Multiplex chains renegotiate rentals, capex terms as business dives

Multiplex chains that have seen their business hit new lows over the past few months, with big Hindi language releases having reduced to a trickle and few hits in Hollywood and other local languages such as Tamil or Telugu, are trying to convince mall developers to agree to a partnership model where they can co-invest in new theatres. Further, revenue terms are being renegotiated. Instead of lease rent, theatre chains want to share revenue based on how well a film does. Further, while some properties, signed a couple of years ago, are coming up as planned, others are waiting for the business to improve.

“The general terms that chains are asking for, given the current state of the business, are partnership models where they (multiplexes) can co-invest in cinemas along with developers and a certain portion of the capital expenditure is demanded upfront. Multiplexes are also asking for costs of lobby finishing or seats, in some cases," Anuj Kejriwal, CEO and managing director, ANAROCK Retail, said. Kejriwal added that several properties are not getting signed unless developers feel the locations are great and the overall rents have dipped by 15-30% over the past six months.

Further, several chains are insisting that existing rents be based on theatre occupancies, said Abhishek Sharma, director, retail at Knight Frank, a realty consulting firm. “For certain occupancies, there might be specific MG (minimum guarantee) promised, plus a share of the revenue. Chains are saying the business is cyclical and at the moment, no big-star films are releasing," Sharma explained. While some new openings are taking place as per plan, Sharma said it is also intentional to hold back a few properties and wait for the right time in order to minimize losses. “Signings are happening, because those are long-term deals but some cinemas are on hold till big releases start arriving," he added.

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As part of its earnings release last week, multiplex chain PVR Inox Ltd said it closed 85 underperforming screens in FY24 and 70 screens will shut down in FY25, as the company looks at renegotiation of cinema rentals, a leaner organization structure and other overhead cost control. The firm that shall be ‘very selective’ in new screen additions, plans to open around 120 new screens in FY25, prioritizing expansion efforts in south India and will partner with developers to jointly invest in new screen capital expenditure, it said. Transitioning towards a capital-light growth model would mean reducing capital expenditure in FY25 by 25% over FY24. “The key strategic priorities should help the company in charting a new, less capital intensive and incrementally profitable growth path. Our endeavour is to redefine our growth strategy, focus on fixed cost reduction, thus improving profitability resulting in enhanced return on capital and free cash flow generation," Ajay Bijli, managing director, PVR Inox Ltd, had said in a statement.

Also Read | PVR Inox to shut 70 screens in FY25, lower capex, adopt multi-pronged growth strategy

A trade analyst said that while renegotiations of terms are on, malls cannot afford to run the business without multiplex chains. “They are seen as anchor tenants, so will be able to dictate some terms. Anyway, malls without multiplexes see no footfalls," the person said, requesting anonymity. At the moment, though, most malls are refraining from operating all screens that they house and adopting tactics such as starting shows later in the day, to minimize expenses when there is no content to feed cinemas, the person added.