The Marcus Corporation
Q2 2015 Earnings Call Transcript

Published: 24 Jul 2015

[Operator:]

Good morning, everyone, and welcome to the Marcus Corporation Fourth Quarter Earnings Conference Call. My name is Sheila and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer; and Doug Neis, Chief Financial Officer of Marcus Corporation. At this time, I'd like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

[Doug Neis:]

Well, thank you very much and welcome everybody to our fiscal 2015 fourth quarter conference call. As usual, I do need to begin by stating that we plan on making a number of forward-looking statements on our call today. The forward-looking statements could include, but not be limited to statements about our future revenues and earnings expectations, our future RevPAR, occupancy rates and room rates expectations for our Hotels & Resorts division, our expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future, our expectations about the future trends in the business group and leisure travel industry and in our markets, our expectations and plans regarding growth in the number and type of our properties and facilities, expectations regarding various non-operating line items on our earnings statement and our expectations regarding future capital expenditures. Of course, our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks and uncertainties, which could impact our ability to achieve our expectations, are included in the Risk Factor Section of our 10-K and 10-Q filings, which can be obtained from the SEC of the company. We'll also post our Regulation G disclosures when applicable on our website at www.marcuscorp.com. So with that behind us, let's talk about our fiscal 2015 fourth quarter and yearend results. In impairment charge that I'll talk about more about the minute may have had change - I must skip to say not may have had but did have on the surface, mask the fact that it was another very good quarter for us led by our Theatre division that reported record operating results for a 13-week fourth quarter and record fiscal year results. And nearly identical to our last two quarters but makes it a special quarter for us that we've produced these results during a 13-week period when the National Box Office numbers were essentially flat. So it wasn't that if we had an unusually great films late. For the sixth straight quarter our theatre division significantly outperformed the industry. And while continue RevPAR improvement from our hotels and resorts division contributed record revenues for the hotel division and in fact the entire company as a whole. As we've projected when we last talked, we had one more quarter where the significant renovation and brand conversion at our Chicago hotel negatively impacted our hotel results. I'm going to take you through some of the detail behind the numbers, both on a consolidated basis and for each division, and then turn the call over to Greg for his comments. Let's start with the impairment charge, pretty simple actually really. As you know, we're spending a great deal of time actively reviewing our portfolio of hotel assets from a strategic perspective. We also at least annually review all of our long lived assets for impairment, their process estimates future cash flows in order to determine the fair value of the respective assets. As you might imagine given our portfolio and the averaging holding time while most of our assets in almost every case the estimated fair market value of our hotel assets exceeds the book value sometimes by a significant amount. In fact, if anything you probably heard us talk about the fact that as we pursue potential hotel monetization opportunities, we may have some situations where we may encounter substantial gains on certain assets that would likely require effective income tax solution. Having said that, during our review of the hotel assets, we did identify a pretax impairment of approximately $2.6 million related to a specific asset that we reported during our fiscal 2015 fourth quarter. After adjusting for income taxes, this onetime impairment charge coupled with an earlier smaller $300,000 impairment charge in our theatre division that was reported in earlier quarter negatively impacted our reported net earnings per share in terms of Marcus Corporation for both the fourth quarter and the entire fiscal year by approximately $0.06 per share. Moving on, I usually spend a few minutes on each line item below operating income but as you can see the only notable change in any of the four applicable line items during the fourth quarter was in our losses on disposition of property and equipment. Those losses increased this quarter due to the write-off of selected assets at the Chicago hotel due to the renovation and the write-off of selected assets many of which will exceed later to the theatres that undergone major renovations. The amounts implies when you look at the variations on our losses of disposition line for our year end results. I'm not going to rehash in great detail in prior quarter variations that we've previously explained but since this is also yearend I'll just remind you that our year end investment income was approximately $400,000 less than last year due to the fact that a long term interest bearing loan that we made to a municipality for a parking garage adjacent to one of our hotels has paid off during the year. And offsetting was the fact that interest expense continue to be below last year due to a lower average interest rate. Our fiscal 2015 effective income tax rate adjusted for losses from non-controlling interest was 39.5% compared to 40.2% last year, slightly lower than the last year, but generally right in our historical range of 39% to 40%. And speaking of non-controlling interest, as you can see in other reason in our fiscal 2015 consolidated net earnings attributable to the Marcus Corporation was lower than last year was because of a onetime legal settlement last year that resulted in the recording of $3.8 million pretax loss attributable from that controllable non-controlling interest. That didn't impact our fourth quarter but for the full fiscal year, a simple math would be that if you exclude the approximately $0.08 per share to earnings last year, our fiscal 2015 net earnings per share after adjusting for the impairment charges talked about would have actually been over 10%, or nearly 10% higher than last year. Look, we're not one of those earnings before bad companies, but in this case, both the impairment charge this year and the $0.08 non-controlling interest amount last year were onetime non-cash items. I do think it's important to point this out, in fact, the way we look at and the way we would manage our business, the way we look at this year is you could easily just take a look at our operating income line, and we saw that last year we had $48 million of operating income, this year, excluding the impairment charge, we had $53 million of operating income. A solid 10% increase, now you throw another $5 million of added depreciation into it, and now you're looking at basically an EBITDA going from $82 million to $92 million. That's how we look at business, that's how we look at how the year ended up, and we're very, very pleased with that result. Shifting gears away from the earning statement for a moment, our total capital expenditures during the fiscal 2015 totaled approximately $75 million compared to approximately $57 million last year. Approximately $50 million of this amount was incurred in our Theater division, related to the numerous investments that we have made in our existing theaters, as well as the new theatre opened in San Antonio Wisconsin. We spend approximately $24 million in our hotel division with a majority related to the renovation and conversion of our Chicago hotel into an AC hotel by Marriott, as well as prior renovations at the feast during the corn [ph]. As we look towards the capital expenditures for fiscal 2016, we're once again currently estimating that our fiscal 2016 capital expenditures maybe in the $70 million to $90 million range, with approximately $50 million to $65 million estimated for our theatre division, including about $90 million in carry over from this past year. That would leave about $20 million to $25 million as currently estimated for a hotel and resorts division, it was about half of that amount related to carry over cost and several projects underway or recently completed including the Chicago renovation. And the other half related to additional - some additional maintenance capital as well as frankly, there is some dollars that we've set aside in the budget for possible growth or ROI opportunity that could be evaluated - that would be evaluated during the year. As was always the case at this point of the year, the range of potential capital spending is fairly large at this time because either the timing of several of our planned projects did not finalized yet or because some of the dollars for several growth opportunities that may or may not come to fruition. As a result, even though this year’s actual expenditures did actually come in right in our originally projected range, our actual fiscal 2016 capital expenditures certainly could vary from this preliminary estimate. In addition, if an acquisition opportunity could arise, particularly not theatre business, that would obviously impact your actual capital expenditures as well. Greg will expand on some of the capital expenditure plans during his prepared remarks. Now I'd like to provide some financial comments on our operations for the fourth quarter and fiscal 2015 beginning with theaters. As you can see in our reported numbers, our Box Office revenues increased to 10.7% during the fourth quarter, ending the year 7.7% ahead of last year. Our concession and food and beverage combined revenues increased a substantial 20.2% during the fourth quarter and ended the year up 17.5%, once again, we significantly outperformed the national numbers by more than 9 and 11 percentage points respectively during the fourth quarter and full year fiscal 2015. We shared the specific numbers that earnings obtained from Rentrak in our press release with you. In fact, according to the data that we obtained from Rentrak, we are only theatre circuit of the Top10 chains in the United States to even reported increase at all in Box Office revenues during the same 12-month period. Once again, the fourth quarter increases are primarily attributable to an increase in attendance of 9.8% despite with the national numbers were essentially no better, no worse film slate. We ended fiscal 2015 with a 12.1% increase in attendance. Once again, we believe the majority of this attendance increase and the overall industry outperformance can be attributed to the new investments we're making in our theatres and the innovative marketing strategies that we've initiated. Our average admission price for our comparable theaters increased by 0.8% for the quarter, but finished the year down 3.9%, due entirely to our $5 Tuesday program that didn't lap the previous year until November, of course, as you know that's also contributed to our attendance gains. And our average concession revenues per person including the various food and beverage outlook increased by a significant 9.5% for the fourth quarter and we ended up 4.8% higher for the entire fiscal year. Now that we've left the introduction last year of our free popcorn promotions related to the $5 Tuesday program, you're now seeing more directly at the impact of our new food and beverage outlook on our concession revenues per person. And of course with higher attendance, these changes in our per capita numbers only add to the positive story, as evidenced by our significant increase in total concessions in food and beverage revenues. Shifting over to the Hotels & Resorts Division, our overall reported hotel revenues were up 6.9% for the fourth quarter, and 7% for fiscal 2015. If you eliminate the new policy of grosting up service fees into food and beverage revenues, as described during the earlier quarters conference call, our revenues were up 3.7% and 3.6% respectively during the two reported period. And our press release notes, our reported revenues and operating income were noticeably impacted by the fact that we were still operating in hotel in Chicago that was under major construction and was operating without the support of a brand. In order to get it better sensed, for the majority of our hotel portfolios performing, we believe it's more meaningful to look at the key metrics excluding the Chicago Hotel. So with that mind, I'll tell you that our total RevPAR for eight comparable properties excluding Chicago was up 5.3% during the quarter and 5.9% for the year compared to the same period last year. As we've noted in the past, our RevPAR performance did vary by market and type of property, but I will tell you that seven of our eight comparable company-owned properties reported increased RevPAR during fiscal 2015. Now according to data received from Smith Travel Research and complied by us, in order to compare our fiscal year results, comparable upper upscale hotels throughout the United States experienced an increase in RevPAR of 5.6% during the fiscal 2015 fourth quarter and 6.9% during our fiscal 2015 full year. I'll share that with you in order to be consistent with prior quarter disclosures but it does continue to be an interesting dynamic playing up right now that we refer to previously whereby the national numbers don't necessarily reflect what's happening in our more mid-western centric market. When you further dissect the Smith Travel numbers, and just look at hotels in our specific markets and compare the stats, you find that we actually had another year of outperforming our competition in most markets, in fact, specifically if you take at overall, if you look at our RevPAR for our competitive set during this fiscal year, it was only up 5.3% compared to our 5.9% overall increase that I just talked about. Breaking out our numbers little more specifically, again excluding Chicago, our fiscal 2015 fourth quarter overall RevPAR increase is due primarily to an overall occupancy rate increase of 4.3 percentage points. Our average daily rate increased 0.5% during the quarter. So for the full fiscal 2015 year, our occupancy rate also increased by the same 4.3 percentage points, and our ADR was essentially flat. So with that, I will now turn the call over to Greg.

[Greg Marcus:]

Thanks, Doug. I'll begin my remarks today with our Theater division. We're obviously thrilled to be reporting another great quarter and a record year for this division, once again, significantly outperforming the industry. Stop me if you've heard this before, clearly the investments we are making in our theatres are making a difference, and when you combine those investments with our innovative marketing and pricing initiative, the result is a recorded breaking attendance in our theatres during a time when the industry as a whole reflects an overall decrease in attendance. Doug shared the numbers with you, not only are we over indexing the nation as a whole, the numbers we are getting from Rentrak suggest that we are once again the top performing theatre circuit among the Top10 change in the United States. I think we once again answered the question that I know has been on many of your mind and we continue to outperform the industry after we had left the one year anniversary of our $5 Tuesday rollout as well as the one year anniversary of our initial dream lounge location. Clearly, the answer to that question at least for another quarter was yes. The next forth years where we added dream lounges last May, and the three recently added dream lounge were among our top performing theatres this quarter. And while there is no question that our dream lounge recliner seat location has been key contributor to these great result. I will tell you that during fiscal 2015 over 75% of our company owned first run figures outperformed the National Box Office. Part of that is because our $5 Tuesday program continue to be a contributor to our strong result. With Tuesday's this year outperforming comparable Tuesday's last year during the same quarter. As Doug indicated earlier, the National numbers would suggest that this quarters film slate was not significantly different in terms of quantity and quality than last year's comparable plate. The quarter actually started off a little slow but picked up around Easter, and then again in May when the Avengers came out. And of course, when you look at the full fiscal year, the national numbers would tell you that this was a down year at the Box Office, but you wouldn't know that looking at our numbers. Once again, the wrong numbers would suggest that the film slate for the year may have been a little deeper this year while the top side films for the year listed in our press release accounting for approximately 18% of our total Box Office, or is it the 19% share at the top films during last year represented. But I believe it is more than that. We've been seeing this dynamics since we introduced our $5 Tuesday program and I believe our numbers will suggest that we've increased movie going frequency among our customers. An increase in frequency might tend to benefit the next year of movies after the blockbusters, films that our customer may have passed on in prior years. While it all starts with attendance in Box Office revenues, it is still up to our operating team to convert these revenue increases to increased operating income. So I'm particularly pleased with our 21.5% increase in operating income this quarter, and a 15.1% increase for the full fiscal year. Despite increased fixed costs because of our recent investment, increased operating cost as we services significantly more customers than in the past, and new cost related to our loyalty program, our team was able to increase our operating margin by overall four percentage point this quarter. And for fiscal 2015, our operating margin of 19.9% is 80 basis points higher than last year. Our entire operating team from our senior general managers and district directors, to our home office staff and leadership team deserves a great deal of credit for producing these outstanding record operating results. So now we move onto fiscal 2016, and while the film slate looks very good, you've heard us say that our goal is to continue to outperform regardless of what the movies in any particular quarter look like. Our past to meeting that goal starts with many of the same strategies you've been hearing about. As Doug shared with you, we invested another $50 million into this business in fiscal 2015 with a large portion of those dollars being spent in the second half of the year. The early response to those investments has been very good, and you are seeing some of that shop in our fourth quarter number. I will be particular, we'll certainly be looking for continued return on those investments in fiscal 2016. In particular, I want to single out our new palace at Sun Perry [ph] Cinema that we opened up on April 30th. If you get a chance to see this unique entertainment destination, I encourage you to do so. This was our first new build theatre in several years, and it gave us a chance to incorporate all of our successful amenities under one roof with great results so far. Our customer response to this theatre has been fantastic, and I can tell you the studios are pretty happy with us as well. We're excited to continue to invest in both the new and existing theatres during fiscal 2016 as we further expand the successful concepts and amenities that have contributed to our industry outperformance. Doug shared with you that we may spend as much as $50 million to $65 million in this division during fiscal 2016, and we would do that in a number of ways. We expect to begin construction on another replacement theatre in a different market soon, and we are looking for additional sites for new location. I've mentioned that we are considering building our first standalone Big Screen location, and construction on a particular opportunity we are working on, it may also begin in fiscal 2016. Of course our dream lounger recliner seats have been a huge hit with our customers, so we are currently evaluating opportunities to add this premium seating amenity to another three or four theatres during fiscal 2016 in addition to the two new theatres I've just mentioned. We also plan to continue expanding our proprietary large screen format concept. We are currently evaluating opportunities to convert or add up to four additional ultra-screen VLX auditoriums, and seven of our new superscreen DOX auditoriums for fiscal 2016. And as the concession numbers Doug shared with you indicate we continue to have success with our new food and beverage concepts with more to come. We opened another Take5 Express early into fiscal 2016, have another Take 5 Lounge under construction and at least one more in the drawing board. Two more expressed our results in early in fiscal 2016, and other one is under construction up to three more being considered during the second half of fiscal 2015. Needless to say, our team will be busy but it's not just about making capital investments, as you know, part of our success has been because of our innovative marketing and pricing strategy and we'll be looking to build on that in fiscal 2016 with well over 1 million members in our loyalty program, our team will be focused on communicating to our loyal customers, whether it is with special values offerings or promoting alternate programming and special film series or attraction. And I'd be miss [ph] if I didn't mention that we continue to believe that acquisitions of existing theatres or theatre circuits may also be a viable growth strategy for us. We do not believe we are geographically constrained and with a strong balance sheet, available capital, and a proven record of implementing proprietary amenity and operating strategies, we believe we may be able to add value to the right theatre or theatres if opportunities arise. We are not the type of company that just wants to grow for growth sake, and the fragmented and family controlled nature of this business makes it difficult to predict when such opportunities may come to pass, but I will tell you that we are proactively pursuing this strategy. Finally, as I alluded to earlier, the film slate looks very good and the summer and our corresponding fiscal first quarter are off to a great start. Our press release highlights some of the movies that have done well so far, and we also list some of the remaining films to be released during our first quarter. The supply of films during the rest of the calendar year also looks good, highlighted by franchised films from the James Bond, Hunger Games and Star Wars series. Of course at the risk of being competitive our goal regardless of how the film slate turns out will be to continue to outperform the industry. I know our team is excited to take on that challenge in fiscal 2016. With that, let's move on to our other division, Hotels & Resorts. You've seen the segment numbers and Doug gave you some additional detail, excluding Chicago we reported solid increases in RevPAR and record divisional revenues, once again beating our competitive set. Obviously from an operating income perspective, the results were disappointing but as Doug shared with you, the one-time impairment charge and the operating losses at our Chicago Hotel which we continue to operate without the benefit of the flag will under construction dramatically impacted our reported results. In my remarks last quarter I also told you that we have one particular hotel that had a very strong fourth quarter last year that would likely had difficulty replacing some of the business that drove last year's results, and unfortunately, in this case I was correct. One of the realities we deal with is that with only nine company owned a majority own properties, variations in even one or two individual hotel can be nosed upon our reported results, it was obviously accentuated during this quarter. For competitive purposes we don't talk too much about individual properties but surprising to say that as evidenced by our solid RevPAR numbers this quarter with several hotels with very good results this quarter and this year. I will say with the majority of our RevPAR growth driven by occupancy gain, it is more difficult to improve operating margin and maximize the operating income flow-through from the revenue increase. There is no question that one of our key objectives during fiscal 2016 will be to make ADR growth a large component of our overall revenue growth. One of the ways that can occur is if group business continues to increase. We continue to experience improvement in the pace of our group bookings, which is a very encouraging sign. We actually knew that this summer would get off to a slower start, particularly in our home market in Milwaukee, due to reduction in convention business. But, as the year goes on, things get more promising from a group perspective, as we already have more group business on the books compared to last year. Of course, when we look ahead for fiscal 2016, we are also thrilled to have our new AC Hotel by Marriott now open. This property obviously had a pretty significant negative impact on our fiscal 2015 results, so we are happy to have that behind us. And we are very excited about what lies ahead with the new brand. We've only been open and officially on the Marriott system for a handful of weeks so far, but the hotel looks great, and we have received very favorable comments from our guests. Bigger picture, most industry experts seem to be pretty bullish on what the future holds for this industry. They all seem to be predicting that the US lodging industry will continue to achieve strong growth and RevPAR in both 2015 and 2016, and that the shift is on with record-setting occupancy yield and roundish growing ADR, with ADR gains beating the primary driver of - being the primary driver of RevPAR growth through 2019. Look, I think the reality is that no one really knows what the future holds. But I am confident that our hotels are positioned to do well in our market and I know our operating team is focused on driving revenues and improving margin. It is also no secret that we would really like to grow our management company and we’re actively pursuing a number of potential growth opportunities with a particular focus on management contracts possibly with some silver equity in time. This past year we added the Hotel Zamora using that model and we recently announced our involvement in the new capital district Marriott Hotel, in Omaha, Nebraska again using the model of management contract plus little rent and speaking of what is and what isn't a secret, our press release also noted that we have gotten into the secret position hardened upon with our recent purchase of the Safe House, an iconic spy themed restaurant located in Downtown Milwaukee that has been popular with tourist and locals for nearly 50 years. One of our growth strategies in this division is to leverage our food and beverage expertise and we saw that opportunity to expand our successful in-house restaurant brand which is Miller Time Pub & Grill, in addition to adding existing Milwaukee Safe House restaurant to our OpEx result. We look forward to exploring opportunities to expand this concept as well and finally as previously discussed by us and mentioned again by Doug earlier, we’re also actively reviewing opportunities to sell one or more owned hotel. Many factors have to be evaluated as we do this including income tax considerations, the ability to retain management, pricing, individual market considerations etcetera, etcetera. We evaluate strategies for our hotels on asset by asset basis and we have not set a specific goal for the number of hotels that might be considered for this strategy nor have we set a specific time table at this time. Having said that it is very possible that we may sell one or more owned hotels during fiscal 2016 and beyond if we determine such action is in the best interest of our shareholders. So that ends another fiscal year, in fact the 2015 - the year 2015 marks the 80th year of the Marcus Corporate as we noted in our press release, while much has changed during that time our core philosophies are providing our guests with quality, service and value, maintaining a strong balance sheet and imagine for the long term remain the same and we’re very evident once again in our fiscal 2015. Our Board expressed confidence in our future by raising our quarterly dividend by 10.5% during our fourth quarter, we believe we’re well-positioned for growth and look forward to continuing our momentum in the year ahead. With that at this time Doug and I would be happy to open the call up for any questions you may have.

[Operator:]

[Operator Instructions]. We will go first to David Loeb of Baird. Please proceed.

[David Loeb:]

Can I start with the impairment and this relates back to what Greg just said, obviously one of the factors when you look at impairment is how long you intend to hold the asset. So is this impairment related to the one of the - one or more assets that Greg mentioned you would be considering selling?

[Doug Neis:]

David, I'm going to take the fifth on that, I do appreciate the question and for a variety of reasons competitively, strategically I don’t want to identify a property that was involved and but it is part of that entire process that we go to. You’re exactly right in terms of how we go through this process, we do it at least once a year and then if there are indicators of impairment we will do it more often than that and so and so it was in conjunction with this larger process and larger strategic process that we’re going through but I'm going to respectfully refrain from telling you anything more about the specific asset.

[David Loeb:]

I'm sorry if I missed this, obviously there is a lot going in the hotel stocks are melting down today, what's the latest on the timing we saw Von Maur's announcement, when do you think you actually break ground on that project?

[Doug Neis:]

So keep in mind first of all that we are not the managing member of the joint venture, so we are minority holder in the JV, we contribute our land but Bradford [ph] and I'm are now running the project and they are moving along really well, my understanding is that they are about to rake - they are about to start putting the foundations which would be kind of the technical definition of construction commencement. Any day, in the next week or two now, so it's moving along pretty well as I understand it. Again you would have to ask, you know they would have to comment specifically on what their overall time table but if you’ve been out there, there has been a lot of dirt that’s moving around, it's looking great. They're getting the pad ready for Von Maur and so it's good. And then I'm glad you asked the question because it was in total conjunction with all that. We have talked about the fact that part of this whole process is - part of our whole agreement is that we in turn get reimbursed for the majority of our pre-development cost. And I do want to add and if you look at the numbers and you saw the corporate segment you will notice that the corporate segment is a little better this particular quarter that’s because we did in fact go ahead and reverse, I would say a net, I will tell over a $1 million about $1.4 million of items that we have previously expensed, were reversed in this process because we’re going to get reimbursed for them and over the years we have been working on this four or five years, we had been pretty conservative along the way and expense some of these cost and part of our overall deal was to get reimbursed for this. So that is reflected overall in our results which we’re very happy about.

[David Loeb:]

So thank you for anticipating my next question, so it sounds like you took the accounting step of reversing that and it sounds like you will be reimbursed within a very short period of any day now when the construction technical begins, is that the right way to think about it?

[Greg Marcus:]

You hit it exactly.

[David Loeb:]

Well then let's move on to the theater business. Greg, I really appreciate your comments about continuing - perform the industry. The industry has done very well in your first quarter to-date. We’re tracking kind of mid-20% year-over-year gains. Is it safe to assume that you’re continuing to outperform in the first quarter as well to-date?

[Doug Neis:]

I think my general counsels ran in here, I can't comment on that at this point because we haven't released anything publically. I did in our prepared remarks David, the only thing I will tell you is that, so we’re not going to talk about, we didn’t talk about the overall. We did say that local here in Milwaukee, the group business, the commission business--

[Greg Marcus:]

No he is talking about theaters.

[David Loeb:]

Now theaters, we will come to hotels.

[Doug Neis:]

I got to be honest, we haven't tracked, we haven't compiled for the first quarter, that we track information the way we normally do but as you did indicate results have been very strong and we didn’t hold back in our comments in terms of saying how good the quarter has certainly started thanks to Jurassic World, Inside Outa and Minions and it's been off to a good start.

[David Loeb:]

Now let's talk about hotels, I appreciate your comments about the AC, I’ve heard really good things, what's your outlook is that pretty positive for fiscal 16, with that brand on that in that location?

[Doug Neis:]

We only have one out in the first inning and we really are so early to say but it looks fantastic, it really, it's a great looking asset it's a great piece of real estate, we just got the Marriott system, our initial rates are very strong as we pointed about a strong - our challenge to our group is to start getting our - building our face of group business and we will be but we anticipate doing very well, it should be doing well.

[David Loeb:]

On Milwaukee, Doug it sounds like you guys are really doing on your own in a market that’s had a lot of new supply. Is that a fair conclusion?

[Doug Neis:]

That’s a fair assessment, I mean again - but having said that also kind of reflects the fact that when you look at, when I compared the U.S. numbers to the Mid-Western numbers they don’t completely compared because the fact is that with some of that supply has occurred in our markets it has been more of a falling around. We have done fine, I think Greg has talked about it in previous calls. We have seen some of the others maybe struggle, take it on channel but we have kept our properties up and so we have hung in there pretty well. It does make it more challenging to try to push rate however right? I mean if with - the supply, the pie getting cut smaller - some of the guys who are struggling start trying to get aggressive with rate that becomes the challenge.

[Greg Marcus:]

And it's no secret that Milwaukee we talked about our March in the Milwaukee's Convention Business, started off pretty slow and so you know we are dividing that pie amongst - now we would buy a smaller pie with more players. So it is - it's got it's challenges but again we - I have always said we are the ones - we don’t worry too much about ourselves because we keep our assets up and we’re very competitive. It's a challenging environment.

[David Loeb:]

And so can you just give us the fourth quarter RevPAR stance including Chicago, I got the excluding one.

[Greg Marcus:]

No I would be happy to do that, and that’s little information that we do disclose and it will improve our M&DA so I would happy to share it with you. So let me just pull it up here. So including - for the fourth quarter RevPAR was up 3.2% if you include Chicago.

[David Loeb:]

And that’s basically all occupancy?

[Greg Marcus:]

No actually that was a mix of both occupancy and rate, there was Chicago near the end we started getting more aggressive with rate because of - we hadn't official become an AC but the building was done so we started pushing rate a little bit more at that property in May later in May.

[Doug Neis:]

And Chicago I think in - toward that - it was May, had a very strong run, it was city wide, it was when the town is pack.

[Greg Marcus:]

While we weren't official an AC, yet we were able to drive rate a little bit more in Chicago at that point in time so interestingly enough when you include Chicago our average rate was up as a percentage increase was slightly higher than our other rate but that was just because of what was happening right then and there.

[David Loeb:]

Okay, and then do you have a full year number as well?

[Greg Marcus:]

Yes full year number we were up 4.3% RevPAR and mostly occupancy.

[David Loeb:]

So basically with Chicago was unchanged from what it was without Chicago?

[Greg Marcus:]

Say that again?

[David Loeb:]

I think you said earlier that the full year was up 4.3 and RevPAR.

[Greg Marcus:]

No the full year was up without Chicago was up 5.9. Occupancy first was up 4.3 percentage points.

[David Loeb:]

Got it, okay, but for the year RevPAR was up 4.3%.

[Greg Marcus:]

RevPAR was up 5.9% and with Chicago was only up 4.3%.

[David Loeb:]

Got it. Okay. And so bad, and last question I promise, Safe House, that’s going into the hotel division it's not like you’re restarting a restaurant division. In the past you’ve licensed concept's like Zaffiro's. So what brought you to acquiring this in and what's the plan for how you might integrate or grow it in the hotel division?

[Doug Neis:]

I will let Agent BB answer that question he has got his own agent nicked named, [indiscernible] I will let Greg answer that. I wish I could tell you David but the speaker don’t, I have to admit I was struck by how - we have been talking - it's part of the prior owners Dave and Shauna Baldwin have been part of our community for a long time here in Milwaukee and we have always talked on and off. We have always been intrigued by what they had going on there. Did you think about our company? Our company has made a fortunate off the spy story. What's the first series I talked about in my prepared remarks of what's coming, James Bond. We’re about to have Mission Impossible open up, we are so, the spy story is this team, I guess we were naturally intrigued by this as what would mean for us. We have had discussion with Dave all long, for us here in Milwaukee we are having, it's basically a tourist place we have probably a control of a great number of tourists more than anybody else in town. So just logically it was like well it's a nice thing to have in Milwaukee as part of our given that we have lease hotels here. To add to that, we always wanted to be do a little bit R&D, so it's a little, in our minds it's sort of a low cost R&D and what I'm getting, there is two pieces, it's not a very huge business, it's relatively small compared to our company and probably normally wouldn’t weren't in this discussion but it's iconic, when we originally did, when we did the deal I figured we get a new story or two, we run every TV station, we were in every newspaper as you saw around here. It was amazing, it really struck chord because it really is a special place. And so we want to know is there something to it, is this something that we can grow, we have a hotel division because it is a small elaboration and it needs the benefit from all the fire power we have in this big operating division. So it's interesting, it's R&D, it's fun, it out punched it's weight because sort of what it is and how iconic it is and so everyone is having a lot of fun with it and we will see where it goes.

[Operator:]

Your next question comes from the line of Eric Wold with B. Riley. Please proceed.

[Eric Wold:]

Just a few, I guess one obviously great performance in the theaters relative to the industry, any sense from digging into the data of how much of that was kind of competitive games from others in your regions?

[Greg Marcus:]

It's interesting Eric because while there can be some of that, there is no question that we draw from as we put some of these amenities in and particularly the dream loungers, there is a question we draw from a wider range than maybe a typical theater might. Having said that look as we have talked about, some of our more recent investments have not been - don’t have as much opportunities to steal from other competitive theaters, the first wave that we did was the low hanging fruit, were the ones where we thought we could that pretty easily but as we have talked about it, as we have now got in, and we then we did the next four and then we did another four and it's, and we did the palace and there aren't just many competitive theaters and yet they are still doing well. I think we’re increasing frequency, we’re drawing from a farther range, we have reenergized the movie going experience and so there might be a little of that but there is also more to it than that.

[Doug Neis:]

And I think to add to that again with our loyalty program and our pricing strategies, you know we are both - I think increasing frequency of our existing customer base because we’re able to more efficiently market to them and you walk in our theaters on a Tuesday, there is a different customer I mean, there are people we know who are coming to theaters who weren't coming as often and so I don’t think we’re taking them from somewhere else, I think they are looking at this as an opportunity to come back to the theater going experience.

[Eric Wold:]

Okay, and then on the $50 million in CapEx geared towards theaters this year how much of that is allocated towards a new theater built, or would that be incremental if those come along?

[Greg Marcus:]

I'm sorry, you’re talking about this coming year that we’re talking about?

[Eric Wold:]

Correct.

[Greg Marcus:]

Of that 50 to 65, it's so much depends on when, how much, when we get into ground and how much ahead of spending this year which is also a part of why you see that range but you know I mean it could be by the end of the year, it could end up being 15 to 20 million of it, it could be, it depends on timing, I mean it's probably in that range.

[Eric Wold:]

And then two more question on acquisition, so one on the acquisition environment out there for the theater side, maybe just talk in terms of the general mindset you’re seeing with potential sellers of that change at all, once the AMC Starplex announced and it was came out in terms of guys getting more excited about selling without putting kind of a price out there and then two, kind of going on one of the previous questions on the restaurant side on the safe house. I mean if you do look at doing more things, I guess is it one-off's one's that are opportunistic where you can get some synergies or would you ever consider kind of buying a chain of restaurants similar how you’re looking to buy maybe a chain of theaters?

[Greg Marcus:]

Let me take the first question about the market, the acquisition market, I would say - as it relates to starplex thing I think it's too early to tell that’s such fresh news. I don’t think and with the kind of opportunities that we’re looking at it, probably it won't have a lot of bearing. We’re looking for things where we can add value where we come in and do the things that we have been doing because for us - it's not like just adding on something and just plopping it onto our deal. We need to be able to add value. And so what we haven't seen a big change, too early to see that I think. There is stuff, there is opportunities to look at and we’re looking at them but we’re going to be disciplined about what we do, we always have. As it relates to the safe house, to buying a chain of restaurants I mean I can't tell you that we are looking at a chains of restaurants but I would always tell you that our job, we view it as to be stewards of capital and if we have capital in place we could look at other places to put it but right now we have enough opportunities in our own businesses that we don’t have to see a significant acquisition, of something fully different.

[Operator:]

Your next question comes from the line of [indiscernible] The Benchmark Company. Please proceed.

[Unidentified Analyst:]

I guess on the hotel side, curious what the friction is so to speak on selling one or two of these assets where you sort of expressed an open desire in the last couple of quarters I think to do that and at this point are you more or less confident on your ability to execute on the potential sale?

[Doug Neis:]

So Mike, you got the [indiscernible] we are always going to kind of hedge our bets a little bit here and say in terms of because a lot of things are going to happen when you’re talking about things like this and we have listed some of the things that are going to be important to us in pulling the trigger on a transaction but having said that I mean I will reiterate what we said in the prepared remarks is that it's not - certainly wouldn’t surprise at all in fiscal 2016, it's very possible that in 2016 you could see us executing that strategy.

[Unidentified Analyst:]

I mean on your balance sheet, obviously you got a very nice balance sheet and of course I think that a lot by design but curious in front of what appears to be a favorable landscape to grow your business through M&A, your willingness I guess internally to lever up a bit I guess to realize maybe the performance growth and the consolidation especially when you think about the organic elements you can create your next [indiscernible] design that you’ve for organic growth. And maybe what specifically you’re doing maybe have done in the past internally define potentially M&A deals.

[Doug Neis:]

I will answer the second question, half of that question, I will let Greg answer the first half in terms of the willingness and the balance sheet. But look we’re - there is one thing to say we’re going to be open to any acquisition opportunities that may arise. There is another thing to be more intentional about it. I mean we’re being intentional about it Mike. We are and in fact we have engaged some third party assistance in order to help mine the field that’s out there because it's a very broad field as you know, it's very fragmented and lots of family - and very much. So we’re being intentional about it, it's the about the best way I can answer that question is it's not just waiting for the phone to ring. And as it relates to our willingness to the balance sheet, Greg, do you want to tackle that?

[Greg Marcus:]

We have good cash flow and we have got - I mean our balance sheet has clearly got room for more leverage and given that we are real estate company, one could argue that we can take on some more leverage. So we feel very comfortable with the ability to execute on transactions with our balance sheet right now.

[Unidentified Analyst:]

When you look at deals, obviously you said your real estate is a big factor but at this point does it matter whether the theoretical network that you would look to acquire owns the lands or leases it?

[Greg Marcus:]

It's kind of - I'm going to give you a kind of nuance answer to that, Mike, because in some cases it may matter to us and where it does and we have talked about this publically it comes back to the other strategy related to hotels right, which is where in some cases we have some pretty significant. I don’t know we are the ones making a big deal of this small little impairment charge today but the reality is that we have got some pretty significant gains. Accounting doesn’t work that way but we have some pretty significant gains embedded in some of these assets and that has income tax considerations and so and effective, not the only effective but an effective strategy can be to do 1031 transactions where you might sell some real estate over here and buy some real estate over there and so that’s certainly is one of the tools in our tool box that we’re certainly going to consider as we look at this. It's not the only thing and it doesn’t preclude us from looking at opportunities that don’t real estate or don’t have as much real estate but is certainly is one of the things we look at.

[Unidentified Analyst:]

Two last little questions from me just to keep it the Q&A theme here. Greg, I think you said you may add 3 to 4 theaters or recliner installations and 16, give me - I heard that wrong. But I'm wondering what the return profile looks like on these sort of late stage recliner installation compared to your initial installations where it would seem that you’re converting a lower performing theaters versus the rest of your network?

[Greg Marcus:]

Our hurdles are hurdles and so we set a hurdle rate that we expect to meet before we release capital to our division and that’s - and really - if it beats it by a lot well that’s great. [Indiscernible] I mean we picked a low hanging fruit first but that being said we still expect to meet our hurdle rate when we make these investments and we’re.

[Unidentified Analyst:]

And the last one on the windowing, share us your thought or possible plans to participate partnership with Paramount, next [indiscernible] the deployment of movies, theatrical movies to digital.

[Greg Marcus:]

I guess what I'm going to say is that I’ve have heard for many years, I’ve [indiscernible] public position the window issue and I said, man I think it goes back five years ago, I said be careful we don’t want to be the frog in the frying pan where they slowly reduce the windows overtime and we will end - we never thought [indiscernible]. So we must remain vigilant about these windows. Look our chain is a proxy for the laws of supply and demand and windows and product in the markets right, why does $5 Tuesday work so well, why are people going back to the movies? Well we lowered the prices. We lowered the price because I don’t know, because the exclusivity period is shrunk and the availability of product downstream is enormous. It's a firehose and when you can drink in the firehose for I don’t know pennies to watch something, a movie or anything well why don’t, it impacts the value upstream and so when they change the exclusivity periods as compared to the pricing and the value upstream to come down. So they must be very, very careful with what they do. I’ve said this for years and I will continue to say it.

[Operator:]

Your next question comes from the line of Brian Rafn with Morgan Dempsey Capital Management. Please go ahead.

[Brian Rafn:]

I think Greg, you talked a little bit about free standing big screen bistros how will that be different other than the fact the dinner thing? You know layout, auditoriums kind of describe that a little if you could?

[Greg Marcus:]

We’re still working on the exact details of how we want the auditoriums, we have done different versions of big screen bistros where we have a more of counter with seats that move around it and where we have gone more with our dream loungers with tables that swing that swing all over in front of your seat. It's basically a theater that is devoted to the dining concept. So what we now have in [indiscernible] four screens of dining concept and three at Majestic, that’s part of a larger complex and in other complexes where we have done big screen bistro express. This would be all screen dine-in and it just makes it say about what that concept is with the customer and this is totally that concept and we think it's obviously people are having success with those and we believe it's something we need to experiment with.

[Brian Rafn:]

Yes, Greg, with auditorium size 12.5 screens per theater, is that about the same or does that logistics change with an all dine-in big screen bistro?

[Greg Marcus:]

Fewer screens, I don’t think we have ever actually built a half screen Brian, I couldn’t resist, these are smaller three count theaters.

[Brian Rafn:]

Now let you guys have - coming on the $5 Tuesday's, your sense of penetration with food and concessions with the value guide [ph]?

[Greg Marcus:]

We think there is opportunity to increase that naturally, obviously it's a value customer and so when we have that program running it's lowered our per caps but we also - we know we have opportunity to increase that, as we get better I mean. The crowds are enormous tough to service them naturally and so the better we get it servicing those crowds we think there is opportunity.

[Brian Rafn:]

Okay. As you guys open the palaces [indiscernible] you’re kind of consensus, you know expectations versus kind of reality of what happened, give me a sense of what you’ve experienced?

[Greg Marcus:]

It's been very positive. When you say expectations you have to depend on who you ask, there are certain people in our company had very high expectations. Everyone had high expectations, some were a little higher than others. But we’re very pleased with this performance.

[Brian Rafn:]

I’ve not seen any, what would say difference in say the majestic concept opens several years ago?

[Greg Marcus:]

What's the difference? It's more refined and it's scale is a little bit smaller. When we did the Majestic and Brookfield I mean that really was talk about R&D, everything that was in there was brand new, we had never done a big screen bistro before. We never had a take five lounge, we never had Zaffiro's pizza before and so the way we laid the building out, we learned things from and so when we get a chance to build another building from scratch like this we apply a lot of that learning to how we laid this building out. When you walk into the lobby it's spectacular. I mean in the take five lounge is just dramatic and you can't miss it, it's there and you have got an outdoor fire pit area. So we learned a lot from our various - the things that we have done here and try to incorporate that into this design at this particular theater.

[Doug Neis:]

I think it's interesting to note that it's a testament to our [Technical Difficulty] business and our long term thought process and our vision because it's a refinement and we open - we open the Majestic in Brookfield--

[Greg Marcus:]

I think we’re looking at maybe 9 - 10 years now right?

[Doug Neis:]

So we’re doing the same thing just in a more refined way with more experience and smarted but we knew it, we knew food and beverage is going important. We had a strategic plan being 10 years ago, 9 years ago and said food and beverage is coming and it's important to our business, how do we plan for that and I will be honest I didn’t know how important it would be, it could be even more important.

[Brian Rafn:]

Okay. When you talked about the field, you Greg, I think you had some numbers on comparisons 2015 or 2014 for the Top 5, give me the sense maybe movies 6 through 20, how was the depth year-over-year?

[Greg Marcus:]

Well again, so we represented this in our prepared remarks Brian, in that it's we’re seeing what appears to be pretty consistent every quarter what the numbers would tell us it's a deeper slate, okay? But the hard part to now evaluate is well is it, it's apples and oranges a little bit, we truly believe that given the increased frequency that we’re driving that the things that we’re doing are driving, have better performance for those next tier of movies and so the numbers will now reflect that it's a deeper slate, I don’t know if it's all said and done, everyone else would agree with that or the national numbers would agree with that or not because maybe how it was producing the same kind of mix of movies they always have. I'm just telling you that our numbers would reflect that it's deeper and we think just as much to having to do what we have done is what the Hollywood has done.

[Brian Rafn:]

Okay, just one more, actually $5 Tuesday. Correct me if I'm wrong, you’ve got something like a college or student $5 Thursday and then you’ve some special that you run like women's night out Monday's or you got this niche specialty, how some of the other ones doing $5 Tuesday.

[Greg Marcus:]

They are good. We’re pleased with their performance, obviously they are not as strong, they just don’t have the half of the marketing push and it does help with our concentration of complexes that the word even gets out even better than what we would spread all over the spread more thinly but again it goes back to our theory of the right customer, at the right price, at the right time. It's a great learning from the hotel business because that’s what yield management is in the hotel business and that’s what we have acquired in the theater business.

[Operator:]

Your next question comes from the line of Jim Goss with Barrington Research. Please proceed.

[Jim Goss:]

I will just ask a couple, one regarding dream loungers, when AMC started it's process it seemed to be focusing on its typically urban area and some are underperforming properties and trying to find a way expand the audience and create some loyalty. You’ve a different mix of geographies and markets. I was wondering if there is any commonality to the approach you’re taking with the dream loungers to this point and if there are certain markets where it might not be good to do that sort of thing, because the returns might not be available.

[Greg Marcus:]

I would say probably first we look a lot, our pattern was very similar to what AMC was doing. I would say now but we are - we are now - we have done some experimenting with doing them in other market and the returns meet our hurdle because you know what it is great way to see a movie and we believe that it can drive incremental customers and it allows us price appropriately and get a return on the investment and we think and we don’t just generally go in and just put in the dream lounge, remember we’re doing a whole package, we’re putting dream lounge, we’re putting a Zaffiro's Express, we’re putting in Take Five Lounge. We’re really upgrading the entire experience and so at some point you can just describe the one thing you know, it is - we talk to the whole experience.

[Jim Goss:]

Okay so you’re saying it might have broader applicability than you might have thought initially?

[Greg Marcus:]

Yes, do I think that - and our competitors have talked to us to. There is an organic piece of growth and there is a share shift piece of growth. So if you don’t have the share shift will the returns be the exact same? No they won't be, but they are still good and they still [indiscernible] and Jim you actually alluded in your question to within the other part of the math which is math, we do it, because we have the. You still are losing roughly 50% of your seats and so there is still is an exercise that we have to go through to determine what's the impact of having less seats and we got data more data than you ever could use to be able to look at that and annualize it and in order to try to determine whether we can and so your question was are the locations, where maybe you can't do it and you will get the returns and the answer is yes, you probably have some locations like that, there are some, there.

[Jim Goss:]

And maybe this other question then with sort of tail ended a little bit, but as you talked about your M&A strategy and they are adding value. It sounded like you would be more amendable to fix your [indiscernible] and some change where you’re looking for ones that don’t need so much and why do you incorporate into this infrastructure and I'm wondering if there would be more of those types of properties available at more reasonable rates given the added investment that we required, or you might even want to put in because of the strategy you’re describing.

[Greg Marcus:]

Jim, as time will tell but that has been one of our therapies, one of our hypothesis if you will has been that yes, we talked about how maybe there will be this big M&A surge when the digital cinema came along and of course that really didn’t happen because with the studios effectively paid for the conversion and it wasn’t that the theater operators capital. Well now we start talking recliner seats, food and beverage along those lines, that’s a theater operators main goal and so if there are folks that might be a little more capital constraint maybe that is an opportunity and so certainly that’s one of the things that we would look at, not the only but one of the things we would look at and I would tell you that we are very early in the M&A process really to think about and that’s because we really spent the first couple of years, the last couple of years very focused on our own circuit taking advantage of that opportunity to say well if I'm going to take capital, put it work, let's put it in markets we understand and know really well, and I would say there are other markets that we understand the business and we think it's applicable but let's start with those and so that why we went that direction.

[Operator:]

Thank you. At this time it appears there are no other questions, I would like to turn the call back to Mr. Neis for any additional or closing comments.

[Doug Neis:]

All right, well thank you everybody for joining us today. We really appreciate it. We look forward to talking to you again actually in just couple of months actually in September when we release our fiscal 2016 first quarter results. Until then thank you and have a good day.

[Operator:]

That concludes today's call. You may now disconnect your lines at any time, have a great day.