math. But you can do a decent job of projecting how much you need.

You need to know what your fixed costs are first (those things that are fairly constant and not dependent on how much business you do). These are things like salaries, rent, insurance, utilities, etc.

Then look at your variable costs (those things that vary based on how much business you do). These are things like movie rentals, and sales tax, or anything that is based on a percentage (such as added building rental by percentage).
You should be able to make a fairly accurate estimation of the total percentage of variable costs (all added together).

Now you just set up an equation and solve for the unknown value of "X".

X is the number you will need to meet your goal of paying your bills and your salary.
VC is the total percentage of all variable costs added together not including concessions (expressed as a decimal).
FC is your calculated total fixed costs.
N is the number you guess your total income will be from ticket sales.

Just keep adjusting N until X is what you need or want. You will know everything but X, so just put in the numbers and do the math.

X=(VC*N)+FC

After doing this, you can divide by an average ticket price of say $8.00. So, divide X by 8 and you will see how many customers you need to make X number of dollars.

Edit: This does not include concessions revenue and expenses. Simply multiply a concessions per cap (net... maybe $2.00) times number of tickets sold and then you will have the concessions revenue stream also. Since it was not included above, this net will be pure profit in addition to your salary. You could leave your salary off the list of fixed costs and just assume you will get the concessions revenue as pay for a possibly more accurate picture. Sorry, but this is a last minute edit.

Hope I've been clear.
Last Edit: 07 Sep 2011 15:53 by lionheart.
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Re: Lease in a 4-Screen Theater 07 Sep 2011 18:04 #36917

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VERY good note and great points, lionheart. I'm always confused when I see business plans or proposals which project revenue and cash flow based on, what, wishful thinking?

For this particular property, I did some VERY rough estimates on costs and came up with a sum just south of $25k per month BEFORE paying out share of gross. Now, before y'all jump all over me, remember that this is a rough FIRST look. It exists only to give me some idea about what I need to take in based on THIS number. In other words, as I add in costs per month, I can see how many more folks I need to get in the seats, how much more income I need from onscreen advertising, etc. One reason this number is low is that it doesn't account for film rentals or certain other costs which are based on sales.

So, any thoughts on more realistic expenses per month in a second-run, 4-screen theater? Let's assume the rent is fixed at $10k per month.

I can't emphasize enough that these are rough numbers. But my break-even point was an AVERAGE of 14 to 15 paying customers per screen, every day, three shows a day. That's based on getting $5 per customer (50% share of all $4 ticket sales and $3 average per capita concession sales.)

Note that to simplify, I included only my share of ticket sales in my rough estimate (as I didn't include film rental costs). I also low-balled my total screenings per week (didn't account for matinees on weekends, summer, etc.) and a few other sources of revenue.

So, that's my rough, rough (did I say rough?) starting point. What will I REALLY spend per month to keep a 4-screener with $10,000 rent going? Again, don't worry about the 10% gross just yet. We'll get to that soon enough.
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Re: Lease in a 4-Screen Theater 07 Sep 2011 18:58 #36918

  • slapintheface
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RENT -$10,000
PAYROLL-$4,000
INSURANCE -$500.00(LOW END)
ELECTRIC/HEAT $ 1,800 ( LOW END)
PHONE/ CABLE $ 200.00
PRINT/DIGITAL DELIVERY FEE --$400.00
MAINTENANCE /PROJECTION /BUILDING/BULBS/AC/HEAT- $ 500.00
WEBSITE/$ 40.00 (BASIC SITE)
ASCAP- $ 30.00
GARBAGE FEE? $ 150.00
TAXES ?? NEWSPAPER ADS??
FILM BUYER $ 600.00 ( GUESSING)
CITY LICENSE $40.00
WORKERS COMP $ 150.00
MONTHLY TOTAL== $ 18,810
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Re: Lease in a 4-Screen Theater 07 Sep 2011 20:10 #36919

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Thanks to slapintheface for the info. This is very helpful.

I've budgeted more for labor, including a salary for a manager. But does anyone have thoughts on how many people it takes to operate a 4-screen theater based on three shows per screen per day? (Let's assume that it's not yet converted to digital.)

A couple of notes on labor. I am planning to serve beer and pizza. Pizzas will be provided, ready to cook, by an outside vendor...but I assume it may take a bit of extra work to heat them up. Also, this venue has a 'detached' box office that would have to be staffed. (It's a hallway and flight of stairs away from the rest of the theater, so the person selling tickets can't really double up on concession sales.)

To everyone who has chimed in on this, your info really is useful to me. Whether it's good news or bad, I want and need to hear it.
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Re: Lease in a 4-Screen Theater 08 Sep 2011 03:58 #36920

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ACCOUNTING FEE $ 250.00 PER MONTH ALSO
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Re: Lease in a 4-Screen Theater 08 Sep 2011 04:00 #36921

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Beer & wine are a great addition---- BUT- make sure you can get the license -- not maybe but for sure !
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Re: Lease in a 4-Screen Theater 08 Sep 2011 04:05 #36922

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23 people per show is what you need to break even-- IMOP--- SEEMS LIKE IT SHOULD BE EASY
NO NO 10 % GROSS!
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Re: Lease in a 4-Screen Theater 08 Sep 2011 05:47 #36923

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More good points, slapintheface.

I'm completely with you on the license for beer and wine; if there's a lease agreement of any sort, it has to be contingent on my procuring the license.

I'm finally seeing numbers (at least gross sales) on what this has been doing as a first-run. It took a HUGE hit when the chain that operates it opened its other locations nearby. This is pretty much exactly what I expected to see.

On the bright side, it's doing the numbers I projected that I'd need to make very easily and with quite a bit to spare. Mind you, the numbers I'm seeing are based on gross sales in a first-run theater with higher prices on tickets and concessions.

So I'd have to do more volume than the theater currently does - which is what I've planned for. There are LOTS of hoops to jump through, and this could all change tomorrow, but it's looking a bit better than I had anticipated. This place could go for months (or more) as it is, or someone could snap it up tomorrow.

Finally, I know what I don't like about the 10% gross, but I don't see it as quite the deal-killer that some folks here do. Please chime in if you have thoughts on why that kills the deal.
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Re: Lease in a 4-Screen Theater 08 Sep 2011 11:12 #36924

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That extra 10% isn't just 10% in my mind. It is more like 20% or 25% of what is left after subtracting the other variable costs. When I ran a theater, my film rental averaged close to 50%. My sales tax was 10%. I will guess that my cost of concession goods sold was about 30% and 10% sales tax on that too. That left me with only 40% of ticket sales and something like 60% of concession sales to pay fixed costs. Subtract another 10% off of those and it goes down to 30% of ticket sales and 50% of concession sales for paying fixed costs.

You may say that is plenty left for you, but I wouldn't agree. Besides in the lean months, you may need every dollar you can scrape together to pay your bills. You may need to save up more in the busy months and keep more in the lean ones to get by. It's not the good times you need to base your numbers off of. It's the bad. It's easy enough to say that you will save for rainy days. But you don't know how many rainy days there will be. You won't be saving much during so-so times, which are common. You certainly won't save any in the hard times. There are only about 3 to 5 months out of the year where you can hope to have a surplus to carry you through the rest. Some theaters may do better, but as a second run, I'm not sure you will even do that well.

It's been said on these forums before by more experienced operators than me that theaters should play as high a run as they can. If you can get something on the national release, do it. If you can play it in week 4 or week 8. Choose week 4. This may seem obvious, or impossible for your theater to choose when you will play a movie. Some places like RoxyVaudeville's theater are special. They make second run profitable, but your theater should be really special if you expect to make that happen. I would be concerned with paying $10K rent plus 10% of gross for a first run 4-screen with stiff competition. Playing 2nd run would concern me even more, unless you have that special place that people come to no matter what is playing. Low prices are not enough to make a place that special. Otherwise, dollar theaters would have been much more successful.

Lionheart
Owner- Gentry Cinema (for sale)
Last Edit: 08 Sep 2011 11:22 by lionheart.
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Re: Lease in a 4-Screen Theater 08 Sep 2011 11:36 #36925

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JPRM,

Not one person has even been remotely warm to the 10% except for you. It is an absolute deal killer!

Plus, your labor is going to be significantly higher than what Slap has put out b/c of that horrible ticket booth set up. On an absolute slow night, you will have one person at the ticket booth for 3.5 hours, with 2.5 hours doing absolutely nothing but text friends, internet surfing, etc. You will still need 2 people working the rest of the theater. If you run 4 shows on sunday, 2 - Monday through Thursday, 3 on Friday, & 5 on Saturday and add just one person more on Fri & Sat I get an average payroll of 164 hours per week or over $7000 per month.

Am I wrong?
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Re: Lease in a 4-Screen Theater 08 Sep 2011 11:40 #36926

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A quick note on why so many are a bit pessimistic on new theaters in general.

I happen to believe that most markets by a significant amount are efficient markets. There are too many operators out there who have good information on how to run a theater and therefore there are very few under served markets. There is a reason the current operator with what I assume to be significant experience is only doing month to month. If you want a location long-term you do not sign a month to month.
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