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I have a chance to lease a fully equipped four screen theatre for $6,000 a month plus additional fees for maintenance of common areas in a strip mall. No competition within 60 miles. What do you think of the price?

Bob Allen

Well, you didn't provide population figures, but if I were going to consider something like that I would have to sit down and crunch some numbers. First I think I would figure out how much I expected to make off an average customer. Last time I made the calculation, my average ticket price was $6.91 including sales tax (which is 10% here). Deduct that (divide by 1.1) and the number is actually $6.28. This is based on 7.50 adult price and 6.00 child/senior/matinee price.

Then I figure that my average film rental is 50%, so I would be left with 3.14. Figuring about $2.50 per cap at the concession stand, I also have to deduct the tax which brings it to 2.27 and the cost of goods sold might be around 30% (I include all the paper goods in this calculation), so it would be 1.59.

Add 3.14 to 1.59 and I keep about $4.73 from each customer that I can use to pay other expenses like electricity, payroll, and a lease (if I had one). Just to pay the $6000 lease, you would need to bring in 1269 customers per month. Then figure how many customers you need for other fixed expenses and also capital expenses (like your own salary). And it would be best if that number were the least you would expect, even in the bad months.

Then decide if your population is going to support all that.

Now this doesn't take into account if $6000 is actually reasonable, but it should help you decide if it's workable.

Thanks lionheart. The population is 8,270.

With such a low population, I would have to say running a 4 screen would be very difficult, especially with that high a lease. That's my opinion. Others may differ.

way to high for the population. The flip side no up front costs.......With my formula that population could support a 2 screen at best. A fair rent would be ..$4,000

I would say $6000. seems a bit high. What are the auditorium seat counts, is the lobby, office, back room areas sufficient? Did a chain run it before?What were their grosses like? How long has it been closed?Is equipment in good condition? Like others have said $4000 seems like the most I would pay per month including the CAM charges, taking into consideration that equipment is included etc. You shouldn't have to outlay much cash up front, unless it needs upgrades etc.
That 8000 population figure just scares me a little to support 4 screens/$6000month. Is there additional population nearby, who would support the facility too?
On the other hand, you often talk about offering independant/non-mainstream films, so having these 4 screens affords you the luxury of offering both mainstream and non-mainstream films. You could have a couple new hollywood movies, (which would probably be your bread and butter) then also offer the non-traditional films you talk about.
After a while I'm sure you would find out what the people want to see, and what pays the bills, and balance somehow.

Hi trackfood:

It was first operated by Coming Attractions Theatres a small Oregon chain the runs theatres in California, Oregon and Washington. It was sold to the current owner who closed it about six weeks ago because he decided he didn't like the business and no longer wanted to be in it. I was in the theatre when CAT owned it and as far as I know the equipment is in good shape. I don't have a seat count. I have an opportunity to see the property on 9/15. The population is for the city limits. There is population in the rural area. The nearest towns are 60 miles in any direction. I agree with you about what I would do with the four screens.

1st thing I would do is get the preivous full year of ticket gross. It seems to me tha the range of rent expense as a % of total revenues ranges from 10-15%. I would shoot for 10%. $6000 does seem a bit high.

You can always negiotiate a 6 mo. out or you could even negotiate rent based on revenues.

I would not be worried about operating the additional screens that some say can't be supported. Your cost to run 1 screen vs 4 screens from an ongoing operating expense is minimal. With many studios requiring 3 week runs on the tentpole titles, it is nice to be able have a place for that 3rd week. I know for us, we added a 3rd screen last year. Without that 3rd screen, we would have not played Marley & Me which was our 6th best grosser the past 52 weeks. We will add our 4th this fall.

As far as population goes, search for a zipcode population online. In many rural areas, 50% of your target population can live outside city limits.

Thanks Jack:

Estimated zipcode population is 15,429.

With that population and no competition, go for it! Try to get that lease down though to something you can manage. Hope it works out...

as a small town owner with about that population I'd say 4 screens is better than two at any price. 6000.00 seems high but then again: no plowing, does it include heat, taxes, etc. etc? I spent 1500.00 per month on heat last year for 2 screens.

I'd agree that 6,000 seems high for 4 screens.

I had a similar theatre once... sucked myself into a deal that ended with me paying $10,000/mo for the lease, plus another $3,000 for NNN fees... nothing included. We worked hard for the landlord, but didn't make anything for us.

If you do decide to go with this, get your NNN fees disclosed upfront and get something in the lease that requires them to do an annual list of those fees for you. I didn't on this one, and frequently wondered if I wasn't getting screwed there, too.

If you land at something like $8,000 total, your first $1,000 gross, per week/screen will go to pay for the rent (after average percentages).

With no bail-out clause, it would have to be a very impressive situation for me to get interested in this. If it was that impressive, I'd have a hard time believing the owner dumped it merely because he was "tired of it". No effort to sell it himself?

I think they also have a couple of theatres in Douglas County. You might look into how those places are doing... logging economy, though... maybe not the most stable.

Bob-
Any new info on this project?

I did a walkthrough yesterday. It seems that after the Morgans leased the place Dad Morgan was the driving force behind the theatre and he died six months in. The kids took over and had no PR skills even to the point of insulting some customers. Equipment wise the screens are underlit with old Christie 1k and 2k lamps. According to ACE, who has serviced the house since Coming Attractions Theatres built it, the pictures are very dim. Customers are going to notice both these things.
The kids also leased their concessions out to Pacific Concessions. IMO a really stupid move. I'll buy the concessions equipment from Pacific. It is the only theatre within 60 miles. The population has grown in the city even after the logging and fishing collapse. It's now 9,450. That give us 16,550 in the zip-code.

The projectors are Century SA with century soundheads and red readers. One house is digital stereo surround, three are analog surround. Speakers are JBL screen and subwoofers and Electro-voice TS 8-2 surround speakers in all auditoriums. I will replace the consoles. ACE say they can do it with used equipment for 2 grand apiece.

I shared my plan with the property manager: One screen will be dedicated to current releases, one to family and inspirational, and one screen to classics. (That last one really excited him - and he's a young man.) The population is about one-third retired. The fourth auditorium will become a video gaming center. There is no video gaming center in the area. Each auditorium has a little over 100 seats for a total of 520. At concessions in addition to the usual we will have special drinks, White Castle burgers, organic snacks and carob bars. There will be an area where we can put for or five tables for customers to sit and eat.

I'm convinced there is great potential here, especially since this area is growing even after the timber and fishing collapse. There are so many things going through my mind right now I may have forgotten some. So feel free to ask me questions. I now have to find an angel.

any movement on the rent?