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Milwaukee Journal Sentinel: “Diversity helps Marcus Corp please investors in theater, hotel chain"

June 10, 2014 -- When movie-goers visit Marcus North Shore Cinema in Mequon, they now can literally kick back and enjoy a film.

Marcus Corp. has added "DreamLounger" seating — leather seats that recline like a La-Z-Boy and offer extra leg room.

The new seating is the latest development in the Milwaukee-based company's mission to keep customers — whether watching a movie at one of its 55 theaters in the Midwest or staying at one of 19 majority-owned or managed hotels — satisfied and coming back again.

Investors appear to like what Marcus is doing. The price of Marcus stock was up 25% through the first five months of 2014 after climbing almost 8% in the 2013 calendar year. The company also recently raised its quarterly dividend a penny to 9.5 cents.

Most companies with movie theaters or hotels are in one industry or the other. But Marcus says diversity helps the bottom line.

"Certainly the diversity is important," said Doug Neis, Marcus' chief financial officer. "The hotel business tends to be very tied to the general economy and macroeconomic trends. The theater business provides a very nice complement to that because it is strong both in good times and bad. In fact, in six of the last eight recessions, the theater business has actually gone up. So they are complementary from that perspective."

Although Marcus no longer has a separate restaurant division, its experience in that line of work crosses over to the theater business, which now offers fare far beyond popcorn and candy.

"You're seeing a lot of food and beverage in our theater business," Neis said. "We're one of the industry leaders in putting in our Take Five Lounge concept, our Big Screen Bistro — which is our in-theater dining — and our Zaffiro's Express (pizza). Food and beverage is a different business, and we've been able to leverage a lot of our experience in our prior background in stand-alone restaurants and our restaurants within our hotel business. We think that gives us a leg up on other theater operators, and it's showing up in our results."

About 54% of Marcus's $440 million in annual revenue comes from the theater division, with almost all of the rest from hotels and resorts.

Marcus is the nation's fifth-largest movie exhibitor with 685 screens at 55 locations in seven states: Wisconsin, Minnesota, Nebraska, Illinois, Iowa, North Dakota and Ohio. About 83% of its screens are in markets where Marcus is No. 1 or No. 2.

Neis said because the company owns so many of its theaters — about 85% — it has been able to rapidly adapt to changes like expanded dining, bigger screens and reclining seats.

"We believe one of the strategic advantages we have in owning a lot of real estate is that we're very nimble and we can act very quickly as we see different emerging trends in the business," Neis said. "When the industry went to stadium seating and to more megaplexes, we were ahead of the game and we were able to make those types of conversions very quickly. Owning our real estate was a key component of that."

A relatively recent initiative helping Marcus outperform peers at the box office has been $5 admissions to movies on Tuesdays, a day that normally wouldn't draw big crowds. But since the discount was implemented last fall, Tuesday attendance has skyrocketed.

"It's been wonderful. It's basically created another weekend," Neis said.

Although all of Marcus' theaters are in the Midwest, the company always is looking for expansion opportunities, Neis said.

"If there was a theater circuit that was available to us in another market that may not even be adjacent, we would absolutely take a look at it," Neis said.

On the hotel and resort side, Marcus has majority ownership in nine hotels, including Milwaukee's Pfister, InterContinental and Hilton hotels. It manages 10 properties owned by others.

Marcus sees hotel management as a growth area for the division, Neis said. The company recently said it will take over management of Heidel House Resort & Spa in Green Lake. It also hired a development specialist from the Kimpton hotel chain to help expand its hotel management business.

Marcus is much smaller than the biggest operators in the theater and hotel businesses, but highly regarded, said David Loeb, an analyst with Robert W. Baird & Co. Its reputation and well-respected personnel have helped the company with acquisitions in the theater industry and to find business partners on the hotel side.

"In hotels, again, they are one of the smaller players, but people think a lot of them," Loeb said. "Owners that are looking for an independent manager think a lot of them."

Although a new Potawatomi casino hotel and planned Kimpton hotel in Milwaukee will create more competition, Marcus hotels will maintain a strong position in Milwaukee.

Eric Wold, an analyst with B. Riley & Co. in Los Angeles, said in a research report that Marcus' market valuation doesn't give enough credit for the company's underlying real estate holdings.

Baird's Loeb commented on Marcus' real estate in an April research report.

"Through years of building, acquiring and investing in tangible assets, the company has built an attractive portfolio of real estate with replacement values that significantly exceed book value in some cases," Loeb stated.

Marcus and partners are developing The Corners project in the Town of Brookfield. It will be anchored by a 140,000-square-foot Von Maur department store and include dozens of additional commercial tenants and 155 apartments.

While that project might seem unusual for the 79-year-old company, historically it really isn't, Loeb said.

"This is a different style of development, but I think the core skill set is one that they've had for a while, which is being really good real estate investors and real estate developers," Loeb said.

Click here to view the full report.

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