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More screens means greater competition

MORE people than ever before are heading to the cinema to enjoy a coke, popcorn and the latest blockbuster.

According to the Australian Bureau of Statistics, people were visiting cinemas more often and, in the 1999-2000 financial year, WA’s 150 cinema screens generated $71.9 million in ticket sales.

And, more than just popular with moviegoers, cinema complexes – with long-term leases and high returns – could also prove an attractive option for investors.

So in what is something of a rare occurrence, two Perth cinema sites are up for sale, in Midland and Rockingham.

Offers to Purchase have been called by Colliers Jardine for the Midland Cinema and International Food Hall Complex.

According to Colliers Jardine commercial sales director Jeff Braddock, the seven-screen cinema and associated food and entertainment tenancies returns a current net income of about $630,000.

Ace Cinemas holds a lease until 2008 and Mr Braddock said the cinema was ideally located close to the Midland town centre.

The Rockingham Cinema Complex is up for sale for between $7.7 and $7.8 million through Knight Frank.

Operated by Hoyts, the six-screen complex is owned by a private syndicate and leased to P&R Holdings Pty Ltd, which previously operated the Coastal Cinemas chain.

Hoyts last year bought several Coastal Cinemas sites but declined to buy the Rockingham complex, opting instead for a management deal.

Knight Frank senior commercial salesperson Tony Delich said cinemas were a rare investment opportunity and should be considered.

“It is rare for cinemas to come up for sale, simply because there are not very many of them,” Mr Delich said.

According to information for the Valuer General’s office, the last cinema complex to come up for sale in WA was in Boulder in November 1998. It sold for $850,000.

“Generally cinemas have long term leases and generate attractive returns of 12 per cent plus, well above traditional returns for retail and office buildings, which stand at about 8 or 9 per cent,” Mr Delich said.

The 1424-seat Rockingham complex has a net annual income of about $1.011 million and there are 14 years remaining on the cinema lease to P&R Holdings.

However, potential investors should exercise caution and research the site and the state of the industry thoroughly before investing, according to Grand Theatre Company managing director Allan Stiles.

Mr Stiles, who operates the Grand Cinemas chain, said the jump in the number of screens in Perth had led to a decrease in cinema profits.

“We opened in September 1993 at Warwick and at that time we had an average of 22,500 people per screen per week,” Mr Stiles said.

“Now, with the introduction of multiplexes and their continual expansion, it is something like 9500 people per screen per week … profits have gone down.”

His claim is supported by ABS statistics showing a national 5.5 per cent drop in cinema operating profits before tax in the 1999-2000 year from 1996-1997.

And since 1994 a total of 51 cinema businesses have closed across the country. Eight movie chains, with annual incomes of more than $8 million each, now dominate the industry, taking 80 per cent of the industry income.

“I would personally think twice about getting involved in a cinema complex because I feel there are too many places in the metropolitan area,” Mr Stiles said.

“I would make sure that I would go into the industry with somebody who knows it well … the industry is going to go through harder times.

“If you have a strong location and a good operator then the cinema will succeed, but you need to examine closely the kind of population you have in a five kilometre radius of the cinema.”

This was disputed by Greater Union communications manager Nicki Martin, who said the cinema industry was incredibly profitable, especially if the cinemas were in a good location, such as a shopping centre.

“We like to locate the cinemas in shopping centres because, apart from the convenience to our customers, there is a lot more traffic in them,” Ms Martin said.

A spokesperson for Ace Cinemas declined to comment and a Hoyts spokesperson was unavailable.

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