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UltraStar theaters being acquired by Digital Cinema

The operations of four UltraStar theater complexes in San Diego County and one in Temecula are part of a multimillion asset acquisition by Westfield, N.J.-based Digital Cinema Destinations and Start Media LLC.

The transaction, which doesn’t involve the underlying real estate, includes the businesses of seven multiplexes with a total of 74 fully digital screens. The local UltraStar assets include River Village 6 in Bonsall, Mission Marketplace 13 in Oceanside, Poway Cinema 10 in Poway, and Mission Valley 7 in Hazard Center.

Just north of the county line, the Temecula 10 UltraStar multiplex was part of the deal as well.

The other multiplexes that are part of the same transaction include the Apple Valley 14 in the high desert and the Surprise 14 near Phoenix.

The transaction doesn't include UltraStar Cinemas in Chula Vista, Palm Springs or Scottsdale.

The River Village Shopping Center, which has River Village 6, is owned by a unit of locally based River Village Properties; the Mission Marketplace shopping center is owned by a limited liability company out of Woodland Hills, Calif.; the portion of the Poway Creekside center that holds the Ultrastar 10-plex, is owned by Glendale-based Azure Creekside Corp.; Hazard Center, which harbors the Mission Valley 7, is owned by a joint venture of the Principal Financial Group and the Starwood Capital Group; and the Temecula property is owned by a partnership out of Hermosa Beach, Calif.

Under the proposed business transaction, Digital Media Destinations, in conjunction with Start Media, its newly formed joint venture partner, will pay approximately $13 million, subject to closing adjustments, consisting of $8 million in cash plus approximately 910,000 shares of Digital’s Class A common stock, valued at $5.50 per share.

The purchase price represents a multiple of approximately five times the combined annual theater cash flow.

“Start Media’s initial $10 million capital contribution to the JV will provide the cash portion of the purchase price, the costs of post-closing capital improvements to the theaters and transaction costs,” Digiplex said in a press release.

Digiplex will be the exclusive manager of each of the theaters under long-term management contracts, will receive combined management fees estimated to exceed $1 million per year, and will have an initial membership interest in the joint venture of approximately 35 percent, with an option to bring it to a half ownership stake.

As a member of the joint venture, Digiplex will also be entitled to participate in distributions of future cash flow available from the JV after the payment of management fees to Digiplex and a 6 percent preferred return to Start Media. Start Media in turn has agreed to commit up to $20 million (an additional $10 million above its initial contribution) to fund the JV’s operations and future acquisition program.

“We are very pleased about reaching this mutually beneficial acquisition agreement with Digiplex," said Alan Grossberg, UltraStar CEO, in a statement. “They are very well-respected pioneers of digital cinema and have developed an intriguing and ambitious growth strategy. As stakeholders, we look forward to sharing in the rewards of their future success.”

“The accretive purchase of UltraStar’s seven West Coast-based theaters is a logical next step for Digiplex as we continue to successfully execute our strategy of opportunistically expanding the company’s footprint across the U.S.,” added Bud Mayo, Digiplex chairman and CEO. “This marks our third acquisition of the year and significantly expands and diversifies Digiplex’s revenue and operating base while delivering incremental value to all stakeholders.”

The acquisitions are targeted to be consummated by the new joint venture (Start Media/Digiplex LLC) on Friday, subject to customary closing conditions.

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