PENN YOUTUBE

In preparation for PENN's 3Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

Beulah Park gets upgrades, despite possible move to Dayton (10/19/2011)

• After spending about $700,000 on capital improvements last year, Penn has put another $200,000 into Beulah to get it ready for this racing season.

Post Earnings Conference Commentary (Deutsche Bank AG/UBS Gaming Investment Forum; Telsey Advisory Group Fall Consumer Conference)

• “We have seen no changes in our business lines over the last 60 days or so, so things are steady as they go, no upside, no downside. It’s been more of the same, and we continue to see out there in the competitive markets a very rational level of promotional spending. So, the message we gave at the end of the second quarter with what we were seeing is very consistent in what we’ve seen so far in the third quarter.”
• “I’m fairly confident we could go out and raise more capital if we wanted to. Maybe not at 6%, but probably something in the 7%, 7.5% range on a sub debt basis, I think, we could still get done even – if we had to – in this market. Nobody wants to go out when everybody’s in a panic mode.”
• “We’re on schedule for second quarter ‘12 opening in Toledo. Everything there is very much on schedule...in Columbus, we’re still looking for a fourth quarter ‘12 opening.”
• [M Resort target market] “There are really four segments of business they’re serving. The biggest and clearly the most distressed is the Las Vegas locals. That continues to be a very aggressive, competitive market that’s just dog-eat-dog. But the other three are showing better signs of life. The group and convention business continues to be stronger than ever. The California drive-in business, which, being the first right-hand turn off of Interstate 15, has been very, very good. And most recently, the introduction of the Penn database, the regional customers that we have coming to Las Vegas, and we now have generated about 6,500 room nights to this point.”
• [M Resort] "Hotel occupancies have jumped nicely year-over-year, and they continue to show strength. We’re going to be adding about 25,000 square feet of exhibit space to the facility in a tent-like structure that’s going to open up in the first quarter of ‘12.”
  • “We’re going to continue to watch the business, and as we continue to see appreciation in ADR and occupancy, somewhere down the road, we can get comfortable with another room tower. It’s already been master-planned, but we still want to understand the business for a few more quarters before we pull that trigger.”
• “We spend a lot time in Japan... at least for the moment... efforts in Japan are glacial. It’s just the nature of how they work. It’s a consensus process. We have a very interesting opportunity in Japan should that ever happen; spend a lot of time there, but we’re not holding a lot of breath on it. Korea would be terrific. We’ve been in Korea for actually several years, closely engaged there, just kind of taking the temperature. There’s some reason to think that that may heat up over the next year, so that’s one place as an example where we are paying close attention.”
• “Yeah, I’m thinking that we’re probably 75%, 80% of the way there in both Toledo and in Kansas, and probably 50% in Columbus, so we don’t see any major deviation on that total spend of $850 million that you just stated.”
• [Kansas market] “We operate in this market today, so this is one that will actually cannibalize ourselves along with the other participants. We do know that we have people driving from the east past the Ameristar to come to our existing Riverside facility. So it will be a little bit of shift in market share with some additional growth in the market just because you’re reaching further out to the west.”
• [Ohio VLTs] “It will come with a 33.5% tax rate, but in addition to that there will be a takeout for the horsemen’s purses. So most of you are familiar in cities where we have slots at the racetracks, a percentage of the gaming revenue goes to the horsemen’s purses. Right now from a negotiation perspective and this is a very live issue, it’s going to be somewhere between 5% and 15% which would put us somewhere between 38% and 50% on the all-in tax rate.”
• “In July, we called the $250 million 6.75% sub notes and the redemption was completed in August and funded with the revolver and cash on hand... We now have $540 million of liquidity with a $160 million balance on the revolver. The cap leases in there where our fee services are relatively immaterial, the cap structure in about $53 million of excess cash. So that’s reflective of the sub-debt call, but not any additional operations beyond 6/30.”

Q2 Conference Call:

• “When you get into the details of what segments of business are doing what, the only strength we’re seeing is in the VIP segment. The customers spend in excess of $400 a day with us on our casino floors. That is showing some modest growth. Below that, it’s still struggling. It’s not getting, as we’ve seen over the past five or six quarters, any worse, but there’s really no strength in the lower level segments of our business.”
• “If we see any nice lift in revenue across these regional markets, when the economy does turn in our favor, I think we have cost structures that will yield those improved margin results even above what we’re showing today.”
• [M Resorts] “We have engaged with the property management there very, very recently and are working on continued refinement of our marketing reinvestment that’s going to roll out in the third quarter there. They continue to look at other areas of costs to take out of that business. And we’re encouraged with what we’re seeing in the general trends there and think there are still more opportunities to improve the margins in that business and hopefully down the road, and we’re not expecting it in the near-term. The Las Vegas locals will get better, and we still have a very bright expectation for very good returns for that investment we made there.”
• “Relative to Perryville, we really don’t expect much impact from the opening of Anne Arundel. I think Perryville’s impact will come at some point in the future when downtown Baltimore finally gets their casino up and running. That’s really what’s going to have an impact, whatever impact is going to be in Perryville. We really don’t see much impact from the opening next year.”
• “We’re done in Lawrenceburg. We are working with the city, who has proposed a hotel very close to our casino where we would partner with them and operate it and manage it for them, and be a minority investor initially in that development. That would be the only thing that we’re looking at in Lawrenceburg to add about another 150 to 200 rooms in that downtown Lawrenceburg area. But beyond that, we’ve completed our capital program in Lawrenceburg and we’re going to be prepared for what happens in 2013. Certainly it’s going to have an impact when Cincinnati does open. Again, in Indiana, we have the ability to offer smoking to our patrons on the casino floors, which Ohio will not, which we believe will continue to create an advantage for us, but certainly, it’s going to have an impact when Cincinnati opens in 2013 on Lawrenceburg.”
• [Grand Falls Casino impact on Sioux City property] “We haven’t seen much effect. There’s been a lot of noise out there in western Iowa. We’ve had a couple of the Indian casinos close due to the flooding, coupled with the opening of the casino in Lyons County. So, it’s tough to say what the effect has been, but as you said the June results in Sioux City were very solid. We haven’t seen any material effect on that operation, which as you said is about 85 miles away from us, affecting our business there yet.”
• [Capitalized interest] "I think we’re projecting $1.75 million in the third quarter, and then cap interest for the year of $6.2 million."
• [M resorts depreciation] “We’re looking on a going forward basis, depreciation rates at the end should be roughly $1.75 million a quarter.”
• “First half of the year is generally better in Las Vegas than the second half, but we’re also ramping. And the numbers we’ve given have kind of taken out some of the abnormal one-time type charges on the restructurings, and what-not that we’ve had going on at the M.”
• “I don’t see anything yet on the slot technology side that’s going to jump start any new sources of revenue out there for us. Obviously, the gaming shows coming up in the fall, and everybody’s going to be introducing new products there. But there’s nothing yet that has been put in front of us that says there’s something new and emerging that’s going to create new segments of business for us.”
• [Atlantic City] “Revel’s going to open up next year. There is some potential for the smaller casinos to open up with the new legislation that was passed in Trenton. I still see that market contracting over the next couple years. Aqueduct is going to open up in the fall. Pennsylvania is still just one year anniversary table games introduction. There’s still product there that I think is dated that needs to go out of the market. It continues to be a market that we don’t have an interest in right now because of all those macroeconomic factors. So, Revel opening will certainly be new and exciting, but there’s still too much supply in the market to cater to the demand levels.”