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TOPIC: Estimated value - Theater for Sale

Estimated value - Theater for Sale 18 Jan 2020 10:52 #44464

  • jjgb10
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Hey all,

There is a local one-screen theater for sale. It was originally built in the 1930s and eventually they sold to a church but in 1998 it became a theater again and has been ever since. It has an NEC digital projector and the population in a 10-mile radius is about 10,000 people. It's the only theater until you get about 15 miles away where there are three 12+ screen theaters.

So anyway, this is a one screen with 205 seats. 4,400 sq. ft. for the whole building. This is downtown in a town of 6,500 people. They said revenue was only about $100k last year which is quite low to me. Theater is in great shape for such an old building. Not ADA compliant, no fire sprinklers, a small bathroom for both genders.

I understand finding a way to add a second screen is crucial to have a profitable theater. I already run an ISP which makes way more than this theater ever will but I want to make sure it doesn't shutdown or sell to someone who doesn't want it to be a theater.

They're asking $295,000 for it. Appraisal value for tax purposes is $98,800 so they're selling the building and their business assets. Their books show they had a small net loss last year. There's no way I would offer their asking price. It's been for sale for 3 months now too.

What would you pay for something like this?
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Estimated value - Theater for Sale 21 Jan 2020 11:34 #44467

  • lionheart
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I personally would not pay anything for that place because it is not likely to ever earn a profit, at least not enough to justify the expense. You have too much competition. Even if you divide it into two screens, that is not likely to add much more revenue. It will just make it possible to operate.

Fifteen miles isn't very far. I had a two screen theater about 25 miles from the nearest competition. I think an awful lot of my potential customers had no issue with making the drive to see what they wanted. You will not get all the best movies on the national release date... maybe some. So, they go elsewhere. Some customers may wait, but much revenue is lost to the competitors who will get everything on opening day.

The reason two screens is better, as you may know, is because you will be required to hold new releases two, three, or even four weeks in order to get them on the release date. With two screens you can have a different movie about 2/3 of the time, assuming you are stuck playing new releases 3 weeks a lot of the time. And not every movie is interesting to everyone. Some can't even draw flies in a small town. So you make a profit only part of the time, when you have a popular movie or two. The rest of the time, it will be lucky to break even, and may not even do that in slow times.

If the theater already has good industry standard digital projection and sound, that helps the value. But, you will have to make the place ADA compliant and put in a fire sprinkler system if you convert to two screens. That reduces how much you should pay. You will decrease your seating capacity when you divide the auditorium and add ADA compliance. Maybe you will end up with one screen seating 100 and the other 50 or some such similar scenario. It could be even lower numbers since you have to add new ADA compliant restrooms. Although, fewer seats won't kill you since most will be empty more often than not.

You will need to hire an architect, because it is a place of assembly. They don't work cheap either (mine cost $10,000). You will have to move/add restrooms, upgrade plumbing, change out wiring (old wiring will likely have to be replaced to bring it up to code), possibly change out HVAC systems (if they are old), pay for that sprinkler system (if you run the pipes exposed beneath the ceiling then it will cost 1/3 of the ones I had put in the attic because it's a different kind of system), and move/build new sound barrier walls. And, don't forget the booth may have to be moved or drastically modified in order to be able to put an image on the second screen (no you probably can't just hang another projector from a ceiling somewhere), and you will have to buy more digital projection and sound equipment as well as another screen. You may have to install more exit doors, etc.

Twinning a theater is no small task. And starting with one that small is extra challenging. I did something very similar, but I also took a huge loss when I sold to the next owners, who had to invest more to upgrade to digital equipment. While I operated, I essentially broke even, and that's because I didn't have big loan payments each month. I spent about $200,000 above the initial purchase price of the property to get it up and running. About $50,000 of that was for mostly used equipment (film, not digital) and seats, etc. I did a lot of the work myself and I acted as my own general contractor. You might avoid some of the expenses I had, such as needing a new fa├žade and side wall that were falling apart, but you might have others I didn't, such as hiring a general contractor. So, if you can do it for less than $200,000, then you will have done better than me.

Now, how much do you think that theater is worth that was showing a small loss, and will require a big cash influx beyond the purchase price? I wouldn't do it for a market area of 10,000 people in competition with 36 screens 15 miles away, but you may be willing to do it as a labor of love for the community. Just be aware of what you are getting yourself into. But, if it's just a love for the community and a local theater, then why not just keep it as a single screen and book movies that have been out for about a month. You would be able to book them for only a week and get something new every week if so desired. It won't likely perform any better for you than the previous owners, but the investment will be so much lower that the probable loss will be easier to swallow. It will essentially be an expensive hobby that you can share with your family and friends.

There's also the possibility of converting it to a non-profit.
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Estimated value - Theater for Sale 21 Jan 2020 15:03 #44468

  • BusyBee
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I agree with lionheart, but there are some factors I don't know which makes it hard to judge your situation. Like what is your downtown like, and what is the building like? Is the architecture of the building really appealing or is it just a basic brick box with a bland marquee and some poster boxes slapped onto the exterior? Do you think the current owner is doing a good job of running the business or could improvements be made? Do the people from the outlying communities come to your town regularly? Is your downtown classy or run down? Is there an art house within, say, a 30 mile radius? Can the building be used for events and live music/theater? Is there a space for a kitchen and bar? I'm not sure what the vibe of your community is, how creative of a business person you are or what kind of financial situation you are coming from. Creative people, in vibrant small communities, with a bit of cash can create some pretty awesome public spaces and profitable businesses within a theater.

Regardless of all that, I wouldn't pay the asking price for what it is currently (not what it might become). I also wouldn't throw the whole business into the trash as if it has no value.

I'm looking to sell my theater, and my theater is really attractive IMO and our downtown community is extremely active, attractive and supportive. Though we are small, we do 4x more business than this theater you're talking about, we have 3 screens, no competition within 45 miles, fire monitoring system, ADA upgrades and we're asking 550,000, a price which we know will cash flow with bank financing.
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Estimated value - Theater for Sale 21 Jan 2020 17:59 #44469

  • TheGem
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Without seeing a full breakdown of the financials of the business, its too hard to call.

Then there's also the other factors that BusyBee pointed out. Basically, what's the condition of the theatre and surrounding area.

From what I've seen, singles in my area (rural Michigan) will typically sell at around 100-120k or simply don't. Most of them need improvements as well.

We bought ours for less than 20,000 to put it in perspective. Each situation is genuinely unique.
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Estimated value - Theater for Sale 25 Jan 2020 17:53 #44473

  • jjgb10
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Thanks for the info guys.

This would definitely be a hobby, not a business targeted to make a large profit or to make a living. I pull in 7 figure profit from my ISP already so this would be more to "Save the Local Theater" type of purchase more than anything else. If it would turn a $50-100k profit per year, that would be great.

The current owners have had it for 22 years now and they've basically done minimal promotion to try and grow revenue. They both work full-time jobs elsewhere so this theater is also a hobby. They don't have technical skills either where I am a techie that built an ISP from the ground up.

I think we would be able to schedule more private events, move advertising in-house and take 100% of the revenue instead of the 20% they get now by having an outside company handle it, and find other creative ways to bring people here. Loyalty programs seem popular with larger theaters so maybe something like that would work here.

Do luxury recliners make sense in smaller theaters like this with one or two screens? I don't think the whole theater would need them but if we could convert 100 of the 200 regular seats into 50 recliners seats, that seems to build loyalty with the larger movie chains.

I would agree that the cost to go two screens might not be worth it at this point, unless after purchasing it, the revenue can increase a substantial amount in the next 1-2 years. I don't see the need to rush a change to two screens nor fancy recliners but I thought I'd ask.

Our town is not really a tourist town but it does draw some crowds in the summer for our Aquatic Center. We could have concession coupons available for all visitors that attend there and do something with the school as well to promote us to out of town visitors.

Any other ideas or feedback?
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Estimated value - Theater for Sale 25 Jan 2020 22:04 #44474

  • TheGem
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jjgb10 wrote:
I don't think the whole theater would need them but if we could convert 100 of the 200 regular seats into 50 recliners seats..

I have found doing a split isn't such a bad idea. We did that but it was unplanned. We don't have full reclining seats, but they are much larger than traditional, have wide arm rests, and even a little table with the cup holder. Originally we had planned on doing about 275 of the traditional theatre seats. They were refurbished, but these ones actually lean back as well. The larger seats we found unexpectedly at an auction and decided to do a split with the larger seats in the rear and traditional up front.

Most of our customers prefer the larger seating, but many actually like the traditional seats better. It was a good thing in the end because everyone gets to choose. I myself prefer traditional seating, especially since you can lean back.

It knocked the seating down from 275 down to 180. I have found during our busiest openings (say Frozen 2) I get close to a hard sell out and have maybe 5-10 seats left. It ended up being the perfect amount. But, I run more than one show on weekends. Had we stuck to a typical one nightly show like many small towns, I probably would have needed the extra seating since big movies tend to be full at each show.

We are in a town of about 1100 and a 10 mile radius pop of roughly 10,000 as well, but no big competition for at least 30 miles.
Last Edit: 25 Jan 2020 22:06 by TheGem.
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Estimated value - Theater for Sale 31 Jan 2020 20:55 #44483

  • jacker5
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Tell them 80,000 take it or leave it.
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