Reading International Inc RDI US Equity☆

Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

INDEX Page

Our Business 34

Recent Developments 35

Results of Operations 39

Liquidity and Capital Resources 48

Contractual Obligations, Commitments and Contingencies 50

Financial Risk Management 51

Critical Accounting Estimates 51

OUR BUSINESS

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has caused considerable economic instability all over the world, affecting our operations in the United States, Australia, and New Zealand. The pandemic has caused patrons to lessen their exposure to others by avoiding our cinemas and retail centers and, in the United States, our live theatres or other public places where large crowds would be in attendance. In March of 2020, we temporarily closed all of our Company’s cinemas in the United States, Australia, and New Zealand in accordance with the directions and recommendations of the relevant local, state and federal authorities. In the U.S., we also temporarily closed our live theatres.

Although cinema attendances are still below pre-pandemic levels, the industry has experienced a positive shift in box office results in 2021. The releases of blockbuster films, such as Spider-Man: No Way Home, Venom: There Will Be Carnage, and No Time To Die have provided optimism for the cinema industry. Since the onset of the pandemic, we experienced our first quarter of positive operating results from our cinema operations in the fourth quarter of 2021. However, with the emergence of the Delta and Omicron variants, the uncertainty with the cinema industry has continued.

No cinemas are currently closed due to the Delta or Omicron variant of COVID-19. As of the date of this 2021 Annual Report, one cinema in the United States and one cinema in New Zealand are closed due to reasons unrelated to the pandemic.

At the start of the spread of the COVID-19 pandemic, various trading restrictions, some enforced by the government, affected many of our unrelated third-party tenants at our ETC’s in Australia and New Zealand. Although there were varied trading restrictions, most of these properties remained open for business through the COVID-19 crisis. As of the date of this 2021 Annual Report, all of our tenants are currently open for business at our Australian and New Zealand properties with continued health and safety measures in place (with the exception of two tenants in Australia completing new fit outs). Most of the rentable retail portions of our Courtenay Central location in New Zealand continue to be closed due to seismic concerns, however, three tenants remain open and are trading as of the date of this 2021 Annual Report.

We have and will continue to experience into 2022 significant impacts on our cinema exhibition and real estate businesses. We have and may continue to experience the negative influence of (i) delayed releases of certain major motion pictures and (ii) recent announcements from certain major exhibitors collaborating with certain major studios in agreements to shorten and/or eliminate the theatrical window.

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RECENT DEVELOPMENTS

Recent developments in our two business segments are discussed below. For an overview of our two business segments, including a breakdown of assets that we own and/or manage, please see Part I, Item 1 –Our Business of this 2021 Form 10-K.

Cinema Exhibition

Key Performance Indicators

A key performance indicator utilized by management is food and beverage Spend Per Patron (“SPP”).

One of our strategic priorities is upgrading the food and beverage menu at a number of our global cinemas. We use SPP as a measure of our performance as compared to the performance of our competitors, as well as a measure of the performance of our food and beverage operations. While ultimately, the profitability of our food and beverage operations depends on a variety of factors, including labor cost and cost of goods sold, we think that this calculation is important to show how well we are doing on a top line basis.

Due to the lower attendances resulting from social distancing requirements, competition from other entertainment sources, the lack of new and compelling film product, and the reticence of customers to participate in social gatherings with third parties, management does not currently believe that a discussion of Reading’s key performance indicators will serve as a useful metric for stockholders. management intends to resume providing a discussion of our key performance indicators in future filings.

Cinema Additions

The latest additions to our cinema portfolio over the past three years ended December 31, 2021 are as follows:

Australia and New Zealand

Traralgon, Victoria, Australia: On December 15, 2021, we opened a new state-of-the-art five-screen Reading Cinemas in Traralgon, Victoria.

Millers Junction, Victoria, Australia: On June 16, 2021, we opened a new state-of-the-art six screen Reading Cinemas at the expanded Millers Junction Village featuring two TITAN LUXE auditoriums with DOLBY ATMOS immersive sound, luxury recliner seating in all auditoriums, and an enhanced F&B offering.

Jindalee, Queensland, Australia: On December 22, 2020, we opened a new state-of-the-art six-screen Reading Cinemas at Jindalee featuring a TITAN LUXE with DOLBY ATMOS immersive sound, luxury recliner seating in all auditoriums, and newly curated enhanced food and beverage offering.

Burwood, Melbourne, Victoria, Australia: On December 5, 2019, we opened a new state-of-the-art six-screen Reading Cinemas in the Burwood Brickworks shopping center offering a TITAN LUXE with DOLBY ATMOS immersive sound, enhanced food and beverage offerings, and full recliner seating in all auditoriums.

State Cinema, Hobart, Tasmania, Australia: On December 4, 2019, we acquired the leasehold interest and other operating assets of the iconic State Cinema for $6.2 million (AU$9.0 million). This leasehold interest features 10 screens, a roof top cinema and bar, a large café, and a bookstore.

Lower Hutt, Wellington, New Zealand: To mitigate the ongoing temporary closure of Reading Cinemas at Courtenay Central, we opened a three-screen cinema that trades as The Hutt Pop Up by Reading Cinemas in June 2019.

Devonport, Tasmania, Australia: On January 30, 2019, we purchased the tenant’s interest and other operating assets of a well-established four-screen cinema in Devonport, Tasmania, Australia, for $1.4 million (AU$1.95 million). We commenced trading from this new cinema site on January 30, 2019.

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Upgrades to our Film Exhibition Technology and Theater Amenities

Prior to COVID-19, we invested in both (i) the upgrading of our existing cinemas and (ii) the development of new cinemas to provide our customers with premium offerings, including state-of-the-art presentation (including sound, lounges, and bar service) and luxury recliner seating. As of December 31, 2021, all of the upgrades to our theater circuits’ film exhibition technology and amenities over the years are as summarized in the following table:

Location‎Count Screen‎Count

Screen Format

Digital (all cinemas in our theater circuit) 63 515

TITAN XC and LUXE 26 32

Dine-in Service

Gold Lounge (AU/NZ)(1) 9 24

Spotlight (U.S.)(3) 1 6

Upgraded Food & Beverage menu (U.S.)(4) 17 n/a

Premium Seating (features recliner seating) 29 181

Liquor Licenses in Use(5) 37 n/a

(1)Gold Lounge: This is our "First Class Full Dine-in Service" in our Australian and New Zealand cinemas, which includes an upgraded F&B menu (with alcoholic beverages), luxury recliner seating features (intimate 25-50 seat cinemas) and waiter service.

(2)Premium Service: This is our "Business Class Dine-in Service" in our Australian and New Zealand cinemas, which typically includes upgraded F&B menu (some with alcoholic beverages) and may include luxury recliner seating features (less intimate 80-seat cinemas), but no waiter service.

(3)Spotlight Service: “Spotlight” is our first dine-in cinema concept in the U.S. at Reading Cinemas in Murrieta, California. Six of our 17 auditoriums at this theater feature waiter service before the movie begins with a full F&B menu, luxury recliner seating, and laser focus on customer service.

(4)Upgraded Food & Beverage Menu: Features an elevated F&B menu including a menu of locally inspired and freshly prepared items that go beyond traditional concessions, which we have worked with former Food Network executives to create. The elevated menu also includes beer, wine and/or spirits at most of our locations.

(5)Liquor Licenses: Licenses are applicable at each cinema location, rather than each theater auditorium. For accounting purposes, we capitalize the cost of successfully purchasing or applying for liquor licenses meeting certain thresholds as an intangible asset due to long-term economic benefits derived on future sales of alcoholic beverages. As of December 31, 2021, we have pending applications for additional liquor licenses for eleven theaters in the U.S. and one in Australia.

United States

Kahala Mall renovation:In late 2019, we commenced the renovation of our Consolidated Theatre at the Kahala Mall in Honolulu. The renovation work was suspended at the end of the first quarter in 2020 as a result of the initial COVID-19 shutdown. This cinema reopened on November 5, 2021, with the opening of the Hawaii International Film Festival. The theatre features recliner seating throughout along with a state-of-the-art kitchen and an elevated F&B menu.

Kapolei renovation: During the fourth quarter of 2021, we commenced the renovation of our Consolidated Theatre in Kapolei, in Western Oahu, Hawaii, which relaunched on March 3, 2022, with eight screens featuring recliner seating and a renovation of the lobby areas.

As of the date of this Report, we have converted 110 of our 238 U.S. auditoriums to luxury recliner seating.

Australia and New Zealand

AU and NZ Renovations: From 2019 to 2021, we improved eight theaters: Harbour Town, Waurn Ponds, Maitland, West Lakes, Rhodes, Chirnside, and Dandenong in Australia, and The Palms in New Zealand.

Plans for 2022 and Our Cinema Business

By the end of 2022, we anticipate adding two new cinemas, totaling 13 screens, to our Australian cinema circuit. South City Square in Brisbane, QLD is an eight-screen complex, which will operate under the Angelika Film Center brand, and Busselton in Western Australia is a five-screen Reading Cinema. Both new cinema complexes are part of broader shopping center developments currently under construction.

Our focus with respect to new cinemas includes state-of-the-art projection and sound, luxury recliner seating, enhanced F&B (typically including alcohol service), and typically at least one major TITAN-type presentation screen. Our focus is on providing best-in-class services and amenities that will differentiate us from in-home and mobile viewing options. We believe that a night at the

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movies should be a special and premium experience and, indeed, that it must be able to compete with the variety of options being offered to consumers through other platforms.

During 2022, we will continue to focus on the enhancement of our proprietary online ticketing capabilities and social media interfaces. These are intended to enhance the convenience of our offerings and to promote guest affinity with the experiences and products that we are offering. We will also be focusing on post-COVID-19 technology improvements and contactless experiences.

Expanding our online capabilities, in the third quarter of 2020 and fourth quarter of 2021, respectively, we launched the online ordering of a full F&B menu for our Angelika brand in the U.S. and launched a full F&B menu for our Reading Cinemas in Australia and New Zealand. In December 2020 and December 2021, respectively, we launched our very own streaming service, Angelika Anywhere, in the U.S. and Australia, which is curated for film lovers of independent and foreign film, documentaries, and the more specialized movies from the major studios.

Real Estate

Strategic Acquisitions

Exercise of Option to Acquire Ground Lessee’s interest in Ground Lease and Improvements Constituting the Village East Cinema – On August 28, 2019, we exercised our option to acquire the ground lessee’s interest in the ground lease underlying and the real property assets constituting our Village East Cinema in Manhattan. The purchase price under the option is $5.9 million. The transaction is currently scheduled to close on January 1, 2023. See Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note 12 – Pension and Other Liabilities and Note 21 – Related Parties for further information.

Strategic Asset Monetizations

United States:

On March 5, 2021, we monetized our approximately 202-acre raw land holdings in Coachella, California for $11.0 million (recognizing a gain on sale after costs to sell of $6.3 million over our $4.4 million net book value). As a 50% member of Shadow View Land and Farming LLC, the entity that owned the property, our Company received 50% of the sale proceeds, being $5.3 million. As raw land, this asset produced no operating income while continuing to generate carrying costs, such as taxes, insurance, and maintenance.

On June 30, 2021, we monetized our Royal George Theatre property in Chicago for $7.1 million. We realized a gain on sale after costs to sell of $5.0 million over our $1.8 million net book value.

Australia:

On June 9, 2021, we monetized our Auburn/Redyard Center (including 114,000 square feet of undeveloped land) located in Auburn, New South Wales for $69.6 million (AU$90.0 million). We recognized a gain on sale after costs to sell of $38.7 million (AU$50.1 million) over our $30.2 million (AU$39.1 million) net book value. As part of the transaction, we entered into a lease with the purchaser to continue to operate the cinema at that location.

New Zealand:

On March 4, 2021, we monetized our two industrial properties adjacent to the Auckland Airport in Manukau/Wiri in New Zealand, representing 70.4 acres, for $56.1 million (NZ $77.2 million). We recognized a gain on sale after costs to sell of $41.0 million (NZ$56.3 million) over our $13.6 million (NZ$18.7 million) net book value. As raw land, this asset produced no operating income while continuing to generate carrying costs, such as property taxes, insurance, and maintenance.

On August 30, 2021, we monetized our cinema building and land in Invercargill for $3.8 million (NZ$5.4 million) to the owner of the adjacent shopping center, which is currently undergoing a major redevelopment. As part of the transaction, we entered into a lease with the purchaser to continue to operate the cinema at that location and integrate the existing cinema within that newly redeveloped shopping center.

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Value-creating Opportunities

The implementation of most of our real estate development plans has been delayed due to COVID-19 and the need to conserve capital. However, we continue to believe that our Company’s strong real estate asset base will provide (i) increased financial security through the potential sale of certain non-core real estate assets or (ii) provide collateral for strategic re-financing, in each case to meet liquidity demands. We intend to continue to emphasize the prudent development of our real estate assets.

United States:

44 Union Square Redevelopment (New York, N.Y.) – Initially, during the COVID-19 pandemic, New York City shut down non-essential construction and businesses, including construction work at our site. The shutdown has since been lifted. On August 31, 2020, we received a temporary certificate of occupancy for the core and shell of the building, which has been continuously renewed pending construction of tenant improvements.

On January 27, 2022, we entered into a long-term lease with a national retailer for the lower level, ground floor and second floor of the building. We expect the tenant to take occupancy in 2022, following the completion of certain work for which we are responsible. We have retained CBRE as our leasing agent for the upper floors of the building. Our leasing team continues to pursue potential tenants to fill the remainder of the space, although no assurances can be given that we will be able to lease the space on acceptable terms in the near term.

Sepulveda Office Building (Culver City, C.A.)–On May 27, 2020, we leased on a multi-year basis the entire second floor of our office building in Culver City, California (approximately 12,000 usable square feet) to WWP Beauty (wwpinc.com), a global company with over 35 years of experience providing the cosmetics and personal care industries with a range of packaging needs. On the date of the lease, possession of the space was turned over to WWP Beauty, which was responsible for building out its space. This work was completed in October 2021.

Minetta Lane Theatre (New York, N.Y.) – Prior to COVID-19, our theatre was used by Audible, to present plays featuring a limited cast of one or two characters and special live performance engagements on the Audible streaming service. Due to COVID-19, no shows were presented between March 2020 and October 8, 2021, the date on which public performances resumed. In late 2019, we completed an initial feasibility study for the potential redevelopment of this asset. We will refocus our efforts on this project at a later date as New York City continues to show signs of recovery from the impacts of the COVID-19 pandemic. In the interim, we renewed our license arrangement with Audible which extends through March 15, 2023, with a one-year option to extend held by Audible.

Cinemas 1,2,3 Redevelopment (New York, N.Y.) – We have received the consent of the 25% minority member of the ownership entity for the redevelopment of the property. We continue to evaluate the potential to redevelop the property as a mixed-use property. As our negotiations with our neighbor for a joint development did not bear fruit and given the closure of our two cinemas in New York City’s Upper East Side, we have determined to continue to operate this location as a cinema for at least the near term. All other redevelopment activity related to this location has been suspended, until we are able to develop a better understanding of the ongoing effects of COVID-19 on our assets and the market.

Australia:

Newmarket Village ETC, (Brisbane, Australia) – We continue to work on the expansion and upgrading of our Newmarket Village ETC. The site includes a 23,000 square foot parcel adjacent to the center, improved with an office building. Over the next few years, we will be evaluating development options for this space. The center is currently 96% leased.

Cannon Park ETC, (Queensland, Australia) – we acquired two adjoining properties in Townsville, Queensland, Australia comprising of approximately 9.4-acres in 2015. The total gross leasable area of the Cannon Park City Center and the Cannon Park Discount Center is 105,000 square feet. Our multiplex cinema is the anchor tenant at the Cannon Park City Center, which we continue to work on and improve. This site is currently 87% leased.

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New Zealand:

Courtenay Central Redevelopment (Wellington, New Zealand) – Damage from the 2016 Kaikoura earthquake necessitated demolition of our nine-story parking garage at the site, and unrelated seismic issues caused us to close major portions of the existing cinema and retail structure in early 2019. Prior to the COVID-19 pandemic, our real estate team had developed a comprehensive plan featuring a variety of uses to complement and build upon the “destination quality” of the Courtenay Central location. Notwithstanding the COVID-19 pandemic, our real estate team is continuing to work with our consultants, tenants, potential tenants, and city representatives to advance our redevelopment plans for this property. Given the uncertainty surrounding the COVID-19 pandemic, we have no fixed time frame for the commencement of the redevelopment of this property. Relatively recent developments, including the near completion of the future Takina Wellington Convention and Exhibition Center (wcec.co.nz), the capital’s first premium conference and exhibition space, the loosening of certain height and density restrictions, and the lack of comparable building sites, have enhanced the value of the assemblage.

For a complete list of our principal properties, see Part I, Item 2 – Properties under the heading “Investment and Development Property.”

Corporate Matters

Stock Repurchase Program – On March 10, 2020, our Board of Directors authorized a $25.0 million increase to our 2017 stock repurchase program, bringing our total authorized repurchase amount remaining to $26.0 million, and extended the program to March 2, 2022. Through December 31, 2021, we had repurchased 1,792,819 shares of Class A Non-Voting Common Stock at an average price of $13.39 per share (excluding transaction costs). No shares were purchased during the year ended December 31, 2021. Due to the COVID-19 pandemic and its impact on our overall liquidity, our stock repurchase program has and will likely continue to take a lower capital allocation priority for the foreseeable future.

Board Compensation and Stock Options Committee – Refer to Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note 15 – Share-Based Compensation and Repurchase Plans for details regarding our Board, Executive and Employee stock-based remuneration programs.

OVERALL RESULTS OF OPERATIONS

In this section, we discuss the results of our operations for the year ended December 31, 2021 compared to the year ended December 31, 2020. For a discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020.

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The following table sets forth the overall results of operations for the three years ended December 31, 2021:

% Change - ‎Favorable/‎(Unfavorable)

SEGMENT RESULTS

NON-SEGMENT RESULTS

CONSOLIDATED RESULTS

2021 vs. 2020

Net income attributable to Reading International, Inc. increased by $97.1 million to $31.9 million. This increase was due to (i) $92.2 million of gains on sales of assets related to the strategic monetization of our Coachella and Manukau landholdings, Royal George property, Auburn/Redyard Center, and Invercargill property in 2021 in response to the liquidity needs resulting primarily from closure of our cinemas due to the COVID-19 pandemic, (ii) an improvement by $26.4 million in our cinema segment operation results attributable to lower COVID-19 cases and better film product in 2021, and (iii) the resolution of an insurance claim related to damage done by the Kaikoura earthquake.

The increase was offset by a (i) $10.9 million increase in income tax expense to $5.9 million, due to income tax from the monetization of certain real estate assets, (ii) $4.3 million increase in interest expense to $13.7 million related to the completion of our 44 Union Square development, interest prior to completion having been capitalized, (iii) $3.7 million increase in general and administrative expense to $16.6 million related to the payment of bonuses in 2021 (no senior management officer bonuses were paid related to years 2019 or 2020), (iv) the establishment of a $4.0 million accrual of the settlement of certain wage and hour claims, and (v) the non-recurring legal settlement of $0.8 million entered in favor of our Company in the James Cotter Jr. derivative litigation by the Nevada Supreme Court during the third quarter of 2020.

BUSINESS SEGMENT RESULTS –2021 vs. 2020

Presented below is the comparison of the segment operating income of our two business segments for the years ended December 31, 2021 and 2020, respectively:

2021 2020 % Change ‎Favorable/‎(Unfavorable)

(Dollars in thousands) Cinema Real Estate Cinema Real Estate Cinema Real Estate

Segment Operating Expenses

Impairment of long-lived assets — — (217) — 100 % — %

Breakdown by country:

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A discussion for each segment follows:

Cinema Exhibition – The following table details our Cinema Exhibition segment operating results for the years ended

December 31, 2021 and 2020, respectively:

REVENUE

OPERATING EXPENSE

Food & beverage cost (737) (6) % (432) (6) % (71) %

DEPRECIATION, AMORTIZATION, GENERAL AND ADMINISTRATIVE EXPENSE

Impairment of long-lived assets — — % (217) (1) % (>100) %

General and administrative expense (6,321) (11) % (2,486) (9) % (>100) %

Australia Depreciation and amortization $ (5,943) (11) % $ (5,762) (18) % (3) %

General and administrative expense (1,290) (2) % (950) (3) % (36) %

New Zealand Depreciation and amortization $ (1,179) (10) % $ (1,423) (20) % 17 %

General and administrative expense — — % 9 — % 100 %

OPERATING INCOME (LOSS)

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Cinema Exhibition – The following table details our Cinema Exhibition segment operating results for the quarters ended December 31, 2021 and 2020, respectively:

REVENUE

OPERATING EXPENSE

DEPRECIATION, AMORTIZATION, IMPAIRMENT AND GENERAL AND ADMINISTRATIVE EXPENSE

Impairment of long-lived assets — — % (217) (5) % 100 %

General and administrative expense (634) (2) % (258) (10) % (>100) %

Australia Depreciation and amortization $ (1,500) (8) % $ (1,413) (19) % (6) %

General and administrative expense (389) (2) % (96) (1) % (>100) %

New Zealand Depreciation and amortization $ (260) (7) % $ (333) (19) % 22 %

General and administrative expense — — % 1 — % 100 %

OPERATING INCOME (LOSS)

Cinema Exhibition Segment Operating Income

Cinema exhibition segment operating loss decreased by $26.4 million, to a loss of $18.6 million for the year ended December 31, 2021, compared to December 31, 2020, primarily driven by a significant increase in total revenue. Our cinema operations experienced fewer mandated closures in 2021 due to the wide distribution of vaccines. As vaccination rates increased and certain government imposed restrictions decreased, major movie studios began to release blockbuster movies, like Spider-Man: No Way Home, Venom: There Will Be Carnage, and Not Time to Die.

Since the onset of the pandemic, we experienced our first quarter of positive operating results for our cinema segment. Thanks to the major blockbuster films, like Spider-Man: No Way Home and Eternals, cinema exhibition segment operating income improved from a loss of $11.7 million to income of $2.0 million for the quarter ended December 31, 2021, compared to December 31, 2020. Due to the mandatory closures related to COVID-19 during the fourth quarter of 2020, our cinemas experienced a reduction in the number of operational days, which impacted our admissions revenue significantly in 2020.

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Revenue

Cinema revenue increased by $59.8 million, to $126.8 million for the year ended December 31, 2021, compared to 2020. Our cinema circuit experienced a higher number of days in operation in 2021 when compared to the same period in the prior year. Higher vaccination rates led to fewer mandated closures despite the presence of the Delta and Omicron variants. As a result, major studios began to release more film product.

The table below is the revenue breakdown, by country, for the years ended December 31, 2021 and 2020, respectively:

Below are the changes in our cinema revenue by market:

In the United States, cinema revenues increased by $32.5 million, to $59.9 million for the year ended December 31, 2021, compared to 2020. As of December 31, 2021, 92% of our U.S. cinemas were open compared to 38% in 2020.

In Australia, cinema revenues increased by $22.8 million, to $55.3 million for the year ended December 31, 2021, compared to 2020.

In New Zealand, cinema revenues increased by $4.5 million, to $11.6 million for the year ended December 31, 2021, compared to 2020.

For the quarter ended December 31, 2021, Cinema segment revenue increased against the fourth quarter of 2020 by $35.1 million, to $47.2 million. This increase was due to (i) the majority of our global cinemas being in operation for more days in the fourth quarter of 2021 than in 2020, (ii) the releases of more tentpole films by major studios, such as Spider-Man: No Way Home, and (iii) the easing of local government restrictions in 2021 due to increased vaccination rates.

Operating Expense

Operating expensefor the full year 2021 increased by $30.2 million, to $123.4 million when compared to 2020 due to increased ticket sales and higher film rent associated with the releases of more major tentpole films.

For the quarter ended December 31, 2021, operating expenses increased by $21.1 million, to $40.5 million when compared to the fourth quarter of 2020 due to increased ticket sales and higher film rent associated with the release of more major tentpole films.

Depreciation, Amortization, General and Administrative Expense

Depreciation, amortization, general and administrative expense for the year-ended December 31, 2021 increased by $3.1 million, to $22.0 million compared to 2020 primarily driven by legal costs, a $4.0 million accrual of the settlement of certain wage and hour claims, and the depreciation charge on our new cinemas in Australia.

Depreciation, amortization, general and administrative expense for the quarter ended December 31, 2021, increased by $0.2 million, to $4.6 million primarily due to increased cinema general and administrative expenses in Australia.

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Real Estate – The following table details our Real Estate segment operating results for the years ended December 31, 2021 and 2020, respectively:

REVENUE

OPERATING EXPENSE

United States Live theatre cost $ (541) (28) % $ (698) (49) % 22 %

DEPRECIATION, AMORTIZATION, GENERAL AND ADMINISTRATIVE EXPENSE

General and administrative expense (712) (37) % (487) (34) % (46) %

Australia Depreciation and amortization $ (3,054) (31) % $ (3,634) (34) % 16 %

General and administrative expense (206) (2) % (275) (3) % 25 %

New Zealand Depreciation and amortization $ (979) (100) % $ (945) (98) % (4) %

General and administrative expense (2) (1) % 14 1 % (>100) %

OPERATING INCOME (LOSS)

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Real Estate – The following table details our Real Estate segment operating results for the quarters ended December 31, 2021 and 2020, respectively:

REVENUE

OPERATING EXPENSE

United States Live theatre cost $ (167) (24) % $ (86) (33) % (94) %

Australia Property cost $ (658) (35) % $ (724) (29) % 9 %

DEPRECIATION, AMORTIZATION, GENERAL AND ADMINISTRATIVE EXPENSE

Australia Depreciation and amortization $ (744) (40) % $ (1,001) (40) % 26 %

General and administrative expense (42) (2) % 154 6 % (>100) %

New Zealand Depreciation and amortization $ (232) (88) % $ (242) (96) % 4 %

General and administrative expense (2) (1) % (9) (4) % 78 %

OPERATING INCOME (LOSS)

Total operating income (loss) $ (1,447) (51) % $ (999) (33) % (45) %

Real Estate Segment Operating Income

Real estatesegment operating loss increased by $2.9 million, to a loss of $5.4 million for the year ended December 31, 2021, compared to 2020. These results reflect (i) increased property carrying costs related to our 44 Union Square property, which had been capitalized in the past, as well as the commencement of depreciation for this property and (ii) a decrease in property rental income in Australia due to the monetization of our Auburn/Redyard center during the second quarter of 2021. This loss was offset by our Live Theatres in New York City which reported increased operating income during the fourth quarter 2021 as both the Orpheum and Minetta Lane theatres were open and holding public performances for most of the fourth quarter 2021.

Real estate segment operating loss increased by $0.4 million, to a loss of $1.4 million for the quarter ended December 31, 2021, compared to 2020. A decrease in property rental income in Australia due to the monetization of our Auburn/Redyard center during the second quarter of 2021 negatively impacted our annual results. This loss was offset by the operating income of our Live Theatres in New York City which increased compared to 2020, when the theaters closed in mid-March 2020 due to the pandemic.

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Revenue

The table below is the revenue breakdown by country for each year:

Real estate revenues for the year ended December 31, 2021, decreased by $0.2 million, to $12.8 million compared to 2020. This decrease is attributable toa decrease in property rental income in Australia related to the monetization of our Auburn/Redyard shopping center during the second quarter of 2021, partially offset by the re-opening of our live theatres as well as rent received from our Culver City tenant.

For the quarter ended December 31, 2021, real estate revenue decreased by $0.2 million, to $2.8 million compared to 2020. This decrease is primarily due toa decrease in property rental income in Australia related to the monetization of our Auburn/Redyard shopping center during the second quarter of 2021.

Operating Expense

Operating expense for the year ended December 31, 2021, increased by $1.5 million, to $10.1 million when compared to the same period in 2020 due to the increased operating costs related to our 44 Union Square property. In addition, the State Revenue Offices (SRO) in Australia implemented support measures for commercial landlords whereby land tax relief was provided in 2020 that did not recur in 2021. This result was partially offset by the reduction of costs related to the monetization of our Auburn/Redyard ETC during the second quarter of 2021.

For the quarter ended December 31, 2021, operating expenses remained relatively flat with a slight decrease of $0.1 million, to $2.2 million when compared to the same period in 2020 due to a decrease in occupancy expenses related to the monetization of our Coachella property.

Depreciation, Amortization, General and Administrative Expense

Depreciation, amortization, general and administrative expenses for 2021 increased by $1.2 million, to $8.0 million when compared to the same period in 2020 driven by the commencement of depreciation of our 44 Union Square property, partially offset by savings in depreciation related to the sale of our Auburn/Redyard shopping center, Royal George, and Invercargill properties.

For the quarter ended December 31, 2021, depreciation, amortization, and general, and administrative expenses increased by $0.3 million, to $2.1 million compared to the quarter ended December 31, 2020, due to which is attributable to the commencement of depreciation of our 44 Union Square property, offset by savings in depreciation related to the sale of our Auburn/Redyard shopping center, Royal George, and Invercargill properties.

NON-SEGMENT RESULTS –2021 vs. 2020

General and Administrative Expense

Non-segment general and administrative expense for the year ended December 31, 2021, increased by $3.7 million, to $16.6 million compared to the same period in the prior year. This increase in expense is due principally to (i) a return to the payment of executive bonuses in 2021 (no senior management officer bonuses were paid related to years 2019 or 2020) and (ii) the non-recurring income in 2020 related to the $0.8 million judgment in our favor in the James Cotter Jr. derivative litigation.

For more information about the legal expense, please refer to Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note 13 – Commitments and Contingencies.

Income Tax Expense

Income tax expense increased by $10.9 million, to $5.9 million, when compared to 2020, mainly due to income tax as a result of the monetization of certain of our real estate assets. Please refer to Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note 10 – Income Taxes for further information.

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Interest Expense, Net



Interest expense (net of interest income) increased by $4.3 million, to $13.7 million, mainly due to the termination of the capitalization of interest on 44 Union Square due to the completion of this development.

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LIQUIDITY AND CAPITAL RESOURCES

Our Financing Strategy

Prior to the interruption to our revenues caused by the COVID-19 pandemic, we had used cash generated from operations and other excess cash to the extent not needed to fund capital investments contemplated by our business plan, to pay down our loans and credit facilities. This provided us with availability under our loan facilities for future use and thereby, reduced interest charges. On a periodic basis, we have reviewed the maturities of our borrowing arrangements and negotiated renewals and extensions where necessary. In 2020, we completed amending and extending various financing arrangements less than two weeks prior to the COVID-19 government mandated shutdowns, which we believe has helped provide the necessary liquidity to see us through the COVID-19 crisis.

In response to the COVID-19 pandemic, the temporary closure of our cinemas, and the trading restrictions placed on many of our real estate tenants, we had fully drawn-down on all our available operating lines-of-credit by the end of the first quarter of 2020, to provide additional liquidity. In 2021, the monetization of certain real estate assets funded our ability to pay down debt thereby increasing our future availability and, in some places, permanently reducing our loan funding amounts:

During the second quarter of 2021, we refinanced our 44 Union Square loan with a new $55.0 million mortgage facility secured by the property with Emerald Creek Capital;

In November 2021, we repaid and retired our $5.0 million line of credit with Bank of America;

In June 2021, we repaid $15.7 million (AU$20.0 million) of our Revolving Corporate Markets Loan facility with NAB, using a portion of the proceeds of our monetization of Auburn/Redyard to permanently reduce the availability under the line;

Throughout 2021, we repaid $11.7 million on our Bank of America revolving credit facility, bringing the outstanding balance to $39.5 million. In November 2021, we also restructured this facility into a term loan;

Throughout 2021, we repaid $12.5 million (NZ$18.2 million) of our Westpac revolving facility, permanently reducing the funding available; and

On March 3, 2022, we exercised the first of two six month options to extend the Cinemas 1,2,3 Term Loan, taking the maturity to October 1, 2022.

Our bank loans with Bank of America, NAB, and Westpac require that our Company comply with certain covenants. Furthermore, our Company’s use of these loan funds is limited due to limitations on the expatriation of funds from Australia and New Zealand to the United States. We believe that our lenders understand that the current situation, relating to the COVID-19 pandemic, is not of our making, that we are doing everything that can reasonably be done, and that, generally speaking, our relationship with our lenders is good.

Our Company remains focused on the various economic factors affecting us as the markets in which we operate emerge from the worst effects of the COVID-19 pandemic, including financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If our Company is unable to generate sufficient cash flow in the upcoming months or if its cash needs exceed our Company’s borrowing capacity under its available facilities, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling additional assets, or restructuring debt.

For more information about our borrowings, including loan modifications and modifications to waivers of certain covenants, please refer to Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note 11 – Borrowings.

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The table below presents the changes in our total available resources (cash and borrowings), debt-to-equity ratio, working capital, and other relevant information addressing our liquidity for the last five years:

Total Resources (cash and borrowings)

Debt-to-Equity Ratio

Changes in Working Capital

(1)This relates to the construction facilities specifically negotiated for 44 Union Square redevelopment project.

(2)Certain 2018 and 2017 balances included the restatement impact as a result of a prior period financial statement correction of immaterial errors (see Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note 2 – Summary of Significant Accounting Policies – Prior Period Financial Statement Correction of Immaterial Errors).

(3)Typically, our working capital is reported as a deficit, as we receive revenue from our cinema business ahead of the time that we have to pay our associated liabilities. We use the money we receive to pay down our borrowings in the first instance.

We manage our cash, investments, and capital structure to meet the short-term and long-term obligations of our business, while maintaining financial flexibility and liquidity. We forecast, analyze, and monitor our cash flows to enable investment and financing within the overall constraints of our financial strategy. Before the COVID-19 pandemic, our treasury management has been focused on aggressive cash management using cash balances to reduce debt and minimize interest expense. In the past, we used cash generated from operations and other excess cash to the extent not needed for any capital expenditures, to pay down our loans and credit facilities providing us some flexibility on our available loan facilities for future use and thereby, reducing interest charges. As a result of the COVID-19 pandemic, we chose to fully draw down on most of our lines of credit in order to provide liquidity for the Company during a time of minimal revenues. Our current financial position, forecasts and cash flow estimates based on our current expectations of industry performance and recovery, mean that our Company has sufficient resources to meet its obligations as they become due within one year after the issuance of this report on Form 10-K.

Refer to Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note 11 – Borrowings for further details on our various borrowing arrangements.

At December 31, 2021, our consolidated cash and cash equivalents totaled $83.3 million. Of this amount, $10.9 million, $49.5 million and $22.8 million were held by our U.S., Australian and New Zealand operations, respectively. Due to the impact of the COVID-19 pandemic, we no longer intend to indefinitely reinvest offshore any earnings derived from our Australian and New Zealand operations.

We have historically funded our working capital requirements, capital expenditures and investments in individual properties primarily from a combination of internally generated cash flows and debt. During 2021 and into 2022 the need for such funding, apart from working capital, has been and will be substantially reduced, due to the COVID-19 pandemic. The funding that has been required, has been funded predominantly from cost reductions, debt and strategic asset sales. As noted in the preceding table, we had no unused available corporate credit facilities at December 31, 2021.

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The change in cash and cash equivalents for the three years ended December 31, 2021 is as follows:

% Change

Operating Activities

2021 vs. 2020

Cash used in operating activities for 2021 decreased by $16.7 million, to cash used of $13.5 million, due to improved trading performance.

Investing Activities

2021 vs. 2020

The $129.6 million of cash provided by investing activities increased significantly primarily due to the 2021 asset monetizations described herein.

Financing Activities

2021 vs. 2020

The cash used in financing activities of $50.3 million is primarily due to developments in our debt portfolio as discussed above.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

The following table provides information with respect to the future maturities and scheduled principal repayments of our recorded contractual obligations and certain of our commitments and contingencies, either recorded or off-balance sheet, as of December 31, 2021:

Finance leases, including imputed interest 43 28 — — — — 71

Village East purchase option(2) — 5,900 — — — — 5,900

(1)Information is presented gross of deferred financing costs.

(2)Represents the lease liability of the option associated with the ground lease purchase of the Village East Cinema.

(3)Estimated interest on debt is based on the anticipated loan balances for future periods and current applicable interest rates.

Please refer to Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note 13 – Commitments and Contingencies for more information.

Litigation

We are currently involved in certain legal proceedings and, as required, have accrued estimates of probable and estimable losses for the resolution of these claims.

Where we are the plaintiffs, we expense all legal fees on an ongoing basis and make no provision for any potential settlement amounts until received. In Australia, the prevailing party is usually entitled to recover its attorneys’ fees, which typically work out to be approximately 60% of the amounts actually spent where first-class legal counsel is engaged at customary rates. Where we are a plaintiff, we have likewise made no provision for the liability for the defendant’s attorneys' fees in the event we are determined not to be the prevailing party.

Where we are the defendants, we accrue for probable damages that insurance may not cover as they become known and can be reasonably estimated. In our opinion, any claims and litigation in which we are currently involved are not reasonably likely to have a

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material adverse effect on our business, results of operations, financial position, or liquidity. It is possible, however, that future results of the operations for any particular quarterly or annual period could be materially affected by the ultimate outcome of the legal proceedings.

Please refer to Part I,Item 3 – Legal Proceedings for more information. There have been no material changes to our litigation, except as set forth in Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note13 – Commitments and Contingencies.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in the financial condition, revenue or expense, results of operations, liquidity, capital expenditures or capital resources.

FINANCIAL RISK MANAGEMENT

Currency and Interest Rate Risk

Our Company’s objective in managing exposure to foreign currency and interest rate fluctuations is to reduce volatility of earnings and cash flows in order to allow management to focus on core business issues and challenges.

Historically, we have managed our currency exposure by creating, whenever possible, natural hedges in Australia and New Zealand. This involves local country sourcing of goods and services, as well as borrowing in local currencies to match revenues and expenses. We have also historically paid management fees to the U.S. to cover a portion of our domestic overhead. The fluctuations of the Australian and New Zealand currencies, however, may impact our ability to rely on such funding for ongoing support of our domestic overhead.

Our exposure to interest rate risk arises out of our long-term floating-rate borrowings. To manage the risk, we utilize interest rate derivative contracts to convert certainfloating-rate borrowings into fixed-rate borrowings. It is our Company’s policy to enter into interest rate derivative transactions only to the extent considered necessary to meet its objectives as stated above. Our Company does not enter into these transactions or any other hedging transactions for speculative purposes.

Inflation

We continually monitor inflation and the effects of changing prices. Inflation increases the cost of goods and services used. Competitive conditions in many of our markets restrict our ability to recover fully the higher costs of acquired goods and services through price increases. We attempt to mitigate the impact of inflation by implementing continuous process improvement solutions to enhance productivity and efficiency and, as a result, lower costs and operating expenses. The effects of inflation have not had a material impact on our operations and the resulting financial position or liquidity, but the current uptrend in inflation could impact us in the future

CRITICAL ACCOUNTING ESTIMATES

We believe that the application of the following accounting policies requires significant judgments and estimates in the preparation of our Consolidated Financial Statements and hence, are critical to our business operations and the understanding of our financial results:

Impairment of Long-Lived Assets, Including Goodwill and Intangible Assets

We review long-lived assets, including goodwill and intangibles, for impairment as part of our annual budgeting process, at the beginning of the fourth quarter, and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.

(i)Impairment of Long-lived Assets (other than Goodwill and Intangible Assets with indefinite lives) – we evaluate our long-lived assets and finite-lived intangible assets using historical and projected data of cash flows as our primary indicator of potential impairment and we take into consideration the seasonality of our business. If the sum of the estimated, undiscounted future cash flows is less than the carrying amount of the asset, then an impairment is recognized for the amount by which the carrying value of the asset exceeds its estimated fair value based on an appraisal or a discounted cash flow calculation. For certain non-income producing properties or for those assets with no consistent historical or projected cash flows, we obtain appraisals or other evidence to evaluate whether there are impairment indicators for these assets.

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No impairment losses were recorded for long-lived and finite-lived intangible assets for the year ended December 31, 2021. $217,000 of impairment losses were recorded for long-lived and finite-lived intangible assets for the year ended December 31, 2020, based on historical information and projected cash flow. No impairment losses were recorded for the year ended December 31, 2019.

(ii)Impairment of Goodwill and Intangible Assets with indefinite lives – goodwill and intangible assets with indefinite useful lives are not amortized, but instead, tested for impairment at least annually on a reporting unit basis. The impairment evaluation is based on the present value of estimated future cash flows of each reporting unit plus the expected terminal value. There are significant assumptions and estimates used in determining the future cash flows and terminal value. The most significant assumptions include our cost of debt and cost of equity assumptions that comprise the weighted average cost of capital for each reporting unit. Accordingly, actual results could vary materially from such estimates.

No impairment losses were recorded for goodwill and indefinite-lived intangible assets for the years ended December 31, 2021, 2020, or 2019.

Tax Valuation Allowance and Deferred Taxes

We record our estimated future tax benefits and liabilities arising from the temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss carryforwards. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of future federal, state, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss). As of December 31, 2021, we had recorded approximately $43.1 million of deferred tax assets (net of $64.7 million deferred tax liabilities) related to the temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss carryforwards and tax credit carryforwards. These deferred tax assets were offset by a valuation allowance of $40.9 million resulting in a net deferred tax asset of $2.2 million. The recoverability of deferred tax assets is dependent upon our ability to generate future taxable income.

Recognition of Gift Card Breakage Income

Generally, our revenue recognition is not assessed as an area requiring significant judgment or estimation. Revenues from ticket and food and beverage sales are recognized when the service is provided – that is when the show has commenced, or the food has been provided. Transaction fees from online sales are recorded at the time of the online transaction. In regard to our real estate business, we execute lease contracts for existing tenancies, but revenue is recognized on a straight-line basis over the lease term.

In contrast, recognition of gift card breakage income requires certain estimates and judgements to be made in regarding the pattern of customer behavior at our cinemas. This policy is described in detail in the section Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements-- Note 2 – Summary of Significant Accounting Policies – Accounting Changes.

Contingencies

For loss contingencies, we record any loss contingencies when there is a probable likelihood that the liability has been incurred and the amount of the loss can be reasonably estimated.

For other contingencies,

(i)for recoveries through an insurance claim, we record a recoverable asset (not to exceed the amount of the total losses incurred) only when the collectability of such claim is considered probable. To evaluate the probable collectability of an insurance claim, we consider communications with our insurance company.

(ii)for gain contingencies resulting from legal settlements, we record those settlements in our consolidated statements of operations when cash or other forms of payments are received.

Legal contingencies

From time to time, we are involved with claims and lawsuits arising in the ordinary course of our business that may include contractual obligations, insurance claims, tax claims, employment matters, and anti-trust issues, among other matters. We provide accruals for matters that have probable likelihood of occurrence and can be properly estimated as to their expected negative outcome.

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We do not record expected gains until the proceeds (either in cash or other forms of payments) are received by us. Please refer to Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note 13 – Commitments and Contingencies for more information on legal matters.

For a summary of our significant accounting policies, including the critical accounting estimates discussed above, see Part II, Item 8 – Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements--Note 2.

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Item 7A – Quantitative and Qualitative Disclosure about Market Risk

The SEC requires that registrants include information about potential effects of changes in currency exchange and interest rates in their Form 10-K filings. Several alternatives, all with some limitations, have been offered. The following discussion is based on a sensitivity analysis, which models the effects of fluctuations in currency exchange rates and interest rates. This analysis is constrained by several factors, including the following:

it is based on a single point in time; and

it does not include the effects of other complex market reactions that would arise from the changes modeled.

Although the results of such an analysis may be useful as a benchmark, they should not be viewed as forecasts.

At December 31, 2021, approximately 40% and 8% of our assets were invested in assets denominated in Australian dollars (Reading Australia) and New Zealand dollars (Reading New Zealand), respectively, including approximately $51.8 million in cash and cash equivalents. At December 31, 2020, approximately 39% and 12% of our assets were invested in assets denominated in Australian and New Zealand dollars, respectively, including approximately $19.1 million in cash and cash equivalents.

Our policy in Australia and New Zealand is to match revenues and expenses, whenever possible, in local currencies. As a result, we have procured in local currencies a majority of our expenses in Australia and New Zealand. Despite this natural hedge, recent movements in foreign currencies have had an effect on our current earnings. The effect of the translation adjustment on our assets and liabilities noted in our other comprehensive income was an increase of $8.1 million for the year ended December 31, 2021. As we continue to progress our acquisition and development activities in Australia and New Zealand, no assurances can be given that the foreign currency effect on our earnings will not be material in the future.

Historically, our policy has been to borrow in local currencies to finance the development and construction of our long-term assets in Australia, and New Zealand. As a result, the borrowings in local currencies have provided somewhat of a natural hedge against the foreign currency exchange exposure. Even so, and as a result of our issuance of fully subordinated Trust Preferred Securities in 2007, and their subsequent partial repayment, approximately 24% and 37% of our Australian and New Zealand assets, respectively, remain subject to such exposure, unless we elect to hedge our foreign currency exchange between the U.S. and Australian and New Zealand dollars. If the foreign currency rates were to fluctuate by 10%, the resulting change in Australian and New Zealand assets would result in an increase or decrease of $6.7 million and $2.1 million, respectively, and the change in our net income for the year would be $2.5 million and $3.4 million, respectively. Presently, we have no plans to hedge such exposure.

With changes in the tax landscape caused by the Tax Cuts and Jobs Act of 2017, we may reconsider our strategy for financing operations and redevelopment projects in the three countries we are invested in, which may include increased borrowings from banks in higher-tax countries, and dividends to the U.S. from foreign subsidiaries, being mindful of withholding taxes on interest, and thin capitalization limitations on interest deduction in Australia and New Zealand.

We record unrealized foreign currency translation gains or losses that could materially affect our financial position. We have accumulated unrealized foreign currency translation gains of approximately $6.8 million and $15.0 million as of December 31, 2021 and 2020, respectively.

Historically, we maintained most of our cash and cash equivalent balances in short-term money market instruments with original maturities of three months or less. Due to the short-term nature of such investments, a change of 1% in short-term interest rates would not have a material effect on our financial condition. The negative spread between our borrowing costs and earned interest will exacerbate as we hold cash to provide a safety net to meet our expenses while some of our cinema operations remain closed and some of our tenant income curtailed.

We have a combination of fixed and variable interest rate loans. In connection with our variable interest rate loans, a change of approximately 1% in short-term interest rates would have resulted in approximately $1.6 million increase or decrease in our 2021 interest expense.

For further discussion on market risks, please refer to International Business Risks included in Item 1A –Risk Factors.

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Item 8 – Financial Statements and Supplementary Data

READING INTERNATIONAL, INC.TABLE OF CONTENTS Page

Management’s Report on Internal Control over Financial Reporting 56

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248) 57

Consolidated Balance Sheets as of December 31, 2021 and 2020 60

Notes to Consolidated Financial Statements 67

Note 1 – Description of Business and Segment Reporting 67

Note 2 – Summary of Significant Accounting Policies 68

Note 3 – Impact of COVID-19 Pandemic and Liquidity 77

Note 4 – Earnings (Loss) Per Share 78

Note 5 – Real Estate Transactions 79

Note 6 – Properties and Equipment 81

Note 7 – Investments in Unconsolidated Joint Ventures 82

Note 8 – Goodwill and Intangible Assets 82

Note 9 – Prepaid and Other Assets 83

Note 10 – Income Taxes 83

Note 11 – Borrowings 86

Note 12 – Pension and Other Liabilities 90

Note 13 – Commitments and Contingencies 92

Note 14 – Noncontrolling Interests 97

Note 15 – Share-based Compensation and Repurchase Plans 97

Note 16 – Accumulated Other Comprehensive Income 100

Note 17 – Fair Value Measurements 102

Note 18 – Hedge Accounting 101

Note 20 – Business Combinations 105

Note 21 – Related Parties 107

Note 22 – Subsequent Events 109

Schedule II – Valuation and Qualifying Accounts 110

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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors and Stockholders

Reading International, Inc.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with U.S. GAAP. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this assessment, our management believes that the Company’s internal control over financial reporting is effective as of December 31, 2021.

The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Reading International, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Reading International, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 16, 2022 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Valuation of Long-Lived Assets

As described further in Note 2 and Note 8 to the financial statements, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be fully recoverable. The impairment evaluation of long-lived assets is an assessment that begins with the Company’s monitoring of indicators of impairment on an asset group basis, which the Company believes is the lowest applicable level for which there are identifiable cash flows. Due to the continued impact of COVID-19, the Company performed long-lived asset impairment evaluations for its operating properties and operating lease right-of-use assets as of December 31, 2021. When performing the impairment assessments, the Company estimates undiscounted cash flows at the asset group level from continuing use through the remainder of the asset’s useful life. If the estimated undiscounted cash flows are not sufficient to recover the carrying value of the asset, the Company then compares the carrying value of the asset with its estimated fair value. The key uncertainties in the assumptions used in estimating the projected cash flows of operating properties and operating lease right-of-use assets is due to the impact of COVID-19 regarding the uncertainty surrounding future variants of the virus that could cause additional theater closures, the public’s demand to attend indoor entertainment settings and the timing of the release of movie and production content. We identified the impairment of operating properties and operating lease right-of-use assets as a critical audit matter.

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The principal considerations for our determination that the valuation of operating properties and operating lease right-of-use assets is a critical audit matter is due to the uncertainties and significant management judgement used to estimate the related undiscounted cash flows. Evaluating management’s estimates required a high degree of auditor judgement and an increased level of effort when performing audit procedures to evaluate the reasonableness of management’s cash flow analysis in light of the uncertainties presented from the COVID-19 global pandemic.

Our audit procedures related to the valuation considerations for operating properties and operating lease right-of-use assets included the following, among others.

We tested the design and operating effectiveness of internal controls relating to management’s identification of triggering events and measurement considerations for long-lived assets, key inputs and assumptions used in relation to the forecasting of future cash flows.

The evaluation of assumptions within the impairment consideration models, including future cash flows, growth rates and terminal values were evaluated for management bias. We benchmarked the average historical cash flows generated at the specific theater location level during prior periods not impacted by government mandated closures due to pandemic concerns.

On a scope basis we performed independent calculations to test the sensitivity of key assumptions used by management.

We utilized the assistance of our firm’s valuation services group to assist in testing certain scoped assets’ impairment consideration models and in evaluating the reasonableness of significant assumptions utilized within the models.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2011.

Los Angeles, California

March 16, 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Reading International, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Reading International, Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidatedfinancial statements of the Company as of and for the year ended December 31, 2021, and our report dated March 16, 2022 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting of Reading International, Inc. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Los Angeles, California

March 16, 2022

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READING INTERNATIONAL, INC. and SUBSIDIARIES

Consolidated Balance Sheets as of December 31, 2021 and 2020

(U.S. dollars in thousands, except share information)

December 31,

ASSETS

Current Assets:

Derivative financial instruments - current portion 96 —

Prepaid and other current assets 4,871 8,406

Land held for sale — 17,730

Investment and development properties, net 9,570 11,570

Investment in unconsolidated joint ventures 4,993 5,025

Derivative financial instruments - non-current portion 112 —

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable and accrued liabilities $ 39,678 $ 38,877

Subordinated debt - current portion 711 840

Derivative financial instruments - current portion 181 218

Operating lease liabilities - current portion 23,737 22,699

Derivative financial instruments - non-current portion — 212

Subordinated debt - non-current portion 26,728 26,505

Operating lease liabilities - non-current portion 223,364 212,806

Commitments and Contingencies

Stockholders’ Equity:

Class B voting common shares, par value $0.01, 20,000,000 shares authorized and

or outstanding shares at December 31, 2021 and 2020 — —

Retained earnings (accumulated deficit) (12,632) (44,553)

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Accumulated other comprehensive income 4,882 12,502

Total Reading International, Inc. ("RDI") Stockholders’ Equity 104,074 77,769

Total Liabilities and Stockholders’ Equity $ 687,702 $ 690,169

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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READING INTERNATIONAL, INC. and SUBSIDIARIES

Consolidated Statements of Operations for the Three Years Ended December 31, 2021

(U.S. dollars in thousands, except share and per share data)

Revenues

Costs and expenses

Impairment of long-lived assets — (217) —

Gain (loss) on sale of assets 92,219 (1) (2)

Equity earnings of unconsolidated joint ventures 258 (449) 792

Basic earnings (loss) per share $ 1.46 $ (3.00) $ (1.17)

Diluted earnings (loss) per share $ 1.42 $ (3.00) $ (1.17)

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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READING INTERNATIONAL, INC. and SUBSIDIARIES

Consolidated Statements of Comprehensive Income for the Three Years Ended December 31, 2021

(U.S. dollars in thousands)

Foreign currency translation gain (loss) (8,123) 6,837 (567)

Gain (loss) on cash flow hedges 340 (65) (115)

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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READING INTERNATIONAL, INC. and SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity for the Three Years Ended December 31, 2021

(In thousands)

Common Shares Retained Accumulated Reading

Other comprehensive income, net — — — — — — — (526) (526) 2 (524)

Share-based compensation expense — — — — 1,463 — — — 1,463 — 1,463

Retirements — (2) — — — — 2 — 2 — 2

Contributions from noncontrolling shareholders — — — — — — — — — 90 90

Distributions to noncontrolling shareholders — — — — — — — — — (42) (42)

Share-based compensation expense — — — — 1,421 — — — 1,421 — 1,421

Share repurchase plan (75) — — — — — (670) — (670) — (670)

Restricted Stock Units 41 — — — (44) — — — (44) — (44)

Contributions from noncontrolling stockholders — — — — — — — — — 55 55

Distributions to noncontrolling stockholders — — — — — — — — — (250) (250)

Other comprehensive income, net — — — — — — — (7,620) (7,620) 1 (7,619)

Share-based compensation expense — — — — 2,152 — — — 2,152 — 2,152

Contributions from noncontrolling stockholders — — — — — — — — — 3 3

Distributions to noncontrolling stockholders — — — — — — — — — (5,315) (5,315)

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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READING INTERNATIONAL, INC. and SUBSIDIARIES

Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2021

(U.S. dollars in thousands)

Operating Activities

Adjustments to reconcile net income to net cash flows from operating activities:

Equity earnings of unconsolidated joint ventures (258) 449 (792)

Distributions of earnings from unconsolidated joint ventures — 240 864

Gain recognized on foreign currency transactions (2,085) — —

Net loss (gain) on sale of assets (92,219) 1 2

Amortization of finance leases 49 93 165

Interest on hedged derivatives (56) — (10)

Purchase of derivative instruments (62) — —

Impairment of long-lived assets — 217 —

Net changes in operating assets and liabilities:

Payments for accrued pension (683) (683) (683)

Net cash provided by (used in) operating activities (13,498) (30,200) 24,607

Investing Activities

Proceeds from sale of assets 145,165 — —

Acquisition of business — — (7,877)

Cash settlement on insurance claim — — 323

Contributions to unconsolidated joint ventures — (245) —

Financing Activities

Repayment of finance lease principal (49) (92) (160)

Capitalized borrowing costs (1,691) (97) (526)

Repurchase of Class A nonvoting common stock — (670) (11,152)

Proceeds (payments) from stock option exercises (148) (43) (315)

Noncontrolling interest contributions 3 55 90

Noncontrolling interest distributions (5,315) (250) (42)

Effect of exchange rate on cash and restricted cash (4,095) 4,333 322

Cash and cash equivalents and restricted cash consists of:

Supplemental Disclosures

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Non-Cash Transactions

Additions to long-term borrowings — — 3,519

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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READING INTERNATIONAL, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

As of and for Three Years Ended December 31, 2021

________________________________________________________________________________________________________

NOTE 1 – DESCRIPTION OF BUSINESS AND SEGMENT REPORTING

The Company

Reading International, Inc., a Nevada corporation (“RDI” and collectively with our consolidated subsidiaries and corporate predecessors, the “Company,” “Reading,” and “we,” “us,” or “our”), was incorporated in 1999. Our businesses consist primarily of:

the development, ownership, and operation, of cinemas in the United States, Australia, and New Zealand; and,

the development, ownership, operation and/or rental of retail, commercial and live venue real estate assets in Australia, New Zealand, and the United States.

Business Segments

Our business is comprised of two operating segments, as follows: (i) cinema exhibition and (ii) real estate. Each of these segments has discrete and separate financial information and for which operating results are evaluated regularly by our Chief Executive Officer, the chief operating decision-maker of the Company. As part of our real estate activities, we have historically held undeveloped land in urban and suburban centers in the United States, Australia, and New Zealand. However, in 2021, we monetized certain raw landholdings and other real estate assets as detailed at Note 5 – Real Estate Transactions.

The tables below summarize the results of operations for each of our business segments. Operating expense includes costs associated with the day-to-day operations of the cinemas and the management of rental properties, including our live theatre assets.

Operating expense

Impairment of long-lived assets — — — (217) — (217) — — —

(1)Inter-segment Revenues and Operating Expense relates to the internal charge between the two segments where the cinema operates within real estate owned within the group.

A reconciliation of segment operating income to income before income taxes is as follows:

Unallocated corporate expense:

Depreciation and amortization expense (1,232) (970) (414)

Equity earnings (loss) of unconsolidated joint ventures 258 (449) 792

Gain (loss) on sale of assets 92,219 (1) (2)

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Assuming cash and cash equivalents are accounted for as corporate assets, total assets by business segment and by country are presented as follows:

December 31,

By segment:

By country:

(1)Corporate Assets includes cash and cash equivalents of $83.3 million and $26.8 million as of December 31, 2021 and 2020, respectively.

The following table sets forth our operating properties by country:

December 31,

The table below summarizes capital expenditures for the three years ended December 31, 2021:

Corporate capital expenditures — 73 167

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

Basis of Consolidation

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).These consolidated financial statements include the accounts of our wholly owned subsidiaries, which are RDGE, CRG, and CDL. We have also consolidated the following entities that are not wholly owned for which we have control:

Australia Country Cinemas Pty, Limited, a company in which we own a 75% interest and whose only assets are our leasehold cinema at Dubbo, Australia and our owned cinema at Townsville, Australia;

Sutton Hill Properties, LLC (“SHP”), a company based in New York in which we own a 75% interest and whose only asset is the fee interest in the Cinemas 1,2,3; and,

Shadow View Land and Farming, LLC in which we own a 50% controlling membership interest and whose only asset was a 202-acre land parcel in Coachella, California as of December 31, 2020. This land was sold in March 2021, and the company is now in the process of winding up.

Our investment interests in certain joint venture arrangements, for which we own between 20% to 50% and for which we have no control over the operations, are accounted for as unconsolidated joint ventures, and hence, recorded in the consolidated financial statements under the equity method. These investment interests include our:

33.3% undivided interest in the unincorporated joint venture that owns the Mt. Gravatt cinema in a suburb of Brisbane, Australia;

50% undivided interest in the unincorporated joint venture that owns Rialto Cinemas in New Zealand.

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We consider that we have control over our partially owned subsidiaries and joint venture interests (collectively “investee”) when these conditions exist:

(i)we own a majority of the voting rights or interests of the investee (typically above 50%), or

(ii)in the case when we own less than the majority voting rights or interests, we have the power over the investee when the voting rights or interests are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally.

The Company considers all relevant facts and circumstances in assessing whether or not our voting rights in the investee are sufficient to give it power, including:

(i)the size of our voting rights and interests relative to the size and dispersion of holdings of other vote holders;

(ii)potential voting rights and interests held by us;

(iii)rights and interests arising from other contractual arrangements; and,

(iv)any additional other relevant facts.

All intercompany balances and transactions have been eliminated on the consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Hence, actual results may differ from those estimates. Significant estimates and assumptions include, but are not limited to:

(i)projections we make regarding the recoverability and impairment of our assets (including goodwill and intangibles);

(ii)valuations of our derivative instruments;

(iii)allocation of insurance proceeds to various recoverable components;

(iv)recoverability of our deferred tax;

(v)estimation of our Incremental Borrowing Rate (“IBR”) as relates to the valuation of our right-of-use assets and lease liabilities; and,

(vi)estimation of gift card and gift certificate breakage where we have concluded that the likelihood of redemption is remote.

Revenue Recognition

(i)Cinema ExhibitionSegment (all net of related taxes):

Sales of Cinema tickets (excluding bulk and advanced ticket sales) and food and beverage (“F&B”) sales – recognized when sold and collected, either in cash or credit card at our theatre locations and through our online selling channels;

Sales of Bulk and Advanced Cinema Ticket Sales – deferred and recognized as revenue when the promised performance or movie that the ticket has been purchased for is shown;

Gift Cards and Gift Certificate Sales – deferred and recognized as revenue when redeemed, except for the breakage portion, as described below;

Breakage Income – recognized for unredeemed cards and certificates using the proportional method, whereby breakage revenue is recognized in proportion to the pattern of rights exercised by the customer when the Company expects that it is probable that a significant revenue reversal would not occur for any estimated breakage amounts. This is based on a breakage ‘experience rate’ which is determined by historical redemption data;

Loyalty Income - a component of revenue from members of our loyalty programs relating to the earning of loyalty rewards is deferred until such a time as members redeem rewards, or until we believe the likelihood of redemption by the member is remote. Deferral is based on the progress made toward the next reward, the fair value of that reward, and the likelihood of redemption, determined by historical redemption data, and;

Advertising Revenues – recognized based on contractual arrangements or relevant admissions information, as appropriate, when the related performance obligation is satisfied.

(ii)Real EstateSegment:

Property Rentals –we contractually retain substantially all of the risks and benefits of ownership of our real estate properties and therefore, we account for our tenant leases as operating leases. Accordingly, rental revenue is recognized on a straight-line basis over the lease term; and,

Live Theatre License Fees – we have real property interest in and license theatre space to third parties for the presentation of theatrical productions. Revenue is recognized in accordance with the license agreement, and is typically recorded on a weekly basis after the performance of a show has occurred.

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Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less at the time of purchase as cash equivalents for which cost approximates fair value.

Receivables

Our receivables balance is composed primarily of credit card and booking agent receivables, representing the purchase price of tickets, food & beverage items, or coupon books sold at our various businesses. Sales charged on customer credit cards are collected when the credit card transactions are processed. The remaining receivables balance is primarily made up of the net Goods and Service Tax (“GST”) receivable from our Australian taxing authorities, rents receivable from our third-party tenants, and the management fee receivable from the managed cinemas. We have no history of significant bad debt losses but we have established an allowance for accounts that we deem uncollectible.

Inventory

Inventory is composed of food and beverage items in our theater operations and books and associated stationery items at our State Cinema bookstore, and is stated at the lower of cost (first-in, first-out method) or net realizable value.

Restricted Cash

Restricted cash includes those cash accounts for which the use of funds is restricted by any contract or bank covenant. At December 31, 2021 and 2020, our restricted cash balance was $5.3 million and $8,000, respectively.

Derivative Financial Instruments

From time to time, we purchase interest rate derivative instruments to hedge the interest rate risk that results from the variability of our floating-rate borrowings. Our use of derivative transactions is intended to reduce long-term fluctuations in cash flows caused by market movements. Derivative instruments are recorded on the balance sheet at fair value with changes in fair value through interest expense in the Consolidated Statements of Operations or, in the case of accounting hedges, in Other Comprehensive Income and then reclassified into interest expense in the same period(s) during which the hedged transactions affect earnings. The cash flows from interest rate derivatives are classified as cashflows provided by operating activities in the Consolidated Cashflow Statement, as are the hedged transactions. As of December 31, 2021 and 2020 we have unfavorable derivative positions designated as accounting hedges of $181,000 and $430,000, respectively, and favorable derivative positions designated as accounting hedges of $208,000 and $nil, respectively.

With regards to accounting hedges, the Company has elected, by reference to certain practical expedients contained within ASC 848 Reference Rate Reform, to continue the method of assessing effectiveness as document in the original hedge, so that the reference rate on the hypothetical derivative matches the reference rate on the hedging instrument. In addition, the Company has elected the expedient permitting the assertion of probability of the hedged interest payments regardless of any expected modification in the terms related to reference rate reform.

Operating Properties, net

Our Operating Properties consist of land, buildings and improvements, leasehold improvements, fixtures and equipment, which we use to derive operating income associated with our two business segments, cinema exhibition and real estate. Buildings and improvements, leasehold improvements, fixtures and equipment are initially recorded at the lower of cost or fair market value and depreciated over the useful lives of the related assets. Land is not depreciated. Expenditures relating to renovations, betterments or improvements to existing assets are capitalized if they improve or extend the lives of the respective assets and/or provide long-term future net cash inflows, including the potential for cost savings.

Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are generally as follows:

Building and improvements 15 – 60 years

Theater equipment 7 years

Furniture and fixtures 3 – 10 years

Investment and Development Properties, net

Investment and Development Properties consist of land, buildings and improvements under development, and their associated capitalized interest and other development costs that we are either holding for development, currently developing, or holding for

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investment appreciation purposes. These properties are initially recorded at the lower of cost or fair market value. Within this category are building and improvement costs directly associated with the development of potential cinemas (whether for sale or lease), the development of entertainment-themed centers (“ETCs”), or other improvements to real property. As incurred, we expense start-up costs (such as pre-opening cinema advertising and training expense) and other costs not directly related to the acquisition and development of long-term assets. We cease cost capitalization (including interest) on a development property when the property is complete and ready for its intended use, or if activities necessary to get the property ready for its intended use have been substantially curtailed. However, we do not suspend cost capitalization for brief interruptions and interruptions that are externally imposed, such as mandates from governmental authorities.

Impairment of Long-Lived Assets

We review long-lived assets, including goodwill and intangibles, for impairment as part of our annual budgeting process, at the beginning of the fourth quarter, and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. In 2020, due to the impacts of the COVID-19 pandemic, we have reviewed our long-lived assets, including goodwill and intangibles, for impairment at the end of each reporting quarter. Due to improvements in performance from our long-lived assets in 2021, our impairment testing occurred only at the beginning of the fourth quarter.

We review internal management reports on a monthly basis as well as monitor current and potential future competition in film markets for indications of potential impairment.