PNK 4Q11 CONF CALL NOTES

Strong margins in St. Louis and low corporate expense drives beat.

 


 "As we move further into 2012, we look to build on our record 2011 performance and remain focused on driving shareholder value.  Through the evolution of our mychoice program, additional capabilities within our technology infrastructure, incremental cost efficiencies throughout the enterprise, and execution of projects in our growth pipeline, we believe 2012 will be another year of significant growth for our Company."

 

- Anthony Sanfilippo, president and chief executive officer of Pinnacle Entertainment

 

CONF CALL NOTES

  • Remain committed to cost cuts and margin expansion. Feel like there is still room to remove non-revenue generating expenses,especially from marketing.
  • Maintain balance sheet health, liquidity, and financial flexibility
  • MyChoice:
    • Top tier grew 44% in membership YoY
    • 34% of their total members migrated up one tier - with the greatest migration to the mid tier
    • More improvements to MyChoice coming in April
  • Spend per visit were up slightly and trips were down slightly
  • Belterra and St Louis saw an increase in both spend and trips
  • Worth per available room grew 5%.  Consolidated occupancy moved up to 84%.
  • Belterra: 16.1% market share; gained 135bps of market share and was the only property to increase admissions in the market
  • Key takeaways:
    • MyChoice continues to be the focal point of their marketing program
    • Sees increase spend per visit for their loyal players
  • Will start a room refurbishment program at L'Auberge soon
  • Have a hard time growing revenues at Boomtown New Orleans.  They will be implementing some cost controls.
  • Bossier: Believe that the market will continue to be under pressure
  • Belterra: Helped by challenges that one of their competitors faced due to a temporary bridge closure
  • Believe that the VLTs issue in Ohio will get resolved in 2012
  • Garage construction at River City will cause some disruption at the property
  • Boomtown Reno: will get $13MM on closing 
  • Carry costs for AC will be much lower in 2012 and beyond. They are retesting the market for the sale of the asset.

Q&A

  • L'Auberge impact of floor improvements? 
    • 12% of the floor out of pocket in the quarter
    • Cost of additional labor to make up for the disruption
    • Disruption ended right before NYE's
    • This has been the first floor update the property has had since opening 7 years ago
  • Touched a bunch of areas around Lake Charles and will start a room refurbishment in 2012.  The rooms are due for a face lift?  It will have an impact not to have the rooms available all of the time. 
  • They do expect margin expansion in 2012
  • New Orleans: Have seen a tailing off of revenues over the last 4-5 months.  They are very much engaged in driving profitable revenue growth.  Replaced all the carpeting at the property.  They are also continuing to take cost out of the business.  He's bullish on N.O. and thinks that they can do better there in 2012.
  • Minimum $125MM VLT investment required in Ohio.  They will clearly meet/exceed the minimum investment requirement. Still working on scope of the property. 
  • Expect to be open in Baton Rouge prior to Labor day in full fashion - sometime in August
  • The bridge closure hasn't been a windfall but has helped a little
  • River Downs: Market is very much centered around Cincinnati...Will pay attention to what happens in Kentucky and that will impact investment there.
  • Margaritaville will be on their side of the river.  Introduced a new brand concept for Boomtown in early 2011. 
  • In Vietnam, the government is working on finalizing a tax rate for that market, but expect it to be a reasonable rate. 
  • Corporate expense in the quarter?
    • They are religious about removing non-value added expenses, including corporate.  They have also settled a number of items. 
    • In the past, a lot of properties functioned individually and they changed that to allow properties realize improvement by using scale of the organization
  • The Madison house issue was settled and lowered their assessment in AC and therefore will have lower property taxes
  • Big focus on being shareholder friendly. Believe that their current team can handle more assets and leveraging their skill set over a large base of operations.
  • St Louis, 10% decline in YoY expenses? 
    • Have a service pod, based in St Louis, helping all of their mid west properties
    • Thinks that most of the improvements seen so far will be sustainable in 2012
    • Need to take into account some seasonality though
    • Some construction disruption will impact them. They are adding some rooms there - 200 in the 2H of 2013
  • They do not have an obligation to put in any more capital into ACDL.  They do need to raise additional capital ( a working capital facility) 
  • All the changes they are implementing are not one time 
  • They are going out for hard pricing on the River City hotel
  • RevPAR was up 5% in the quarter
  • Belterra's market includes Hollywood, Rising Sun, Horseshoe in Louisville
  • Closely engaged at their online gaming options

 

HIGHLIGHTS FROM THE RELEASE

  • "Fourth quarter revenue and Consolidated Adjusted EBITDA growth was primarily driven by the continued solid performance of the Company's St. Louissegment, which consists of River City Casino, Lumiere Place and Four Seasons Hotel & Spa.  Operational improvements at L'Auberge Lake Charles, Belterraand Boomtown Bossier City properties, as well as a significant reduction in corporate overhead, also contributed to the results."
  • "The St. Louis segment continued to ramp up during the fourth quarter, with further maturation of River City and expense discipline across both properties."
  • "L'Auberge Lake Charles' fourth quarter 2011 performance is impressive considering the disruption from the casino floor improvements made during the quarter.  We completed the replacement of all casino carpeting and slot bases and renovated the property's high limit slot and table game areas to better accommodate L'Auberge Lake Charles' higher end guests.  As a result of these projects, the property's average slot count was reduced by 203 units or 12.7% during the fourth quarter, including a closure of the high limit slot room for 70 days.  Additional operating expenses were incurred in an effort to minimize the impact of the casino floor refresh program on guest experience."
  • "In the fourth quarter of 2011, Boomtown New Orleans began to face difficult comparisons due to elevated local economic activity created by the Deep Horizon oil spill cleanup and recovery efforts late last year.  We have made significant strides containing costs to mitigate the effects of changing market dynamics in New Orleans, but we recognize additional efforts are needed to drive profitable revenue increases at Boomtown."
  • "Corporate overhead expense reductions were driven by efforts to eliminate non-value added expenses at the Company's Las Vegas headquarters, as well as a ramp up of cost savings related to the Company's shared service center supporting our properties in the Midwest and Louisiana."
  • "In the first quarter of 2012 we will begin the first phase of an $82 million expansion at River City by commencing construction on a 1,700 space covered parking garage. A comprehensive plan will be implemented to minimize disruption to the property during construction of this first phase.  Construction of the second phase, comprising of a 200-room hotel tower and a multi-purpose event center, will commence at the end of 2012 and is scheduled for completion in late-2013."
  • "Opening of L'Auberge Baton Rouge by Labor Day 2012."
  • "Construction on the Ho Tram Strip project in Vietnam by Asian Coast Development (Canada) Ltd., in which the Company acquired a 26% ownership stake in August 2011, also continues to make significant progress.  The first phase of the development, the MGM Grand Ho Tram, is scheduled to open by the end of the first quarter of 2013." 
  • AC update: 
    • "In December 2011, Pinnacle reached an agreement with the Madison House Group to terminate its lease obligations in Atlantic City. "
    • "In December 2011, Pinnacle reached a settlement on property tax appeals with the City of Atlantic City." Which will result in an $8.2MM cash refund in 1Q12
  • Sale of Boomtown Reno expected to close by mid 2012. Buyers have a 1 year option to purchase the gaming license and adjacent land.  PNK no longer expects to close on a separate transaction to sell the access land and will continue to market it. 
  • "During the first quarter of 2012, the Company committed to invest $2.0 million in Farmworks, a land re-utilization project in Downtown St. Louis.  Pinnacle will receive credit for approximately $10 million towards its obligation to invest $50 million in St. Louis as a result of this transaction."
  • "In October 2011, the Company entered into a settlement with the Port of Lake Charles whereby the Company swapped land parcels and will receive $2.5 million of credits on its L'Auberge Lake Charles property rent payments. The Company recorded a gain of $3.2 million in its 2011 fourth quarter operating results related to this settlement. This gain is reflected in write-downs, reserves, and recoveries."
  • 2012 Capex: 
    • Maintenance: $50-70MM
    • Expansion: $230-240MM
  • "Capitalized interest in the 2011 fourth quarter, related to the Company's L'Auberge Baton Rouge growth project and ACDL investment, was $5.1 million."

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more