• It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Volatility in Q2 regional performance continues. ASCA margins stopped going up, finally.

"The combination of new competition, construction disruption and a pull-back in consumer discretionary spending impacted the quarter."

- Gordon Kanofsky, Ameristar's Chief Executive Officer

CONF CALL NOTES

  • In St. Charles, they had some floor disruption from a systems upgrade underway.  
  • Just lapped the opening of Des Plaines in July so comps should get easier going forward
  • Jackpot hotel rooms were completed in July and should really complete the competitiveness of the property.  Highway repavement should be completed by September 20th.
  • Kansas City and Jackpot basically accounted for the entire downside in the Q
  • Through Q3, they will be able to fund capex through FCF without drawing the R/C
  • Lake Charles funding:  50/50 between FCF and revolver
  • Springfield:  demolition and site grading completed in May 2012

Q&A

  • Promotional environment:  pretty choppy economic conditions; will move along with customer spending habits
  • Massachusetts timetable:  legislation is not being rushed.  Pre-qualification stage will be later in 2012.  Late 2013/1H 2014 is estimated license selection time.
  • Springfield referendum will take place some time in 2013.  City is currently getting some guidance from the gaming commission.
  • Lake Charles project:  hurdle rate of 15%; after Lake Charles ramps up, confident they will exceed that.
  • Consumer trends:  a little deceleration at end of 1Q/beginning part of 2Q but has stabilized somewhat; consumer will continue to be cautious in the short-term.
  • Lakes Charles capex:  $560-580MM vs +$500MM previously is apples to oranges.  The $500MM is the minimum investment requirement; the $560-580MM includes the $32.5MM purchase price to Creative.  The updated capex guidance involved the addition of some F&B amenities and opening up with more new gaming equipment than used, and some maintenance changes.
  • July:  worst comparable month of the year from a calendar perspective (e.g. July 4 unfavorable timing, extra Sat/Sun last year)

HIGHLIGHTS FROM THE RELEASE

  • "Our Black Hawk property was a notable contributor to the consolidated margin as it produced the best quarterly financial performance in its history"
  • "We are pleased with the progress made on our casino hotel spa development in Lake Charles, La. Within the last two months, we received the necessary regulatory approvals, completed the acquisition and commenced construction." 
  • "We believe the slower growth in consumer discretionary spending adversely impacted our top-line results."
  • "New competition continued to adversely impact our Kansas City and East Chicago properties"
  • "Net revenues at our Jackpot properties decreased... due mostly to the combined effect of road repaving on Highway 93 between Twin Falls, Idaho and Jackpot and a hotel renovation that was completed in late July 2012." 
  • Ameristar Lake Charles: 
    • "The cost of the project (including the purchase price) is expected to be between $560 million to $580 million, excluding capitalized interest and pre-opening expenses. We anticipate funding the project through a combination of cash from operations and borrowings under our revolving credit facility. We expect to open the resort in the third quarter of 2014"
  • Cash & equivalents: $135.5MM; Debt: $1.9BN
  • Total Net Leverage ratio: 4.99x vs. 6.5x covenant
  • Capex: $20.3MM
  • Outlook for 3Q12:
    • D&A: $26.5-27.5MM
    • Interest expense (net of capitalized interest): $29-30MM (includes non-cash interest of $1.4MM)
    • Tax rate: 40.5-41.5%
    • Capex: $75-80MM (including $31.5MM due for the purchase of Creative and $30MM on design and construction of the Lake Charles casino)
    • Non-cash comp: $3.5-4MM
    • Corporate expense: $13-14MM