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Marcus Corporation (NYSE:MCS)

F3Q11 Earnings Call

March 16, 2011 11:00 a.m. ETExecutives

Douglas Neis – Chief Financial Officer

Gregory Marcus – President, Chief Executive Officer

Analysts

David Loeb – Robert W. Baird & Co.

Operator

Good morning everyone and welcome to the Marcus Corporation Third Quarter Earnings conference call. My name is Derek and I will be your operator for today. At this time, all participants are on a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions).

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 would like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Douglas Neis

Thank you, and welcome, everybody, to our fiscal 2011 third 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 statements can include but not be limited to statements about our future revenues and earnings expectations, our future REVPAR, occupancy rates, and room rate expectations for our hotels and 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 of 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 post all Regulation G disclosures when applicable on our website at www.marcuscorp.com.

With that behind us, let’s talk about our fiscal 2011 third quarter results. This obviously was a rough quarter for our largest division, Marcus Theaters, significantly impacting our reported results. Comparisons of last year’s results were further negatively impacted by several unusual items, both this year and last year. I’ll provide you with some additional background on the operating results of our two divisions as well as explain those before-mentioned unusual items.

Before I give the operating results, let me first briefly address any variations in the line items below operating income versus last year. And right off the bat, the first unusual item is reflected in our investment income line which shows a $643,000 loss this quarter compared to $149,000 of income last year. I think the swing in this line is attributable almost entirely to an approximately $700,000 adjustment to investment income during the fiscal 2011 third quarter. This adjustment represents a change in estimate of interest income earned to date on the funds we advanced several years ago in conjunction with the public portion of the Hilton Milwaukee Parking Garage.

We continue to project full repayment of all funds advanced; albeit though, at an interest rate and interest earned at a lower rate than originally anticipated, thus the adjustment that we had to make. We do not expect any additional significant revisions to this estimate in the future.

Moving further down the P&L, another unusual item that occurred during the fiscal 2011 third quarter resulted in a negative comparison on our gains and losses on dispositions line this quarter and for the first three quarters this year compared to the same periods during fiscal 2010.

As our press release noted, an adverse legal judgment was rendered against us during the quarter related to architectural services rendered during the construction of the condominium units at our Platinum Hotel and Spa in Las Vegas. Although accounting guidance required us to accrue a contingent liability for this judgment, we are vigorously appealing the ruling and believe there’s a reasonable possibility that the judgment may be overturned. We believe not only that the judge inappropriately applied applicable law in rendering his decision, but that the plaintiff’s own billing records indicate that the plaintiff’s attorney may have had inappropriate ex parte communications with the judge. A motion for a new trial based on the ex parte communications is scheduled to be heard later this month.

In addition, we filed an appeal based on the judges application of the relevant laws and interpretation of the contracts. That being said, again, given that the accounting guidance requires us to record something, we did in fact record nearly $750,000. The largest portion of this judgment was recorded on this gain or loss on disposition line because the majority of the construction cost associated with the Platinum project were deducted from proceeds from the sale of the condominium units, resulting in gains reported in prior years.

The remaining portion of the contingent liability accrued this quarter as a result of this judgment relates to legal fees and has reduced our hotel division operating income during the fiscal 2011 periods recorded.

As our press release notes, the combined impact of the two unusual items I just described totaled approximately $1.8 million on a pre-tax basis, negatively impacting our fiscal 2011 third quarter results by approximately $0.04 per share.

Conversely, our interest expense was down nearly $200,000 during our fiscal 2011 third quarter and is down approximately $600,000 year to date compared to the prior year same period, due primarily to reduced borrowings; and our overall debt-to-capitalization ratio at the end of the quarter was a very strong 39.8%, down from about 41% at our May fiscal 2010 year end.

Also in the good news category, the last line in our Other Income and Expense section, equity gains and losses on investment and joint ventures benefited this quarter from the fact that one of two hotels that we have a 15% interest in, reported a sizable gain from recently refinancing its debt accounting for the majority of the increase in that line compared to the prior year.

And finally, our effective income tax rate during the first three quarters of fiscal 2011 was 38% compared to 37.1% last year, resulting in a small negative comparison of this year’s results to prior years. I currently don’t expect any significant change to our tax rate for the final quarter of the year, pending any further changes and assumptions, lapses in statues of limitations, or potential changes in federal or state tax rate.

Shifting gears, our total capital expenditures including acquisitions during the first three quarters of fiscal 2011 totaled approximately $20 million compared to just under 15 million last year. The largest component of this year’s expenditures of course was the previously-announced Appleton, Wisconsin theater acquisition.

The remainder of the fiscal 2011 capital expenditures were again spread almost equally between our two divisions, and represent a typical renovation and maintenance capital at our existing properties.

With only a quarter to go on our fiscal year, barring an unforeseen growth opportunity to Clear Rise in the remaining two plus months of our fiscal year, I’m currently estimating our fiscal 2011 capital expenditures may end up in the 25 to $30 million range, which would be fairly consistent with the last two fiscal years. Of course the actual timing of the various projects currently underway are proposed will certainly impact our final CapEx number as will any currently unidentified projects that could develop during the remainder of the fiscal year.

Now, before I turn the call over to Greg, let me provide a few additional financial comments on our operations for the third quarter beginning with theaters.

As you saw in the press release, our box office revenues were down 21.4% during the third quarter and concession revenues were down 17.2%. Year-to-date, Box Office revenues are now down 9.6% while our concession revenues are down 9.8.

Unlike our last two quarters, where essentially one week during the quarter accounted for the entire decline in Box Office receipts during each of the quarters, we experienced Box Office decline in 12 out of the 13 weeks during our fiscal 2011 third quarter with the only week with positive results being the very last week of the quarter.

As we noted in our release, comparisons to the record revenues we reported last year were too much to overcome and were exacerbated by the disappointing performance of this year’s winter film slate. The overall decrease in theater revenues was entirely attributable to a decrease in attendance at our comparable theaters of 23.3% for the third quarter; now which then in turn results in our overall attendance decline for the full year now being down 12.7% on a year-to-date basis.

The impact of our overall attendance decrease was partially offset by an increase in our average admission price for these theaters of 0.7% for the third quarter and 2.5% year to date. The fact that last year’s top film during the quarter was Avatar, with its associated premium pricing for digital 3D showings of the film, resulted in a smaller increase on our average ticket price this quarter than we’ve been reporting in prior periods.

Conversely, our average concessions and food beverage revenues per person jumped by 6.3% during the third quarter and is now up 2.7% year to date. Comparisons to last year’s third quarter results in our theater division were significantly impacted on a negative basis by the change in estimate in deferred gift-card revenues we reported last year during our third quarter.

Our fiscal 2010 third quarter operating results from the Theater division were favorably impacted by approximately $2.2 million related to gift-card income. After adjusting for last year’s gift-card income, the fact is this year’s third quarter operating income was still down over $5 million or approximately 41% lower than last year’s results.

Now shifting to our Hotel and Resort divisions, we note in our release our overall hotel revenues were up 6.7% and total REVPAR was up 9.8% for the quarter compared to same period last year. And year to date, our REVPAR is now running 13.9% higher than it was last year at this time.

According to data received from Smith Travel Research and compiled by us in order to match our fiscal year, comparable upper upscale hotels throughout the United States experienced an increase of REVPAR of 6.4% during our fiscal 2011 third quarter and 7.8% during the first three quarters of our fiscal year. So for the fourth quarter in a row we’ve outperformed the national average.

Our fiscal 2011 third quarter overall REVPAR increase was a result of an overall occupancy rate increase of 3.2 percentage points and an average daily rate increase of 3.1%. For the first three quarters of the year so far this fiscal year, our occupancy is now running approximately 8.7 percentage points ahead of last year and our daily rate has decreased 0.3%.

As I noted earlier, our comparisons last year in this division were also unfavorably impacted by the legal fee portion of that contingent liability which we reported this year as well as approximately $500,000 of gift-card income reported last year in conjunction with the previously described change in estimate.

If we exclude these items from this years and last year’s results as well as the impairment charge that we took last year during the second quarter, our operating income rose over 7% during the third quarter and 159% during the first three quarters of fiscal 2011 compared to the same period last year. And our year-to-date operating margin of 4.6% compares very favorably to an adjusted margin of 2% last year.

Our fiscal 2011 third quarter and first three quarters operating income and operating margins would have in fact been even better than that if not for the legal expenses related to our Platinum hotel.

We continue to incur significant legal expenses related to various Platinum lawsuits and those cost including the legal expenses and the adverse judgment that I previously mentioned, totaled nearly $1.4 million so far this year. That’s nearly $700,000 higher than our net legal expenses on this project as of this same time last year.

And finally, since our next conference call is not until July, there is one item I wanted to bring up. As we near the end of our fiscal year and our thoughts turn to next year, I do want to remind you that our next fiscal year, fiscal 2012, will be a 53-week year for our company ending on May 31, 2012. For those of you who have followed us for some time know, that extra week in May is no ordinary week but rather includes the memorial day weekend. Since the 2011 Memorial Day weekend falls in the first – the 2011’s upcoming Memorial Day weekend falls in the first week of our new fiscal year, that means that we’re going to have two of these traditionally strong movie-going weekends during the upcoming fiscal year.

To put this in perspective, while the company has certainly changed since the last time we had a 53-week year in fiscal 2007, the extra week that year contributed, that the extra week that year contributed approximately $9.5 million in revenues and $2.9 million in operating income to our fourth quarter and fiscal 2007 results.

I share those numbers for illustrative purposes only and the projections of the impact the extra week would have on fiscal 2012 would be purely speculative at this time. So with that, I now turn the call over to Greg.

Greg Marcus

Thanks, Doug. I’ll begin my remarks today with our theater division. You know, as a public company we’re pretty use to the various statements we are required to make about our businesses and the risk factors associated with them. In fact, we make these statements so often it is easy to take them for granted.

For years now we’ve been making the following statement in our public documents, “revenues for the theater business and the motion picture industry in general, are heavily dependent on the general audience appeal of available films. Together with studio marketing, advertising and support campaigns and the maintenance of the current windows between the date a film is released in theaters and the date a motion picture is released to other channels including video on demand and DVD. These are factors over which we have no control.” Well, those words have certainly become real for us again this quarter.

Just a year after experiencing the highs of a record quarter spurred on by the largest grossing movie of all time as well as three other top performing blockbusters, we have just completed one of the more disappointing fiscal third quarters we’ve had in recent memory with film product once again the primarily driver of our results.

As our press release notes, all four of our top pictures last year performed better than our single best third quarter film this year. And while you could argue that the holiday and early winter film season featured critically-acclaimed specialty films such as True Grit, Black Swan, The King Speech, and The Fighter, clearly we were missing the big mass-appeal blockbusters that often are associated with this second most important season of the year for us.

Some of the other featured films for the season such as The Tourist, TRON, Chronicles of Narnia, Yogi Bear, Gulliver’s Travels, even Little Fockers were no match for the strong lineup of films last year.

Certainly, we’re not happy about a 23% decrease in attendance during our very important third quarter. But having been in the theater for over 75 years, it is important to remember that this is not a business that can be judged quarter to quarter, over even year to year for that matter because while over time the positive trend line of expedition’s clear, the path along that trend line can vacillate, sometimes severely.

We believe it is now more important than ever to maintain a long-term perspective. It is our view that the sudden and precipitance decline in attendance points more to a lack of good product rather than long-term trend movie going.

The theater business is by its very nature, a business that exudes optimism about the future. I think you can see why. And I suspect you will hear some of that same optimism at the Gabelli Movie and Entertainment Conference we are presenting at tomorrow as well as at the industries annual CinemaCon Convention in Las Vegas at the end of the month. We are already looking forward and summer, looks good on paper.

Our press release listed some of the films currently scheduled for the all-important May through August season, and as you saw there are quite a few sequels of franchise pictures scheduled for release. In fact, by our count, there are a record 27 sequels slated for release in calendar 2011. Whether this will insure higher Box Office remains to be seen but the obviously advantage of a strong sequel the built-in audience that the majority of these films have.

We also certainly hope that Hollywood continues to produce strong original films as well and a list in our press release includes some of those potential hits as well. And I will tell you anodically, I saw 20 minutes of Super 8 a number of weeks ago when visiting Paramount and if the rest of the movie is as good as the 20 minutes I saw, we should be excited.

Returning to the public company statement I quoted earlier, the second half of the statement addresses another topic that I’m sure will be much discussed at these industry meetings this month; that is the topic of windows.

There continues to be a lot saw about the possibilities of some of the major film studios testing a new shorter premium video-on-demand window during calendar 2011. While currently being described as a limited test for select films only, we have nevertheless expressed our concerns about this new potential window with our distribution partners, and we suspect others in the industry have done so as well.

The studios have generally downplayed the expectations regarding the impact a new window like this would have on our business, but the fact is that no one really knows right now. Needless to say, we are monitoring this industry development closely and time will tell whether this is much to do about nothing or not.

I will say this, our current film cost are directly related to the exclusivity of the product we display and any change in the distribution model would likely impact our view of what we would pay for that product. Never a dull moment in the theater business.

Which brings me back to the closely sentence in the statement I read at the outset which noted this film product quality and windows are factors over which we have no control. So in the meantime, our team could use to focus on the factors that we can control. This includes executing on the strategies we have communicated to you in the past. We continue to focus on significantly expanding our digital footprint in the very near future, seeking additional revenue sources through alternate food and beverage outlet, alternate programming and ancillary revenues, and continue to pursue growth opportunities such as theater acquisitions and new theater sites.

With that, let’s move on to our other division, Hotels and Resorts. You’ve seen the segment numbers and Doug gave you some additional detail. With our company-owned hotels predominately located in the Midwest, we have never made money in our fiscal third quarter in this division, and this year was no exception. Despite the overall improvement in operating trends, we had another nice quarter of revenue improvement and as Doug pointed out, would have reported our fourth consecutive quarter of year-over-year improvement in operating income if not for the one time gift-card income last year and the adverse legal judgment this year.

Particularly encouraging in the detail behind our numbers was the fact that we reported an overall increase in our average daily rate of just over 3% this quarter. The first time we have reported an increase in ADR since our second quarter fiscal 2009, two years ago. We still have a long ways to go but over half of our own properties reported at least some increase in rate this quarter compared to the same quarter last year. It is not to say that we aren’t still experiencing a lot of pressure on our rates in this current environment.

Our fiscal 2011 third quarter REVPAR was still nearly 9% lower than our pre-recession fiscal 2008 third quarter REVPAR with ADR being a major contributor to the decline. Thus in order for this current strategy to be complete and in order for operating margins – for recovery to be complete and in order for operating margins to be maximized, we still need average rates to improve. This continues to be the challenge we are facing right now, and the fix to this is not as simple as just raising our rates.

The fact is, that in the mist of the economic downturn, our mix of business is changed. Historically the overall percentage of the occupancy in our hotels has been approximately 50% group business, 50% non-group business. Right now, our overall mix is probably closer to 40/60. In other words, with group business in decline during the recession, we along with others in our industry have had to replace that higher-rated business with occupancy predominately from the price sensitive leisure market.

Any substantial growth in our ADR in future periods, will have to come about by successfully migrating back to our 50/50 group to non-group customer mix. As group business improves, it should provide an opportunity for us to reduce our usage of the various discount internet channels that the leisure guest relies heavily upon.

So the good news is that our group bookings while not back to where they were, continue to improve. The vast majority of our individual hotels are ahead of their booking pace for next year compared to where we were last year at this time. And overall, we are ahead in pace in every month of our next fiscal year except one right now.

The rate on these booked rooms is up slightly over the prior year as well. In the near term, we still don’t expect significant increases in the group business ADR, but as we’ve pointed out in the past, the group business customer tends to provide more opportunities for ancillary spending once they are on site making the group customer a very desirable customer.

Over time, with supply growth in our market segment limited in the short term, it should be reasonable to expect that we will continue to gain pricing power as the economy improves.

Looking ahead, we generally expect our favorable revenue trends to continue in future periods with one notable exception which will unfortunately impact our fourth quarter results. Last year during the fourth quarter one of our largest hotels benefited from some very strong group business that we know we won’t be able to completely replace. So our comparisons to last year will be very difficult. It is certainly possible that despite operating improvements, the majority of our other properties that reduce projected results at this one hotel may result in small decrease in operating income from this division for one quarter. Beyond that, right now, the summer looks good for our hotels. And as I indicated earlier, the booking pace for all of fiscal 2012 is ahead of last year.

Finally, we continue to look for opportunities to grow our hotels under management through a variety of different ways. We are currently exploring multiple opportunities and with a strong balance sheet and credit availability, hope that one or more of these potential growth opportunities will come to fruition in the months ahead.

Now, before we take questions, let me address one additional topic for you. Those of you who follow us on a regular basis know that owned real estate is an important strength of the Marcus Corporation. It has often been referred to as a hidden asset of our company. In addition to the real estate associated with our two operating businesses, we also own various other land parcels, often related to future sites for our businesses or past locations of some of businesses.

Those of you in the Milwaukee area have seen news reports recently about an exciting new retail development anchored by the Von Maur department store that is being planned on the west side, on the site of our former West Point Cinema as well as an adjacent land in the town of Brookfield.

If you recall, this is a theater that we closed when we built our Flagship Majestic Theater a few years ago. And we indicated at the time that the real estate could provide opportunities for future value creation because of its prime location in the marketplace.

At the time, we anticipated selling this land parcel but as we studied it, the opportunity to get involved in a high-quality project such as the one currently under discussion became very attracted to us. We are very excited about this project and currently anticipate fulfilling the developer’s role in making this project a reality.

There are still several hurdles ahead and many details to finalize. So it is still premature to discuss the financial elements of the development, but we will certainly provide more clarity on the project as the details come together.

With that, at this time, Doug and I would be happy to open the call up for any questions you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And our first question is coming from the line of David Loeb from Baird. Please proceed.

David Loeb – Robert W. Baird & Co.

Good morning. Greg, on the last topic, what kind of capital investment would you anticipate and what do you expect the return would be from that?

Gregory Marcus

I’m sorry, David, you cut off at the end. Can you say that again?

David Loeb – Robert W. Baird & Co.

Are you sure you just don’t want to dodge my question?

Gregory Marcus

I’m happy not to dodge it.

David Loeb – Robert W. Baird & Co.

I was saying about the development project in Brookfield, can you give us an idea about what kind of capital investment might be involved and what kind of return expectations or hurdle you would require for that?

Gregory Marcus

Well, you know, I don’t want to get into detail. I can tell you that the investment is in the hundred-million dollar range, a little over that. But in terms of investment hurdles, it meets our general criteria but I don’t want to get into that just yet because we still are – we’re still working out all the details of the project. It’s still a work in progress.

Douglas Neis

Yeah, David, as soon as we have it more fined tuned and have a better understanding of how the financing is going to all come together, I mean, then we’ll by all means get that information to you. But right now, we just don’t have it yet.

David Loeb – Robert W. Baird & Co.

It does seem like a big chunk of change to invest directly in your balance sheet and I’m just wondering how you look at that relative to other investment opportunities. Clearly, you have the balance sheet capacity for this and more, but I’m wondering how you’re looking at the capital allocation decision. Can you give a little more color?

Gregory Marcus

Yeah, you know, David, my feeling on it is this. As you pointed out, our balance sheet is under levered and we – you know we’ve been searching long and hard for investments to make and we – even doing this, we’re not going to constrain our capital ability. You know, we will be cognizant of that. We’re still going to be able to grow our businesses. Organic growth, as you know, is very challenging and hotels, I’m hoping one day the banks will lighten up.

The good thing about this project is that it’s such an exciting project and such a – I mean, this is the premier tenant in the Midwest everybody’s looking for is coming to Milwaukee in terms of Von Maur although they’re not predicted to be our tenant in this part of the project; they’ll have their own pad. But we feel that if we saw their opportunities in our core businesses, we’ll have the ability to move this or sell this and find a partner and take some of it off our balance sheet and then reinvest in stuff we want to. But we felt it was important that – to make investments that meet our criteria when we had the ability to right now.

David Loeb – Robert W. Baird & Co.

That makes perfect sense and it does seem like you’re creating a fairly liquid asset with that so that makes sense.

On the theater business, I guess aside from Super 8, which sounds to me like a movie about economic motels, with the number of sequals coming does it concern you that new franchises are not being created or about the lack of creativity? Or does it actually bode pretty well for attendance?

Gregory Marcus

Man, your guess is as good as mine on that one. You know, I think it’s – you know, I think you’ll – it’s not like there’s not going to be any new stuff. Super 8 is there. There’s a new one called Cowboys and Aliens, which looks really interesting.

David Loeb – Robert W. Baird & Co.

Filmed in New Mexico.

Gregory Marcus

Yeah, exactly. You know, so there’s this movie Paul, which is coming out. I mean, there’s lot of new product. We play over 160 films in our theaters over a year; they release close to 500, obviously not all make it to the movie theater business. So 27, while it’s a lot for the number of sequals – but there’s still a lot of original product and you never know where they come from. That’s the good thing about the business.

David Loeb – Robert W. Baird & Co.

That makes perfect sense. And finally, just one quick question about hotels. It sounds like you’re finally able to get regrowth. It doesn’t surprise me every time I come to Milwaukee you seem to be on the verge of selling out or sold out. What do you think it takes to get the kind of group business back that you’re seeing? Is it Milwaukee winning conventions? Is it you taking share from others in town, in your markets? Or is it really just macro – the economy coming back?

Gregory Marcus

Yes. It really is all three of those things. I mean, now look at – probably the most minimal is the share of others because, you know, as you know in Milwaukee, we have to be careful not to just take from one pocket and move it to the other. You know, but as the economy gets better and you know, and people start – you know, it’s always that – as much as we have technology in the world, there’s nothing like shaking somebody’s hand and closing a deal. And when your competitors are out you start hearing, oh wait, my competitor was out making a sale, now I’ve got to get out. So that starts to build on itself. There’s lots of things that travel just can’t replace and have to occur in terms of, you know, you can’t – I didn’t mean travel can’t replace, I meant technology can’t replace.

You know, you can’t have a conference without being together. It’s hard to do that over a video chat. So you know, as the economy gets better and companies start to have more money in their pockets and they’re comfortable spending it, instead of sending one person to the conference, maybe they’ll send two. Maybe they’ll stay in a little nicer hotel. You know, so all those things really will – and then we’ll continue to be aggressive in our markets and making sure that we’re getting our share if not more and delivering a great product, great service. And you put all those things together, that should be a very good formula.

David Loeb – Robert W. Baird & Co.

Makes perfect sense. Great. Thank you very much.

Gregory Marcus

Thank you, David.

Operator

(Operator Instructions). I do have a follow-up question coming from the line of David Loeb. Please proceed.

David Loeb – Robert W. Baird & Co.

Well, if nobody else is going to - Any comment, Greg on the potential for an additional full-service hotel development in Downtown Milwaukee? If the Marriott does get in, what do you think of the chances of the Marriott built and if it does what impact might that have on the Pfister across the street or your hotels in Downtown in general?

Gregory Marcus

Boy, you’re really going for the hornet’s nest with that question, aren’t you.

David Loeb – Robert W. Baird & Co.

Sorry.

Gregory Marcus

No, that’s okay. I’m happy to take it on. You know, I have no idea about what their ability to build it is. It is a subsidized hotel and that is not good. I mean, if you’re familiar with it, I don’t know if you are, it’s being – it’s really interesting. They’re using a program called EB5 to finance the hotel. And the – as a chunk of the financing. That is essentially money that is gained from the sale of green cards. It’s a foreign investors – foreign investors put up a certain amount of money and they have to create ten jobs.

Now, the interesting thing about the formula when they look to see whether they’re creating ten jobs, they don’t look to see if they’re taking ten jobs or eight jobs away from somebody else. All they have to do is create ten jobs and [inaudible] they’re putting their money into.

Well, in the hotel business, that’s not looking – that’s not a great idea because hotels are simply supply. And by the way, what kind of – let’s go back to EB5 for a minute. What kind of return is someone looking for when they’re buying a green card? They’re buying a green card so their kid can go to school in the United States. They’re buying a green card so they can travel outside the United States more freely because their passport may not be as – have the ability to be as flexible as a U.S. passport. And then they may be thirdly even maybe want to come here. But in most cases, that’s not even their main motivation.

So they’re putting this money in expecting certainly a low level of return, if anything. I couldn’t tell you exactly what they expect but I know it’s not much. So in essence, it becomes a subsidy. The government says, we’re not subsidizing it because we’re not putting government money in, we’re just selling green cards. But you know, whether the government is subsidizing it or foreign investors are subsidizing it, it is a – it creates [inaudible]. And by the way, we’re fine with the subsidies. Subsidies when they are used to create demand bring new bodies to a market, generate new spending are great. But when they simply are for things like hotels where it’s just a regular, you know, I’m sure it’s a nice Marriott, but a regular Marriott, all it does is increase the supply. And if the pie doesn’t get any bigger, we’re just going to cut it into smaller slices. So we have to be able to get more people to come to Milwaukee. Simply, I will pay good money to the first person I hear say you know, I heard there was a great Marriott in Milwaukee, I really want to go there and check it out. That’s not why people come here. I said the same thing about our Hilton. They come here because they’ve got family here. They come here because they have business here. They come here because there’s a convention here. And until we get more people to come for those reasons, building a Marriott is not going to solve the problems of Downtown. It sounds great, it feels great, we’re starved for development, so – it feels like something’s happening but it’s very short sided without the increase in demand.

Now, the truth is, you know, it’s the only Marriott core brand in Downtown Milwaukee. We’ve got a Residence Inn and a Court Yard and those properties over perform. I mean, based on their market share, where they are, how they do because someone calling it Marriott is a very strong system will default to those if they want their Marriott rewards points.

So I think they’re probably the most vulnerable, but it will take from other properties. It will take from the Pfister. It will take from the Hilton. It will take from the InterCon. I don’t know how much. Being right across from the Pfister, it will – we will feel it. I have no doubt.

Unless of course, our community can get more demand. I challenged the community and I’ve challenged our mayor and said please, tell us, how are we going to get more bodies down here. Tell us what your game plan is. The mayor was very supportive of the Marriott, but I said okay, if you’re going to be supportive of that hotel being built with a subsidy, then please, tell me how are we going to get more people here because if not, the ten jobs you create there are going to leave the Residence and the Court Yard and the Pfister and all the other hotels because we won’t have beds to clean, we won’t have people to feed because they’ll be at the Marriott.

So it’s a long-winded question – a long-winded answer to your question. I’m sorry, but you know, you got me on my soapbox and it’s something that bothers me because I get concerned, obviously when we just subsidize product. And people don’t really understand EB5. It’s sort of a new tool in a developer’s tool kit. I’m not against the use of subsidy, as I said, but it needs to be properly used, not just to build something for the sake of building it.

David Loeb – Robert W. Baird & Co.

Is there a scenario where having a Marriott across the street would make you look to put a brand on the Pfister just as a way to attract guest for example who were looking for a Starwood product in Downtown?

Gregory Marcus

Well, you know, we always, you know us, David, we’re always looking at ways to improve our businesses whether it’s putting a flag on something or taking a flag off something or changing the flag or you know what we do. So you know, of course we’d consider that. We have come to no conclusion on it and whether the Marriott was there, we think about it sometimes too. Brands are very strong. But right now, we have no intention of doing anything.

David Loeb – Robert W. Baird & Co.

Okay. Great, thank you very much for your help.

Gregory Marcus

You want to ask Doug a question?

David Loeb – Robert W. Baird & Co.

I like putting you on the hot seat.

Gregory Marcus

Thanks.

Operator

At this time, it appears there are no other questions. I’d like to turn the call back over to Mr. Neis for any additional or closing remarks.

Douglas Neis

Well, thank you. I certainly want to thank everyone for joining us again today. We look forward to talking to you once again in July when we release our fourth quarter and year-end fiscal 2011 results. Thanks, and have a great day.

Operator

Ladies and gentlemen, that concludes today’s call. You may disconnect your line at any time.

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