Marcus Corp Q4 FY2021 Earnings Call

Good morning, everyone and welcome to the Marcus Corporation Fourth Quarter Earnings Conference Call. My name is Charlie and I'll be coordinating your call today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. As a reminder, this conference is being recorded. Joining us today are, Greg Marcus, President and Chief Executive Officer; and Doug Neis, Executive Vice President and 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.

Thank you, Charlie and good morning, everybody. Welcome to our fiscal 2021 fourth quarter conference call. As usual, I need to begin by stating that we plan to make a number of forward-looking statements in our call today, all of which we intend to qualify for the Safe Harbors from liability established by the Private Securities Litigation Reform Act. Our forward-looking statements may generally be identified by our use of words such as we believe, anticipate, expect or words of similar import. Our forward-looking statements are subject to certain risks and uncertainties which may cause our actual results to differ materially from those expected. Listeners are cautioned not to place undue reliance on our forward-looking statements. The risks and uncertainties, which could impact our ability to achieve our expectations identified in our forward-looking statements are included under the heading Forward-Looking Statements in the press release that we issued this morning, announcing our fiscal 2021 fourth quarter results and in the risk factors section of our most recent quarterly report on Form 10-Q and our fiscal 2020 annual report on Form 10-K, each of which you can access on the SEC's website. We'll also post our Regulation G disclosures when applicable on our website at www.marcuscorp.com. The forward-looking statements made during this conference call are only made as of the date of this conference call and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. In addition, we routinely post news releases and other information regarding developments in our company that impact our investors, customers, vendors and our shareholders and you should look to our website www.marcuscorp.com as an important source of information regarding our company. So with that behind, let's begin. Our call will follow the usual format where I start by spending just a couple of minutes briefly sharing a few numbers from our quarter and year with you and I'll discuss our balance sheet liquidity. I'll then turn the call over to Greg, who will focus his prepared remarks on where our businesses are today, and what we're seeing ahead both short and long-term. We'll then open the call up for questions. So you've seen the numbers, our recovery continued in the fourth quarter and for the second consecutive quarter, we're reporting positive net earnings and significantly improved positive adjusted EBITDA. This quarter, it was our theater division that led the way which was great to see. We once again had a couple of nonrecurring items this year and last year, all of which are detailed in a non-GAAP reconciliation that we included at the end of the press release and as we discuss adjusted EBITDA in our remarks today, I do want to refer you to the disclosures we provide in the press release regarding the use of this non-GAAP measure in evaluating our performance and its limitations. So I said this last quarter, but it's worth saying again, what a difference a year makes. During our fourth quarter last year, we reported adjusted EBITDA of a negative $28 million, and this year we're reporting adjusted EBITDA of a positive $29 million, a swing of approximately $57 million. When we look at our completed fiscal year, you'll see that the adjusted EBITDA increased by nearly $107 million, as we went from a negative $72 million last year to a positive adjusted EBITDA of $35 million in fiscal 2021. In the second half of fiscal 2021, our businesses generated approximately $54 million in adjusted EBITDA. Now we provided a breakdown of these numbers by operating segment in our press release where you can see that our theater division contributed the majority of our fourth-quarter adjusted EBITDA. We ended the year with both divisions contributing approximately $24 million to $25 million in adjusted EBITDA for the year, prior to unallocated corporate losses. Now getting back to the financial statement for a second, there were a few variations in our numbers below operating income worth briefly mentioning. While our full fiscal year interest expense understandably was higher than last year, our fourth quarter benefited from the reduced borrowings because of our improved operating results and the fact that last year's interest expense included non-cash amortization of debt discount on our convertible notes, the accounting which changed beginning in fiscal 2021. Now offsetting that reduction in interest expense for the quarter, however, was a non-recurring item in last year's other expense line and reduced gains from disposition of property, equipment and other assets this quarter. I'll point out that for the full year, we had over $3 million in gains on disposition of assets. Shifting gears away from the earnings statement just for a second, our total cash capital expenditures during the fiscal 2021 ended up at approximately $17 million, with a large portion of these dollars being spent on two projects: a theater renovation and a lobby renovation and the beginnings of a guest room renovation at our Grand Geneva Resort and Spa, with the rest going towards normal maintenance projects. As we look towards capital expenditures for fiscal 2022, we're currently estimating that our fiscal 2022 capital expenditures may be in the $35 million to $45 million range. Of course, our actual expenditures during the year may vary and will depend on the timing of several planned projects, as well as potential opportunities that may arise. Let me now provide some brief financial comments on our operations for the fourth quarter and fiscal year, and I'll start with the theater division. We continue to experience increased per capita spending by our customers in our theaters. Comparisons to last year's fourth quarter are not particularly useful, given that nearly half of our theaters were closed during portions of the quarter last year and we had a limited amount of new films. But our average admission price increased by 11.1% during the full year of fiscal 2021, compared to last year and increased by 10.7% if you want to compare it to fiscal 2019 pre-pandemic. Our premium large format screens continued to outperform compared to our regular screens, contributing to this overall increase in our average admission price. Meanwhile, our average concession and food and beverage revenues per person at our comparable theaters increased by 15.6% for the full-year fiscal 2021, compared to last year and has increased by 23.4% if you compare it to fiscal 2019. Our industry-leading mix of non-traditional food and beverage options, shorter lines at the concession stand particularly earlier in the year and the emphasis we're placing on encouraging guests to purchase concessions in food and beverage ahead of time, either online or using our mobile app and the fact that we just believe this is an overall general pent-up demand for a return to normal, all of these, we believe, have contributed to our increased per capita revenues. Since the significant number of our theaters in both our circuit and the industry as a whole were closed during large portions of the fourth quarter last year, we believe a comparison of our results to pre-pandemic results in fiscal 2019 still may be the best way to compare our performance to the industry this quarter and fiscal year. When you compare our fourth-quarter admission revenues to fiscal 2019, our admission revenues were down 21.4% during the quarter and 54% for fiscal 2021 for the full year, when you compare it again towards fiscal 2019. Now according to the data received from Comscore and compiled by us to evaluate our fiscal 2021 fourth quarter and fiscal year results, United States box office receipts decreased 23.5% during our fiscal 2021 fourth quarter and 59.6% during our fiscal 2021 full year, both compared again to US box office receipts during fiscal 2019. As a result, we believe our admission revenue decline outperformed the industry average by over 2 percentage points for the quarter and nearly 6 percentage points for the full fiscal year 2021. Shifting to our Hotels and Resorts division, the same logic applies. Comparing our total revenue per available room, or RevPAR, to last year does not provide particularly meaningful numbers, so we believe comparing the same metric to pre-pandemic levels in fiscal 2019 does help provide perspective on the pace of the current recovery. Our RevPAR for our seven comparable owned hotels decreased just under 20% during the fourth quarter and was down approximately 30% for the full-year fiscal 2021, again compared to the same period during fiscal 2019. I'll point out these numbers exclude the Saint Kate, which was just reopened during the third quarter of fiscal 2019 and was closed for major portions of the first two quarters and even a little bit of the third quarter in 2019, so we excluded that hotel in that calculation. According to data received from Smith Travel Research for the fiscal 2021 and fiscal 2019 periods and compiled by us for comparison of our results, our hotels outperformed comparable upscale hotels throughout the United States during the fourth quarter and fiscal year by a significant 1.6 points and 9.6 points respectively during those periods. The data also indicates our hotels outperformed competitive hotels in our market by approximately 2.7 points during the quarter and 6.9 points during the fiscal year, again compared to fiscal 2019. Breaking out the fourth-quarter numbers for the seven comparable hotels more specifically, our overall RevPAR decreased during the fiscal 2021 fourth quarter compared to fiscal 2019 was due to an overall occupancy rate decrease of approximately 16.5 percentage points, offset by a 5.5% increase in our average daily rate, or ADR. Our average fiscal 2021 fourth quarter occupancy rate for hotels was approximately 52%. Finally, before I turn the call over to Greg, let me also briefly comment on our balance sheet and liquidity. As our press release notes, our liquidity remains extremely strong with $239 million in cash and revolving credit availability at the end of fiscal 2021. At the end of the fiscal year, we had no borrowings on our $225 million revolving credit facility. Our liquidity position was further bolstered by an income tax refund of over $22 million that we received after year-end, as well as state government grants of $4.3 million accrued during our fiscal 2021 fourth quarter but not received until early in fiscal 2022. We also had proceeds from the sale of a retail center and a former theater totaling nearly $13 million during our fiscal 2021 fourth quarter, bringing our total sale proceeds to over $22 million during fiscal 2021, as we continue to take advantage of opportunities within our substantial real estate portfolio. We believe we may receive additional sales proceeds from real estate sales during the next year totalling approximately $10 million to $20 million depending upon demand. We ended the fiscal year with a debt to capitalization ratio of 36.7% and to put that number in perspective, our average debt to capitalization ratio during the eight years preceding the pandemic was 38.5%. I find that pretty remarkable given what our businesses have been through the past two years and it's a testament to our philosophy of owning our real estate and keeping our balance sheet strong.

Thanks, Doug. Before I make a few comments on our operating businesses, I want to briefly pick up where Doug just left off. Last quarter I started my prepared remarks by highlighting a few key differentiators for The Marcus Corporation, including our balance sheet, significant real estate holdings and our diversified business portfolio. All three of those elements were on display again for all to see during the fourth quarter as well. You just heard from Doug about the continued strength of our balance sheet and liquidity position. He also shared with you that we continued to selectively monetize surplus and non-core real estate during the quarter, further strengthening our balance sheet. And with a much more limited exposure to fixed monthly lease payments, we enter fiscal 2022 with a minimal amount of deferred rent and a greater flexibility than our peers. In addition, our diversified business model once again paid off as well. Last quarter, we had just reported our first profitable quarter since the start of the pandemic thanks in large part to a very strong performance from our hotels and resorts division. As winter arrived and the hotel business experienced its typical seasonal slowdown, we were still able to report another profitable quarter this time due to the significantly improved theater results. As you know, we view the world through a long-term lens. As I've said since the onset of the pandemic, the recovery path we are on may not always be a straight line and we recognize that neither of our businesses are back to pre-pandemic levels yet. But I do believe unequivocally that these key differentiators for The Marcus Corporation are major strengths for our company and have contributed to both our long-term progress and our long-term success. The fourth quarter and fiscal year that we are reporting today were yet additional steps in our recovery and we're pleased to be sharing these results with you. So let me start my divisional remarks with our hotel division. Doug shared some of the numbers with you including comparisons to our pre-pandemic fiscal 2019 numbers and the fact that data indicates that we once again outperformed both the industry and our competitive sets this quarter. As expected, occupancies dropped off from our high point during the third quarter due to typical seasonality for our hotels, but overall, it wasn't a bad quarter for this division. They were profitable once again, contributing over $4 million in adjusted EBITDA, with the drive to leisure segment leading the way once again, particularly on weekends. We were particularly pleased with the continued strength of our average daily rate during the fourth quarter and second half of the fiscal year. And while you have heard me say this before, it bears repeating. Our outperformance is also a direct reflection of the quality of our hotels and resorts and the operational excellence of our outstanding hotel team, both in the corporate office and in each hotel. Stated simply, we've always had some of the best properties and best people in our respective markets and it doesn't surprise us that we've outperformed during this period of recovery. The arrival of the Omicron variant came at a time that is historically our slowest time of the year for our hotel division, so the impact was more subtle. We did have some cancellations and rebookings for later in the year, which generally resulted in a delay in a more robust reopening of offices. As you've heard me say before, we've always believed that in order for the business traveler to return to pre-pandemic levels, it all begins with employees returning to offices. That then can lead to businesses getting comfortable with their employees getting back on the road to see clients, potential clients, remote offices and plants, as well as attending group events and conferences. Now that cases are once again dropping significantly, restrictions are being lifted and new CDC guidance is out reducing the need for masks. We are hearing of offices gearing up for a greater return of associates and we are optimistic that we'll continue to see improvement in business and group travel. We've seen a noticeable improvement in our group room booking activity in recent weeks and while our group room revenue bookings for fiscal 2022, commonly referred to in the hotels and resorts industry as group pace, are still running behind where we would typically be at this same time in pre-pandemic years, it is quite an improvement from where we were last year at this time and the increased amount of activity and leads we are experiencing suggest to us that we may further close the gap by the time we get through 2022. Banquet and catering revenue pace for fiscal 2022 is also running behind where we would typically be at this same time in prior years, but we continue to experience very strong wedding bookings. Some of the bigger events in the past are once again booking for 2022 and beyond. Overall, we generally expect our revenue trends to track or hopefully continue to exceed the overall industry trends for our segment of the industry, particularly in our respective markets. As in the past, our results from this division will vary by quarter due to the seasonality our properties historically experience, but on a relatively year-over-year basis, we look for continued improvement during this ongoing recovery. And as I've said in the past, we believe we have special assets that make our portfolio unique and give us the ability to pivot to other customer segments while we wait for business travel to fully return. As we look to 2022 and beyond, our team is actively shifting its focus away from navigating the pandemic and towards rebuilding and once again growing our Hotels and Resorts division. In our Annual Report on Form 10-K that we are filing today, we highlight key strategies in three key categories: operational excellence and financial discipline, portfolio management and strategic growth. Strategies for operational excellence and financial discipline include sales, marketing and revenue management strategies designed to further accelerate the pace of the recovery, focusing on leveraging strong leisure demand, driving average daily rate, rebuilding group demand and growing ancillary revenues. While keeping the guest experience at the forefront, we also take a hard look at how we deliver our services with human resource and technology strategies that adapt to a changing labor market. We'll continue to take a hard look at how we can do more with less and how we can use technology to enable that effort. For example, at one of our hotels, we are currently testing the use of a robot to clean bathrooms. Portfolio management strategies will include continued reinvestment in our existing properties to maintain and enhance their value. For example, we anticipate additional reinvestment during fiscal 2022 and 2023 at the Grand Geneva Resort and Spa and The Pfister Hotel, two of our most iconic properties. We also recognize that there can be a time when the best option may be to monetize a given asset and we routinely evaluate our strategy for each property against our expectations for future value creation. As a part of portfolio management, we are also actively seeking opportunities to invest in new hotels and increase the number of hotel rooms under management in the future. That could come in a variety of ways including pursuing additional new management contracts and by seeking opportunities where we may act as an investment fund sponsor or joint venture partner in acquiring additional hotel properties. As we highlighted in that release in December, we announced the formation of a joint venture to do just that, with the JV then acquiring the Kimpton Hotel Monaco Pittsburgh and we hope to find additional opportunities in the months and years ahead. So now let's shift to our theater division. Doug went over the numbers with you including our tremendous increases in per person revenues and as you saw, we experienced significant improvement in this division during the fourth quarter, returning to profitability once again. Not coincidentally, our improved results coincide with the release of more new films by our studio partners, several of which were highlighted in our press release. Of course, we ended the fiscal year with the biggest movie of all, Spider-Man: No Way Home, which has now become the third best performing film of all time. The performance of that film certainly answers any questions about whether an exclusive theatrical showing of a blockbuster film could still generate blockbuster results. Spider-Man answered that question with a resounding yes. In fact, we believe there were several takeaways from the holiday season. We believe it proves there is strong demand for affordable out-of-home entertainment. Spider-Man wasn't the only film to draw customers to our theaters over the holidays. Films such as Sing 2, Ghostbusters: Afterlife, and American Underdog, for example, brought families back to the theater as well and that carried into early 2022. No other distribution channel for film content matches the experience of watching a movie on the big screen. We believe the numbers once again point out the importance of an exclusive theatrical release window as a means of maximizing the performance of film content over its life cycle. Meanwhile, we don't think it's a coincidence that films released day and date have consistently underperformed, and we saw that again this holiday season as well. It's been a long road back for our theater division, but when we look at the quarterly progress we've made during fiscal 2021, it tells a great story. Our total theater division revenues expressed as a percentage of fiscal 2019 total revenues increased every quarter of fiscal 2021, increasing from 20% in the first quarter to 32% in the second quarter, 59% in the third quarter, and 82% in the fourth quarter. Like our hotel division, one of the highlights of the quarter was our continued outperformance versus the industry. As Doug shared with you, based on industry data available to us, we believe we once again outperformed the industry during the fourth quarter and throughout fiscal 2021. Additional data received, compiled by us from Comscore indicates our admission revenues during fiscal 2021 represented approximately 3.5% of the total admission revenues in the U.S. during the same period. This is commonly referred to as market share in our industry. This represents an increase over our reported market share of approximately 3.2% during the comparable period of fiscal 2019 prior to the pandemic. Once again, I want to call out our outstanding teams in our theaters and in our corporate office. Like their counterparts in our hotel division, they've had to navigate through an uncharted period of time while dealing with some of the same labor shortages most businesses are facing these days. And they've done so with incredible effort and dedication. This is particularly the case during our incredibly busy last weeks of December due to the success of Spider-Man. The Omicron variant certainly impacted our theater division as well, particularly early in fiscal 2022. Several films were shifted out of January and February to later in the year, so it's likely that our first fiscal quarter will not be a particularly strong one, but still will be significantly better than last year, and there’s plenty to be optimistic about as we look ahead to the rest of fiscal 2022 and beyond. As cases have declined rapidly in recent weeks and restrictions have been lifted, we've once again seen an uptick at the box office. Several new films have performed better than expected in recent weeks and tonight, the very well-reviewed film, The Batman, opens up to an exclusive theatrical run. You may remember that last year at this time, all of Warner Bros. films were released day and date with HBO Max. We are obviously biased, but we believe 2022 will be the year of the return to an exclusive theatrical release window for a significant majority of new films. One look at the film lineup for the remainder of fiscal 2022, many of which are listed in our press release, and you can see why we are excited about what lies ahead for this business. Another reason for the optimism is the most recent survey data released by the National Association of Theater Owners regarding consumer sentiment towards moviegoing. After dipping back into the mid-60% range with the onset of the Omicron variant, the percentage of those surveyed saying they are very or somewhat comfortable going to the movies once again hit 80% this week. This is just a point shy of the pandemic all-time high hit on July 11, 2021. The improvement in percentage of positive responses from females 35 and older was particularly encouraging as we look for the overall customer base to broaden in the months ahead. We recognize that the industry is still recovering and the film studios are still navigating this environment, but we're excited about building upon the progress we've made so far in our theater division and we look forward to continued improvement in the periods ahead. With that in mind, like our hotel division, we believe the time has come to focus less on navigating through a pandemic and instead look ahead, so we can take our theater business forward in the years ahead. In that same annual report that I referenced in my hotel remarks, you will also find our current plans for our theater division. Our team has organized their plan under three main sections: maximizing and leveraging our existing assets in a post-pandemic world, reinventing and modernizing the out-of-home entertainment experience, and strategic growth. Strategies for maximizing and leveraging our existing assets include additional investments in our industry-leading amenities, including our proprietary premium large format screens and food and beverage concepts. We will also have a number of strategies to continue to evolve and energize our loyalty program and modernize our pricing programs. Expanding the use of technology in all facets of our business and looking for additional ways to monetize our lobby, screens, website, and app with additional ancillary revenue-generating opportunities will also be an important part of this section of our plan. Our goal is also to continue to introduce and create entertainment destinations that further define and enhance the customer value proposition for moviegoing and the overall out-of-home entertainment experience. Strategies to achieve this goal are expected to include testing and launching a variety of new programs, with concepts such as a subscription program and various additional entertainment options within our theater auditoriums on the table. For example, at our theater in Gurnee Mills, we have converted an auditorium to what can best be described as a sports bar like no other. With the addition of eight high-definition monitors, 75 to 100 inches in size and a laser projector combined with a dynamic splitter, allowing us to project four other live games on the main screen for a total of twelve simultaneous events. You will be known as The Wall and will debut with March Madness. With this amazing viewing experience combined with our industry-leading food and beverage options, I can't think of a better place to watch those games. We will also continue to explore new content sources and deliveries to supplement our existing mainstream movie content. And we are also looking ahead to returning to strategic growth in our theater division when the time is right. Growth opportunities that we may explore in the future include new builds, management contracts or taking over existing theater leases and acquisitions. We believe our strong balance sheet positions us well to execute on this strategy, as attractive growth opportunities arise. Before I wrap up my prepared remarks, I want to acknowledge the press release that went out last week announcing the impending May retirement of Doug Neis, our Executive Vice President and CFO. After 36 years of service with The Marcus Corporation, we'll save our goodbyes until our first-quarter earnings call in May. And I'm happy to note Doug has agreed to continue to provide advisory services to the company after his official retirement date in order to ensure that the transition to our new CFO is seamless. And while we are sad to see Doug go, we're equally excited to be able to promote Chad Paris, our Corporate Controller and Treasurer to CFO upon Doug's retirement. Chad has been with us since October, working alongside Doug as we prepared for this eventual transition. He brings with him a wealth of experience in all the areas needed to be a successful CFO. We're excited to have someone of Chad's experience and expertise step into this role and we are confident that Chad is the right person at the right time. We look forward to you getting to know him in the periods ahead. I would also be remiss if I didn't wrap up this fiscal year by once again expressing my appreciation for our dedicated associates at The Marcus Corporation. It was only through their dedicated and outstanding work that we can be with you today celebrating the significant progress we've made navigating through the most difficult two years of our 86-year history. Yes, our key strategies include our balance sheet, our significant real estate holdings and our resilient diversified businesses that I referred to earlier. But our secret weapon has always been our people. We always say people are our most important asset and that was especially the case during fiscal 2021. So on behalf of our Board of Directors and our entire executive team, thank you to all of our associates from the bottom of our hearts.

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

Thank you. We’ll go first to Jim Goss of Barrington Research. Jim Goss, your line is now open.

All right. Thank you and good morning.

Good morning, Jim.

I would like to ask about the Gurnee Mills The Wall. How do sports rates factor in there? Are you able to operate like another bar without any issues? How could this serve as a good model for you and the industry?

Yeah, that's correct, Jim. We have transformed this screen into a sports bar, so it will no longer display theatrical content. This is now a dedicated sports bar with multiple screens, and we have implemented interesting technology that allows you to use your iPhone or Android device, load an app, and use your earphones to select which broadcast you want to watch. While one broadcast will be played over the main speakers, you can choose to watch the others if you prefer. Essentially, we have shifted from a movie theater approach, where we were selectively showing sports events, to a full-fledged sports bar.

Okay. And have you basically taken out the seats then and put high-rise tables or something like that for the viewers?

Jim, it’s the most comfortable version of a sports bar. While we have joked about it, we might actually need to remove some seats. We haven't decided which ones yet, but we're exploring opportunities to add some high tops. We need to be mindful of the viewing angles.

Right.

We could possibly install a portable bar in this area as well. We're planning to have food and beverages served directly to the seats. As a sports bar, we aim to stand out in the theater by providing this service. However, we plan to keep those seats in place because we believe that's one of the features that makes us unique.

Okay. One of the other things is, there were a number of footnotes in the…

Oh, I'm sorry, Jim...

The delivery of food and beverages to the seats will differentiate us as a sports bar compared to other locations in the theater. We believe keeping those seats is what makes us special.

The other thing that differentiates us that on the sports issue thing, is we're not charging to get in.

Okay. Yes, that would be difficult to hear.

I can look for you then. You can walk right in; the goal is to make money on food and beverage.

Okay. In the statements where you're taking out net income to adjusted EBITDA, pretty much all of the footnotes relate to COVID-19 type events from over the past year. I wonder if you might talk about some of those and how much of those would be ongoing or well at some point you'd be sort of even from those COVID-related adjustments and what ones do you think are significant to you?

Well, Jim, when you look at it, most of these things are behind us now. The most significant event this quarter was the government grants and federal tax credits, which we had to adjust down from our numbers. We took a favorable event out to reach our adjusted EBITDA, meaning our unadjusted EBITDA was actually higher than what we reported. We received nearly $7.4 million in additional COVID-related government grants, along with some federal tax credits tied to COVID legislation. As for future funding, we don't have anything on the horizon that we can see right now. This was the main development for this quarter and the year. Overall, we had over $10 million from similar sources for the entire fiscal year, which was all beneficial this year. We also faced some minor impairment charges in both the quarter and the year, related to evaluating some real estate, but these were small amounts. Last year involved a variety of COVID adjustments for reopening and closing expenses, but we don’t see much of that this year and expect even fewer adjustments in the future.

Okay. And lastly from me for now. The Searchlight Capital joint venture which I think is tremendous, it seems to fit really well into the strategy you've had. How aggressive are you expecting this to be in terms of securing property and how quickly say this Kimpton Monaco Pittsburgh hit the financials? How important will it be on the cost and expense side and how quickly?

Sure, I'll address the second half of your question first and then let Greg discuss the overall arrangement. Since this is off-balance sheet, we hold a minority interest in this property. Therefore, the only financial impact you will see will be below operating income, specifically in equity earnings and losses from joint ventures. Our share of any earnings or losses from this property will be reflected in that section, but it was a minor amount this quarter since we only had it for half of December. Hence, it's difficult to draw any conclusions based on this quarter's data. Looking ahead, with only a 10% interest in any individual property, the numbers won't be particularly significant either way. However, as we continue to execute our strategy, we expect to see a greater impact. We will make sure to explain this to our investors so you understand the value of our ownership interests in these properties. Additionally, I want to mention that we have a management contract, which appears in our P&L under other revenues. While you won't see it this quarter, we will have management fees coming in on an ongoing basis.

Can you expand on that a bit? It creates some variability because we anticipate value realizations in the future. Reflecting on the Westin Atlanta perimeter for those familiar with our history, we experienced significant value realization when we monetized that asset. We expect more of that to occur moving forward. I prefer not to describe our approach as aggressive; rather, we are opportunistic. Our primary objective is to deliver strong returns to our investment partners and company investors. We are actively seeking these assets for opportunistic investments. As market conditions allow, we will seize these opportunities. The markets have been quite dynamic, and we are diligently evaluating every asset that fits our criteria, particularly special assets. The pandemic has underscored our desire for unique high-quality assets, whether it be the Pfister, The Saint Kate, The Grand Geneva, or the Skirvin. These properties go beyond being merely business or leisure hotels. The Kimpton Hotel Monaco in Pittsburgh, for instance, appeals to both business and leisure travelers, catering to a diverse audience. We will continue to search for these exceptional assets and, when an opportunistic opportunity arises, we will involve our partners and pursue it.

Yes, just one refinement, does the 10% stake mirror what you do in every case, or can you participate to a larger extent if you want to from an investment standpoint?

It would be an asset-by-asset decision; I mean we've said previously, Jim, you've heard us talk about that in general, that's the neighborhood that we see ourselves participating in as we move forward on deals. But again, it would just depend.

Okay. Thank you very much.

Thank you for your questions, Jim. We'll go next to Eric Wold of B. Riley. Eric, your line is now open.

Thank you. Good afternoon. I have a follow-up question regarding hotel monetization opportunities. How do you assess that opportunity overall? How much is influenced by current demand trends and the potential for recovery? Is there a desire to reduce ownership of hard assets in general? Are you uncertain about which properties might be involved, or is it possible that nothing will be sold?

I don’t believe we want to reduce our investment in hard assets. Instead, the focus is on portfolio management, considering what fits and makes sense for our portfolio, the current market conditions, and significant reinvestment needs for specific assets. All these decisions fall under portfolio management, guiding where we want to allocate capital and make investments, especially since these assets require reinvestment. As we reach a cash flow positive position, we need to think about how to utilize that cash flow. Our theater business currently does not require much investment; it's like acquiring a brand new car, as we've significantly upgraded our entire fiscal plan over the past five to seven years. As we consider our cash flow, we will continue our tradition of returning capital to shareholders and pursuing other beneficial investments, allowing us to deploy capital efficiently.

Thank you. Reflecting on some of the earlier comments during the call and in the press release regarding the strong performance of both the theater and hotel divisions, it's evident that the outperformance in Q4 was lower than the full-year results. This may be partly due to competitors reopening at a slower pace than Marcus. I assume there’s some catching up from the competition. Is there anything we should take from this regarding the trends, and how should we view the prospects for 2022 in terms of maintaining or possibly increasing market share and performance levels?

I agree that the reopening of competitors is affecting our growth. However, I believe some of these gains will be more permanent due to what you've described as path dependency. Essentially, once people have established patterns, they tend to stick to them. It's crucial for us to attract customers to our locations where possible. We're evaluating this on a national level, and the fact that competitors are reopening is beneficial. We believe our product and our teams are superior. We've noticed this across all our businesses, particularly because we decided early on in the pandemic to remain open as long as we could manage to minimize losses. This decision, made a year and a half ago, was aimed at keeping our employees and maintaining business momentum. I think this strategy is paying off now, as we have teams in place that others may not have preserved. I can't provide a specific quantification of this advantage, but I genuinely believe it benefits us.

Very helpful. I think last question and the last point on labor. Maybe update kind of on what you're seeing right now with labor availability in your markets, wage rates, how much higher wage rates right now than they were back in '19 for example and beyond taking price where you're seeing the best opportunities to leverage that and become more efficient?

Let me take a step back and let Doug provide more specific numbers. Regarding our opportunities, we believe that leveraging technology is key to addressing the limited and shrinking labor force. While there are early signs of some workers returning, I want to clarify that we are not back to pre-pandemic levels. Many people in our segment are beginning to spend their savings, which have been historically high, and as their funds deplete, they may feel compelled to return to work. Anecdotally, we have observed increased job postings and more candidates attending interviews, which is positive news. However, the labor market remains challenging alongside inflation and other factors. For instance, we are implementing robots for cleaning to enhance the efficiency of our housekeeping staff. Additionally, we are evolving our movie tavern model, shifting from traditional table service to allowing customers to place orders through our app, which streamlines operations. This move to runners increases efficiency within our labor force. We are also focused on improving ordering processes in our theaters to reduce wait times at concession stands, ultimately benefiting our revenue per customer. Across various locations, including high-end restaurants, we are encouraging guests to order food through apps rather than relying solely on servers due to labor market constraints. We are actively exploring numerous ways to adapt and enhance our operations.

Regarding the first part of your question, we don’t have a specific percentage or number to provide because our labor forces differ significantly between our hotels and theaters. We've observed increases across the board in wage rates for both businesses. However, it’s interesting to note that, as Greg mentioned earlier concerning our theater operations, we didn’t just implement an 11% hike in ticket prices or a 15% to 20% increase in concession prices. Instead, we managed to generate more revenue per guest, which plays a significant role in addressing some of the labor challenges we’re facing, and this wasn’t solely achieved by raising prices. Greg highlighted that we are actively reviewing our strategies, including pricing and revenue management, which has long been a part of our hotel operations. We will keep experimenting with and testing various pricing approaches to help mitigate the wage increases we are encountering. We have already conducted some experiments and plan to continue doing so in the future.

Perfect. Thank you, guys.

Thank you. At this time, it appears we have no further questions. I'd like to turn the call back to Mr. Neis for any additional or closing remarks.

Well, thank you. Like – certainly, I’d like to thank all of you once again for joining us today. We look forward to talking to you once again in early May when we release our fiscal 2022 first quarter results. Until then, thank you and have a great day.

That concludes today's call. You may now disconnect your lines and have a wonderful day.