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The Marcus Corporation (NYSE:MCS)

F4Q13 Earnings Call

July 25, 2013 11:30 AM ET

Executives

Doug Neis – CFO and Treasurer

Greg Marcus – President and CEO

Analysts

David Loeb – Baird

Erik Wold – B. Riley

Operator

Good morning everyone and welcome to The Marcus Corporation Fourth Quarter Earnings Conference Call. My name is Chantilly and I’ll 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 The 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

Thank you very much. Welcome everybody to our fiscal 2013 fourth quarter conference call. As usual, I need to begin by stating we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include, but not be limited to statements about our future revenue 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, expectations about the future trends in the business group and leisure travel industry and in our markets, 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 factors section of our 10-K and 10-Q filings, which can be obtained from the SEC or the company. We’ll also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com.

Now, we made our attorneys happy. Let’s talk about our fiscal 2013 fourth quarter and year end 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.

I’ll start with any variations in the other income expense line items below operating income and right after that you will note a rather sizeable decrease in investment income this year compared to last year during the fourth quarter and fiscal year. As noted in our press release, this difference is entirely due to an approximately $700,000 onetime gain that we reported last year related to sale securities that we had held in investment for some time.

Investment income is historically included just interest earned on cash and cash equivalents and notes receivable including notes related to prior sales of our timeshare units in our Hotels & Resorts division. And our fiscal 2013 income reflects just those items.

Moving on interest expense increased slightly during our fiscal 2013 fourth quarter compared to the last year and was essentially even for the full year fiscal 2013 compared to last year. An increase in our total borrowings a result of an assumed mortgage related to our newest majority owned hotel The Cornhusker, a Marriott hotel and new borrowings necessary to fund the special dividend we paid during fiscal 2013 was offset by a decrease in our average interest rate and the fact that fiscal 2012 interest expense included an extra week of operations.

Late in our fiscal 2014 first quarter actually in mid-August here, we expect to close on an issuance of $50 million of unsecured senior notes privately placed with three institutional lenders. We expect to use the proceeds from the notes, which will bear interest at 4.02% and mature in 2025 through reduced borrowings under our revolving credit facility and for general corporate purposes.

Based upon our current expectations, we will increase capital expenditures during fiscal 2014 and an increased average interest rate resulting from the new senior notes. We currently believe our interest expense may increase during fiscal 2014 by approximately $1 million to $1.5 million compared to fiscal 2013. A substantial portion of our assets, total asset consist of long-term property, plant and equipment. And as a result, we believe that the majority of our borrowings should have a fixed rate and longer term associated with it. We are very pleased to be able to take advantage of historically low interest rates to lock in $50 million of 4% money with an average life of 10 years in order to rebalance our debt portfolio to reflect these long-term assets.

The (inaudible) didn’t impact our fourth quarter results but I do remind – I want to remind you once again that our fiscal 2013 full year results do reflect about $6 million of income from the extinguishment of debt in the other income and expense section. And as you may recall in December, we refinanced the debt related to Skirvin Hilton in Oklahoma City and in conjunction with that refinancing approximately $9.8 million of debt originally issued as part of a complicated new Marcus tax credit structure was cancelled as anticipated and disclosed in previous filings.

That amount, net of $3.8 million of deferred fees related to the issuance of the debt was reported as extinguishment of debt income on our consolidated earnings statement. But that amount had no impact in our bottom line fiscal 2013 net earnings attributable to The Marcus Corporation. And of course this is due to the fact that pursuant to other terms of our operating agreement with our 40% joint venture partner, we allocated 100% of this income to the non-controlling interest.

And finally in the section – in the section of our earnings statement, a small decline in our fiscal 2013 losses on disposition of property and equipment was partially offset by a small increase in net equity losses from joint ventures and the variation of these amounts in the fourth quarter was really not significant.

I’ll point out that our fiscal 2013 effective tax rate after adjusting for earnings from non-controlling interest that are not tax effected because of the entities involved being pass-through entities was 39.3% exactly the same as last year and right in that 38% to 40% range that we typically expect from year-to-year.

Shifting gears, our total capital expenditures during fiscal 2013 totaled approximately $23 million compared to $32 million last year and we also had a $6 million theatre acquisition last year and none this year. We incurred approximately $13 million of these capital expenditures in fiscal 2013 in our Theatre division including costs associated with the completion of our newest Zaffiro’s pizzeria and bar at one theatre, construction of UltraScreen’s at two theatres and major remodels at four theatres including, which included the construction of three new Take Five lounges.

We incurred approximately $9 million of capital expenditures during fiscal 2013 in our Hotels & Resorts division including preliminary cost associated with the room renovation at the Pfister hotel and renovation of the Monarch Lounge at the Hilton Milwaukee, initial renovation cost at the Cornhusker and cost associated with the construction of concierge and club lounges at the Pfister Hotel and Grand Geneva Resort & Spa as well as other maintenance capital projects that are company-owned hotels & resorts.

I’ll point out again that the Cornhusker acquisition itself was primarily a non-cash transaction and thus it is not included in these capital expenditure totals. At the time of the acquisition, all we did was assume an existing mortgage and recognize the non-controlling interest of our partner.

As we look towards capital expenditure for fiscal 2014, we are currently estimating that our fiscal 2014 CapEx may increase significantly and be in the $60 million to $90 million range with approximately $30 million to $45 million estimated for each of the two divisions.

Now the range of potential capital spending is fairly large at this time because either the timing on several or planned projects is not finalized yet or because some of the dollars are for growth opportunities that may or may not come to fruition. As a result, our actual fiscal 2014 CapEx certainly could vary from this preliminary estimate just as it did this past year.

In addition both divisions have acquisition strategy that could impact our actual capital expenditures if the right opportunity arose during the year. Greg will expand on our capital expenditure plans for each dividend during his prepared remarks. Now, I would like to provide some financial comments on our operations for the fourth quarter and fiscal 2013.

Overall as you know of course thanks to the calendar in our last Thursday and May year end our fourth quarter and fiscal year last year had an extra week of operations. The margin on this extra week of operations is higher than average due to the fact that only incremental variable costs are added. Fixed costs are already annualized over 12 periods during the year.

The results are fairly sizeable, favorable impact to last year’s fourth quarter results due to this extra week. I – we have seen all the numbers in the press release but obviously the extra week last year contributed to a difficult comparisons this year. This extra week particularly benefited our Theatre division last year contributing to our fourth quarter and full year fiscal 2013 decrease in box office revenues of 13.7% and 5.3% respectively a slightly lower percentage decreases in our concession and food and beverage revenues. In total, the 53rd week last year added approximately $4.7 million of revenues and $1.6 million of operating income to last year’s fourth quarter and year end theatre results.

And while the comparison to a 14 week quarter and 53 week here last year contributed to our reduced results in the Theatre division. As our press release notes, an overall weaker slate of movies compared to last year contributed to a decrease in attendance for the quarter and full year as well.

Excluding the impact of the extra week last year, attendance at our comparable theatres decreased 8% during the fourth quarter and 5.6% for all of fiscal 2013 compared to those same periods last year. As noted in our release, the top two films for all of fiscal 2012 were released during our fourth quarter last year. So, this year’s fourth quarter results are not unexpected.

Our average admission price for our theatres increased by 2.5% for the quarter and 1.9% for all of fiscal 2013. Our fourth quarter average concession and food and beverage revenues per person, increased by 8.8% compared to the same quarter last year and the same revenues per person ended the year 5.7% higher than last year. Our new food and beverage offerings including our newest Zaffiro’s restaurant at New Berlin, Wisconsin are contributing to these nice increases in per capita in addition to increases in our core concession revenues.

Lastly, I’ll note that our fourth quarter and fiscal 2013 full year results were also negatively impacted by approximately $200,000 and $1.3 million respectively of impairment charges recognized on a theatre closed during the year and two budget movie theatres that we anticipate closing at some point when the studious no longer provide 35 millimeter films to theatres such as these.

Shifting to our Hotel & Resort division the impact of the extra week last year did hurt comparisons of this year’s result albeit not as significantly in our Theatre division. The 53rd week last year added approximately $2.9 million to our fourth quarter and fiscal year revenues and approximately $590,000 to our operating income during both periods in fiscal 2012.

The comparative impact of not having that extra week this year was offset by the fact that we had new revenues this year due to the addition of the Cornhusker to our consolidated results. Excluding the Cornhusker, our total RevPAR for comparable hotels was up 0.6% during the fourth quarter compared to the same period last year. And for the full year fiscal 2013, our comparable hotel RevPAR ended up 3.4% higher than it was last year. As we noted in the past, our RevPAR performance did vary by market and type of property with seven of our eight comparable company-owned properties reported increased RevPAR during fiscal 2013 compared to the same period last year.

Our fiscal 2013 fourth quarter comparable hotel increase, RevPAR increase was the result of an average daily rate increase of 2.4% partially offset by an overall occupancy rate decrease of 1.3 percentage points. For the full fiscal 2013, our occupancy rate ended the year at 0.9 percentage points ahead of last year and our average daily rate increased 2.1%.

And finally, I’ll be remised, if I didn’t point out once again the items that impacted our fiscal 2013 third quarter that in fact didn’t have a result on our – impact – negative impact on our full 2013 year results. Specifically because I’m talking about the $3.3 million of expenses related to legal and $3.3 million of legal expenses and final settlement costs related to the claims associated with the Las Vegas property and that was compared to approximately $1.4 million of Platinum legal expenses incurred in last year’s fiscal 2012 reported results.

Our reported results for fiscal 2013 in totality were also further impacted by the addition of another Midwestern hotel that typically incurs operating losses during the winter. We obviously didn’t have these losses last year during the third quarter as we just took the property – this property over in the fall. The fact that Cornhusker is now under renovation accentuated the losses.

But my calculations, if we remove the Platinum legal expenses from both years, the 53rd week from last year and remove the Cornhusker from this year’s result, our operating income during fiscal 2013 would have been about 9% higher than the prior year. To get me wrong, these items that I adjusted out come up with this comparison not real and that suggest they should be ignored. But I think removing them does at least give you an indication of how the comparable hotels ended up performing for the year.

With that, I’ll turn the call over to Greg.

Greg Marcus

Thanks, Doug. I’ll begin my remarks today with our Theatre division. I’m not sure there was much I can add to what you have already read in the release and heard from Doug regarding the numbers for the fourth quarter in this division. When you really dissect our decrease in attendance this quarter it really came down to two factors the 53rd week last year and the March, April time period.

You had already heard all about the 53rd week excluding the 53rd week we actually had increased box office results in May despite going up against the Avengers last year. The problem was that Hollywood had a relatively weak March and April film lineup and certainly did not have an answer for the tremendous performance of the Hunger Games last year. That picture opened on March 23rd last year, a non-traditional time for a blockbuster of this magnitude and this year’s film product during these comparable weeks could not come close to matching that level of success.

Looking at fiscal 2013 as a whole, our results really came down to quantity and quality of film product as they always do. Our top 15 films for fiscal 2013 accounted for approximately 38% of our total box office receipt that compares to 37% for our top 15 films last year. So, the mix of blockbusters to other films really didn’t change just the overall quality and box office appeal of all the films in total.

Hollywood released approximately the same number of wide released films during our fiscal 2013 as they did in fiscal 2012. We have been hoping for more. Generally an increase in the quantity of films released particularly from the six major studios increases the potential for more blockbusters in any given year. Based upon that we are seeing so far it appears there may be a handful of additional 3D films released during our upcoming fiscal 2014 and we also estimate that we may show additional films, another attractions from alternate content providers during fiscal 2014.

Of course, what makes this business so interesting is that by the time we are reporting this fourth quarter and year end results, the industry had done a 180-degree turn and we are in the midst of what could end up being a great summer movie season. Heading into this past weekend, June, July box office receipts were done in double-digit percentages above the prior year. Thanks to several of the films listed in our press release.

Box office revenues were down this past weekend as we went up against last year’s The Dark Knight Rises, which was our top performing movie for all of fiscal 2013 but we still have five more week to go on our fiscal 2014 first quarter and we have listed several promising films still to come in our press release. We also may benefit from the fact that last year’s august results may have been negatively impacted by television viewership of the summer Olympics. I certainly can’t predict where we might end up for the quarter but the results so far have been encouraging.

Shifting away from the movies it is evident by our numbers that our concession in food and beverage business continues to contribute to our operating results in a positive way. In addition to the new Zaffiro’s that opened in our first quarter, we opened the Take Five Lounge in Duluth, Minnesota last summer and our fourth lounge opened this past quarter in a theatre in Omaha, Nebraska. This summer, we opened our fifth Take Five Lounge and Zaffiro’s express outlet at our Point Cinema in Madison, Wisconsin and our sixth Lounge and yet another Zaffiro’s express will open shortly at another theatre currently under renovation in Omaha.

We also continued to invest in our premium large screen format the UltraScreen opening one in Duluth last summer and commencing construction this past year on our 15th UltraScreen. This time at our Gurnee, Illinois theatre. This new UltraScreen should open this fall and will be our first to feature all 11.1 audio the next generation and immersive sound format from Barco.

As Doug noted, we are currently estimating that we may incur capital expenditures of $30 million to $45 million during fiscal 2014 excluding any acquisitions that could arise to support our strategic plans for our Theatre division. Some of those dollars will go towards finishing off the projects in Madison and Omaha that I just mentioned. The project in Omaha includes not only the new food and beverage outlets I just referred to but also an extensive renovation of all the auditoriums and includes the addition of premium seating with additional dollars in our capital budget during fiscal 2014 for several more theatre renovations many of which could include these food and beverage concepts and premium seating among other upgrades.

The largest single component of the capital budget for this division would be previously disclosed new theatre plan for Sun Prairie Wisconsin. This theatre will be a replacement for a nearby Madison Wisconsin theatre that we would eventually sell for land valley and that could be a very nice gain. The actual timing of this new theatre is still subject to change but we may begin working on the project later this fiscal year.

With that, let’s move on to our other division Hotels & Resorts. You have seen the segment numbers and Doug gave you some additional detail including some pro forma math that will indicate that fiscal 2013 was a better year for our comparable hotels and would appear first blush.

The reality is that when you have a small portfolio of hotels like we have, we do operating losses from a newly acquired hotel you need renovation are going to be noticeable and certainly even the best of results from our comparable hotels will likely not have been enough to compensate for the significant legal settlement costs we incurred in our Las Vegas property this year.

And as I shared with you last quarter it is good news that we finally have these major legal matters related to the Platinum and (inaudible). I don’t want to remind you that we have incurred significantly low cost in each of the last four fiscal years related to these matters.

Now we are pleased to be again reporting Hotel division results in fiscal 2014 that by definition will not be burdened with $3.3 million of non-operating expenditures on a comparative basis. The focus on these unusual items is not to say that we didn’t experience some challenges at our comparable properties during fiscal 2013 fourth quarter and full year fiscal 2013.

From an operations perspective, while occupancy rates continue to be at record levels and we reported an overall increase in our average daily rate for our third straight year in 10 straight quarters. Our ADR continues to lag pre-recession levels and for the first time in recent memory our overall RevPAR performance from our comparable hotels did not exceed the national average for upper upscale U.S. hotels as reported by Smith Travel Research.

I primarily attribute the shortfall versus the national average to two things. One the fact that our hotels tend to be more heavily dependent upon group business and their customer segment continues to lag compared to other customer segments particularly as it relates to average rate.

The variations in group business resulted in more pronounced fluctuations and our quarterly RevPAR improvement this year compared to prior years. Last year, our changing RevPAR did not vary by more than half a point in any given fiscal quarter. It was a very consistent year. This year, we experienced RevPAR increases ranging from 0.6% in our fiscal 2013 fourth quarter to as high as 10.7% in our fiscal 2013 third quarter.

Secondly, as we have been outpacing our competition for the last few years thanks to investments made in the downturn and as we near capacity levels about the aforementioned group businesses, our competitors will start to catch up. And these variations in RevPAR and the fact that our ADR still remains over 5% lower than it was in our fiscal 2008 has limited our ability to rapidly increase our operating margins during the ongoing U.S. economic recovery. Approximately 27% and 36% respectively of the revenue increases that we’ve experienced during fiscal 2013 and 2012 followed through – flow through to our operating income during those years after adjusting for the unusual items previously noted.

This compares to a 50% flow through that we would target during a higher ADR environment. A significant focus of our management team for fiscal 2014 led by our new president Kirk Rose is to improve that flow through and the result our overall operating margins. We recognize that we are attempting to do that during the time when there may not be a lot of new supply growth nationally but a number of new hotels have opened in our key Milwaukee markets. As I think you all know by now, our new Hilton Garden Inn opened in downtown Milwaukee during our fiscal 2013 second quarter and two other hotels recently opened including Marriot across the Street from our Pfister hotel. All totaled over 400 rooms have been added to the market with another 382 room hotels scheduled to open in short distance from downtown as the Indian Casino Hotel next summer– I’m sorry at the Indian Casino next summer.

Right now we are on the midst of our busy summer season. So, it is really too soon to tell how these rooms will impact the market and our hotels in particular. As our press release notes, we’ll also likely benefit in this market from Harley Davidson’s the 110th anniversary celebrated on Labor Day weekend. Longer term it’s hard to imagine how this market will absorb this unjustified increase in supply without some impact on existing hotels that is our feeling weaker competitors will feel more impact than us. Of course we will continue to do what we do best, continually reinvest in our properties and operate them extremely well continually meeting and exceeding constantly changing expectations of our guest.

The club lounges that we recently opened at Pfister and Grand Geneva are examples of the reinvestments that we make in our hotels. Renovations are also now fully underway at the Cornhusker hotel and we look forward to reintroducing this new and improved hotel which will include our second Miller Time Pub & Grill to the Lincoln market this fall.

Looking ahead our outlook for the future hasn’t really changed very much since we last talked. Most national prognosticators are projecting continued near term RevPAR growth albeit at slightly growth rate in the past couple of years. Most expect that growth will come from ADR increases and occupancy.

Shifting gears for a moment let me expand on Doug’s comments regarding our planned capital spending for this division during fiscal 2014. As he noted earlier, we are currently estimating that we might incur capital expenditures of $30 million to $45 million in this division this year, which would represent a significant increase over the past couple of years. This is always our hardest number to estimate as a portion of our potential spending in this division relates to growth opportunities that are very difficult to predict.

Having said that as we’ve discussed previously MCS Capital under the direction of Bill Reynolds is actively exploring numerous opportunities that could provide long-term value to the Marcus Corporation and it is not unreasonable to suggest that some of these opportunities will come to fruition during fiscal 2014. It is possible that some opportunities will be management contracts only with little or no capital required but others may include small equity investment.

Our plans for our Hotels & Resorts division also include continued reinvestment in our existing properties in order to maintain and increase their value. During the last three years, we completed renovations at Hilton Milwaukee City Center, Grand Geneva Resort, Hilton Madison and Hotel Phillips. During fiscal 2014 renovations are planned for several additional properties including a major guest room renovation of a tower building of our flagship Pfister hotel in Milwaukee, Wisconsin. In addition one of our hotels was due for a brand initiated product improvement plan during fiscal 2014. So, as a result we are currently reviewing our branding strategy for that hotel and capital dollars are budgeted during the fiscal year for this hotel.

Before I wrap up our prepared comment and open the call up for questions let me briefly touch on a couple of quick topics. I don’t have any new news for you regarding our proposed mixed used project in the town of Brookfield The Corners. There are still a lot of action behind the scenes and we continue to make progress on multiple fronts. I know locally everyone is anxious for an update on timing but as we have indicated previously this is a very complicated project and several things have to happen before we can proceed.

Progress is being made every day on the leasing and our discussions with the town of Brookfield and our potential equity partners continue to be productive. The real is that this project will get done on its own natural pace and as long as we can keep all the spinning plates in the air as we have thus far we remain optimistic. We promise that we’ll provide updates as milestones are reached.

Finally, as our press release notes, we repurchased another $350,000 shares of our common stock in our fiscal 2013 fourth quarter bringing our total share repurchases during fiscal 2013 to nearly 2.2 million shares and the average purchase price of $11.42. The majority of these purchases occurred prior to the payment of our special dividend. As a result of that $1 special dividend that we paid last December as well as the $0.34 per share of regularly quarterly dividends paid during the fiscal year, we calculate our Total Return to Shareholders or TRS to be there respectable 11% during our fiscal 2013, which comes on the heels of a 30% TRS in fiscal 2012.

With that at this time Dough and I’ll be happy to open the call up for any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of David Loeb of Baird. Please proceed.

David Loeb – Baird

Good morning gentlemen. I just have a – I was going to ask about The Corners but I guess I shouldn’t because you don’t have anything to say?

Doug Neis

Not really beyond with what we said David. I mean, there is progress. We could use the analogy the spinning plates and that varied little more or less. We’ve got all these things going on and we’ve been able to keep all them in the air and we and as a result of that we still remain optimistic. I’ll tell you that we certainly the majority of the dollars in our hand have really kind of already gone in. I mean so we don’t have net capital budget number. It’s not expected to be any significant additional dollar expansion in our part. As you know, we’re seeking a majority equity partner here and we’ve already got our land as well besides the dollars we put in so it’s not, we don’t expect it to have a significant impact from that perspective.

David Loeb – Baird

That helps. I appreciate that thanks. In the Hotel division on the occupancy decrease, was there any particular markets was it more pronounced any particular markets?

Doug Neis

Yes. There were some things going on this quarter. The, our largest property as you know is the Grand Geneva and I don’t like to think a lot of properties but weather really hurt us this year. I think we opened up the golf a full month later than usual and later than last year remember in fact last year was unusually early so it might have comparatively even been more than that and we weren’t selling golf packages and all those kind of things that would normally occur. So, that certainly was an impact. Milwaukee in general specifically from a group perspective was just soft in those three months in general so that certainly had an impact as well. And I think actually Greg reminded me that I think actually in lower or bigger properties out in Oklahoma City it was pretty significant playoff on the last year that didn’t occur this year and we were a headquarters hotel. Greg that pretty much hit the main points?

Greg Marcus

Yes, I think that, I think those sums it up no choppiness in the markets and weather and basketball.

David Loeb – Baird

And it sounds like the Milwaukee supply hasn’t really been significant yet and it seems with the early event and with the tower renovation going on at the Pfister that you may not really see much of this or you may not be clear in the numbers for the next several quarters, is that fair what do you think will get an...

Doug Neis

Yes. Again, everyone and certainly somewhere in Milwaukee there is a lot going on and all the festivals and everything else so that’s probably – if there is ever a time when the room is going to be absorbed that’s the time. And so, I guess I generally agree with your comment is that and then and you’re right Harley kind of heads into that the beginning of our second quarter and so I think, we’re certainly going to need a little longer runway to be able to really kind of see what the impact is.

Greg Marcus

Yes. I think – absolutely the – only thing I’d say David is frankly to say it but I mean on a percentage basis depending on what you count is the relevant concept. I mean there is its almost a 10% increase in the 3000 downtown rooms and start to and you could narrow that up as you start to think about what’s really competitive it’s a more broad based set of rooms.

So, its – but you’re right look at it it’s I guess it’s the old bottom line. When the tide goes high we’re going to see you swimming naked the tide didn’t right now the tide will go out and we have a really good looking swimsuit. As you know you are in our assets you’ve seen them we take really good care of them and there is others, who there are people I think that there is some who are going to suffer I don’t – we will, I’d be, we’ll feel it but others will feel it worse I think.

David Loeb – Baird

I would say Greg this is my second consecutive conference call one that sort of narrow before you or sort of somebody refer to that bottom line kind of interesting.

Greg Marcus

Well, its accurate, it’s true.

David Loeb – Baird

It is Dough one just accounting question. Is Lincoln consolidated or is that an unconsolidated JV?

Doug Neis

It is consolidated so the – so it’s even the minority interest pieces would be varied in that non-controlling interest number you see at the bottom.

David Loeb – Baird

Yes.

Doug Neis

Yes. Obviously, it’s because we’ve got that big extension of debt number kind of, it kind of buried with mask and everything else but that’s where I want to be.

David Loeb – Baird

Okay. And one last question Greg kind of a big picture question with Kirk’s appointment with changes in the leadership kind of across the Board I’m just wondering kind of what your view is on this leadership transition on the divisional level and kind of where your – what you think will come out of that. What are you looking for the Theatre division and how do you sort of see this new generation of leadership impacting your growth plans going forward? And I realize Bruce’s retirement is a retirement it’s not like that was an active choice that you guys made but it’s certainly something you’re dealing with?

Greg Marcus

Well, I guess I’ll start off with me – I’ll start off with the first line, which is well think I have got really regional president of the hotel division me. The, I think it’s an exciting time. I think it’s had a lot of thing to look at is. My most important job right is get making sure that we have the right people in the right places. There is nothing more important that I do right and really might say me, me really our leadership team because we all participate in those decisions. It’s exciting to get – no one wants to – no one I mean if you think about an amazing statistic right I have now been sitting in the CEO job about four years and we really had no turnover in our senior management team, which is pretty amazing because usually when you get those transition at the top you start to see the transitions moving below you. And it speaks the tenure of our management the tenure of our team, the long-term outlook of everybody so I think that’s a great thing.

That being said look at when you get a fresh eyes, fresh leadership, fresh that that’s really I think exciting and good stuff. All and – and in the – whether it’s the unique thing or the good thing about our business is the family aspect with my father, who is still is very involved in our business every day and me and we can make changes we don’t have to worry about nothing is bigger division isn’t broken or anything its. I’m bamboozled everything as much as anybody.

But on the other hand we can, we’ll bring that – the continuity will remain yet at the same time we get fresh leadership and then the Hotel division it’s the same thing, it’s the same thing as well. I mean Kirk comes in and frankly Kirk says hey you know what we really need to focus on margins. And you’re starting to see it, we may not even see as you know when you’re operating at these levels of capacity – you use them under better off or less capacity because they – they take a toll on your hotel and say look lets a get a little more margin and I want that frankly. I’m more happy to take more margin. I don’t take RevPAR out of the bank I take the bottom line of the bank. So, I think it’s an exciting time I hope that did that answer your question?

David Loeb – Baird

Absolutely. I appreciate that thanks.

Operator

(Operator Instructions). Your next question comes from the line of Erik Wold of B. Riley. Please proceed.

Erik Wold – B. Riley

Thank you. Good morning.

Greg Marcus

Hi, Erik.

Erik Wold – B. Riley

Question on the CapEx plan so obviously you spent a lot of time talking about it could be a substantial increase from this year to that $60 million to $90 million range. May be give a sense of depending on where it is in that range kind of how you’d access that capital and kind of how much do you think you could generate from internal versus having to go externally?

And then if there are other outside opportunities that popup either for investment or acquisition kind of what percentage of that $60 million to $90 million would you considered to be kind of crucial non-cancelable, non-movable is that kind of a $60 million move in or could you actually even go below that?

Doug Neis

Hi, all right, let me tackle in that order then. So, the first question the, certainly as you know we generated ton of cash in our businesses and typically – at our current levels and where we are typically I think we can spend, I’d say we could spend around $60 million a year and not basically move any of the metrics on our balance sheet I mean because we generate that much cash.

Obviously in the last few years you’ve seen us spending a lot less in the CapEx side certainly we bought a bunch of shares back into the special dividend so that changed the balance sheet metrics a little bit it’s not for that as it is you’ve seen some of our leverage ratios be dropping pretty significantly. But we can spend $60 all day along and probably you won’t see much of a change.

If we spend, if we get up to the higher end of that range yeah we’ll have to – definitely have to dip a little bit into our revolver but as you know we just recently have really positioned our debt in a great spot. I mean and come August 15th even more so when August 14th I guess when we scheduled to closing that $50 million long-term note issuance and so. So, we have a significant amount of cash available to us to fund it, it gets a little bit on the higher end of that range. And as it relates to that particular range, I guess as I’m thinking about the things that are in there I mean it’s possible it could be less than that $60 million and because of the thing that Greg was talking about as it relates to some of the growth.

So, for example if that the theatre and that the replacement theatre on the East side of Madison gets pushed off a little bit that certainly could push us down a little bit and if some of those hotel growth opportunities that we’re pursuing turn out to be mostly not capital intensive and suppose that also could push us down below that. But there is a – when you just look at the stuff that we have going on in the couple of hotel projects that are going to happen, it is doubtful that we would drop down as low as what you’ve seen in the last couple of years.

Erik Wold – B. Riley

Okay. And then just one follow up question kind of continue on that looking at the potential force and outside opportunities can you update us on kind of what you’re seeing out there in the market in terms of attractiveness of hotel resorts investments or acquisitions are there still a good number of attractive opportunities out there have terms kind of stayed reasonable?

Greg Marcus

There is not a ton of stuff out. There is still we know we’ve yet to ever see that like burst of properties from the downturn that you saw – everybody thought they would see. There are stuff out there. We continue to look at items. We have full pipeline of stuff that we’re looking at but its – with interest as long as interest rates remain low that saving a lot of people because they are just, they are able to stay in compliance.

I do think things will on the one hand things will continue to turn I think that there will be an extended period of opportunity to buy them with limited supply in those markets Milwaukee excluded. There will be a longer – as the cycle looks like it’s just going longer. So, I’ll tell you there is robust there is tons of transactions going on. There are transactions happening but you haven’t seen the ton of them.

You go back though and it sort of relates to – to your point about, if you looked at our balance sheet if you can think about it it’s the one thing that people sometimes forget is where a real estate company and well I’m going to be the last person to get up and tell you that we should absolutely just max out our balance sheet and go nuts.

I would also tell you that for a real estate company to get attractive returns on equity without 37% balance sheet or 30 variable roughly 35% debt balance sheet debt to book value equity – and that’s pretty challenging. And so I’m comfortable with where we start to move the leverage I’m not this is not I had to tell you that the leverage is going to go for the rough but on the other hand if we saw attractive opportunity we have the ability to move on it. This is the financing that Dough just put in place was really well down it was at a very attractive rate and so that freed up our revolver if we need to go do anything we can go do it. And so we are proud that something prevent itself we can make that move and we still we’ll have a very attractable balance sheet.

Erik Wold – B. Riley

Perfect that’s helpful. Thank you guys.

Operator

At this time, there are no additional questions in the queue. And I would like to turn the conference back over to Mr. Dough Neis for closing remarks. Please proceed sir.

Doug Neis

Well, thank you. And then, we certainly want to thank all of you again for joining us today. We look forward to talking to you again actually in just a couple of months in September when we release our fiscal 2014 first quarter results until then go to the movies. Thank you and have a great day.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

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