Marcus Corp (MCS) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to The Marcus Corporation second quarter earnings release. Today's call is being recorded.

Joining us today are Steve Marcus, Chairman and CEO, and Doug Neis, Chief Financial Officer.

At this time, I'd like the turn the program over to Mr. Neis. Please go ahead, sir.

Thank you, and welcome, everybody, to our fiscal 2007 second 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. Our forward-looking statements could include but not be limited to statements about our future revenue and earnings expectations, our future RevPAR, occupancy rates and room rate expectations for our hotels and resorts division, our expectations about the quality, quantity and audience appeal of film projects 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, our expectations regarding various non-operating line items on our earnings statement, and our expectations regarding future capital expenditures.

Of course our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks and uncertainties which could impact our ability to achieve our expectations are included in the Risk Factor section of our 10-K and 10-Q filings which can be obtained from the SEC or the Company. We'll also post all Regulation G disclosures when applicable on our Web site at www.marcuscorp.com.

So with that behind us, let's talk about our fiscal 2007 second quarter results. We're pleased to be reporting our sixth straight quarter with increased earnings from continuing operations and fifth straight quarter with an overall increase in operating income.

Before I get into the operating results, though, let me first address the basis for presentation of the numbers as well as the various line items below operating income on our earnings statement as there were some significant variations compared to the prior year.

Starting with the basis of the presentation of the numbers, the most important item to note here is that impacted our financial statement presentation is our recent purchase of the ownership interest of one of our Las Vegas partners in the Platinum Hotel condominium project, increasing our total ownership of this project from 50% to 90%. From an accounting perspective, the impact of this purchase was significant will be most noticeable in the short-term on our balance sheet.

The Platinum Hotel venture was previously accounted for under the equity method of accounting, but as of the October 31st effective day date of the purchase of the additional ownership interest, we began consolidating the financial statements of this entity. As I continue, I'll point out some of the implications this has had on our financial statements.

So with that, let's talk about the below the line items first. By now you know that our reported investment income continues to be significantly less than the prior year due to the payment of our $7 special dividend on February 24, 2006, the first day of our fiscal 2006 fourth quarter. The upcoming third quarter should be the last quarter with a significant variation on this line item.

Interest expense also continues to track down from the prior year as we pay the current maturities of our senior notes without significantly adding to our overall debt position. As you can see on our balance sheet, we ended the second quarter with approximately $11 million in cash with another $12 million in cash being held by intermediaries in conjunction with potential 1031 transactions.

Given our expected total capital expenditures for fiscal 2007 and the fact that we're heading into the slower winter cash months, it would not be unreasonable to expect that we may begin adding to our debt position later on in this fiscal year.

Now at this point you may look at our balance sheet and note that it looks like our debt has already increased significantly. In fact, on the surface it appears that our overall debt to capitalization ratio at the end of the quarter increased to approximately 44%, substantially higher than the 37% reported the last two quarter ends.

The answer to this apparent conflict of reduced interest expense and increased debt lies in the aforementioned consolidation of the Platinum Las Vegas venture.

In addition to the $76 million of assets held for sale now included in our current asset section, our balance sheet now includes outstanding construction loans in this project of approximately $64 million in our current maturities. The interest related to this loan has been capitalized into the cost of the project.

Now that the Las Vegas hotel is open, we have moved into the phase of closing on each individual condominium unit. As each unit sale closes, the construction loan is reduced, thus it's our expectation that most, if not all, of these loans will likely be paid off before we even report our next quarter. Therefore, I think it's important to note that our debt to capitalization ratio at the end of the second quarter, excluding this construction loan, remains at about that 37%.

Moving on our second quarter was another one of those quarters where we have a significant difference between the gain on disposition of property, equipment and other assets reported this year versus the prior year. During our fiscal 2007 first quarter we reported no material gains compared to approximately $3 million of gains during the prior year quarter.

During our fiscal 2007 second quarter that we just reported, the swing was just the opposite, as we reported gains at disposition of approximately $8.6 million pre-tax compared to only $200,000 of gains last year in the same quarter.

Our second quarter gains had three significant transactions that accounted for the majority of the reported amount. The first gain equal to about $1.6 million resulted from the sale of a former restaurant property in Appleton, Wisconsin.

The second gain equal to just over $5 million was due to the fact that we recently closed on the sale of one of our valuable theater parcels in the Brookfield, Waukesha, Wisconsin, market in anticipation of opening the nearby replacement theater, the Majestic, that you've heard us talk so much about before. We will continue to operate the sole theater in question, the Westown Cinema under a short-term lease arrangement for several months, at which time we will close as we prepare for the opening of the Majestic later this spring.

We don't suggest that all of our theater properties have hidden real estate value of this magnitude, but the transaction certainly, once again, points out the value of owning our real estate. We're actively attempting to sell additional non-core property and equipment including another valuable theater parcel in Brookfield, although we don't currently anticipate consummating a sale on that particular parcel before the end of this fiscal year.

The third large component of our fiscal 2007 second quarter gain on disposition was a prorated development gain related to the Las Vegas Platinum Hotel. Consistent with previous disclosures, we are currently estimating that we will report a total development gain from this project of approximately $7 million by the time we've closed on all 255 condo units.

As of November 23, 2006 we had closed on approximately 20% of those units, thus our second quarter gain on disposition includes approximately $1.4 million related to the units closed to date. We currently expect that the vast majority of the remaining gain will be reported during our fiscal 2007 third quarter.

Net equity losses from unconsolidated joint ventures increased from the prior year due primarily to our share of pre-opening expenses from our Las Vegas hotel joint venture that occurred prior to November 1st and accounted for under the equity method.

Yet another significant variation in our fiscal 2007 results to date compared to a year ago could be found on our income tax line. On that line you'll see that our both quarter and year-to-date have been favorably impacted by a much lower effective income tax rate for continuing operations during fiscal 2007.

Our first half effective income tax rate was just under 25% compared to approximately 35% last year for the same period. As we discussed last quarter, the reason for the significant decrease in rate is due to the anticipated impact of federal and state historical tax credits that will generated by our Oklahoma City Skirvin Hilton project.

The effective rate used during our first half reflects our current estimated rate for the full-year including the credits that are expected to be generated upon the scheduled opening of the hotel in February 2007.

Our actual fiscal 2007 effective income tax rate could be different from the estimated first half rate depending upon many factors including our actual final pre-tax income and the actual value of the historical tax credits recognized. Next fiscal year we would expect our effective tax rate to likely return to a more historical levels of 39 to 40%.

Finally, in comparing our fiscal 2007 results to last year, I'll point out that once again this year's operating results include costs associated with the expensing of stock options in accordance with the recent accounting pronouncements.

We've adopted FASB 123R using the modified perspective method meaning that prior year results have not been restated. As previously noted, we expect that our full-year fiscal 2007 results will be negatively impacted by about $0.02 per share as a result of this adoption.

Shifting gears, our total capital expenditures during the first half of fiscal 2007 totaled approximately $39 million compared to $38 million last year with approximately $14 million spent in our theater division, primarily on the new theaters, and $25 million spent in our hotel division with the Oklahoma City and Wyndham, Milwaukee projects accounting for the majority of that spend. Last year's Cap Ex included the Wyndham Milwaukee acquisition.

At the halfway mark of our fiscal year I have no reason to adjust our previous estimate for capital expenditures for fiscal 2007 of an amount in the $100 million range. The actual timing of various projects currently underway will certainly impact our final capital expenditure number as will any currently unidentified projects that could develop during our fiscal year.

Before I turn the call over to Steve, now I want to provide just a few additional financial comments on each division. Starting with theaters, our box office revenues were down 7% during the second quarter bringing our year-to-date box office even with last year at that time. Concession revenues were down 2.9% for the quarter but remain up for the year.

As noted in the release, while the quarter had its usual up and down weeks compared to the prior year, in fact, six weeks were up and seven weeks were down, in the end this year's film lineup did not produce a film that performed better than last year's top films, Harry Potter and Chicken Little. To give you an idea of the impact one film can have, approximately 60% of our second quarter decline in box office revenues can be attributed to the last week of the quarter which was Harry Potter's first full week last year.

Total attendance decreased 5.9% for the second quarter but it's still up 1.4% for the year. If you strip out the newest theaters that opened up at the end of November and the theaters that have closed, attendance at comparable theaters only decreased 4.8% during the quarter and is up 2% for the year.

Our average admission price was actually down 1.3% and 1.6% for the quarter and first half respectively due to selected regional price promotions and film mix.

Our average concession revenues per person were up 3.1% for both the quarter and the first half. Pricing and movie mix are the two primary factors that impacted our concession per capita numbers.

As would be expected, given the reduced attendance this quarter, our operating margins were down slightly during the quarter but remain up for the first half. On a year-to-date basis our overall operating margin for this division is still a very healthy 22.8% compared to 22.7% last year during the first half.

In our hotel and resort division, our overall hotel revenues from continuing operations were up 14.3% during the quarter compared to the same period last year. Our results were made up of comparable hotels except for the Westin Columbus, acquired last May, and the Platinum Las Vegas, which opened at the end of October. Our results from both years exclude the now sold Marcus Vacation Club.

Our press release noted that the total RevPAR for comparable properties increased a solid 7.8% for the second quarter after increasing 7.2% and 6.8% during the previous two quarters. It is now and we're now up 7.5% for the year.

Our RevPAR increases have come primarily from significant increases in our average daily rate, or ADR, which was up 10.3% during the quarter and is now up 10% even year-to-date.

Our overall occupancy rate was actually down slightly, 1.6 percentage points in the second quarter and 1.7 percentage points for the first half of the year due in part to a reduction in the number of city wide conventions in Milwaukee compared to the prior year, rumor of renovations in the Wyndham Milwaukee, and the new competition in the Kansas City market. Our Chicago Four Points Hotel continues to provide a significant contribution to our year-over-year improvement.

The increased overall revenues during the quarter translated into increased second quarter operating income that would have been even larger if not for the increase in pre-opening expenses noted in the release. In fact, if you add typical start-up losses from the three hotels mentioned in our release to the pre-opening expense total, our second quarter operating income was negatively impacted by over $1 million.

As a result of these pre-opening costs, our second quarter operating margin actually decreased slightly from 15% last year to 14.5% this year. Year-to-date even with these added costs our division operating margin has increased from 18% to 19.3%.

Start-up losses and pre-opening expenses for the Skirvin, Platinum and Wyndham will likely continue to negatively impact our operating results during 2007, particularly during our third quarter, but we expect all three of these hotels to contribute positively to future operating results as they open and mature.

With that, I'll now turn the call over to Steve.

Thanks very much, Doug.

I'll start my remarks by commenting on our theater division. While we're disappointed in the theater results this quarter, I can't say that we were overly surprised.

I've used the analogy of a roller coaster before and after experiencing one of the peaks with the tremendous performance of the Pirates of the Caribbean during the first quarter, we indicated that we were likely to have some tough comparisons during the November/December timeframe due to the fact that last year's top two films, Harry Potter and the Chronicles of Narnia played during this particular period.

Taking a larger view of the picture, attendance is still up for the year after two years of declines, and although we may have difficulty matching last year's third quarter results due to Narnia and King Kong last year, we also know that new films open every weekend creating the possibility of surprise hits along the way. And by the time we get to the projected blockbuster film lineup for May and for summer, November and December of 2006 will likely be a distant memory.

What a business. After 71 years we still wake up each morning wondering what that day is going to bring us.

So while we wait for the next film to open, we continue to do the things necessary to position us -- position ourselves to capitalize when that next blockbuster does come. That includes opening new theaters which we had the pleasure of doing in two Wisconsin markets just before Thanksgiving.

Our new 12-screen theater in Green Bay, Wisconsin, replaced an existing 8-screen theater that we closed in October. Our new 13-screen theater in Sturtevant, Wisconsin, which includes our newest UltraScreen, replaced a 5-screen theater in Racine that we closed in September. We also converted another existing 8-screen theater in Racine to a budget format with the opening of this new theater.

We're very pleased with the initial customer response to these new theaters. These state of the art theaters have solidified our position in those markets and should significantly outperform the theaters that they have replaced.

As Doug indicated, construction continues in our flagship Majestic theater in Brookfield, Wisconsin, and despite some challenging weather conditions in late fall and early winter, we remain on track to open this exciting new theater concept that we've been telling you about later next spring. We also continue to test digital cinema hardware and software and we look forward to more formal beta testing of selected digital systems during 2007 including possibly at our Majestic theater.

While I've indicated that we will start the third quarter off with some difficult comparisons, I don't want to imply that we haven't had some good performing movies or that the movies yet to be released for the holiday season don't have some potential to do well. Casino Royale and Happy Feet were positively reviewed films that performed well.

Eragon and the Pursuit of Happyness opened this past weekend. Tomorrow, Rocky Balboa opens and six other films open on Christmas weekend including Night at the Museum and Dream Girls, both of which should do very well.

The fact that Christmas falls on a Monday compared to a Sunday last year should be helpful as well since last year Christmas Eve was a Saturday night, traditionally our biggest night of the week.

While I don't normally start by, start looking at film product beyond the upcoming quarter because the projected lineup can change, it's hard not to look at our fiscal fourth quarter and not anticipate the extra week of business due to our 53-week year this year, and the planned May releases of Spiderman 3, Shrek the Third and Pirates of the Caribbean 3.

And if I dare look into the summer schedule I find the next Harry Potter film, the next Pixar film, and sequels to Oceans 11, Bruce Almighty, Die Hard, Bourne Identity, and Rush Hour franchises. What that says about Hollywood's originality can be debated but these are tried and true names that have historically performed very well.

We, of course, will continue to take a long-term focused approach to our business and deal with the challenges and opportunities that lie ahead both tomorrow and in the months and years ahead.

Moving on to hotels and resorts, it certainly was another strong quarter for this division despite the impact of start-up and pre-opening expenses this quarter. RevPAR growth remains very strong as evidenced by the numbers Doug shared with you.

For the time being overall supply growth remains minimal allowing for some reasonable expansion in ADR, which has been driving our RevPAR growth for several quarters now, and generally has a very positive impact on our overall operating margins. Our advanced bookings would suggest that overall same hotel results should continue to improve in the near-term.

As you know, we've been quite busy in this division, so I thought I'd spend a couple minutes recapping everything that's happened in this past quarter. Beginning with our existing hotels, I'm pleased to note that our extensive renovation of the Milwaukee Wyndham is just about complete just in time for our announced conversion to the Intercontinental brand at the end of this month.

We opened the renovated lobby, ballroom, restaurant, lobby lounge and nightclub in October and November, and the final room reservations are being completed as we speak. Taking on three floors at a time, we've had rooms out of order since August so we're looking forward to having a full contingent of rooms available for use in time for the New Years.

We believe that we have created a sophisticated hotel with a unique positioning in the market and we've selected the luxury Intercontinental brand because of its proven track record in delivering a powerful distribution marketing system.

The conference center expansion at the Grand Geneva opened in October, and we already have gotten extensive use out of it. We've added approximately 12,000 square feet of usable space to the resort and we already have booked a significant amount of new business into this facility during the third and fourth quarters.

The Pfister just opened its new restaurant, the Mason Street Grill, and the initial public reaction to it has been fantastic. Construction continues on our new spa and salon at the Pfister which should open about mid February.

Of course the other big news of our quarter relates to the fact that we've already added three new hotels and resorts to our management portfolio. You've already heard us talk about the impact that the Las Vegas Platinum is having on our earnings due to the development gains of the project.

Hopefully in the near future you'll hear us talking about how this hotel is providing additional management income and public space income to our bottom line as well.

Right now we are absorbing pre-opening expenses and typical start-up losses accentuated by the fact that we don't have all the units available for rent as yet. Once we get all the unit sales closed and our marketing efforts can take full effect, we look forward to managing a wonderful hotel in the unique Las Vegas market.

Two new management contracts were added during the quarter as well. Our experience managing golf courses and meeting and banquet space led to us take on the management of the Brynwood Country Club here in Milwaukee.

One of the most interesting aspects of our arrangement to manage this club is our ability to provide our customers at our three downtown Milwaukee hotels with access to one of Milwaukee's best golf clubs, something no other hotel in the market can do. In this instance we'll have the opportunity to leverage our knowledge of this market and hopefully add value to the club and its members as well as to our hotels.

We were also pleased to take over management of the 483-room Resort Suites in Scottsdale, Arizona in early November. We look forward to working with the property's owner, which is a subsidiary of Goldman Sachs, to further enhance this property's reputation and profitability. We hope to have additional opportunities to work with Goldman in the future as well.

As we've indicated in the past, one of our primary focuses is to seek additional management contracts with owners and potential equity partners. In this particular deal we will not have an equity interest, but we've indicated that we'll consider small equity investments when they're needed.

And finally, construction remains on schedule for the Oklahoma City Skirvin Hilton. We're looking forward to adding this historical hotel to our active portfolio in February and it is a beautiful hotel.

Our pipeline of other potential new hotel projects remains very active. We also continue to entertain the possibility of adding an equity partner to one or more existing hotels while maintaining management. We previously indicated that this was an option for our recently acquired Columbus Westin.

So as you can see, it's been a very busy but exciting period for our hotels and resorts division, and we look forward to the weeks and months ahead as we continue to grow this business.

With that at this time, Doug and I'd be very happy to entertain any questions that you might have.

Thank you. [OPERATOR INSTRUCTIONS] We'll go first to Rob Dameron with 21st Century Research.

Good afternoon, guys.

Wanted to first try to get my arms around some of the additional real estate sales that you expect over the near-term. You mentioned in Las Vegas you'll have upwards of $7 million total, and you've sold the one in Brookfield, but it sounds like the other one would be sold sometime in next fiscal year.

Could you give us a ballpark of what kind of gain we might expect on that property and any other larger gains that we might see over the next twelve months?

Well, as you indicated, Rob, first and foremost it will be the remaining gain on the Las Vegas project and, again, it will be -- it will occur as each unit closes, so a good part of it, if most of it probably will occur in the third quarter, but certainly it could go into our fourth quarter as well.

The additional parcel in Brookfield that you were referring to is certainly a candidate for a fairly sizable, probably multi-million type gain, maybe not as large as Westown, but still a significant gain, and yes, I think that it's probably fair to assume that that will not be this fiscal year and so fiscal 2008 would be the earliest that that would occur.

That particular location, the town of Brookfield has put a temporary moratorium as they study that area because there's a couple of parcels that are available, and so they're holding us up slightly, but we certainly expect that to be released in a reasonable amount of time, and we'll be able to sell that property for, again, probably a gain of, while we haven't disclosed the exact amount, it would be several million dollars.

That's the only -- we always are selling real estate, and if you look back over the number of years, Rob, I mean we've had two, three, $4 million of these types of gains year in and year out. So while I can't necessarily predict which properties, you know, you just heard about a restaurant property that we sold that had a fairly sizable gain, and certainly we have some others like that, but the biggest ones that we have out there are, of course, are Platinum and this Brookfield property.

Okay.

And then on kind of the same line looking at the pre-opening expenses, do we -- should we expect any additional pre-opening expenses with Las Vegas and what kind of magnitude? And then also in Oklahoma City, I mean are we looking at the same, roughly the same kind of pre-opening expense number over the next couple of quarters that we saw in Q2 or what kind of magnitude should we expect on that line?

I think in Q3 you certainly should expect a number that is in the same neighborhood as what just happened in the second quarter. It will be composed a little differently because now the Oklahoma City project will become front and center as we kind of gear up for that property, and Las Vegas and Wyndham will have less of an impact.

But, and if you recall in my remarks, I broadened the topic of pre-opening to include what I would call start-up losses as well recognizing that even the property like Las Vegas, even at this moment I don't have all the rooms to rent yet, s I'm not operating at 100% efficiency yet. And so we're going to have some start-up -- anticipated start-up losses which you typically have with a new hotel anyways.

So certainly, it's not unreasonable to expect a number of this kind of magnitude in Q3, and Q4 we'll have some left over from Oklahoma City, no question about it, but you'd like to think that things would start getting better, for example, in Las Vegas.

Okay. That's helpful. And then maybe just one last question for Steve.

Any movement on this digital cinema situation one way or another and kind of the outlook when that may finally hit the theaters?

Well, as I indicated in our remarks, we're going to become involved in some more and really a good beta test of a digital cinema system, or perhaps more than one of the systems that are out there during the next four to six months, and so we get a good feeling of how it actually works.

There's still, in spite of all the rhetoric you hear, there's still an awful lot of work to be done to get these systems where they are as reliable as the current film systems are. Those that have very, very -- there's one chain that's got a fairly significant installation in place already, but it's our understanding that they're experiencing more dark screens than we would like to experience.

And most others in the industry are taking the same position that we are, and they're waiting until this system's reliability, both hardware and software, is better established.

And just one other follow-up question on that.

Has the business model been agreed upon between all the players in the industry in terms of how this will be paid for and the ongoing expenses of the equipment and all those other issues?

They'll be negotiated. It isn't one of those things where everybody can agree on it because you have significant antitrust problems with trying to do that, but generally the studios understand that they are carrying the bulk of the cost of the initial installation. The question of what happens after that is still an open issue.

Okay. That's helpful. Thank you.

Thank you. We'll go next to David Loeb with Baird.

Hi. While I'm really tempted to ask Steve about the plot of Rocky 37 or Night at the Museum, I think I have a couple of numbers questions that I want to ask.

Doug, I just want to go over the potential proceeds from the condo sales and what you're expecting. As I do the math, it looks like you've got $76 million of assets, $76.4 million in assets of condominium units held for sale.

Assuming the gain and the construction loan, I guess I'm trying to figure out gross proceeds, then, would be the 76 plus the remaining $5.6 million of gain?

No, no, you'd have to, again, what you -- unfortunately you can't see is you don't know to what degree the "cost of sales" was prior to us consolidating this. So when you see $76 million, you're seeing what's left to be sold, the cost of the units that are left to be sold.

You also don't know, and I'm not in a position to give you and exact numbers, how much value is assigned to the remaining public space, but do keep in mind that there is value in the remaining public space that we now own 90% of.

But that's not in the $76.4 million.

That is not. That is in our fixed assets.

Okay. But in terms of what you're going to get going forward, you're going to, presumably, you're going to recover the $76.4 million because that's all held for sale.

Previously indicated, David that the gross proceeds on this project are north of $100 million. Again, there's 255 units, and while we haven't given any specifics, we've indicated these units have sold anywhere from 350 to $400,000 all the way up to $1 million, and so gross proceeds are certainly north of $100 million.

And part of the accounting is then to identify the remaining value of the public space, the rest becomes the "cost of products sold", and so, and, certainly, some -- there certainly are selling costs as well, I mean significant selling costs related to this project, so commissions and things along those lines. So there's several number that all get put together to end up with that net $7 million kind of projected development gain.

What I guess I'm trying to get at is when you're done selling units, let's call that at the end of the fourth quarter, how much less debt and more cash will you have and the less debt looks like the $64 million, that goes away.

That will go away. Those are first dollars paid off, David, so as every closing now occurs, they have -- there's a waterfall, and they have first rights after commissions and there's a sequence, but that money will be paid off first.

Okay. And then you're going to get the gain, but you're also going to get some other cash.

Absolutely. And obviously, some of it's all timing because we put cash, obviously, into this project, and some things have been expensed over the last two-plus years as well, so the total view of the project, not necessarily the accounting view of the project, is one thing. The accounting view of it ultimately comes down to the fact that we will end up with -- there will be some cash in the end that will be added.

It's, again, I mean the situation where since we haven't, very competitive reasons haven't put the specific dollar amounts out there, I can't help you completely, but I think you can kind of do some of that math recognizing that there's some selling costs involved as well.

Selling costs that will come out of the greater than $100 million gross proceeds.

Correct. And some of them have been prepaid and are actually on our balance sheet as well and will be amortized as the transactions close.

Okay.

I'm still getting lost in the accruals. What I'm really looking for is the cash, how much more cash are you going to get on top of the construction loan? And it sounds like that's roughly the greater than $100 million less the expenses that you will pay out associated with that.

What I would maybe, will be helpful for you and, again, because it's not out there publicly yet, but it will be when we file our Q is, we'll file the Q that will have the statement of changes in cash, and when we do that, it might become a little clearer, and in fact we'll try to clear that up a little bit more in the disclosure in the [inaudible].

And that will represent the roughly 20% that you've closed already?

That's correct.

And we can just essentially gross that up?

That would be one way of doing that, yes.

Okay.

One more. Hopefully this will be the easier one.

You've got $11. 8 million of cash that you mentioned was part of a 1031 transaction. What are your thoughts about how that's going to be deployed?

That is and the great majority of those dollars are related maybe not surprisingly to the sale of the theater in Brookfield that had the $5 million gain associated with it, and in fact, those dollars are earmarked to go into the theater that is currently being built.

So there is already a 1031 transaction in place that will use the majority of those dollars.

So that goes into the new theater essentially?

Essentially.

Okay. Do I have time for one more?

Sure.

Can you just talk a little bit about the accounting for your hotel management business, where does the revenue show up and how will Platinum be accounted for? Will that look like a normal management contract or will it look like ownership with a big expense line going to the owners, the condo unit owners?

Good questions with slightly different answers.

A normal management contract fee, percentage of revenue, maybe incentive fee, et cetera, will typically show up on our earnings statement on the other revenue line in the revenue section of our P&L. And, of course, the expenses that support that are of the various infrastructure expenses that we have that probably are primarily in the administrative line of the cost section because all costs that are directly related to the hotel itself would be charged to that owner and to that hotel.

In the case of this unique condo hotel arrangement, and we have one of those already in the Timber Ridge Lodge, it does become somewhat the exception to the rule because the arrangement there is that we basically get a share of all the various revenues. And so if you know how these things work where if I rent the room tonight to you for $150, roughly half of it will go to the owner and half of it will come to me, and that's how the Timber Ridge Lodge works. That's how this property will work and so.

So does that mean you book $150 of revenues and 75 of expense to the owner?

That means I'll book the 75 as room revenues. That's currently how the Timber Ridge Lodge is handled.

Okay.

That is the one exception to the management contracts where your fee is actually -- we're also entitled in this case with Platinum to a certain dollar amount off the top that represents a base fee, but the rest of the money that's made is by getting a share of the revenues and then we incur the expenses ourselves so there will be expenses in the various line items, and we try to make some money from there.

So obviously next to no capital expense, but you're going to have kind of half the revenue of the hotel, all of the expenses, so it will look like lower margin but it's lower margin on much, much less capital.

That's exactly right.

Okay. That's it for me. Thank you very much.

Thank you. [OPERATOR INSTRUCTIONS]

At this time, it appears there are no other questions. I'd like the turn your program back over to Mr. Doug Neis for any additional or closing comments.

Well, we certainly want to thank all of you for joining us once again today. We hope that you all have a very happy holiday season and a healthy new year, and we look forward to talking to you again very soon. Thank you.

That does conclude today's call. You may disconnect your line at any time.