The Marcus Corporation (MCS) Q4 2015 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Marcus Corporation Fourth Quarter Earnings Conference Call. My name is Sheila, and I will be your operator for today. [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.

Well, thank you very much. Welcome, everybody, to our fiscal 2015 fourth quarter conference call. As usual, I do need to begin by stating that we plan on making a number of forward-looking statements on our call today. The forward-looking statements could include but not be limited to statements about our future revenues and earnings expectations, our future RevPAR, occupancy rates and room rate expectations for our hotels and resorts division; 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; our expectations and plans regarding growth in the number and type of our properties and facilities; expectations regarding various nonoperating 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 can 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. So with that behind us, let's talk about our fiscal 2015 fourth quarter and year-end results. An impairment charge that I'll talk more about in a minute may have had -- maybe I should change my script to say not may have had but did have, on the surface, may have masked the fact that it was another very good quarter for us, led by our theater division that reported record operating results for our 13-week fourth quarter and record fiscal year results. And nearly identical to our last 2 quarters, what makes this a special quarter for us is that we produced these results during a 13-week period when the national box office numbers were essentially flat. So it wasn't as if we had an unusually great film slate to work with. For the sixth straight quarter, our theater division significantly outperformed the industry. And while continued RevPAR improvement from our hotels and resorts division contributed to record revenues for the hotel division and, in fact, the entire company as a whole, as we projected when we last talked, we had one more quarter where the significant renovation and brand conversion at our Chicago hotel negatively impacted our hotel results. I'm going to take you through some of the detail behind the numbers, both on a consolidated basis and for each division, and then turn the call over to Greg for his comments. So let's start with the impairment charge, pretty simple actually really. As you know, we're spending a great deal of time actively reviewing our portfolio of hotel assets from a strategic perspective. We also, at least annually, review all of our long-lived assets for impairment in a process that estimates future cash flows in order to determine the fair value of the respective assets. As you might imagine, given our portfolio and the averaging holding time of most of our assets, in almost every case, the estimated fair market value of our hotel assets exceeds the book value sometimes by a significant amount. In fact, if anything, you've probably heard us talk about the fact that as we pursue hotel -- potential hotel monetization opportunities, we may have some situations where we may encounter substantial gains on certain assets that would likely require an effective income tax solution. Having said that, during our review of the hotel assets, we did identify a pretax impairment of approximately $2.6 million related to a specific asset that we reported -- that we hadn't reported during our fiscal 2015 fourth quarter. After adjusting for income taxes, this onetime impairment charge, coupled with an earlier smaller $300,000 impairment charge in our theater division that was reported in an earlier quarter, negatively impacted our reported net earnings per share attributable to the Marcus Corporation for both the fourth quarter and the entire fiscal year by approximately $0.06 per share. Moving on, I usually spend a few minutes on each line item below operating income, but as you can see, the only noticeable change in any of the 4 applicable line items during the fourth quarter was in our losses on disposition of property and equipment. Those losses increased this quarter due to the write-off of selected assets at the Chicago hotel due to the renovation and the write-off of selected assets, many of which were old seats related to the theaters that have undergone major renovations. Same answer applies when you look at the variations on our losses on disposition line for our year-end results. I'm not going to rehash in great detail prior quarter variations that we have previously explained, but since this is also year-end I'll just remind you that our year-end investment income was approximately $400,000 less than last year due to the fact that a long-term interest-bearing loan that we made to a municipality for a parking garage adjacent to one of our hotels was paid off during the year. And offsetting that was the fact that interest expense continued to be below last year due to a lower average interest rate. Our fiscal 2015 effective income tax rate adjusted for losses from noncontrolling interest was 39.5% compared to 40.2% last year, slightly lower than last year, but generally right in our historical range of 39% to 40%. And speaking of noncontrolling interest, as you can see, another reason that our fiscal 2015 consolidated earnings attributable to the Marcus Corporation was lower than last year was because of a onetime legal settlement last year that resulted in the recording of $3.8 million pretax loss attributable to noncontrollable -- noncontrolling interest. This didn't impact our fourth quarter, but for the full fiscal year, the simple math would be that if you exclude the approximately $0.08 per share this item added to earnings last year, our fiscal 2015 net earnings per share, after adjusting for the impairment charge I just talked about, would've actually been over 10% or nearly 10% higher than last year. Look, we're not one of those earnings before bad stuff companies, but in this case, both the impairment charges this year and the $0.08 noncontrolling interest amount last year were onetime noncash items. So I do think it's important to point this out. In fact, the way we look at it and the way we manage our business, the way we look at this year is you could easily just take a look at our operating income line. And you saw that last year we had $48 million of operating income. This year, excluding the impairment charge, we were -- we had $53 million of operating income, a solid 10% increase. Now you throw in another $5 million of added depreciation into it, and now you're looking at, basically, an EBITDA going from $82 million to $92 million. That's how we look at the business. That's how we look at how the year ended up, and we're very, very pleased with that result. Shifting gears away from the earnings statement for a moment. Our total capital expenditures during fiscal 2015 totaled approximately $75 million compared to approximately $57 million last year. Approximately $50 million of this amount was incurred in our theater division related to the numerous investments that we've made in our existing theaters as well as the new theater opened in Sun Prairie, Wisconsin. We spent approximately $24 million in our hotel division with the majority related to the renovation and conversion of our Chicago hotel into an AC Hotel by Marriott as well as prior renovations at the Pfister and Cornhusker. As we look towards capital expenditures for fiscal 2016, we're once again currently estimating that our fiscal 2016 capital expenditures may be in the $70 million to $90 million range, with approximately $50 million to $65 million estimated for our theater division including about $9 million in carryover from this past year. That would leave about $20 million to $25 million and currently estimated for our hotels and resorts division, but about a half of that amount related to carryover costs and several projects underway or recently completed, including the Chicago renovation, and the other half related to additional -- related to some additional maintenance capital as well as, frankly, there's some dollars that we've set aside in the budget for possible growth or ROI opportunities that could be evaluated -- that would be evaluated during the year. As is always the case in this -- at this point of the year, the range of potential capital spending is fairly large at this time because either the timing of several of our planned projects is not finalized yet or because some of the dollars are for several growth opportunities that may or may not come to fruition. As a result, even though this year's actual expenditures did actually come in right in our originally projected range, our actual fiscal 2016 capital expenditure certainly could vary from this preliminary estimate. In addition, if an acquisition opportunity could arise, particularly in our theater business, that would obviously impact our actual capital expenditures as well. Greg will expand on some of the capital expenditure plans during his prepared remarks. Now I'd like to provide some financial comments on our operations for the fourth quarter and fiscal 2015, beginning with theaters. As you can see in our reported numbers, our box office revenues increased 10.7% during the fourth quarter and in the year 7.7% ahead of last year. Our concession and food and beverage combined revenues increased a substantial 20.2% during the fourth quarter and ended the year up 17.5%. Once again, we significantly outperformed the national numbers by more than 9 and 11 percentage points, respectively, during the fourth quarter and full year fiscal 2015. We shared the specific numbers that we obtained from Rentrak in our press release with you. In fact, according to the data that we obtained from Rentrak, we are the only theater circuit of the top 10 chains in the United States to even report an increase at all in box office revenues during the same 12-month period. Now once again, the fourth quarter increases are primarily attributable to an increase in attendance of 9.8%. Despite what the national numbers would suggest, there's essentially no better, no worse film slate. We ended fiscal 2015 with a 12.1% increase in attendance. Once again, we believe that the majority of this attendance increase and the overall industry outperformance can be attributed to the new investments we're making in our theaters and the innovative marketing strategies that we've initiated. Our average admission price for our comparable theaters increased by 0.8% for the quarter, but finished the year down 3.9% due entirely to our $5 Tuesday program that didn't lap the previous year until November. Of course, as you know, that's also contributed to our attendance gains. And our average concession revenues per person, including the various food and beverage outlets, increased by a significant 9.5% for the fourth quarter, and we ended up 4.8% higher for the entire fiscal year. Now that we've lapped the introduction last year of our free popcorn promotion related to the $5 Tuesday program, you're now seeing more directly the impact of our new food and beverage outlets on our concession revenues per person. And of course, with higher attendance, these changes in our per capita numbers only add to the positive story as evidenced by our significant increase in total concessions food and beverage revenues. Shifting over to the hotels and resorts division. Our overall reported hotel revenues were up 6.9% for the fourth quarter and 7% for fiscal 2015. But if you eliminate the new policy of grossing up service fees into the food and beverage revenues that I described during the earlier quarter's conference call, our revenues were up 3.7% and 3.6%, respectively, during the 2 reported period. As our press release notes, our reported revenues and operating income were noticeably impacted by the fact that we are still operating a hotel in Chicago that was under major construction and was operating without the support of a brand. In order to get a better sense for how the majority of our hotel portfolio is performing, we believe it's more meaningful to look at some key metrics excluding the Chicago hotel. So with that in mind, I'll tell you that our total RevPAR for 8 comparable properties, excluding Chicago, was up 5.3% during the quarter and 5.9% for the year compared to the same period last year. As we've noted in the past, our RevPAR performance did vary by market and type of property, but I will tell you that 7 of our 8 comparable company-owned properties reported increased RevPAR during fiscal 2015. Now according to data received from Smith Travel Research and compiled by us in order to compare our fiscal year results, comparable upper upscale hotels throughout the United States experienced an increase in RevPAR of 5.6% during the fiscal 2015 fourth quarter and 6.9% during our fiscal 2015 full year. Now I share that with you in order to be consistent with prior quarter disclosures, but there does continue to be an interesting dynamic playing out right now that we referred to previously, whereby the national numbers don't necessarily reflect what's happening in our more Midwestern-centric market. When you further dissect the Smith Travel numbers and just look at hotels in our specific markets and competitive sets, you find that we actually had another year of outperforming our competition in most markets. In fact, specifically, if you take -- overall, if you look at our RevPAR for our competitive set during this fiscal year, it was only up 5.3% compared to our 5.9% overall increase that I just talked about. Breaking out our numbers a little more specifically, again excluding Chicago, our fiscal 2015 fourth quarter overall RevPAR increase was due primarily to an overall occupancy rate increase of 4.3 percentage points. Our average daily rate increased 0.5% during the quarter. So for the full fiscal 2015 year, our occupancy rate increased -- also increased by the same 4.3 percentage points and our ADR was essentially flat. So with that, I'll now turn the call over to Greg.

Thanks, Doug. I'll begin my remarks today with our theater division. We're obviously thrilled to be reporting another great quarter and a record year for this division, once again significantly outperforming the industry. Stop me if you've heard this before. Clearly, the investments we are making in our theaters are making a difference, and when you combine those investments with our innovative marketing, the pricing initiatives, the result is a record-breaking attendance in our theaters during a time when the industry as a whole reflects an overall decrease in attendance. Doug shared the numbers with you. Not only are we over-indexing the nation as a whole. The numbers we are getting from Rentrak suggest that we were once again the top-performing theater circuit among the top 10 chains in the United States. I think we once again answered a question that I know has been on many of your minds: Can we continue to outperform the industry after we had lapped the 1-year anniversary of our $5 Tuesday rollout as well as the 1-year anniversary of our initial DreamLounger location? Clearly, the answer to that question, at least for another quarter, was yes. The next 4 theaters where we added DreamLoungers last May, and the 3 recently added DreamLounger theaters, were among our top-performing theaters this quarter. And while there's no question that our DreamLounger recliner seat locations have been key contributors to these great results, I will tell you that during fiscal 2015, over 75% of our company-owned first-run theaters outperformed the national box office. Part of that is because our $5 Tuesday program continued to be a contributor to our stellar result, with Tuesdays this year outperforming comparable Tuesdays last year during the same quarter. As Doug indicated earlier, national numbers would suggest that this quarter's film slate was not significantly different in terms of quantity and quality than last year's comparable slate. The quarter actually started off a little slow, but picked up around Easter and then again in May when the Avengers came out. And of course, when you look at the full fiscal year, the national numbers would tell you that this was a down year at the box office, but you wouldn't know that looking at our numbers. Once again, the raw numbers would suggest that the film slate for the year may have been a little deeper this year, with the top 5 films for the year listed in our press release accounting for approximately 18% of our total box office versus the 19% share of the top films during last year represented. But I believe it is more than that. We've been seeing this dynamic since we introduced our $5 Tuesday program, and I believe our numbers would suggest that we've increased movie-going frequency among our customers. An increase in frequency might tend to benefit the next year of movies after the blockbusters, films that a customer may have passed on in prior years. So while it all starts with attendance in box office revenues, it is still up to our operating team to convert these revenues increases to increased operating income. So I'm particularly pleased with our 21.5% increase in operating income this quarter and a 15.1% increase for the full fiscal year. Despite increased fixed costs because of our recent investment, increased operating costs as we service significantly more customers than in the past and new costs related to our loyalty program, our team was able to increase our operating margin by over a full percentage point this quarter. And for fiscal 2015, our operating margin of 19.9% is 80 basis points higher than last year. Our entire operating team from our theater general managers and district directors to our home office staff and leadership team deserves a great deal of credit for producing these outstanding record operating results. So now we move on to fiscal 2016, and while the film slate looks very good, you've heard us say that our goal is to continue to outperform regardless of what the movies in any particular quarter look like. Our path to meeting that goal starts with many of the same strategies you've been hearing about. As Doug shared with you, we invested another $50 million into this business in fiscal 2015 with a large portion of those dollars being spent in the second half of the year. The early response to those investments has been very good and you are seeing some of that show up in our fourth quarter number, but we'll be particular -- we'll certainly be looking for a continued return on those investments in fiscal 2016. In particular, I want to single out our new Palace at Sun Prairie Cinema that we opened up on April 30. If you get a chance to see this unique entertainment destination, I encourage you to do so. This was our first new-build theater in several years, and it gave us a chance to incorporate all of our successful amenities under one roof with great results so far. Our customer response to this theater has been fantastic, and I can tell you the studios are pretty happy with us as well. We're excited to continue to invest in both new and existing theaters during fiscal 2016 as we further expand the successful concepts and amenities that contributed to our industry outperformance. Doug shared with you that we may spend as much as $50 million to $65 million in this division during fiscal 2016, and we would do that in a number of ways. We expect to be in construction on another replacement theater in a different market soon, and we are looking for additional sites for new location. I've mentioned that we are considering building our first standalone Big Screen Bistro location, and construction on a particular opportunity we are working on may also begin in fiscal 2016. Of course, our DreamLounger recliner seats have been a huge hit with our customers, so we are currently evaluating opportunities to add this premium seating amenity to another 3 or 4 existing theaters during fiscal 2016 in addition to the 2 new theaters I just mentioned. We also plan to continue expanding our proprietary large format -- large screen format concept. We are currently evaluating opportunities to convert or add up to 4 additional UltraScreen DLX auditoriums and 7 of our new SuperScreen DLX auditoriums for fiscal 2016. And as the concession numbers Doug shared with you indicate we continue to have success with our new food and beverage concepts with more to come, we opened another Take Five express early in fiscal 2016 and another Take Five lounge under construction and at least one more on the drawing board. Two more Zaffiro's Express outlets opened early in fiscal 2016. Another one is under construction and up to 3 more are being considered during the second half of fiscal 2015. Needless to say, our team will be busy, but it is not just about making capital investments. As you know, part of our success has been because of our innovative marketing and pricing strategies, and we'll be looking to build on that in fiscal 2016. With well over 1 million members in our loyalty program, our team will be focused on communicating to our loyal customers, whether it is with special value offerings or promoting alternate programming and special film series or attractions. And I'd be remiss if I didn't mention that we continue to believe that acquisitions of existing theaters or theater circuits may also be a viable growth strategy for us. We do not believe we are geographically constrained, and with the strong balance sheet, available capital and a proven record of implementing proprietary amenities and operating strategies, we believe we may be able to add value to the right theater or theaters if opportunities arise. We are not the type of company that just wants to grow for growth's sake. And the fragmented and family-controlled nature of this business makes it difficult to predict when such opportunities may come to pass. But I will tell you that we are proactively pursuing this strategy. Finally, as I alluded to earlier, the film slate looks very good, and the summer and our corresponding fiscal first quarter are off to a great start. Our press release highlights some of the movies that have done well so far and we also list some of the remaining films to be released during our first quarter. The supply of films during the rest of the calendar year also looks good, highlighted by franchised films from the James Bond, Hunger Games and Star Wars series. Of course, at the risk of being repetitive, our goal, regardless of how the film slate turns out, will be to continue to outperform the industry. I know our team is excited to take on that challenge in fiscal 2016. With that, let's move on to our other division, hotels and resorts. You've seen the segment numbers, and Doug gave you some additional detail. Excluding Chicago, we reported solid increases in RevPAR and record divisional revenues, once again beating our competitive set. Obviously, from an operating income perspective, the results were disappointing. But as Doug shared with you, the onetime impairment charge and the operating losses at Chicago -- at our Chicago hotel, which we continue to operate without the benefit of a flag while under construction, dramatically impacted our reported results. In my remarks last quarter, I also told you that we had one particular hotel that had a very strong fourth quarter last year, that would likely have difficulty replacing some of the business that drove last year's results. And unfortunately, in this case, I was correct. One of the realities we deal with is that with only 9 company-owned or majority-owned properties, variations in even 1 or 2 individual hotels can be noticeable in our reported results. It was obviously accentuated during this quarter. For competitive purposes, we don't talk too much about individual properties, but suffice it to say, that as evidenced by our solid RevPAR numbers this quarter, we had several hotels with very good results this quarter and this year. I will say with the majority of our RevPAR growth driven by occupancy gains, it is more difficult to improve operating margins and maximize the operating income flow-through from the revenue increase. There is no question that one of our key objectives during fiscal 2016 will be to make ADR growth a large component of our overall revenue growth. One of the ways that can occur is our group business continues to increase. We continue to experience improvement in the pace of our group bookings, which is a very encouraging sign. We actually knew that this summer would get off to a slower start, particularly in our home market in Milwaukee due to reduction in convention business. But as the year goes on, things get more promising from a group perspective as we already have more group business on the books compared to last year. Of course, when we look ahead for fiscal 2016, we're also thrilled to have our new AC Hotel by Marriott now open. This property obviously had a pretty significant negative impact on our fiscal 2015 results, so we're happy to have that behind us, and we're very excited about what lies ahead with the new brand. We've only been opened officially on the Marriott system for a handful of weeks so far, but the hotel looks great and we've received very favorable comments from our guests. Bigger picture. Most industry experts seem to be pretty bullish on what the future holds for this industry. They all seem to be predicting that the U.S. lodging industry will continue to achieve strong growth in RevPAR in both 2015 and 2016, and that the shift is on with record-setting occupancy yield and groundish [ph] Growing ADR with growth -- with ADR gains beating the primary driver of -- being the primary driver of RevPAR growth through 2019. Look, I think the reality is that no one really knows what the future holds, but I am confident that our hotels are positioned to do well in our markets and I know our operating team is focused on driving revenues and improving margins. It is also no secret that we would really like to grow our management company and we are actively pursuing a number of potential growth opportunities, with a particular focus on management contracts possibly with some sliver equity at times. This past year, we added the Hotel Zamora using that model, and we recently announced our involvement in the new Capitol District Marriott Hotel in Omaha, Nebraska, again using the model of management contract plus sliver equity [ph]. And speaking of what is and wasn't -- what isn't a secret, our press release also noted that we've gotten into the secret business, pardon the pun, with our recent purchase of the Safe House, an iconic spy-themed restaurant and bar located in downtown Milwaukee that has been popular with tourists and locals for nearly 50 years. One of our growth strategies in this division is to leverage our food and beverage expertise, and we have sought out opportunities to expand our successful in-house restaurant brand, which is Miller Time Pub and Grill, in addition to adding the existing Milwaukee Safe House restaurant to our operating results. We look forward to exploring opportunities to expand this concept as well. And finally, as previously discussed by us and mentioned again by Doug earlier, we are also actively reviewing opportunities to sell one or more owned hotels. Many factors have to be evaluated as we do this including income tax considerations, the ability to retain management, pricing, individual market considerations, et cetera, et cetera. We evaluate strategies for our hotels on an asset-by-asset basis, and we have not set a specific goal for the number of hotels that might be considered for the strategy, nor have we set a specific timetable at this time. Having said that, it is very possible that we may sell one or more owned hotels during fiscal 2016 and beyond if we determine that such action is in the best interest of our shareholders. So that ends another fiscal year. In fact, the 2015 -- the year 2015 marks the 80th year of The Marcus Corporation. As we noted in our press release, while much has changed during that time, our core philosophies are providing our guests with quality service and value, maintaining a strong balance sheet and managing for the long term remain same and were evident once again in our fiscal 2015. Our board expressed confidence in our future by raising our quarterly dividend by 10.5% during our fourth quarter. We believe we are well positioned for growth and look forward to continuing our momentum in the year ahead. With that, at this time, Doug and I would be happy to open the call up for any questions you may have.

[Operator Instructions] We'll go first to David Loeb of Baird.

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

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

All right, we'll respect your respectful refrain. On The Corners -- sorry if I missed this. There's obviously a lot going on and the hotel stocks are kind of melting down today. What's the latest on the timing? We saw Von Maur's announcement. When do you think you actually break ground on that project?

So again, keep in mind, first of all, that we are not the managing member of the joint venture anymore. So we're a minority holder in the JV. We contributed our land, but Bradford and IM are now running the project, and they are moving along really well. I mean, they -- my understanding is that they're about to break -- they're about to start footing and foundations, which would be kind of the technical definition of construction commencement, any day in the next week or 2 now. So it's moving along pretty well as I understand it. Again, you'd have to ask -- they would have to comment specifically on their overall timetable. But if you've been out there, there's been a lot of dirt that's been moved around. It's looking great, just getting the pad ready for Von Maur, and so it's good. And then I'm glad you asked the question. So in conjunction with all that, we've talked about the fact that part of this whole process is -- and part of our whole agreement is that we, in turn, get reimbursed for the majority of our predevelopment costs. And I do want to add, and if you looked at the numbers and you saw the corporate segment, you'll notice that the corporate segment looked pretty -- a little better this particular quarter. That's because we did, in fact, go ahead and reverse, I'd say -- I would tell you it was over $1 million. About $1.4 million of items that we have previously expensed were reversed in this process because we're going to get reimbursed for them. And over the years, we've been working on this for 4 or 5 years, we had been pretty conservative along the way and then expensed some of these costs, and part of our overall deal was to get reimbursed for this. So that is reflected overall in our results, which we're very happy about.

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

You hit it exactly.

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

Question, David? Are you going to trip me up? Yes, I think my General Counsel just ran in here. I can't comment on that at this point because we haven't released anything publicly.

Well this is your chance.

I mean, I did -- in our prepared remarks, David, the only thing I'll tell you is that -- and again -- so we're not going to talk about -- we didn't talk about that overall. We did say that we -- that locally here in Milwaukee, the group business, like I mentioned it is...

No. He was talking about theaters.

Oh, did you mention theaters? I thought you were talking about -- I thought you said hotel.

No, theaters. We'll come to hotels.

Oh, I'm so sorry. I'm so sorry.

That's okay. You're anticipating my questions again, Doug.

Yes. No. You're right. We can't -- and I got to be honest. We haven't tracked -- we haven't compiled for the first quarter that Rentrak information the way we normally do. But as you did indicate, results have been very strong and we didn't hold back in our comments in terms of saying how good the quarter has certainly started thanks to Jurassic World, Inside Park -- Inside Out and Minions, and so it's been off to a good start.

Okay. Now let's talk about hotels. I appreciate your comments about the AC. I've heard really good things. What's your outlook? Is that pretty positive for fiscal '16 with that brand on that -- in that location?

Yes. I'm very excited -- I mean, look, we only have one out in the first inning. We really are so early to say, but it looks fantastic. It really is. It's a great looking asset. It's a great piece of real estate. We just got in the Marriott system. Our initial -- our rates are very strong as we come out of the box strong. Our challenge to our group is to start getting our -- building our basic group business and we'll be -- but we anticipate doing very well. It should be a great property.

Okay, that's very good to hear. On Milwaukee, Doug, it sounds like you guys are really holding your own in a market that's had a lot of new supply. Is that a fair conclusion?

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

And it's no secret that Milwaukee -- and we talked about it in our remarks. Milwaukee's convention business started off pretty slow, and so we're dividing that pie amongst the -- now we're dividing a smaller pie with more players. So it's got its challenges but again, we've -- I've always said we're the ones not -- we don't worry too much about ourselves because we keep our assets up and we are very competitive.

It's a challenging environment around here.

And Doug, can you just give us the fourth quarter RevPAR stats including Chicago? I caught the excluding.

Sure. No, I'd be happy to do that. And that's information that we do disclose and it will be in our MD&A, so I'd be happy to share it with you. So let me just pull it up here. So including -- well, this is the year. For the fourth quarter...

I'll take the year.

Yes, so look, for the fourth quarter, RevPAR was up 3.2% if you include Chicago.

And that's basically all occupancy?

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

And Chicago, I think toward the end of that, I think it was May, had a very strong run. There was a bunch citywide. It was that -- the town was packed.

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

Okay. And do you have the full year number as well?

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

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

Say that again?

You -- I think you said earlier that the full year was up 4.3% in RevPAR.

No, no. The full year was up -- without Chicago, it was up 5.9%.

Okay. I must have written something down wrong. Okay.

Occupancy was up 4.3 percentage points

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

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

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

I'll let Agent BB answer that question. He's got his own agent nickname and everything else. I'll let Greg answer that.

Wish I could tell you, David, but it's a secret. No. Look, it's funny. I have to admit, I was struck by how -- we knew that -- we've been talking -- it's part of -- the prior owners, Dave and Shauna Baldwin, have been part of our community for a long time here in Milwaukee and we've always talked to them, on and off. We've always been intrigued by what they had going on there, right? I mean, if you think about our company, our company has made a fortune off the spy story. What's the first series I talked about in my prepared remarks? What's coming? James Bond. We're about to have Mission Impossible open up. All -- we are so -- the spy story is this theme, so we -- I guess we were naturally intrigued by this as what would that mean for us. It -- and so we've had discussions with Dave all along, what can we do. And for us here in Milwaukee, we're having a lot of -- it's basically -- it's a tourist place. We have probably control over a great number of tourists, maybe more than anybody else in town. So just logically, it was like well, it's a nice thing to have in Milwaukee as part of our -- given that we have these hotels here. You add that to that. We said, well, we always want to be doing a little bit of R&D. So it's a little -- in our minds, it's sort of a low-cost R&D, and where I'm getting at is actually there's 2 pieces. It's not a very huge business. It's relatively small compared to our company and probably normally wouldn't warrant even this discussion, but it's iconic. I will -- when we originally did -- when we did the deal, I figured we'd get a news story or 2. We were on every TV station. We were in every newspaper, as you saw, for people who around here. It was amazing. It really struck a chord because it really is a special place. And so we want to know, is there something to this? Is this something that we can grow? We have it in the hotel division because it is a small little operation and it needs the benefit from the -- all the firepower we have in this big operating division. So it's interesting. It's R&D. It's fun. It's got -- it's outpunched its weight because of sort of what it is and how iconic it is. So everyone's having a lot of fun with it, and we'll see where it goes.

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

Most of my 37 questions have already been answered, but now just a few. I guess one, obviously, great performance in the theaters relative to the industry. Any sense from digging into the data of how much of that was kind of competitive gains from others in your regions?

It's interesting, Eric, because while there can be some of that, there's no question that we draw from -- as we put some of these amenities in, and particularly the DreamLoungers, there's no question that we draw from a wider range than maybe a typical theater might. Having said that, look, as we've talked about, some of our more recent investments have not been -- don't have as many opportunities to steal from other competitive theaters. The first wave that we did was the low hanging fruit, were the ones where we thought we could do that pretty easily. But as we've talked about it, as we've now gone in and then did the next 4, and then we've done another 3, and then we did Palace and -- there aren't as many competitive theaters, and yet, they're still doing well. We're clearly -- I think we're increasing frequency. We're drawing from a farther range, we're -- we've reenergized the moviegoing experience, and so more than -- there might be a little of that, but there's also more to it than that.

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

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

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

Correct.

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

Okay. And then just 2 quick questions on acquisitions. So one on the acquisition environment out there for the theater side, maybe just talk in terms of the general mindset you're seeing with potential sellers. Has that changed at all once the AMC Starplex announcement was -- came out there in terms of you guys getting more excited about selling without putting kind of a maybe a price out there? And then two, kind of going back to one of the previous questions on the restaurant side, on the Safe House. I mean, if you do look at doing more thing, I guess, is it one-off ones that are opportunistic where you can get some synergies? Or would you ever consider kind of buying a chain of restaurants, similar to how you are looking to buy maybe a chain of theaters?

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

The next question comes from the line of Mike Hickey with The Benchmark Company.

The -- I guess on the hotel side, curious what the friction hurdle is, so to speak, on selling 1 or 2 of these assets, where you sort of expressed an open desire in the last couple of quarters, I think, to do that. And at this point, are you more or less confident on your ability to execute on a potential sale?

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

All right. The -- and then, I mean, on your balance sheet, obviously you got a very nice balance sheet, and of course, I think that's a lot by design. But curious in front of what appears to be a favorable landscape to grow your business through M&A, you're willingness, I guess, internally to lever up a bit, I guess, to realize maybe the performance growth and consolidation, especially when you think about the organic elements you can create with your next gen theater design that you have for organic growth. And maybe what specifically you are doing today maybe you haven't done in the past internally to find potential M&A deals.

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

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

Okay. When you look at yields, obviously you said your real estate is a big factor. But at this point, does it matter whether the theoretical network that you would look to acquire owns the land or leases it?

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

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

Look, our hurdles are our hurdles, and so we set a hurdle rate that we expect to meet before we release capital to our division. And that's -- and really if it beats it by a lot, well, that's great. Now, you're not wrong. I mean, we picked the low-hanging fruit first. But that being said, we still expect to meet our hurdle rate when we make these investments, and we are, and we are.

Okay. And the last one on windowing, curious your thoughts or possible plans to participate partnership with Paramount in accelerating the deployment of movies, theatrical movies to digital.

I guess what I'm going to say is that I've had a very -- for many years, I've had a very public position on the window issue, and I said it -- man, I think it goes back 5 years ago. I said be careful, we don't want to be the frog in the frying pan, where they slowly reduce the windows over time and we'll end up cooked because we never felt the heat. So we, as an industry, must remain vigilant about these windows. Our chain is a proxy for the laws of supply and demand and windows and product in the markets, right? Why does $5 Tuesday work so well? Why are people going back to the movies? Well, we lowered the price. Why did we lower the price? Because, I don't know, every -- because the exclusivity period has shrunk and the availability of product downstream is enormous. It's a firehose. And when you can drink from the firehose for, I don't know, pennies to watch something, a movie or anything, well, why do you -- it impacts the value upstream. And so when they change the exclusivity periods, you have to be prepared for the pricing and the value upstream to come down. So they must be very, very careful with what they do. I've said this for years, and I will continue to say it.

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

You talked -- I think, Greg, you talked a little bit about freestanding Big Screen Bistro. How would that be different other than the fact of the dinner thing? Layout? Auditoriums? Kind of describe that a little, if you could.

I think we're still working on the exact details of how we want the auditoriums, but we've done different versions of Big Screen Bistros where we have more of a counter with seats that move around it and where we've gone more with our DreamLoungers with tables that swing over in front of your seat. But it's basically a theater that is devoted to the dine-in concept. So where we now have in Madison, I think, 4 screens of dine-in concept and 3 at Brookfield Majestic. That's part of a larger complex. In another complexes where we've done Big Screen Bistro expresses, the -- this would be all screen dine-in, and it just makes a statement about what that concept is to the customer and this is totally that concept. And we think it's -- obviously, people are having success with those, and we believe it's something that we need to experiment with.

Yes, Greg, with the auditorium size, 12.5 screens per theater, is that about the same? Or does that logistics change with an all dine-in Big Screen Bistro?

Fewer screens. I don't think we've ever actually built a half screen, Brian, but probably -- I couldn't resist. The -- these are smaller footprint, smaller in-town [ph] theaters.

Now that you guys have kind of lapped here, coming on the $5 Tuesdays, your sense of penetration with food and concessions with the value deck?

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

Okay, okay. You guys opened the Palace at Sun Prairie. Your kind of consensus expectations versus kind of reality what happened, give me a sense of what you've experienced.

It's been very positive. When you say expectations, you have to -- it depends on who you ask. But certain people in our company had very high expectations. And people had -- of everyone that had high expectations, some were a little higher than others, but it's -- we're very pleased with its performance.

Okay, I have not seen it. Any -- what would you say the difference in, say, the Majestic concept you opened several years ago?

What's the difference?

Yes.

It's more refined and it's -- the scale is a little bit smaller.

And we learned -- when we did the Majestic in Brookfield, I mean, that really was -- talk about R&D. I mean everything that was in there was brand new. We had never done a Big Screen Bistro before. We had never had a Take Five lounge. We had never had Zaffiro's pizza before and so the way we laid the building out, we learned things from. And so when we had a chance to build another building from scratch like this, we applied a lot of that learning to how we laid this building out. It -- when you walk into the lobby, it's spectacular. I mean, the Take Five lounge is just dramatic and you can't miss it there. And we have an outdoor fire pit area and it's -- so we've learned a lot from our various attempts -- things that we've done here and tried to incorporate that into the design of this particular theater.

But I think it's interesting to note that it's a testament to our approach to this business and our long-term thought process and our vision because it's a refinement. And we opened -- I'm trying to think of, Doug, do you know how long ago we opened the Majestic in Brookfield?

I think we're looking at maybe 9, 10 years now, right? Yes.

Yes, so we're doing the same thing, but just in a more refined way with more experience and smarter. But we knew it -- we knew food and beverage was going to be important. We had strategic plan meetings 10 years ago, 9 years ago and said, "Food and beverage is coming, and it's important to our business. How do we plan for that?" And I would be honest to tell you, I didn't know how important it would be. It would become even more important.

Okay. All right, fair enough. When you talked about the film slate, you -- Greg, I think you have some numbers on comparisons 2015 or '14 for the top 5. Give me a sense, maybe movies 6 through 20, how was the depth year-over-year?

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

Okay, I'll just ask just one more. Ex the $5 Tuesday, and correct me if I'm wrong, you've got something like a college or student $5 Thursday. And then you have some specials that you run, like women's-night-out Mondays or you got some of these all little niche specialties. How are some of the other ones doing, ex the $5 Tuesday?

They're good. I mean, we're pleased with their performance. Obviously, the -- they're not as strong because we just don't have the heft of the marketing push, and it does help with our concentration of complexes that the word even gets out even better than when we spread all over the -- spread more thinly. But again, it goes back to our theory of the right customer at the right price at the right time. It's a great learning from the hotel business because that's what yield management is in the hotel business. So we've applied it to the theater business.

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

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

The -- well, I'd say probably first, we looked a lot -- our pattern was very similar to what AMC was doing. I would say now that -- but we are -- I mean, look, we are now -- we've done some experimenting. We're doing them in other markets and the returns meet our hurdle because, you know what, it is a great way to see a movie. And we believe that it can drive incremental customers, and it allows us to price appropriately and get a return on the investment. And we think it -- and we don't just generally go in and just put in the DreamLounger. Remember, we're doing a whole package. We're putting in a DreamLounger. We're putting in a Zaffiro's Express. We're putting in a Take Five lounge. We're really upgrading the entire experience and so you can't -- at some point, you can't just ascribe it to one thing either. It is talking -- we talk to the whole experience.

Okay. So you're saying it might have broader applicability than what you might have thought initially.

Yes. Do I think that we're -- do I think that -- look, and our competitors have talked to this, too. There's an organic piece of growth and there is a share shift piece of growth. So if you don't have the share shift, will the returns be the exact same? No, they won't be. But they're still good and they still meet our hurdle rate.

And Jim, actually you alluded in your question to, then, the other part of the math, which is math. We do it because we have the -- you still are losing roughly 50% of your seats, and so there still is an exercise that we have to go through to determine what's the impact of having less seats. And so we've got data and more data than you ever could use to be able to look at that and analyze it in order for us to determine whether we can. And so to your -- your question was, are there locations where you maybe can't do it and don't get the returns? And the answer is yes, there probably are some locations like that. There are some.

And maybe this other question, then, would sort of tail into that a little bit. But as you talk about your M&A strategy and interest in adding value, it sounded like you're being more amenable to fixer-upper sort of properties then some chains who are looking for ones that don't need so much and want to incorporate it into their infrastructure. And I'm wondering if there would be more of those types of properties available at more reasonable rates, given the added investment that could be required or you might even want to put in because of the strategy you're describing.

Jim, time -- I guess time will tell. But that has been one of our theories. One of our hypotheses, if you will, has been that, yes, I mean -- when everyone talked about how maybe there would be this big M&A surge when digital cinema came along, and of course, that really didn't happen because it was the studios effectively paid for the conversion and it wasn't the theater operator's capital. Well, now when you start talking recliner seats, food and beverage, things along those lines, that's the theater operator's nickel. And so if there are folks that might not -- might be a little more capital-constrained, maybe that is an opportunity. And so certainly, that's one of the things that we'll look at, not the only, but that's one of the things we'd look at.

And I will tell you that we're very early in the M&A process, really, if you think about it. And that's because we really spent the first couple of years, these last couple of years very focused on our own circuit, taking advantage of that opportunity to say, well, let's -- if I'm going to take capital and put it to work, let's put it in markets we understand and know really well. And I'd say, we're in other markets that we understand the business and we think it's applicable, but let's start with those, and so that was -- that's why we went that direction.

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.

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

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