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The Marcus Corporation (NYSE:MCS)

Q1 2012 Earnings Call

September 15, 2011 11:00 AM ET

Executives

Doug Neis – CFO and Treasurer

Greg Marcus – President and CEO

Analysts

David Loeb – Robert W. Baird & Co

Mike Rindos - Rodman & Renshaw

Gregory Macosko - Lord Abbett

Operator

Good morning everyone and welcome to the Marcus Corporation First Quarter Earnings Conference call. My name is Jennifer 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 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.

Doug Neis

Thank you, and welcome everybody to our fiscal 2012 first quarter conference call. As usual, I need to begin by stating that we plan on making a number of forward-looking statements on our call today. 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 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 in the business group and leisure travel industry, and in our markets, our expectations and plans regarding growth in number and type of our properties and facilities, our expectations regarding various non-operating line items on our earnings statements, 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 will also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com.

So with that behind us, let’s talk about our fiscal 2012 first quarter results. As you might surmise we are quite pleased with our reported results, it was nice to have both businesses show substantial improvement at the same time. I am going to take you through some of the details behind the numbers and then turn the call over to Greg for his comments.

As you can see there really weren’t any significant variations and most of the other income expense lines below operating income other than another reduction in interest expense compared to the prior year. Interest expense was down over $300,000 during our fiscal 2012 first quarter compared to the prior year to primarily reduce borrowings. As you know during the summer we are at the peak of our cash inflows while the same time we generally refrain from significant capital spending.

As in the past we would like to see our debt level rise in future periods now as the summer is behind us. Our overall debt to capitalization ratio at the end of the quarter was 36%, down from 39% at our recent May year end due to the aforementioned strong cash flow summer for us. In this lower debt to Cap ratio is despite the fact that we repurchased over $400,000 of our common shares during the quarter and Greg will speak to that in a moment.

Shifting gears, our total capital expenditures during the first quarter fiscal 2012 totaled approximately $3.7 million compared to just over $2 million last year during the first quarter. Approximately $2.7 million of this amount was incurred in our hotel division of which our renovation at our Hotel Philips property represented the largest piece.

As I noted earlier, we generally tend to limit our capital spending during our busy summer time period. At this early stage of our fiscal year, despite the low CapEx number during our first quarter, we have reason to adjust our previous estimates for capital expenditure for fiscal 2012 of an amount in $50 million to $90 million range, recognizing that as we pointed out in our recent 10-K filings, the timing of several of our planned expenditures including those related to the corners retail projects are still just estimates at this time. We are still finalizing with scope and timing of that project as well as the various requested projects by our two divisions and we anticipated proceeding with many of these projects as the year unfolds. The actual timing of the various projects is going to be under a way of proposal will certainly impact our final capital expenditures number, as well any currently unidentified project that could develop during our fiscal year.

So now I would like to provide some financial comments on our operations for the first quarter beginning with theatres. Our box office revenues increased 5.3% during the first quarter with concession and food and beverage revenues up a significant 16.4%. These increases are attributable to an increase in attendance at our comparable theatres of 2.3% for the first quarter, and increases in both of our relevant per capita numbers. This year’s Memorial day weekend lineup of Pirates of the Caribbean 4, Kung fu Panda 2 and Hangover 2 significantly outperformed last year’s films that ran at the same time periods, Shrek 4, Sex and the City 2 and Prince of Persia. And then mid July got a boost from the outstanding performance of the final Harry Porter installments. These and other films contributed to our second straight quarter of increased attendance after a very challenging first three quarters of fiscal 2011.

Our average admission price for these theatres increased by 1% for the quarter and our average concession and food and beverage revenues per person increased by 11.7% compared to the same quarter last year.

Pricing, concession product mix and film product mix are the three primary factors that impact our concession sales per person. Selected price increases, a change during the second half of last fiscal year from sale tax, inclusive pricing to sales tax added pricing and a change in concession product mix including increase sales of the higher price non-traditional food and beverage items in our theatres, all contributed to our increased concession in food and beverage sales per person during the first quarter. As a result, our operating margins from this division increased to 24.2% compared to 22.5% last year. And I want to point out that our operating income margin would have been even better this quarter if not for over $600,000 of accelerated depreciation that we reported this quarter related to 35mm film projection systems that are being replaced in conjunction with our previously announced digital cinema deployment. We do expect to report the additional $800,000 of the same accelerated depreciation during our upcoming fiscal second quarter related to the conclusion of the digital deployment.

Shifting to our Hotel and Resort division. As we noted in our release, our overall Hotel revenues grew up 9.8% and the total RevPAR was up the same 9.8% during the quarter compared to the same period last year. As we have noted in the past, our RevPAR performance did vary by market and type of property type of property, but all eight company-owned property reported increased RevPAR this quarter.

According to data received from Smith Travel Research and compiled by us in order to master our fiscal year, comparable upper upscale Hotels throughout the United States experienced an increase in RevPAR of 6% during our fiscal 2012 first quarter. So we’ve once again outperformed in the national average.

Our fiscal 2012 first quarter RevPAR increase was as a result of an overall occupancy rate increase of 2.7 percentage points and an average daily rate increase of 6.4%. So with that I will turn the call over to Greg.

Greg Marcus

Thanks Doug. I will begin my remarks today with our Theatre division. As we shared with you eight weeks ago during our year end conference call, our new year appear to be off to a good start and as you can see by our reported numbers, the rest of the first quarter held up quite nicely. In fact we ended our traditionally strong summer quarter with box office increases in five of our last six weeks. As Doug noted, this was our second straight quarter with an attendance increase over the prior year of 2% and more. A very nice reversal from the negative attendance trend we experienced during each of the first three quarters of last year.

And it is obviously no secret that the most important factor impacting attendance has been and always will be the quality and quantity of the films released during the period. This summer film slate certainly was highlighted by the performance of the top four pictures noted in our release all of which happen to be sequels. Harry Porter, Transformers, the Hangover and Cars. But there also was a lot more depth to the film slate this time round. Our indication of this is the fact that this year we had twelve films produced at least $1.5 million of box office receipts for our circuit during our first quarter, compared to only seven films that reached that mark last year. That second terror film can make the difference between the record revenues we reported this year during the first quarter and an averaged to down quarter like we reported last year.

It is certainly too early to tell whether we will continue this positive trends in our current second fiscal quarter. September is always our slowest month of the year and historically in only 60% of our second quarter box office receipts are produced during the last six weeks of the quarter as the holiday film kicks off in earnest.

This year we anticipated strong performance from a November lineup of films that include Puss and Boots and Happy Feet 2. Both in 3-D as well as another installment in the Twilight series. And as a point of reference, our top films last year during the second quarter were Harry Porter and the Deathly Hallows part one, Jackass 3 and Megamind. And if I was to sneak a peak in the December in the beginning of our fiscal 2012 third quarter, we can look forward to sequels to the popular Alvin and the Chipmunks, Sherlock Holmes and Mission impossible franchises, as well new films such as New year’s eve and The girl with the dragon tattoo. And two films from Steven Spielberg, War horse and the adventures of Tin Tin, secret of the unicorn.

Meanwhile, we continue to execute on several of the strategies we highlighted in our recent 10-K in year-end conference call. Since we last spoke, our digital cinema deployment began with a very aggressive schedule. Installation begins on August 15 and today we are already over half way done. As our release notes, we should have the vast majority if not all 628 planned digital systems installed by the end of this month. I can’t tell you how proud I am of our digital cinema team and vendor partners. Once we made the decision to move ahead with digital, we wanted to deploy as rapidly as possible in order to be and realizing some of the benefits highlighted in our release.

With over 90% of our screens utilizing digital projections systems by October, we will continue to provide our customers with some of the state of the art feeders in America. Also contributing to our reputation as a winning innovator in the industry as our continued effort to expand our non-traditional food and beverage in our theatres. In that regard, we are very pleased with the customer response to our two new Big Screen Bistros at our flagship majestic cinema in Brookfield, Wisconsin. And we are actively reviewing plans to further expand that concept. In addition, as our press release notes we recently approved construction of our second full service Zaffiro's Pizzeria and bar, this time in conjunction with a major renovation of our Parkwood cinema in the suburb of St. Cloud, Minnesota. If all goes well we hope to have the restaurant open in time for the busy Christmas season.

With that, let’s move onto our other division, Hotels and Resorts. You’ve seen the segment numbers and Doug gave you some additional details, certainly we are very pleased with another quarter of significant year-over-year improvement. And as Doug shared with you, it is also gratifying to see us continue to outperform the industry during this recovery, particularly encouraging in the detail behind our numbers was the fact that we reported an overall increase in our average daily rate of over 6% this quarter, our third straight quarter of increased ADR after two years of year-over-year decline in this metrics. We still have other ways to go with seven of our eight owned properties reported an increase in rate this quarter compared to the same quarter last year. That is not to say that we aren’t still experiencing pressure on our rates in this current environment. Our fiscal 2012 first quarter ADR was approximately 7.5% lower than it was in our pre-recession fiscal 2008 first quarter. That isn’t a double-digit percentage decline we have seen in prior quarters but an indication there is still room for improvement.

It is interesting to know however that our fiscal 2012 first quarter RevPAR was only approximately 1% lower than our pre-recession fiscal 2008 first quarter RevPAR. Thanks to nearly six additional points of occupancy this year compared to the first quarter of fiscal 2008. In fact, our combined occupancy for our eight owned hotels have never been higher. Of course, the challenge we face with this high occupancy, lower rate environment shows up in our operating margins, is much harder to drop the revenue increases to the bottom-line in this environment. Our overall operating margins increased this quarter from 15.1% during last year’s first quarter to 17.2% this year. A healthy increase but note that we only converted approximately 40% of our increased division revenue this quarter to our operating income compared to the 50% flow through that we might see in a more normal rate environment.

We are obviously very happy with the improvement we are experiencing in our Hotels and Resorts operating results, but as we evaluate our business, we still see a need for a shift in our relationship between occupancy and rate in order to get our operating results back to their optimum levels.

I certainly believe that our first quarter results suggest that we are on the right path, the share shift I talked about in the past whereby group business begins to return closer to our historical mix of our business appears to be underway albeit at a modest rate.

Group business improved during our first quarter and the advanced booking pace for group continues to be good. Strength of the quarter continues to be the individual business traveler and our corporate volume business. Those segments have been very strong and have allowed us to reduce our usage to some degree of the various discount internet channels that negatively impact our ADR so much.

Looking ahead, the second quarter is off to a good start thanks to the same customer segments that drove our first quarter. So at this time, we generally expect our favorable revenue trends to continue in future periods, assuming no major disruptions or changes in the economic environment.

We remain concerned about the fragility of our current economy as well as the uncertainties that is arising out of our current political environment. I am sure we will have our share of unexpected challenges in the future.

Finally, we continue to look for opportunities to grow our Hotel business through a variety of different ways, our hotel division continue to seek additional management contracts and has the ability to make minority investments in private when the opportunity arises.

Last month we announced that Bill Reynolds, a well respected industry veteran with extensive hotel acquisition and development experience has joined the Marcus Corporation as Senior Managing Director of our newly formed investment business.

Historically, whether investing on our own behalf or partnering with others, something we’ve been doing for nearly 50 years already. The development team that runs these activities is housed within Marcus Hotels and Resorts. With an eye of continuing that activity and potentially expanding into other activities like fun sponsorship, we thought it would be best to separate the development activity into a separate entity to give it more attention. While our efforts are just beginning in this new venture, Bill has hit the ground running and is already busy evaluating various strategies and opportunities that could provide long term value to the Marcus Corporation. We are excited to have someone with Bill’s skills and experience to join our team.

And as I wrap up our prepared comments, I would be remiss if I didn’t note that as our press release indicated we repurchased over 400,000 shares during the quarter pursuant to an existing board authorization. This still leaves us plenty of room to consider growth opportunities in both of our businesses. With the debt to capitalization ratio well under 40% over $130 million revolving credit availability as of the quarter end, and a $150 million universal shelf registration statement unfilled and effective with the SEC, we have the flexibility to explore and follow through on potential growth and value creation opportunities that may arise during the months and years ahead while still taking advantage of an opportunity to repurchase shares at a price that we felt significantly undervalued our assets and growth potential.

We will continue to manage our balance sheet very carefully in the future but we are committed to exiting the strategies necessary to provide value to our shareholders over the long term.

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

Question-And-Answer Session

Operator

Thank you. Ladies and gentlemen, (operator instructions) and please stand by for your first question. Our first question comes from the line of David Loeb with Robert W. Baird. Please proceed.

David Loeb – Robert W. Baird & Co

Good morning gentlemen. I have a few as usual. One on the hotel side. Greg I appreciate your color about the margins and occupancy to persons ADR, it still looks like a decent rate of growth this quarter. As you look over the next four quarters, are you getting to a point where your occupancy is getting high enough that you can start pushing rate a little more aggressively?

Greg Marcus

You know, I hope so. We have got to start to actually having people sleep on the roof soon in some of the hotels but its been a challenge, our seeing some opportunities, we are in the negotiating rate season, we are seeing some ability to push rate, it’s not going to be anything huge, but we are moving forward, we are making progress on that. When we try to push rate earlier on in the cycle, we found that we really cliffed out, like the minute we have a lot of occupancy even if we dropped the rate, if we raise the rate then all of a sudden it will go away, we were much deeper into the online travel agents and the discounters who are moving away from, and so I suspect that we will have more opportunities, but again who knows with the economic we will sort of see where things go. But I think one of the things that is helpful is that we are seeing significant business from our corporate accounts and we know that corporate America have got a lot of money in the balance sheet, they may not be hiring you, they may not be investing but may be their investments are in the hotel business.

Doug Neis

And this is where I would follow up on what Greg just said David is that 6.4 that we did this quarter was probably more reflection of verses the term pushing rate was more of a reflection of that shift where we were filling the rooms with more of that corporate and volume corporate business and individual business traveler verses that heavily discounted internet channel customer. So it’s not so much that we took any of the rates that we charged each and little channel up significantly, it’s more of a channel shift.

David Loeb – Robert W. Baird & Co

Makes perfect sense. And given all the turmoil in the stock market and hotel stock threw a degree in your stock and till today. Are you seeing anything in the business, are you seeing any changes in travel patterns or booking partners as you look ahead for the next quarter or two?

Greg Marcus

Not really David. It’s interesting, I have a theory that I will share with you, I don’t know if it’s accurate or not, but you know – one thing – because I think we are all hearing the same thing that people were cautious, we are seeing people retched down their RevPAR expectations but still having growth in them. The only thing I can think off is that as I said corporate balance sheets are in much better shape than they were and it could be there’s a little bit of reversion of the mean if you think about work that you guys do when you analyze our companies and you analyze our performance, you tie a lot to GDP and I think you will be the first to say that in the last cycle when we went down we blew those co-relations out of the water probably somewhat induced by government’s negativity towards travel and it could be that we are just reverting back to the mean and that things may slowdown in the economy, but we so far overshot the map on the way down that we may be a little protected. I don’t know, it’s just a guess but I figure I’d share.

Doug Neis

And may be what I would add David is expect a question like that, like talk to our guys and ask them the same question and the only thing that -- struggle a little bit to have an answer other than saying may be just a little bit in the association type business, the company business seems as Greg just said, it has been very strong, it has been the strength of our business and it appears to be the strength of this upcoming quarter as well, but some of the association business where now people don’t have to go and so may be, we have seen that the pickup and some of those types of events, may be is being impacted just a little bit where may be a few less people are going to the things that they don’t have to go to but we -- my guys struggle a little bit to try to come up with an answer to that question because we are not seeing a lot of it.

David Loeb – Robert W. Baird & Co

We are hearing that from a lot of others. One more hotel question and this is serious with the brewers in contention this year. Do you think that Milwaukee Hotels will have any particular benefit in the second quarter from potential play-off related business in the markets or

does that go the other way where you have rooms blocked off and if they don’t have a game 6 or 7 or whatever, that you’ve not booked other business?

Greg Marcus

It depends a lot David. Right now for those who aren’t in this market to know. I mean the brewers are – right now they could get a certain game or they could be hosting a series in the first round. They could not be and so that makes the difference. If they host I think it’s on a weekend. I think we do have some – there’s something going on. We might have some conflicts so it may not be that big of a push or big of an addition if that’s the case. On the other hand if it falls at the series, I even can’t remember which way it falls. If the series falls the other way then it would be a really good thing. Obviously if it gets to the second round that even becomes better. So the first series could only be, worst case scenario could only be one game.

Doug Neis

But the truth as you know, this is a particularly strong period anyway for us and so it’s better, but it’s a high class problem and it beats a poke in the eye with a sharp stick, as they say.

David Loeb – Robert W. Baird & Co

Okay, great. I have a couple of others but I’ll come back in after some other people have a chance. Thanks.

Operator

(Operator instructions). Our next question comes from the line of Mike Rindos with Rodman & Renshaw. Please proceed sir.

Mike Rindos - Rodman & Renshaw

Hey guys, fantastic quarter. Congratulations. Wanted to talk a little bit more about the digital rollouts in the theatres and get your sense for the upcoming holiday seasons and how much of an expansion or how many more theatres will be showing 3D? Can you comment on the industry’s take rates for 3D films lately and then to follow that, what you think the pipeline of alternative content looks like for the coming three or six months or whatever your viewpoint is.

Greg Marcus

It will have no impact on – let me start with your first question, Mike. It has no impact on the amount of 3D screens we’re going to have with the ability to have more, but we’re not making any more investments in 3D at this point. I think that as everybody has seen, there’s a bit of a question mark over what is going to be the actual demand for 3D. 3D is here, it’s an important part of the mix, but where does it shake out? I don’t think anybody just – anybody knows even yet where we’re going to end up and how much of a contributor 3D is going to be. Certainly producing a lot of 3D movies but as I think you know, the percentage of business going to 3D has been declining.

So I wouldn’t tell you that digital is going to have any impact on that. We continue to see expansion in the alternative content area. I saw a list today of some of the new stuff coming. I posed an interesting question to the guys on the email in the last 24 hours, not just at it related to alternative content which is how we’re promoting because one of the problems of alternative content if you’ve never thought about this, but what makes movies work if you think about it? A movie plays 30 times a week, so if it runs for four weeks it gets 120 runs and if it’s on 4,000 screens you have like 500,000 plays across the country. Think of the marketing you can throw at that. If it plays – alternative content if it plays on ah, if you’re lucky 500 screens across the country, 1,000 screens across the country, once, twice. How much marketing can you throw at that? So I said to our guys, so how are we marketing and that’s the problem with alternative content.

That’s why when people start to say, well isn’t that going to be a great big boom for you? Well, maybe but it’d be helpful but it has got its challenges. One thing digital is going to allow us to do is to be able to more effectively market in the theatre to get into the trailer package, to get marketing to tell people what’s coming. But again how much marketing are you going to throw at something when it only plays once or twice compared to something that’s playing 120 times on one screen over a four week period? So there’s no easy answer. It’s nice it’s coming. It will be a nice addition and I hope as the theatres continue to evolve, we’re able to use that avenue of alternative content and more and more will come our way. But I can’t give you specifics as to what it’s going to mean.

Mike Rindos - Rodman & Renshaw

Okay. Shifting gears, now let’s talk a little bit about the concession business. You’re knocking it out of the park here with regard to the numbers per patron which is fantastic. Can you talk more about the big screen Bistro and how many theatres that might wind up over the rest of the year?

Greg Marcus

Well, as I think you know and we originally introduced this at our flagship Majestic Theatre in Brookfield, Wisconsin with a single auditorium. Last, I guess it was May, we opened two more auditoriums there. It was April or May and we’re very happy with how that’s worked out. We’ve gotten better operating efficiencies out of having the three. The customer response to it has been very positive. Certainly it’s only one theatre, but certainly they are part of the mix here why we’ve reported such a nice per capita numbers increase. So we could do more of them. This fiscal year, I would suspect that probably one other theatre might get three screens and that’s one option that we’re looking at right now. Certainly there are a couple of others that we’re talking about right now but whether it would happen in time to really impact this year, not quite so sure. If it did it would happen in the spring.

It wouldn’t have a lot of impact for this year. But we’re identifying theatres right now that can be candidates for that type of a program and we certainly learn that it’s important to have more than one and so I would certainly expect that we’re going to be – we hope to be announcing at least one location. As you saw we announced another location just yesterday where we’ll be putting in a separate Zaffiro's, taking out an auditorium and doing the Zaffiro’s separate restaurant like we did up in our North Shore Theatre in Mequon, Wisconsin and I suspect that we’ll be announcing sometime in this year at least one more location with the big screen Bistro.

Doug Neis

I think that – to build on that, you were much more delicate than I might have been and this is (inaudible), we’re very pleased with what’s going on at the Majestic with adding two screens but one thing you need to remember is that we’re pleased because we screwed up. (Inaudible) we learned. We’ve always said that Majestic was a little bit of our lab and this is a business. We have to do some R&D and as we sort of find our way through what works in terms of food and movie theatres and what we figure or what doesn’t work and what doesn’t work is just building one screen and then we realize, boy, if we had two more screens we could leverage that kitchen and that labor that was servicing that one screen much more effectively and it did. It’s been very effective there.

Now what does that mean going forward? It means boy, that model looks interesting and we want to continue to work at it, but we still have more work to do to figure out exactly what the right mix is. Once you’ve built the kitchen, do you have a freestanding restaurant and big screen Bistros? How do you mix that out? So we're going to continue to play with it and look at it and noodle at it and we’re seeing – again we’re seeing nice progress at Zaffiro’s in the North Shore in Mequon. Started off at a level, we’ve increased the business by adding different things like delivery and what is it called, focusing on our pickup business and dessert, working other segments. One of the things we learned very on it’s very easy to fill the restaurant from 6:00 to 8:00. So we can – if the food moves fast we can turn it very quickly. So our trick to get the investment to be a good return is to build those shoulder periods and we’re doing it, but it’s just taking us some time to learn how to do it. So we’ll move forward with it and as soon as we understand exactly what we’re doing them we’ll roll them out faster.

Mike Rindos - Rodman & Renshaw

Okay, great. Thanks. Good luck.

Operator

Our next question comes from the line of Gregory Macosko with Lord Abbett. Please proceed sir.

Gregory Macosko - Lord Abbett

Yes, thank you. Nice quarter. With regard to the theatre, just so I understand, you say that you’ll have 90% of the screens on digital and that’s by the end of October and that’s where you’ll stand? You won’t go 100%?

Greg Marcus

Yeah. We’ll be at – I think the actual number is like 93% or something like that Gregory and what’s left are things like – we still have I think three theatres, I think it’s three of them that have our budget operated theatres and so we’re not converting those and a couple of other ones where there’s maybe a lease or something like that where we’re not – we didn’t make the commitments yet to convert those to digital. So we may not ever be 100%, but this is effectively, from a first month perspective this is effectively 100%.

Gregory Macosko - Lord Abbett

And with regard to the 3D screen, is the idea that obviously you want to have a 3D movie in there and have the right 3D movie, but those screens can also play a normal movie as well. Is that correct?

Greg Marcus

Yeah, that’s correct.

Gregory Macosko - Lord Abbett

Okay. So the utilization is fine, obviously a better payoff for the 3D hopefully, but…

Doug Neis

Yeah. So as Greg was saying earlier, it really comes down to, once you have digital, adding 3D is not that much more. There’s a cost associated with it, don’t get me wrong, but the bigger cost is associated with getting digital first and so we’ll have to kind of watch to monitor how the 3D plays out and decide, ultimately decide whether we have the right number of 3D screens right now or whether we need to add to that or not. That would be something we’ll have to evaluate.

Gregory Macosko - Lord Abbett

Can you talk about the concession per person? That 11.7% was a pretty big number. How much of that would relate to the big screen and the pizza, the Zaffiro’s or whatever relates to that versus kind of in the theatre?

Doug Neis

I don’t have a number that I could just break down that 11.7%. I’ve rattled off the fact that there really were a bunch of factors. That was one of them. As Greg said, not just the big screen Bistro but just the other places where we have additional food and beverage. The Zaffiro’s up in North Shore and we’ve got some other locations as well where we’ve expanded the offerings. They’re all contributing. As I also mentioned last year, our fiscal year, second half of the year we changed our pricing to be sales tax added to the sales tax inclusive. That has some impact and then just the films quarter to quarter can make a difference and we had, Harry Porter certainly was a good popcorn movie and so we had a bunch of pictures that might have contributed to that as well. It’s hard to kind of break it down and say one factor had this much impact.

Gregory Macosko - Lord Abbett

And then with regard to the hotels, the ADR was certainly nice to see. If we look forward your comment about the corporate being strong and continuing to look good into the quarter and the other comment was that we’re putting them on the roof. So is the point being as we look into the second quarter, there in effect will be kind of a continued mix improvement kind of a trade-off corporate for sort of weak internet and the lower price rooms?

Doug Neis

Yeah. So far look, it’s only September 15th but we haven’t – what we were seeing in the first quarter, the same thing is happening right now and so the booking, the lead time on this corporate business is different from the group business. It’s still short, Gregory, and so it’s really hard to go too far out ahead and kind of forecast that, but yes we are still seeing strong individual business travel and corporate volume business at our hotel. That by definition helps us wean ourselves a little bit off of the other internet channel stuff.

Gregory Macosko - Lord Abbett

But the occupancy – in other words, the occupancy is high and probably going to likely kind of stay there or should stay at that level and the point being again the shift in mix going forward would be the idea.

Greg Marcus

Yeah. But remember as we move into the – we’re moving out of our strongest season. So I don’t know what the occupancy rates are going to be going forward, but we will, as the year progresses it gets to be more challenging. So as we indicated I don’t – again I couldn’t go back any farther than the years I had and of course we haven’t always had these eight properties. We never had higher occupancies than what we just had in the first quarter at these eight properties if you add them all up. So again kind of looking in the – first of all further into the future, it could be that the ultimate mix is a little higher rates and a little less occupancy in order to get that optimum margin that we want to get as well, but right now we’re taking the hand that we’re being dealt.

Gregory Macosko - Lord Abbett

Right. Of course. Okay and then the wide range in the CapEx, is that 40 million range basically dependent upon the Corners retailing project?

Greg Marcus

That was about 20 of it and so certainly that is a big part of that range, no question about it. When we broke down the 50 to 90, we kind of broke it down as 25 to 35 in each of the two divisions and then another 20 potentially for the corners depending on the timing. So it is the single biggest reason for that wide range and the rest really comes down to timing on the projects. Some of the growth things that we’re trying to pursue if we hit on a couple of these things where it might involve a minority equity investment, things like that. Those are all the kind of things that would get us to the higher end of the range within the divisions.

Gregory Macosko - Lord Abbett

And give us some kind of update or your sense of how the Corners thing is going.

Greg Marcus

The Corners is moving along very nicely. We’re seeing really good interest in the tenants, potential tenants, but that being said it is a complicated project. It has got a lot of moving parts to it. Getting everybody is – the point being telling you the specific – I feel confident in the project but the specific timing is really hard to pin down. You’ve got a lot of players trying to coordinate together in terms of getting all the – we’ve got the involvement of municipalities, we’ve got the public finance piece of it, we’ve got to put the tenants together, we’ve got our anchor to get to work with them, design of the center, the value engineering component that always comes on. So it’s a big one so it’s going to take some time.

Gregory Macosko - Lord Abbett

But you’re committed to this and this is going to happen?

Greg Marcus

You put a conjunction in there. You said this is going to happen. We’re committed to this. It’s our intention to do it, but we have to have – but everything has to happen. We’ve got – we have a lot of pieces that have to finish and get, this is – that need to get – need to get done.

Gregory Macosko - Lord Abbett

Okay, but the pieces are still coming together upfront? If it could still not come together because if you don’t get all the players to agree, etc, it could still not happen?

Greg Marcus

Yeah, absolutely.

Gregory Macosko - Lord Abbett

Okay, good. All right and then finally, I don’t have the press release in front of me…

Greg Marcus

Greg?

Gregory Macosko - Lord Abbett

Yes?

Greg Marcus

So what I’m not going to do is build the spec shopping center.

Gregory Macosko - Lord Abbett

Good, glad to hear that.

Greg Marcus

Okay. Don’t have to worry about that.

Gregory Macosko - Lord Abbett

All right. Just the last question and I don’t have the press release in front of me, but what did you pay on the buyback per share?

Doug Neis

It averaged about 8.5, Greg. So it was about $8.50 give or take in the average.

Gregory Macosko - Lord Abbett

Well, that’s the thing I can congratulate you most on, good timing. Thank you.

Doug Neis

Thank you.

Operator

(Operator instructions). We have a follow up question from David Loeb with Robert W. Baird. Please proceed.

David Loeb – Robert W. Baird & Co

Just one left. Greg hit one of mine. Congratulations on the Bill Reynolds hire. Obviously that’s a really high class individual you’ve added to your team. Greg, can you just give a little bit of color on what you think the magnitude of your investments over the next two, three, five years may be? What kind of impact do you think this could have and what kind of return potentials are you hoping for?

Greg Marcus

Well, David, the return potential is what – for us should be what our hurdle rates have always been and I don’t see that changing. So I expect that we aren’t going to make investments unless they get there and so that’s what we’re going to target to do. You know us, we’re not going to try and shoot for crazy returns and take undue risks, but we’re going to try and get nice returns with a reasonable amount of risk. The magnitude of what it could be, it’s going to be – part of it is going to be dependent on what happens in the markets. If things start to loosen up a little bit, we’re seeing the REITs seem to be off the table right now. That could create opportunity. I do think that marrying a guy with Bill’s experience and time in the industry with our balance sheet and our intellectual capital and our experience is probably a pretty good marriage and as I said, we may be able – our hope is that we’re able to lever and bring in outside capital as well.

David Loeb – Robert W. Baird & Co

That’s great. Very helpful. Thank you.

Operator

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

Doug Neis

Well, thank you everybody for joining us today. We really appreciate it. We hope we see some of you at our annual meeting on Tuesday, October 11th at the Intercontinental Hotel in Mequon, Wisconsin. For those of you who cannot attend, we’ll be webcasting the meeting. We also look forward to talking to you once again in December when we release our second quarter fiscal 2012 results. Thank you and have a great day.

Operator

That concludes today’s call. You may disconnect your line at any time.

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