KEY POINTS:
SkyCity has sold its Metro cinema building for $55.1 million, leaving the market wondering if it will pull out of the cinema business completely.
Under the deal revealed yesterday, the listed casino company will lease the property back from new owners Orchard Funds Management.
Orchard has A$3.5 billion
funds under management and interests in property, infrastructure, agribusiness, securities and venture capital.
Analysts said yesterday the sale of the Queen St building was separate from SkyCity's review of entertainment assets, including cinemas, announced by the company last month.
But Marcus Curley of Goldman Sachs JBWere said he expected the next update would reveal SkyCity's cinema chain would be sold, along with casinos in Christchurch and Adelaide. SkyCity's chain is focused on the top half of the North Island.
Rob Bode, of New Zealand First Capital, said consolidation of the cinemas by buying out partner Village last year could be seen as making it easier to exit the business. SkyCity, which has been developing cinema complexes in Hamilton and Albany, declined to clarify its cinema strategy.
SkyCity revealed last year it was considering selling the high-profile Metro complex located on the edge of Aotea Square on Queen St.
Peter Coman, of Jones Lang LaSalle, said yesterday that the eight-level SkyCity Metro building was sold with long-term leases to all its tenants.
The complex generates a net income of $4.4 million annually and was sold at a price which equated to $3497 per square metre, Coman said.
Coman, who negotiated the sale with Simon Rooney of Jones Lang in Sydney, said SkyCity would lease its cinemas in the building on two 15-year terms with the option to extend by a further five years after that.
Borders Books would lease its premises from Orchard for an initial 8.6-year term with rights of renewal. Imax Cinema had a 5.2-year lease to Orchard, with rights of renewal.
Analysts said yesterday that the Metro sale had been foreshadowed well in advance of the May announcement and investors were focused on the details that would be released "within weeks" about what other SkyCity assets are going to be sold.
"My view is that all three are likely to be sold." said Curley, referring to the cinema business and casinos in Christchurch and Adelaide. "If they sell it below what they bought it for people will be asking questions."
SkyCity provides limited financial results about its cinema arm and the sale of cinema assets has raised eyebrows in the film distribution sector as the industry is performing well.
An industry source said that SkyCity had paid a premium price to Village to take over the chain and, faced with fresh competition from the Hoyts chain, was now expanding.
Bode said the market had been waiting for an update on sale plans but the share price had increased based on cost cutting rather than divestment.
Shares in SkyCity closed down 2c at $5.13.
At The Movies
* Orchard Funds Management, of Australia, has bought SkyCity's Metro cinema complex.
* The cinemas will remain tenants of the Queen St building.
* In May last year SkyCity bought out its joint-venture partner Village to own 100 per cent of the cinema operation.
* In May this year the company told the NZX it was looking at divestment and was focused on its underperforming cinema assets.