Marcus Corp (MCS) 2013 Q4 法說會逐字稿

Good morning everyone and welcome to the Marcus Corporation fourth-quarter earnings conference call. My name is Chantalay, and I will be your operator for today.

At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded.

Joining us today are Greg Marcus, President and Chief Executive Officer, and Doug Neis, Chief Financial Officer of the Marcus Corporation. At this time, I'd like to turn the program over to Doug Neis for his opening remarks. Please go ahead sir.

Thank you very much. Welcome, everybody, to our fiscal 2013 fourth-quarter conference call.

As usual, I need to begin by stating we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include but not be limited to statements about our future revenue and earnings expectations; our future RevPAR; occupancy rates and room rate expectations for Hotels and Resorts division; our expectations about the quality, quantity, and audience appeal of film products expected to be made available to us in the future; expectations about the future trends in the business group and leisure travel industry and in our markets; our expectations and plans regarding growth in number and type of our properties and facilities; expectations regarding various nonoperating line items in our earning statement; and our expectations regarding future capital expenditures. Of course, our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks, and uncertainties which could impact our ability to achieve our expectations are included in the Risk Factors section of our 10-K in 10-Q filings which can be obtained from the SEC or the Company. We will also post our Regulation G disclosures when applicable on our website at www.MarcusCorp.com.

Now that we've made our attorneys happy, let's talk about our fiscal 2013 fourth-quarter and year-end results. I'm going to take you through some of the detail behind the numbers both on a consolidated basis and for each division and then turn the call over to Greg for his comments. I'll start with any variations in the other income and expense line items below operating income.

And right off the bat, you'll note a rather sizable decrease in investment income this year compared to last year during the fourth quarter and fiscal year. As noted in our press release, this difference is entirely due to an approximately $700,000 one-time gain that we reported last year related to sale securities that we had held as an investment for some time.

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

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

Late in our fiscal 2014 first quarter, actually in mid August here, we expect to close on an issuance of $50 million of unsecured senior notes privately placed with three institutional lenders. We expect to use the proceeds from the notes, which will bear interest at 4.02% and mature in 2025, to reduce borrowings under our revolving credit facility and for general corporate purposes. Based upon our current expectations for increased capital expenditures during fiscal 2014 and an increased average interest rate resulting from the new senior notes, we currently believe our interest expense may increase during fiscal 2014 by approximately $1 million to $1.5 million compared to fiscal 2013.

A substantial portion of our assets, total assets, consists of long-term property, plant, and equipment. And as a result, we believe that the majority of our borrowings should have a fixed rate and longer-term associated with it. We are very pleased to be able to take advantage of historically low interest rates to lock in $50 million of 4% money with an average life of 10 years in order to rebalance our debt portfolio to reflect these long-term assets.

The next item did not impact our fourth-quarter results but I do want to remind you once again that our fiscal 2013 full-year results do reflect that $6 million of income from the extinguishment of debt in the Other Income and Expense segment. As you may recall, in December, we refinanced the debt related to the Skirvin Hilton in Oklahoma City. And in conjunction with that refinancing, approximately $9.8 million of debt originally issued as part of a complicated new market tax credit structure was canceled as anticipated and disclosed in previous filings. That amount net of $3.8 million of deferred fees related to the issuance of the debt was reported as an extinguishment of debt income on our consolidated earnings statement. But that amount has no impact on our bottom-line fiscal 2013 net earnings attributable to the Marcus Corporation. Of course, this is due to the fact that pursuant to the terms of our operating agreement with our 40% joint venture partner, we allocated 100% of this income to the noncontrolling interest.

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

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

Shifting gears, our total capital expenditures during fiscal 2013 totaled approximately $23 million compared to $32 million last year. And we also had a $6 million theater acquisition last year and none this year. We incurred approximately $13 million of these capital expenditures in fiscal 2013 in our Theater division, including costs associated with the completion of our newest Zaffiro's Pizzeria and Bar at one theater, construction of UltraScreens at two theaters, and major remodels at four theaters, including -- which include the construction of three new Take Five lounges.

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

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

As we look towards capital expenditures for fiscal 2014, we are currently estimating that our fiscal 2014 CapEx may increase significantly and be in the $60 million to $90 million range with approximately $30 million to $45 million estimated for each of the two divisions. Now, the range of potential capital spending is fairly large at this time because either the timing on several of our planned projects is not finalized yet or because some of the dollars are for growth opportunities that may or may not come to fruition. As a result, our actual fiscal 2014 CapEx certainly could vary from this preliminary estimate just as it did this past year.

In addition, both divisions have acquisition strategies that could impact our actual capital expenditures if the right opportunity arose during the year. Greg will expand on our capital expenditure plans for each division during his prepared remarks.

So now I'd like to provide some financial comments on operations for the fourth quarter and fiscal 2013. Overall, as you know, of course thanks to the calendar and our last Thursday in May year-end, our fourth quarter and fiscal year last year had an extra week of operations. The margin on this extra week of operations is higher than average due to the fact that only incremental variable costs are added. Fixed costs are already annualized over 12 periods during the year. The result is a fairly sizable favorable impact to last year's fourth-quarter results due to this extra week.

I won't restate all of the numbers in the press release, but obviously the extra week last year contributed to our difficult comparisons this year. This extra week particularly benefited our Theater division last year, contributing to our fourth-quarter and full-year fiscal 2013 decrease in box office revenues of 13.7% and 5.3% respectively, with slightly lower percentage decreases in our concession and food and beverage revenues. In total, the 53rd week last year added approximately $4.7 million of revenues and $1.6 million of operating income to last year's fourth-quarter and year-end Theater results.

And while the comparison to a 14-week quarter and 53-week year last year contributed to our reduced results in the Theater division, as our press release notes, an overall weaker slate of movies compared to last year contributed to a decrease in attendance during the quarter and full year as well. Excluding the impact of the extra week last year, attendance at our comparable theaters decreased 8% during the fourth quarter and 5.6% for all of fiscal 2013, compared to those same periods last year.

As noted in our release, the top two films for all of fiscal 2012 were released during our fourth quarter last year. So this year's fourth-quarter results are not unexpected.

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

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

Shifting to our Hotels and Resorts division, the impact of the extra week last year did hurt comparisons in this year's results, albeit not as significantly as in our Theater division. The 53rd week last year added approximately $2.9 million to our fourth-quarter and fiscal year revenues and approximately $590,000 to our operating income during both periods in fiscal 2012.

The comparative impact of not having that extra week this year was offset by the fact that we had new revenues this year due to the addition of the Cornhusker to our consolidated results. Excluding the Cornhusker, our total RevPAR for comparable hotels was up 0.6% during the fourth quarter compared to the same period last year. And for the full-year fiscal 2013, our comparable hotel RevPAR ended up 3.4% higher than it was last year.

As we've noted in the past, our RevPAR performance did vary by market and type of property, but seven of our eight comparable Company-owned properties reported increased RevPAR during fiscal 2013 compared to the same period last year. Our fiscal 2013 fourth-quarter comparable hotel increase, RevPAR increase, was the result of an average daily rate increase of 2.4% partially offset by an overall occupancy rate decrease of 1.3 percentage points. For the full fiscal 2013, our occupancy rate ended the year 0.9 percentage points ahead of last year and our average daily rate increased 2.1%.

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

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

By my calculations, if we removed the Platinum legal expenses from both years, the 53rd week from last year and remove the Cornhusker from this year's results, our operating income during fiscal 2013 would've been about 9% higher than the prior year. Don't get me wrong. These items that I adjusted out to come up with this comparison are real and I'm not suggesting they should be ignored, but I think removing them does at least give you an indication of how the comparable hotels ended up performing for the year.

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

Thanks Doug. I'll begin my remarks today with our Theater division. I'm not sure there's much I can add to what you've already read in the release and heard from Doug regarding the numbers for the fourth quarter in this division.

When you really dissect our decrease in attendance this quarter, it really came down to two factors -- the 53rd week last year, and the March-April time period. You've already heard all about the 53rd week. Excluding the 53rd week, we actually had increased box office results in May despite going up against The Avengers last year. The problem was that Hollywood had a relatively weak March and April film lineup and certainly did not have an answer for the tremendous performance of The Hunger Games last year. That picture opened on March 23 last year, a nontraditional time for a blockbuster of this magnitude. And this year's film product during these comparable weeks could not come close to matching that level of success.

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

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

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

Box office revenues were down this past weekend as we went up against last year's The Dark Knight Rises, which was our top-performing movie for all of fiscal 2013. But we still have five more weeks to go in our fiscal 2014 first quarter, and we have listed several promising films still to come in our press release.

We also may benefit from the fact that last year's August results may have been negatively impacted by television viewership of the Summer Olympics. I certainly can't predict where we might end up for the quarter, but the results so far have been encouraging.

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

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

As Doug noted, we are currently estimating that we may incur capital expenditures of $30 million to $45 million during fiscal 2014, excluding any acquisitions that could arise to support our strategic plans for our Theater division. Some of those dollars will go towards finishing up the projects in Madison and Omaha that I just mentioned. The project in Omaha includes not only the new food and beverage outlets I just referred to, but also an extensive renovation of all the auditoriums and included the addition of premium seating.

We have additional dollars in our capital budget during fiscal 2014 for several more theater renovations, many of which could include these food and beverage concepts and premium seating, among other upgrades.

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

With that, let's move on to our other division, Hotels and Resorts. You've seen the segment numbers, and Doug gave you some additional detail, including some pro forma math, that would indicate that fiscal 2013 was a better year for our comparable hotels than would appear at first blush. The reality is that when you have a smaller portfolio of hotels like we have, winter operating losses from a newly acquired hotel in need of renovation are going to be noticeable. And certainly even the best of results from our comparable hotels would likely not have been enough to compensate for the significant legal settlement costs we incurred at our Las Vegas property this year.

And as I shared with you last quarter, it is good news that we finally have these major legal matters related to the Platinum in our rearview mirror. I don't have to remind you that we have incurred significant legal costs in each of the last four fiscal years related to these matters. I will be pleased to begin reporting Hotel division results in fiscal 2014 that, by definition, will not be burdened with $3.3 million of nonoperating expenditures on a comparative basis.

A focus on these unusual items is not to say that we didn't experience some challenges at our comparable properties during fiscal 2013 fourth quarter and full-year fiscal 2013. From an operations perspective, our occupancy rates continue to be at record levels, and we reported an overall increase in our average daily rate for our third straight year and 10th straight quarter. Our ADR continues to lag pre-recession levels, and for the first time in recent memory, our overall RevPAR performance from our comparable hotels did not exceed the national average for upper upscale US hotels as reported by Smith Travel and Research.

I primarily attribute the shortfall versus the national average to two things -- one, the fact that our hotels tend to be more heavily dependent upon group business and that customer segment continues to lag compared to other customer segments, particularly as it relates to average rate. Variations in group business resulted in more pronounced fluctuations in our quarterly RevPAR improvement this year compared to prior years.

Last year, our change in RevPAR did not vary by more than 0.5 point in any given fiscal quarter. It was a very consistent year. This year, we experienced RevPAR increases ranging from 0.6% in our fiscal 2013 fourth quarter to as high as 10.7% in our fiscal 2013 third quarter.

Secondly, as we have been outpacing our competition for the last few years thanks to investments made in the downturn, and as we near capacity levels without the aforementioned group business, our competitors will start to catch up. And these variations in RevPAR and the fact that our ADR still remains over 5% lower than it was in our fiscal 2008 has limited our ability to rapidly increase our operating margins during the ongoing US economic recovery.

Approximately 27% and 36%, respectively, of the revenue increases that we've experienced during fiscal 2013 and 2012 flowed through to our operating income during those years after adjusting for the unusual items previously noted. This compares to a 50% flow-through that we would target during a higher ADR environment.

A significant focus of our management team for fiscal 2014, led by our new President, Kirk Rose, is to improve that flow-through and as a result our overall operating margins. We recognize that we are attempting to do that during a time when there may not be a lot of new supply growth nationally, but a number of new hotels have opened in our key Milwaukee markets.

As I think you all know by now, a new Hilton Garden Inn opened in downtown Milwaukee during our fiscal 2013 second quarter and two other hotels recently opened, including a Marriott across the street from our Pfister hotel. All told, over 400 rooms have been added to the market with another 382 room hotels scheduled to open a short distance from downtown as the Indian Casino Hotel next summer -- I'm sorry, at the Indian Casino next summer. Right now, we are in the midst of our busy summer season, so it is really too soon to tell how these rooms will impact the market and our hotels in particular. As our press release notes, we will also likely benefit in this market from Harley-Davidson's 110th anniversary celebrated on Labor Day weekend.

Longer-term, it is hard to imagine how this market will absorb this unjustified increase in supply without some impact on existing hotels. But it is our feeling weaker competitors will feel more impact than us.

Of course, we will continue to do what we do best, continually reinvest in our properties and operate them extremely well, continually meeting and exceeding constantly-changing expectations of our guests.

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

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

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

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

Our plans for our Hotels and Resorts division also include continued reinvestment in our existing properties in order to maintain and increase their value. During the last three years, we completed renovations at the Hilton Milwaukee City Center, Grand Geneva resort, Hilton Madison and Hotel Phillips.

During fiscal 2014, renovations are planned for several additional properties, including a major guest room renovation of a tower building of our flagship Pfister Hotel in Milwaukee, Wisconsin. In addition, one of our hotels is due for a brand initiated product improvement plan during fiscal 2014. So as a result, we are currently reviewing our branding strategy for that hotel and capital dollars are budgeted during the fiscal year for this hotel.

Before I wrap up our prepared comments and open the call up for questions, let me briefly touch on a couple of quick topics. I don't have any new news for you regarding our proposed mixed-use project in the town of Brookfield, The Corners. There is still a lot of action behind the scenes and we continue to make progress on multiple fronts. I know locally everyone is anxious for an update on timing, but as we have indicated previously, this is a complicated project and several things have to happen before we can proceed. Progress is being made every day on the leasing and our discussions with the town of Brookfield and our potential equity partners continue to be productive. The reality is this project will get done on its own natural pace. And as long as we can keep all the spinning plates in the air as we have thus far, we remain optimistic. We promise we will provide update as milestones are reached.

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

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

(Operator Instructions). David Loeb, Baird.

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

Not really beyond what we said, David. There's progress -- we could use the analogy of the spinning plates, and that's literally what it is. We've got all these things going on and we've been able to keep all of them in the air, and as a result of that, we still remain optimistic.

I will tell you that we certainly -- the majority of the dollars on our end have really kind of already gone in. So we don't have, in that capital budget number, it's not expected there would be a significant -- any significant additional dollar expenditure on our part. As you know, we are seeking a majority equity partner here, and we've already got our land as well, besides the dollars we've put in. So it's not -- we don't expect it to have a significant impact from that perspective.

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

Yes. There were some things going on in this quarter. Our largest property, as you know, is the Grand Geneva. I don't like to single out properties, but weather really hurt us this year. I think we opened up golf a full month later than user and later than last year. Remember that in fact last year was unusually early, so it might comparatively have even been more than that. So we weren't selling golf packages and all those kind of things that would normally occur, so that certainly was an impact.

Milwaukee in general, particularly from a group perspective, was just soft during those three months in general, so that certainly had an impact as well. And I think actually Greg reminded me that I think actually in another one of our bigger properties out in Oklahoma City, there was a pretty significant playoff run last year that didn't occur this year. And we were a headquarters hotel. Greg, did I pretty much hit the main points?

Yes, I think that sums it up. There was a little choppiness in the markets, and weather and basketball.

And then it sounds like the Milwaukee supply hasn't really been significant yet. And it seems, with the Harley event and with the tower renovation going on at the Pfister, that you may not really see much of this, or it may not be clear in the numbers for the next several quarters. Is that fair? Do you think we'll get a better feel?

Everyone -- certainly summer in Milwaukee, there's a lot going on and (inaudible) and everything else, so that probably -- if there's ever a time when the rooms can be absorbed, that's the time. And so I guess I generally agree with your comment. And you're right, Harley kind of heads into the beginning of our second quarter, and so I think we're certainly going to need a little longer runway to be able to really kind of see what the impact is.

Yes, absolutely. The only thing I would say, David, is, frankly I hate to say it, but on a 100 percentage basis, depending on what you count as the relevant comp set, it's almost a 10% increase in the 3000 downtown rooms and start to -- you can narrow that up as you start to think about what's really competitive. It's a more broad-based set of rooms. So it's -- but you're right.

Look, it's -- I guess it's the old Warren Buffett line. "When the tide goes out, we're going to see who is swimming naked." The Tide is in right now. The Tide will go out. We have a really good looking swimsuit on. We've always -- as you know, you're in our assets, you've seen them. We take really good care of them, and there's others who -- I think that there's some who are going to suffer. We will feel it, but others will feel it worse, I think.

I will tell you Greg, this is my second consecutive conference call, one that started an hour before yours, where somebody referred to that Buffet line. Kind of interesting.

Well, it's accurate. It's true.

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

It is consolidated. The minority interest piece would be buried in that noncontrolling interest number you see at the bottom.

Yes.

Obviously, it's because we've got that big exchange for the debt number, it kind of masks everything else, but that's where it would be.

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

I guess I'll start off with -- you know me, I'll start off with the first line, which is, well, thank God we got rid of that interim President of the Hotel division, Me. I think it's an exciting time. I think it says a lot of things.

My most important job, right, is making sure that we have the right people in the right places. There's nothing more important that I do. And really when I say me, really our leadership team because we all participate in those decisions.

It's exciting to get -- no one wants -- on the one hand if you think about an amazing statistic, I have now been sitting in the CEO job about four years. And we really had no turnover in our senior management team which is pretty amazing, because usually when you get those transitions at the top, you start to see the transitions moving below you. And it speaks to the tenure of our management, the tenure of our team, the long-term outlook of everybody, so I think that's a great thing.

That being said, look, you know what again, fresh eyes, fresh leadership, fresh -- that's really I think exciting and good stuff. And whether it's the unique thing or the good thing about our business is the family aspect of it with my father who still is very involved in our business every day, and me, and we can make changes. We don't have to worry about -- nothing -- the Theater division is broken or anything. I'm bummed Bruce is leaving as much as anybody.

But on the other hand, we will bring that -- continuity will remain. Yet at the same time we get fresh leadership. And in the Hotel division, it's the same thing as well. Kirk comes in and frankly, Kirk says you know what? We really need to focus on margins. And you're starting to see it. We may not even see -- as you know, when you're operating at these levels of capacity, you sometimes are better off having a little less capacity because they take a toll on your hotel. And say, look, let's get a little more margin. And frankly, I am more happy to take more margin. I don't take RevPAR to the bank. I take the bottom line to the bank. So I think it's an exciting time. Does that answer your question?

Absolutely. Appreciate that, thanks.

(Operator Instructions). Eric Wold, B Riley.

Thank you. Good morning. A question on the CapEx plans. So obviously spent a lot of time talking about it could be a substantial increase from this year to that $60 million to $90 million range. Maybe give a sense of, depending on where it is in that range, kind of how you would access that capital and how much do you think you could generate from internal versus having to go externally. And then if there are other outside opportunities that pop up, either for investment or acquisition, kind of what percentage of that $60 million to $90 million would you consider to be kind of crucial, non-cancelable, non-movable? Is it kind of a $60 million low end or could you actually even go below that?

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

Obviously, in the last few years, you have seen us spending a lot less on the CapEx side. Certainly, we bought a bunch of shares back and did special dividends, so that changed the balance sheet metrics a little bit. But if not for that, as it is, you've seen some of our leverage ratios dropping pretty significantly. But we can spend $60 million all day long and probably you won't see much of a change.

If we spend -- if we get up to the higher end of that range, yes, we will have to -- I'll will definitely have to dip a little bit into our revolver. But as you know, we just recently have really positioned our debt in a great spot. And come August 15, even more so when August 14 I think is when we're scheduled to close on that $50 million long-term note issuance, and so we have a significant amount of cash available to us to fund it if it gets a little bit on the higher end of that range.

And as it relates to that particular range, I guess -- I'm thinking about the things that are in there. It's possible it could be less than that $60 million because of the things that Greg was talking about as it relates to some of the growth. So, for example, if the theater and the replacement theater on the east side of Madison gets pushed off a little bit, that certainly could push us down a little bit. And if some of those hotel growth opportunities that we are pursuing turn out to be mostly not capital-intensive, I suppose that also could push us down below that. But there is a -- when you look at the stuff we have going on, a couple of those hotel projects that are going to happen, it's doubtful that we would drop down as low as what you've seen in the last couple of years.

Okay. Then one follow-up question, kind of continuing on that and looking at the potential for some outside opportunities, update us on what you are seeing out there in the market in terms of attractiveness of hotel resorts, investments or acquisitions. Are there still a good number of attractive opportunities out there? Have terms kind of stayed reasonable?

There's not a ton of stuff out there. Still we've yet to ever see that burst of properties from the downturn that everybody thought they would see. There is stuff out there. We continue to look -- we have a full pipeline of stuff we are looking at. But with interest -- as long as interest rates remain low, that saving a lot of people because they're able to stay in compliance.

I do think things will, on the one hand, things will continue to turn. I think there'll be an extended period of opportunity to buy, though. With limited supply in most markets, Milwaukee excluded, there will be a longer -- as the cycle looks like it's just going longer. So I will tell you there's robust, there's tons of transactions going on. There are transactions happening, but you haven't seen a ton of them. They could go back though. That sort of relates to your point about if you looked at our balance sheet, if you think about it, the one thing that people sometimes forget is we are a real estate company. And while I'm going to be the last person to get up and tell you we should absolute just max out our balance sheet and go nuts, I will also tell you that for a real estate company, you get rid attractive returns on equity with a 37% balance sheet or whatever, roughly 35% debt balance sheet, debt to book value equity, that's pretty challenging.

And so I am comfortable with where we start to move the leverage. This is not to tell you the leverage is going to go through the roof, but on the other hand, if we saw an attractive opportunity, we have the ability to move on it. The financing that Doug just put in place was really well done. It was at a very attractive rate and so that freed up our revolver. If we need to go do anything, we can go do it. So we are on the prowl. If something presents itself, we can make that move. And we still will have a very attractive balance sheet.

Perfect. That's helpful. Thank you guys.

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

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

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