SPRING IN LAKE CHARLES

If there is a better market in the country, I’d like to know. Revenue growth has been positive for five straight months. A strong local economy and the presence of hurricane relief workers are certainly big contributors. The market standout is clearly PNK’s L’Auberge and that is where we spent our time.

The major issues facing L’Auberge are the following:

• Reliance on the local energy economy
• Can the market support Sugarcane Bay?
• Cost synergies between L’Auberge and Sugarcane Bay
• Potential for slots in Texas

Despite the sequential dip in February, market trends remain strong as the extra day and an extra Saturday in February 2008 impeded the growth a bit. March trends appear very strong. Surprisingly, the price of oil has had little impact on volumes, good or bad. Any negative economic impact has been offset by customers staying closer to home (“staycations”).

L’Auberge is also performing well in March, which should be another record month. The property continues to drive more business from Houston and even San Antonio, and is now targeting more group business which is already up double digit over the last few years. The growth has occurred without any acceleration in promotional allowances. If anything, L’Auberge has been less aggressive with the lower tier customer.

L’Auberge is currently running at 65% capacity on the slots which brings into question whether the market can support Sugarcane Bay. The answer is probably not right now but considering the growth, the market should be bigger in 2-3 years, if and when the new property opens. Construction has not begun. The good news is that there appears to be some meaningful cost synergies for PNK in opening a L’Auberge sister property. In addition to the obvious marketing synergies, the properties can share the executive management team, laundry facilities, marketing databases, etc.

Finally, on the Texas situation, we’re not sure the market participants added much value on that issue. However, we continue to believe Texas remains a long shot. Remember, 50% of the counties in Texas are still “dry”. More on the prospects for Texas slots in a later note.