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Edited Transcript of EVT.AX earnings conference call or presentation 22-Aug-19 11:00pm GMT

Full Year 2019 Event Hospitality and Entertainment Ltd Earnings Call

NSW, Sydney Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Event Hospitality and Entertainment Ltd earnings conference call or presentation Thursday, August 22, 2019 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David I. Stone

Event Hospitality & Entertainment Limited - Company Secretary

* Jane M. Hastings

Event Hospitality & Entertainment Limited - CEO, MD & Director

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Conference Call Participants

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* Adrian Cheung

Lazard Asset Management LLC - VP and Research Analyst

* Brian Han

Morningstar Inc., Research Division - Senior Equity Analyst

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Presentation

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [1]

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We'll just wait for people to take a seat. For those of you, I bet, you're saying wow, what an amazing seat. Our new boutique seat which is exceptionally comfortable and talk more about that in a moment and thanks to people who are dialing in. So let's get started.

Right, overview of results. Our group revenue was up 2% to $998 million. We had a good result from Hotels, Thredbo and underlying Entertainment New Zealand all delivering earnings growth. Entertainment Australia was impacted by the [lineup] and I'll talk a little bit about that later. Record Event New Zealand box office and underlying earnings growth once we remove the impact of the Queensgate insurance proceeds. Remember a few years ago there was the earthquake in Wellington and, obviously, we needed to close the Queensgate cinema at that time.

And record Hotels group EBIT and I'll talk more about that, another record result from Thredbo with great snow conditions and a lot of good yield management practices. The valuation of our investment portfolio increased, but lower than the prior year but still a very healthy property portfolio. Our underlying allocated expense -- unallocated expense were actually flat underlying with prior year, but we had the impact of the bonuses from the record performance in the prior year.

Normalized profit was down 6.7% and our total reported profit was flat with prior year. And we're going to talk more about the great momentum, which we have built with the new initiatives across the business and I'll show you a few more of those in the presentation.

So Entertainment Australia. So overall revenue was relatively flat with prior year. We had a strong first half and the second half, the product really didn't deliver. So in the second half, revenue was down 4% and overall market box office was down 4%, so we traded in line with market. There were a lot more family titles in the second half. So this year, we had 7 of the top 20 films being family films. And in the prior year, there was only 2. So whilst we grew our share in the family market, obviously, they're more price sensitive, they buy smalls not large, so we have a lower revenue from the family market. We had more adults skewing titles. So if I just take February alone where the nationwide box office was down 17%. The films this year were The Mule and Green Book versus prior year, which was Black Panther and Fifty Shades. So really different audiences, which create very different purchase patterns when they come to the cinema.

We had a weaker January all down to mostly family product. May was strong, but combined with June, it was a bit weaker. So everyone was excited about the Avengers film and it was phenomenal and it did deliver a great box office result. But prior year, we had Avengers and Deadpool, which ended up being the #1 and 3 films. And this year, we had Avengers and Detective Pikachu, which was the #1 and 11 films. So when you add those together, you get the gap.

And June was relatively flat, which was a little disappointing across the market because everybody thought that X-Men and the Men in Black were going to do better and globally, they just didn't deliver what we needed them to. So it was truly an unfortunate H2 product lineup for everybody globally that impacted the results.

So overall for the year though, nationwide box office was up 1%. The different genre mix of films did have an impact on us. For us, we do really well with blockbuster and action films. And if you look at the nationwide box office, the contribution from those films was down $121 million. More adult skewed dramas, which actually performed well in the art house independent circuit, they contributed $64 million more and we had more family titles, up $96 million.

We achieved market share growth in our blockbuster films. So Avengers this year, we had a higher share than Avengers prior year. So when the films [are our] way, we're powering really strong and we also grew our family market share, as I've said, which is really pleasing because that's been a market for us that we've been really trying to tap into and grow.

It was actually pleasing to see though that the Australian content doubled its box office contribution this year because local content is really important. It was only around $31 million, but it was great to see some strong performing Australian films. And also world content actually delivered a bit more than Australian content. So world content, Bollywood titles, et cetera, that was up to $36 million in contributions. So we're seeing those areas starting to grow, which is positive.

Our AAP was up 3%, which was really good and that's really based on the variable pricing model, which we've been talking about. When demand is high, we look at the variable pricing based on the location and the product and everything else that we can really drive what we need to. And clearly, when it's a film that's not in high demand, we look at other pricing strategies to try and drive admissions.

The percentage of people that came to our cinemas and chose to see a film in our premium cinemas was up, which was great. And it really does prove that when you upgrade the experience, people are prepared to pay more to come and see a film because relative to other entertainment options, it's still a very affordable night out. Our spend per head was up, really important. So the spend per head comes from our merchandising sales that was up in the second half 5%. And we've actually had, in the second half, 5 of the 6 months were record performing months for us. So the initiatives we've put in place with our new layouts, the rollout of our own brand Parlour Lane, our new family value deals, et cetera, they are delivering good results.

Our eCommerce enhancements have really given us double-digit revenue growth in the online space and online enhancements include things like we're doing, upgrade recommendations at point of purchase, we're encouraging food and beverage spend and obviously, more people are booking online so we're collecting the booking fee. The value of our direct customer relationships continues to grow, really important. Now 67% of the people coming into our cinemas, we've got a direct customer relationship with. That means that we can start to influence how they see a film, when they see a film and what they see. So that's really important and that's at 2.2 million active customers.

In terms of earnings, what impacted our earnings with box office revenue being marginally down, what was the genre mix, which I've highlighted in the second half. The impact of the AASB15 accounting change -- which was just changing -- change in the time of how we account for expired vouchers or expired loyalty points. Our third-party screen advertising was down $1.7 million, and that flows straight through to the bottom line because clearly to put an ad on screen there's not many cost that we need to add through that process. Our rent and depreciation was up around $5.6 million and that was related to new sites, which have opened in the last few years, which are yet to mature.

So what are we doing about that? So an example of that is in Darwin, so Palmerston is yet to mature and this year you'll see that we've closed Darwin City. So within that market, we believe that there's enough screens and that's what we've chosen to do.

We had 2 new cinemas opened this year, which are pleasing. We got to really trial and validate some of our new concepts in those cinemas. So Coomera on the Gold Coast, which was part of the new center group development. It's in a growth corridor, but we got to introduce the 3-seat format and our food and beverage concepts. And all of those concepts are tracking well above the circuit average. And Kawana on the Sunshine Coast has been a great success and delivered positive earnings in the first month of [trading] , again, with the new concepts. In fact that Gold Class in Kawana is tracking in the top 5 Gold Classes, which is a phenomenal result for a smaller market.

So what are the new concepts? So our strategy -- so I think, I've just gone one ahead. Sorry about that. There we go. So our strategy is really to have Your Cinema, Your Way and multiple experiences. So what we've done is we've taken a lot of our data. We're a very data-rich company and now we're leveraging it. So if you look at the seat map here, what we've got is we're tracking where the hot zones are, so that helps us to determine our demand pricing. Where, in fact, what is the demand for that cinema and how can we price it up or what do we need to do to make sure that we maximize the occupancy. This also helps us to work out where do we put daybeds, how many rows of recliners do we need, actually how many standard seats do we need to make sure we maximize the yield from that cinema.

And across the other side is a heat map of how we're looking at our merchandising areas. So the red points are, obviously, where we're getting congestion, where we get congestion it means that we can't get as many people through the sale. So even looking at that map, you'd say that the popcorn area is too small, so we're expanding our merchandising area. We're creating movable merchandising unit so that we can actually maximize the foot traffic through those areas. So we're really leveraging our data better, which is underpinning the decisions we are making and helping getting the great results from the new concepts.

This is an example of what that heat map turns into with the movable units in the new market places. In Coomera and Kawana, the spend per head is tracking about 50% above our circuit average. So these changes are making a really good impact, a really strong impact.

In terms of Your Cinema, Your Way, as you can see at the front here, we are really about there being a seat for everybody. We've got a price-sensitive market, they need to be able to come and see a movie. We've got a premium market, they want to be [be able to] spend and have a great night out. We need to be able to cater for those audiences in each of the locations that we have. So at the front, we've rolled out our daybeds. They are now the first seats to go when there's demand for a film. So that was previously a space where we couldn't get people to sit because it was the front of the movie cinema. Now they're the most highest demand seats in the cinema. Moving back, we have variable rows of recliners because that's where you get the best screen view to sit back. And then at the back of the cinema, we've maintained occupancy and also created a seat, which gives you the best line of sight so that we can actually provide another seating option in the cinema.

Basically the AAP for the upgraded screens has increased by more than 30% because we're yielding those cinemas better. We've got 17 more locations rolling out with the daybeds at the front as we speak, and we've got the new 3-seat concept rolling into 2 cinemas in Tuggerah and Toowoomba in the near future. We're also adding more premium experiences, a more global premium experiences. So we added 4DX. Has anyone had the chance to try 4DX yet? You're not the target market, so it's okay, I'm not disappointed. So 4DX is flying. Basically the AAP for that screen is up 80% and the box office from that screen conversion is up 100%. The concept is working. It's also attracting a really broad audience from right across Sydney and it's on -- it's a second visit as well. You might see the film in the standard cinema and then want to go and experience the ride also in a 4DX. So we'll be rolling out 3 to 5 more 4DXs this year. Vmax continues to excel. What we are doing though is upping the premium by putting the 3-seat format into the Vmax Cinemas.

Gold Class. Gold Class has an exceptionally strong position in the Australian market and it does really well, but we've upped the ante on it. So we've put laser projection into all the Gold Class screens, so that we can really say it is the best viewing experience and we've done a lot of work on the menu and partnerships, partnerships with [vendors] on Sundays, partnerships with really great local producers. So Vic's Meat, et cetera, if you're a local Sydneysider. We're working with the best to make sure when customers come, they're willing -- they're getting great quality. It's not like the popcorn and candy, we're upping the ante and that's delivering good results.

So you're in one of our boutique cinemas. I don't know if you had a chance to poke your head in next door to see the other boutique cinemas. This year, what we wanted to do was roll out a concept, which said can we get -- can we take the Gold Class experience even higher? What's next? What's the next form of premium? And you're sitting in it. So this seat was tested against every other seat in market and tested as the best seat in Australia. People were prepared to pay more for it. We've created the environment to make sure it was unique and a menu to support that. So right now, we've got these 2 cinemas. The AAP is tracking 5% higher than Gold Class and the spend per head is 5% higher than Gold Class. The NPS score, which is the net promoter score, where we ask customers to tell us how they rate our different products, that's also tracking higher.

The other advantage of these cinemas is that they're configurable. So all of the seats can be moved out and you can hire them for a function or a product launch or a cocktail party, et cetera. So we're really going to test this year about creating event spaces out of cinemas spaces with this concept also.

That's just an image of the Paparazzi Cinema, which is just across the corridor. Really excited to be launching in the next few weeks actually our Event Junior concept. So picking up on the strategy that we have of maximizing underutilized space. The front of the cinema we've worked with experts in child's playgrounds to create a child's playground at the front of the cinema. The concept here is that parents or caregivers can come in and [they] half-an-hour play before the film. Recognizing it's hard for parents to negotiate kids away from the playground to sit in the seat, we've also created a program to make sure that we maintain the [arguments] at the front of the cinema playing games did get kids back to their seats. This launches in the next couple of weeks.

In terms of a charging model, you pay for your playtime and then you're paying for your seat. So it's an added value experience when you come to the movies. The seating that we have has 3 to 4 rows of premium kids seats, it's a daybed for kids type style or type of beanbag and we've got various options. So we've got 1 at Macquarie which will [end] have and within the next month they will launch and we can report back more on those at the half.

So if I could just get the people who are dialing in now to click on the video tab, this just summarizes how we're bringing Your Cinema, Your Way. We're creating multiple experiences under one roof, trying to create that premium and choice to get more customers to the movies.

(presentation)

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [2]

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I should mention that Event Junior was designed by kids for kids. So that was a really interesting experiment to have kids actually help you design exactly what they think would be a fantastic playground at the front. And as you can see from their faces in one of our testing units, they seem reasonably pleased with the outcome.

So Entertainment New Zealand had a really strong year. The market was up 1% and we outperform the market, being up 2.7%. We had market share growth. Half of the growth was due to the initiatives that the team are driving and the other half was due to the new cinemas that we open in Tauranga.

The genre mix of films really worked for New Zealand. We have locations that are in areas that we have lots of families. So the increase in the family content did support their performance. They also had a record spend per head following similar initiatives in Australia and online revenue was up 21% and really strong Cinebuzz growth. So we're seeing great results from the New Zealand market and normalized profit up 9.6% after adjusting for the loss of insurance from the Queensgate incident. And Queensgate will reopen in 2021.

This is the new cinema that launched in Tauranga. You can see that we're putting a bit more emphasis on Parlour Lane than we have in the past and that's delivering the similar type of spend growth that I have just mentioned for Australia. Also, the AAP at the site is up 25% on the circuit average because what we've done in each of the screens is we've rolled out 2 or 3 seating types, so that we can actually offer premium in every screen or standard in every screen and that's working really well. You'll also see an image of the play up in the corner. So we've been trialing our arcade gaming and how we develop that and how we can get foot traffic through there. This has been really successful, adding a couple hundred thousand dollars to the earnings. And it's an area that we are really looking to expand on what sort of shape and format we might try and other family-related cinemas. It's not everywhere, but it's a concept that we're trialing and we'll see more over the coming years.

In terms of developments, we've got Queen Street, Westgate, [Blenheim], Albany, which are rolling out some of the 3-seat concept that we now know is very successful and we have a new cinema opening in new market, which is 7 screens, that's going to have 2 of the boutique as the premium offering, they'll be 2 unique boutique because everyone is different, 2 with the Vmax and then the standard screens with 2-seat options. So a fully premium, another fully premium cinema, which will be great and that opens in early 2020.

In terms of Germany, we presented a discontinued operations because of the sale that we previously announced to Vue International. Look, in terms of the market, they had the impact of the FIFA World Cup as well as the temperatures, but really what happened in Germany last year is that they had less local product. So the total market box office was down $60 million and $30 million of that was from less local product. They've actually kicked off the year relatively strong as have Australia and New Zealand. In terms of the FCO process, it's progressing and we're making -- we're doing everything we can to make sure that we are very focused on the diligent process that they run.

In terms of the potential earn-outs at this stage, admissions for the first half were $51 million. We do expect it to be stronger in the second half, so it's too soon to tell what the earn-out would be, but we're expecting it to be at the lower range.

So in terms of looking forward for cinema, well, we've had a strong start to the year. I think you will have read Lion King has been pretty good, Spider-Man has been pretty good. And overall, we expect the first half to be stronger than the prior year. Star Wars, Frozen 2, Jumanji, The Joker, It Chapter 2, we've got a good lineup of blockbuster films, if they all deliver.

Looking forward to the second half, always too soon to tell, but what we like about the second half is we got a Bond film, we've got another Marvel film, we've got Wonder Woman, we've got Fast & Furious. So we can see some good blockbusters in the second half, but it's too soon to tell.

Moving onto hotels and resorts really, really pleasing. We're exceptionally pleased with the results from the Hotels group. There's no doubt that it was a more competitive market, so to achieve record PBIT performance is a very good result. The market itself in Australia and New Zealand, simply supply exceeded demand and there were less key events. We didn't have the Commonwealth Games, we didn't have the Lions Tour in Wellington, et cetera, which further impacted that. So the number of constraints nights in the key markets was -- well, there are fewer constraints nights, which had an impact on rate.

The group all-inclusive. Our occupancy was in line, marginal decline in average room rate and RevPar was down to 146, but pleasingly, in a like-for-like basis, like-for-like excludes the opening of Atura Adelaide Airport in QT Perth. We were up in occupancy, flat in average room rate and RevPar was up, a really strong performance given all markets across Australia were backwards. And we have strong C&E growth at 9.6%. I've stressed this before and I'm going to continue to stress it, conference and events business is really important to us because it sells food and beverage, it sells our meeting space and it sells rooms. We were up -- that growth was very strong in the market and really helped to drive our underlying performance.

We launched a new platform, which I talked about maybe about 9 -- probably a year ago, IB which integrates all our inventory. We basically went through and reimaged all our conference product and we drove new sales programs. So we're really trying to create a very strong group conference offering and there's more room to grow there.

We had strong food and beverage growth. And pleasingly, in the food and beverage margin at QT hotels was up 1.8 points and that's where a lot of our hotels' food and beverage comes from. Our fee income from existing and new managed hotels was up 13%. So it's very pleasing for us to do a really good job for our partners, for their owned properties. We have 6 properties added, 3 Rydges, so Rydges Darwin Central, Rydges Norwest, which was formally the Novotel Norwest and Rydges Wellington Airport. And in addition, we signed 5 more management agreements. We are really hungry for management agreements and different types of management agreements. 2 of those recently added, which is the Powerhouse hotels, 1 in Armidale and 1 in Tamworth that's Powerhouse by Rydges. And then we've signed up 3 new QT properties, which I'll talk a bit more about soon.

I think another thing to add is we really have focused on automation and digital capability across the hotels groups. So we've rolled out a new payroll and rostering management system and we're seeing great benefits. So whilst there were award increases 3.5% in Australia and 7% in New Zealand, our payroll is in line with prior year. So we're getting smarter tools to help to make sure that we are really doing all we can to improve profitability. Also, we've launched a new revenue management system, which is doing really well. It's in 17 hotels now and that's growing our share by 2 points across those hotels that have that system. And that's really just making sure we are right on it in terms of our rates across all of those properties.

In terms of Rydges, excluding Queenstown, we achieved positive occupancy in RevPar growth. So you're all aware that we closed the East and West wings at Rydges Queenstown due to seismic issues. So basically 93 rooms closed and we've got 72 rooms in the Rydges remaining. That impacted the result by around $1.7 million and we think annualized, it will be around $3.5 million to $4 million. Plans are underway to redevelop that site, it would take us about 3 years to get through that. But really pleasing, we've got the footprint that we now have will give us more capacity, which is exciting.

And Melbourne North City and Bankstown were really impacted by increased supply and the age of those hotels. So that's why they're key priorities on our list. So North city the redevelopment of that property is well underway and we expect that to happen from July next year. And very pleasingly, there has been very little supply going to North Sydney and we're in a great location so that product will be very strong once we get through that upgrade. And in Melbourne, we upgraded the food and beverage area downstairs and this year, we'll do a soft upgrade to some of the rooms, waiting for the '21, '22 year where we do the full upgrade of that property. We're also underway with Geelong in terms of an upgrade of reception area and the soft refurb of rooms. And overall, we're going to give Rydges a brand refresh because Rydges is an incredibly strong brand. So with all of these upgrades that we're doing, we're creating really the future of Rydges, and so the brands will be upgraded to go along with that.

And we had really good performance from Rydges managed hotels, fees up 11% again managing those properties well for our owners. And I've mentioned the new properties that we've added. We did also launch a new eCommerce platform for our Rydges and Atura. I don't know if you've had a chance to see it, but it's basically if you search by area, you get to find that all of the properties that we have for sale rather than by brand. And we've seen an increase in conversion rate of 13% across our new website, which launched only about 8 weeks ago. So we'll see some pleasing results from that.

In terms of QT, QT delivered a very strong result in the competitive market. And really it comes down to location strength and brand differentiation. The QT hits the mark when there's a lot of supply growth and a lot of that supply growth is quite vanilla, QT is not vanilla so it stands on it's own 2 feet.

Excluding Perth, occupancy was up 0.4%, average room rate up 2.7% and RevPar up 3.3%. Gold Coast outperformed the market in occupancy, Melbourne and Queenstown outperformed RevPar as is Sydney performing really well in the second half. QT Wellington trade broadly in line with market and Perth is still growing in a market with lots of supply. So overall, our rooms and F&B margins improved for QT and as part of our strategy to maximize our core asset, so QT Sydney this year, we introduced a new dining venue downstairs Parlour Cucina. If you're in Sydney and you've not been there, please go. It's a fabulous new offering. We've upgraded reception. And in terms of upgrading reception, that was a space for us to put seating in there and service in there, so that people can sit and have a drink and it creates another space rather than just a reception that people walk through. We also created a meeting room because you know that QT Sydney didn't have many meeting rooms behind the lifts, that's performing well. We've done a soft upgrade of all the rooms and the suites, so that product is really ready to go for the next period of competition.

In terms of Melbourne, we also found 2 underutilized spaces and created 2 new meeting rooms. Those 3 spaces, converting those 3 spaces alone is about almost $1 million in revenue. So this strategy of maximizing assets and really looking at the footprint is really important to us. We completed 16 additional rooms in Wellington. Each of those rooms have had a local artist come in and add to the design, which creates the premium on those rooms and they are performing very well. Important in a market where we also attract a lot of international studios into that market given the nature of business in Wellington.

And Gold Coast is under way. So the pool area is all under way now for the upgrade. We'll move through the suites, and the conference area will get an upgrade and then we'll move to rooms. So that will happen over the next 18 months.

All of the programs that we're doing are designed for minimal disruption as we're moving through. So the QT Sydney work we did this year with minimal disruption and that's really important to our timing of our development program. We'll also launch a new e-commerce website for QT this year and we're really pleased that QT improved 6 places on TripAdvisor, so it's getting stronger as a brand.

The 3 new managed properties, just to give you an oversight.

So Auckland will open up in early 2020, prime location, about 20 meters from the viaduct, really important with America's Cup coming in next year and it will be open in time for that, 152 rooms and it will have a rooftop bar.

Newcastle will be late 2020. It's in the old David Jones building, beautiful building to put a QT into, and really a differentiated product for that market being the largest regional market in Australia. 106 rooms in there, much more boutique but really good offer.

And Adelaide will be in mid-2020, right in the heart of the Currie Streets, our food and beverage upgrade precinct, if you've been to Adelaide recently. It's looking fantastic. We're in the middle of 200 rooms and ideally, a rooftop bar.

It's a bit of a thing, with the QT and the rooftop bar. And they have been hugely successful because they are loved by locals. And when you're loved by locals that will fill the business. So it's a really important part of that strategy.

Atura, look, performed really well. Atura Adelaide Airport is performing above expectations. It's outperforming the market in share and RevPAR. So we're really pleased that's -- it's has got a position of it being the only airport hotel and it's doing very well.

So Thredbo. Thredbo had a really good year. Look, it was -- snow conditions were positive for us but there were a lot of days we were at capacity. So there's a lot of work in terms of yield management to make sure that we achieve that growth. A record profit result, 13% increase in lift revenue, 14% in food and beverage, and in summer, we've been focusing on the -- expanding the green trail for -- beginner trails for mountain bikers. So we, in the last season, opened the Easy Street beginner's trail. And in this summer, we'll add in the High Noon Flow Trail. And so it's really expanding and broadening the beginners market so that we can get more people in summer to Thredbo.

We also did a soft upgrade of the Thredbo Alpine Hotel. We've expanded the event space and that's performing well and once we close, once the snow goes this winter, we'll be installing the new gondola at Thredbo. So that gondola reduces the Merritts Chairlift time from 23 minutes, even though it's a lovely, leisurely ride, to 6 minutes; and it increases capacity from 520 guests to 1,600 guests. So that will make a very big difference. It's also a gondola for non-skiing market. You'll be able to get up the mountain, have your hot chocolate, take your photos, and get down the mountain. So that also gives us a new market coming into Thredbo also.

Then we move on to 21, 22 where we're looking at expanding carparks, that's really important for us, so we can get more people on there on those peak days. We're expanding the Friday flat area because Thredbo land is exceptionally important and we need families in there because families mean that we get adults skiing as well and we hook them in for life. And then we're working on our new Chairlift plan, which will really open up new ski runs across Thredbo.

In terms of the performance, we had a strong opening weekend in June. We had snow, then the snow disappeared on us. So the first week of the school holidays, there was a lack of natural snow and 40% of the resort was open. And then a week ago, we get record snowfall. So 150 centimeters arrived, really mixed season, different to last season, but that snowfall will help us through the rest of the season.

Property. So strong property portfolio, which you all know well. Revenue up 6%, which was great. Really, the difference in PBIT there, just the difference in fair value adjustment. So we had an increment of $1.93 million this year. This was $5.7 million yesterday -- yes, feels like yesterday -- last year related to the 3 investment properties.

Other major developments. So we launched the Stage 1 DA for here. Well, actually, down the hallway. So down the hallway for the George Street development. So it's 43-story development, a podium level, the retail space, as you can see down the bottom, is prime. George Street with the light rail completing and it's prime George Street retail space, about 830 square meters. In the podium, we would put cinema screens and then we would plan on putting 450-room hotel and then about 70-odd residential apartments at the top.

Funding options are under review. So we do the Stage 1 DA, meaning a design competition would need to happen and then following the design competition, we'd launch Stage 2 DA. So it's probably going to take around 5 years to complete subject to market conditions and all of the things that we need to go through to get to the end point.

The second really exciting development for us is 458-472 and we lodged the DA for that this month. Mixed-use development also, up to 30 stories. The podium and ground floor and we'll extend our prime retail space by 340 square meters, 72 additional QT rooms and also adding conferencing into that space, which is important. And then the commercial tower would be 20 floors or about 28,000 square meters of really prime commercial real estate. Our funding options of both of these projects are still under review and as we get answers, we'll share them with you, so that you can be ahead of how we're planning for those developments, but we're pleased with the progress.

Now something really exciting. David Stone's going to talk to you about this lovely AASB 15 lease change.

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David I. Stone, Event Hospitality & Entertainment Limited - Company Secretary [3]

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So this is a FY '20 issue. So from 1 July, we're going to bring all of our operating leases onto the balance sheet. So as you're probably all aware, we have got a lot of cinema operating leases and the majority of the balance of these numbers that we're disclosing here are in relation to the cinema business.

I should also highlight leases to continuing operations, so excluding Germany. So the less impact on [our] standard P&L should not be huge but it will dramatically change how the P&L looks.

So we have fixed rental income in FY '19 of about $80 million. So that will all come out of EBITDA. So EBIDTA would go up $80 million and I think EBITDA would cease to be a useful measure for our cinema business, but the bottom line impact should not be material. But it -- for FY '20 what would be for use of the market is show you what the numbers would have looked like under the current -- or previous standard. Certainly, you can do that apples-and-apples comparison. And then we'll start looking ahead for FY '21 about reporting under the new standard. But this is the first time we're putting some numbers around this, so I think it's important to highlight that. And obviously, because of our large cinema lease portfolio, the numbers are quite significant.

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [4]

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Great. So focus areas going forward, Look, we've got a really clear strategy and we're well underway with -- we're tidying up our backyard, we've got our future development projects within each of our business. We know we're going to grow revenue, how we're going to maximize our assets and then we've got a group-wide business transformation program. So to give you a bit more flavor, what does broad review in cinemas mean? It means further leverage of that data so that we can get more of that variable pricing model working, because it's working for us. It's more F&B revenue, layouts, new impulse strategies, looking at vending. There's more room to grow there and monetizing our Cinebuzz database. We've got a few trials underway and I'll give you a further update on that at the half.

In terms of maximizing assets, we've not only designed the concepts, we've validated our new concepts. We've got growth portfolio of concepts and the Your Cinema, Your Way will begin to rollout. I think we've seen that our best-performing cinemas, we want to have these concepts integrated within the next 3 years. And we're going to continue to trial new concepts, such as the play concept and arcade gaming that I've highlighted.

In terms of hotels, revenue growth means continued rollout of our new revenue management practices, because they're working, that C&E focus, structure and programs really driving that, making sure that our F&B venues are loved by locals, fill them with locals as well as hotel guests, really important. And it's Santini alone at QT Perth has won the best restaurant in Western Australia. It's loved by locals. That is the plan, as well as the top 50 restaurants across Australia, so really important.

And maximizing assets for hotels, more new concept management agreements. We've got great capability to monetize and leverage. And better space utilization. How can we reconfigure spaces to generate more revenue from those spaces?

At Thredbo, revenue means [that] yield management. We've actually just launched a new e-commerce site. So if you go on to Thredbo now and you're buying a day pass, and the pass -- and the prices on particular days are different because the demand on different days is different, the years of 20% off everybody are dwindling, so that we can really be targeted and make sure that we're charging the right price to maximize our yield. More events are planned and more products are planned.

Maximizing assets at Thredbo is creating that capacity in the plan I have already discussed. And across the entire business, in terms of business transformation, which really means reducing cost and improving margins and making us more efficient. The biggest project we've got, which we've just kicked off, is source-to-pay. So what that means is we want to take a -- and that will take us about 3 years to complete, but we are automating our inventory management across the business, centralizing procurement and improving our efficiency in that business and we save safely a few million dollars in that project.

Automation continues within each of our businesses. Kiosk rollouts, et cetera, so that we can absorb payroll increases. All of those things are a big priority in our business transformation goals.

But the biggest transformation we've -- had been on culture. In the last 12 months specifically, we've rolled out our company vision, our values, our purpose, but most importantly, we've rolled out our goals. Every individual knows what success looks like. How do I succeed as an individual? How do I grow in this business? And that's really important to make sure that we've got everyone working together. The biggest difference we've made is we've launched a platform to communicate to our 10,000 staff.

So before we could communicate to managers, and we would hope it would drill down. In the last 4 months, we've launched a platform, where right now, I could send a message out to 10,000 of our staff and they're going to receive it. So it's workplace platform. It's on social -- it's like a social media platform and what we're doing there is go show us how you're achieving your goals every day and show us how you drive the values.

So what does that mean in terms of a return for a business? Well, one example 2 weeks ago, was we launched a clothing lease across the business. Sales program. Just get in there, you have 3 days. Incentivize, go, post, share, drive what are you doing? And we generated $1 million of extra revenue from that program.

An example might be a small idea that comes out of a cinema, and this is an example. One of our cinemas in New Zealand, the Regional Cinema, they came up with a chop shop idea for one of the films. Add on $0.50 and make it this way. Everyone went, "I'm going to grab it and I'm going to do it." and they rolled it out. That sort of idea's really taking the 10,000 staff and driving more ideas on how we grow revenue, maximize it and be more efficient in the way that we do things. So that total is really making us more agile. We're only 4 months into it. We've got 75% of our staff enrolled onto it, and it's really helping us.

So look, we're clear, we've got a clear strategy. We know what we've got to do and we're in good shape.

So your turn now. Questions?

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Questions and Answers

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Unidentified Analyst, [1]

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Just in terms of the $5 million additional rent for the Australian cinemas opened in last 5 years, is that because you received reduced rent when you first opened the cinemas? Or what's the -- can you explain the additional $5 million of rent?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [2]

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Sure. That's a combination of some cinemas not yet reaching their admissions required because they are growth corridors. So we've got the rent without admissions and that is due to some rental increases as well. So it's a combination of all.

So as an example, as I've said, in Palmerston. Palmerston is an optional market. Darwin, you all know, has an -- had a bit of a tough time recently. And so we've gone actually, "What's the right structure in Darwin for that business?"And we had the ability to go either invest and grow in the Darwin City cinema. Would that be a good return? Actually, no. Close it. Let's look for an alternate use for that space and then that will help improve the admission for Palmerston. So it's a combination of both things. But typically, there's cinemas in growth corridors that haven't yet got the admission they need and we're putting strategies around each of those to make sure that they improve.

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Unidentified Analyst, [3]

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Will there be any rent uplifts next year?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [4]

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Always. There's always some on a particular year, which is just typical part of what we've always had.

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Unidentified Analyst, [5]

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Jane, can you hear me?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [6]

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Yes.

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Unidentified Analyst, [7]

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Can we just talk about the rent on the cinemas and the shopping centers? I mean, they've been pushed back with the closure of [bank] and the anchor tenants and everything else. Are you being pushed to have your rent increased? Or are you at the negotiation table where you can say, "Lets have a bit of discount on average, given that we are an anchor tenant." How are you viewing it? Because you are bringing foot traffic in.

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [8]

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We are -- Look, there's a combination of -- there's no -- some of our locations have thriving foot traffic what the investors are doing is creating amazing -- just basically, precincts, to bring people in. There are others that aren't investing and there's a conversation going on, so it's a bit mixed bag. Based on -- but we have a team that are constantly looking to find ways to make sure that we're getting the best deal out of where we are. And that fact that when we are in a mall, that they're delivering on their foot traffic and it's equal contribution and we roughly do have a conversation.

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Unidentified Analyst, [9]

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And then my second point, Marvel has had just 15 movies over what? Probably almost 10 years now. And if I look forward, I mean, that was just a phenomenal thing that no one expected. Do you see anything just like that coming out, I mean between Marvel and Star Wars we've actually got foot traffic coming into cinemas? And then there's a second layer of movies coming out, but as you look forward, you can't see any major blockbusters that will be repeated every year? So...

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [10]

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I mean, these studios have so much more to go on those Marvel franchise. Like, we've got Black Widow next year, which is a Marvel film.

There are so many characters within those. Basically with [all of] those franchises, that the studios have got quite a lot to play with and they're always trying to create new options. They're always coming up with a new concept thinking, "Can there be a second and a third and a fourth and how do we grow that?"

So I think that they -- I mean they've worked out that's the magic formula, right?

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Unidentified Analyst, [11]

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Yes.

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [12]

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Get a great storyline, build on the characters and away you go. But from what we see in the lineup, they've got plenty to grow within the areas that they even currently have.

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Unidentified Analyst, [13]

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Okay. Can I ask a third one?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [14]

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Of course you can.

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Unidentified Analyst, [15]

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Into Thredbo now. Great result, great snow. You talked about the carpark. When I look in the ski hills particularly in New Zealand, they have to climb up sharp hills to go up to the ski [vales] whereas Perisher has the tube. But in Thredbo, have you ever considered chauffeurs instead of car parking? Because you are kind of restricted on the carpark but you can actually bring in more traffic in by not having cars. Is that an option?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [16]

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That's definitely being considered. The challenge for those things -- the challenge for that is you're bringing people from Jindabyne and they all want to be there first thing in the morning. So there's like -- it's quite a few shuttles to get everybody through for the time that they actually want to go.

Because people don't really randomly turn out. They're either first thing in the morning or they come out in the afternoon. That tends to be the pattern, but we are assessing it.

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Unidentified Analyst, [17]

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Jane, could you maybe just talk about what RevPAR trend you're seeing into FY '20? Will there be continued weakness in U.K. markets or...

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [18]

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So we -- I should -- We basically see it pretty similar this year to what we had last year. So if you look at all of the key markets, they've got RevPAR trending down, out about 3%, which is what we experienced this year.

But in some of the markets, there's a little less supply coming into this year. So they've got a bit of a breather. But if you look at each of our properties and I think this is really important in terms of our managed properties, because they are really where the majority of that hotel earnings come from.

And in Sydney, if you take our few properties, we're in the CBD with QT brand-differentiated product into 200 rooms. So when you look at the new supply coming in, they're very different offers to what QT is, so we feel good about that.

In Cronulla, there's no new supply coming in. In North Sydney, we've got upgrade that property but even in looking at the North Sydney market, not much new supply coming in. In Sydney it's gone -- a lot has gone into the airport area. Don't quote me, but someone said there's as many rooms now in Sydney Airport area as there is in Hobart, but don't quote me on that.

So a lot of supply there, but not clear, the Rydges Airport Hotel, it's about location, right across that way.

Sydney West has had a little more impact because for the west to really work, we really do rely on inbound arrivals and most forecasts say that's going up. Sydney West has been impacted because there's more supply in the city, so it's easier to stay in the city. So that's an area that we are working hard on.

Melbourne, again, we think that RevPAR will soften a little, but around what we've faced this year, And again, we have got the QT Hotel differentiator in a fantastic location. So that still continues to perform well with that increased supply.

Gold Coast, Gold Coast is really conferencing hotel for us and whilst -- I think there's about 500 new rooms to expect in that market but we've got a good plan to upgrade that and make sure we continue the conferencing business.

So pretty similar. We're looking at this year about the same as last year. We don't see things getting better. Some markets will soften a little, others might be a little bit better, and some will stay the same.

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Unidentified Analyst, [19]

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Got it. And just on the arcade strategy. How many of those are currently in Australia and what do you think is the rollout opportunity there?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [20]

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We're still assessing because there's different competition level for the New Zealand market and the Australian market because a lot of the Australian market has got a lot of franchise rolled out arcade games. So we're going with, "What would our offer be with the Australian circuit?"

In New Zealand, it's still relatively underdeveloped and so we're seeing opportunity of making sure that's part of our strategy. So as we formulate that more, we'll give you more insight on that, but it will be kind of a portion of our cinemas that develop. That's not all of them.

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Operator [21]

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(Operator Instructions) Your first question comes from Brian Han from MorningStar.

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Brian Han, Morningstar Inc., Research Division - Senior Equity Analyst [22]

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Jane, can you hear me okay? Hello, can you hear me?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [23]

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Oh, can you hear me? Yes, we can hear you.

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Brian Han, Morningstar Inc., Research Division - Senior Equity Analyst [24]

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I can -- great. Jane, can you please remind me how much of your hotel revenue is coming from conferencing and events space and how does that benchmark against local and international piece?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [25]

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So we don't break it out in terms of how much revenue comes from the conference and event space. And it's very difficult to benchmark because there are -- there isn't actually a central source of data in terms of what percentage of -- most hotel groups don't disclosure those. Not very helpful on that. I just know we're growing.

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Brian Han, Morningstar Inc., Research Division - Senior Equity Analyst [26]

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Okay. And as you look at Thredbo, what do you think sustainable earnings space can step up to and how long do you think that'll take?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [27]

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I'm not going to be very helpful for you because it depends on snow and conditions. So that's why -- I mean, that's why we don't give guidance. Because for us to try and predict weather patterns and snow conditions is impossible.

And looking at film lineup, we see a lot of it at the same time as most of the market. So really difficult to give you that answer because it will fluctuate with conditions.

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Brian Han, Morningstar Inc., Research Division - Senior Equity Analyst [28]

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Surely, you must have some visibility on the summer months given the initiatives that you're doing, those mountain biking or those kind of things?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [29]

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We do, but you still got to have warm/cold days and it's still related to temperatures.

So we know what we can do in summer and as you can see, we continue to improve summer. And you can probably look back and go -- we've been rolling out a mountain biking trail each year. And you can see that it's been gradually improving so that gives you a guide for how we see the mountain biking [and] improving summer.

But it really is difficult. Because also you got to remember, in summer, what we do a lot of our R&M for winter. So it depends on what maintenance program we've got to do. Do we need to do roads this year? What other things do we need to develop? And that continually changes.

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Operator [30]

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(Operator Instructions) Your next question comes from Adrian Cheung from Lazard Asset Management.

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Adrian Cheung, Lazard Asset Management LLC - VP and Research Analyst [31]

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Could you please give us some color on the CapEx outlook between your property development cinemas and hotels businesses, please?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [32]

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Without breaking it down and I think we've said this at prior presentations. We expect our capital investments to be same as it has been, as an average, over the last 3 years. So around about $150 million a year is what the average would be. So that's what we expect it to be going forward for the next year.

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Operator [33]

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There are no further questions at this time. I'll now hand back to the speakers for any closing remarks.

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [34]

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Sure.

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Unidentified Analyst, [35]

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Just given the success of subscription-based cinema model in the U.S., is this something that you'd -- you have considered or would consider to maybe increase admissions?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [36]

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It's a really interesting question because we're well ahead of the U.S. So the fact that we've got -- if you look at 5 of their databases, we've got 2.2 million active, which is actually a much higher number if you count the inactive, which is bigger than a lot of the databases that they have today. So they're at the beginning phase. And what we chose to do was to bring as many people on so and contact them directly because that direct point of contact means that we can influence business. And what we've been able to do is really target processing and admissions effectively.

So the subscription model is really is they came -- they started -- they're at the beginning of it and we are looking at different models for, "How do we add value? And what is the value of that per member?" And as I said, we're looking to monetize the database. So I can update you more in the future.

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Unidentified Analyst, [37]

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Great and with property development, other than the 2 George Street properties, is there anything else you're looking at developing in the future?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [38]

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We're always looking but there are priority projects. So [Sid], we really want to upgrade our best assets, focus on those priority developments, but our horizon never closed to acquiring and looking at other developments along that time line.

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Unidentified Analyst, [39]

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Great. And 472 George Street, when do you expect that to be completed?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [40]

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458-472?

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Unidentified Analyst, [41]

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Yes.

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [42]

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They're up there. So that would take at least 5 years, 5 to 7 years.

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Unidentified Analyst, [43]

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Jane, just on development. Could you just provide give a little bit more color on the Queenstown Rydges development?

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [44]

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Sure. So if you know the location, we're right on the lake forefront.

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Unidentified Analyst, [45]

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Yes, great location.

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Jane M. Hastings, Event Hospitality & Entertainment Limited - CEO, MD & Director [46]

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Yes. Phenomenal. So you got the central building, which is basically the main gateway and you get through QT and everything else.

So that building is fine, It's the 2 side wings, which we're looking at options on either extending those buildings or demolishing and redeveloping that area.

So we're just working through the options now. But the overall objective as we're a prime property in a key location is when we put our money in and how much capacity can we create.

Great. Thank you, everyone. Good.

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Operator [47]

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You may now disconnect.