The coronavirus crisis has battered movie theaters to the point where they might really struggle to recover. Last year, many theaters were forced to shutter completely as pandemic-related restrictions rolled out. And now, one year later, movie theaters are still grappling with capacity limits that are hurting their bottom line.
But that's not the only reason movie theaters have struggled. Another big issue is that there's been a dearth of new content for theaters to screen. Just as much of the world has shut down in the course of the pandemic, so too has Hollywood halted production on new films. The result? Movie theaters haven't had much to offer patrons, so business has been sluggish for months on end.
It's not surprising, then, to learn that Alamo Drafthouse, a popular movie theater chain known for its famous drinks and meals, has filed for bankruptcy protection. The Austin-based company, which operates about 40 theaters across the U.S., filed for Chapter 11 earlier this month and has agreed to sell the bulk of its assets to a group of lenders.
As part of the process, Alamo will be permanently closing three locations, and the development of a new Florida theater will not go on as planned. Furthermore, Alamo has said that additional locations could shutter as the company assesses the health of its various leases.
Bad news for real estate investors
Alamo isn't the only movie theater chain to struggle financially during the pandemic. In fact, AMC Entertainment (NYSE: AMC) only narrowly avoided bankruptcy several times over the past year. But losing movie theaters could constitute a big blow for entertainment REITs (real estate investment trusts), malls, and shopping centers that rely on them as tenants.
Now the good news is that things seem to be picking up out in Hollywood, and a number of new releases are slated for 2021. That means movie theaters will finally have content again, which will help them draw in crowds (or the closest thing to a crowd that's allowed during a pandemic).
The rollout of coronavirus vaccines could also help turn things around for movie theaters. Once more people are inoculated, patrons may be more eager to enter theaters, and capacity restrictions may be loosened or lifted if things really improve on the pandemic front. (In New York City, theaters have already gotten the green light to open, which is a vast improvement over mandates that they close to patrons completely.) Furthermore, after a year of being cooped up at home, many people will no doubt be itching to enjoy some nightlife, and going to the movies could help fill a very pressing void.
As such, while Alamo's news isn't the greatest, there's reason for real estate investors to be hopeful that movie theaters could very well stage a comeback later this year. At the same time, investors really have to hope that more theaters don't permanently close their doors between now and when things take a notable turn for the better.