PENN 4Q12 REPORT CARD

In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance

OVERALL 

  • WORSE:  Tough quarter and guidance.  2013 guidance does look aggressive to us but the reality is that even on our 2013 estimates, we estimate there is more value to PENN post-REIT conversion than the current value of the stock.

TOLEDO & COLUMBUS  

  • WORSE:  Ramp in slot volumes has been slower than anticipated, leading to a reduction in 2013 EBITDA guidance.  PENN sees Columbus slot volumes to improve sequentially in January.
  • PREVIOUSLY:  “We have over 200,000 accounts signed up in Toledo since we've opened and we're still very encouraged about the prospects as we move into 2013 there.  “We're right now very pleased with the flow-through coming out of Toledo and expect similar kind of results in Columbus as that property now is – today is day 10. The early results in Columbus are very much in line with what we would expect in a market of that size.”

OVERALL BUSINESS TRENDS

  • WORSE:  PENN is seeing the lower end consumers taking fewer trips.  Ohio is underperforming expectations.  Gulf Coast market also has been under pressure. 
  • PREVIOUSLY: “I characterize our businesses that have not been impacted by new supply as generally flat. We're seeing visitation trends year-over-year flat and spend per visit generally flat in markets that are stable. Really not seeing anything different than what we saw in the second quarter.”
  • “Toledo is doing a little bit better than we thought and I think Charles Town is doing a little bit better than we thought and then there's some offsets to both of those in different markets across the United States. Clearly, the – I call it the Gulf Coast area is a bit challenging, and clearly not exactly as healthy as we would hope, but that's obviously – those are relatively small properties.” 

2013 BUSINESS OUTLOOK

  • WORSE:  EBITDA guidance was lowered to reflect a very challenging demand environment.  PENN is also seeing more volatile market conditions.
  • PREVIOUSLY: 2013 outlook: “I think the initial feedback is most people seem to think that we're in a pretty stable environment, nobody is projecting or feels comfortable that we're going to get a hockey-stick recovery, nor do they feel like we're going to see any kind of significant downturn… Our thinking too, as we go into the fourth quarter and into next year that the promotional environment is going to be – going to remain stable”

PROGRESS ON REIT CONVERSION

  • SAME:  PENN received a Private Letter Ruling from the IRS relating to the tax treatment of the separation and the qualification of PropCo as a REIT.
  • PREVIOUSLY:  “We are effectively finished with the IRS. That doesn't mean that some facts and circumstances couldn't change that might require us to go back, and I have to say that for attorney's purposes, but for all intents and purposes relative to the IRS, we're finished. We just need to get our gaming approval and get some financing done to obviously accommodate the spin.”

MARYLAND LOBBYING EXPENSES

  • WORSE:  $26 million is $2 million higher than PENN's November guidance.
  • PREVIOUSLY:
  • Q: “Is the Marlyand lobbying expense projection in your EBITDA guidance for the balance of this year”
    • A: “No, the amounts that we're spending in Maryland are decisions made on the day-to-day basis as the tactics of the campaign unfold. And so, therefore, what we are not doing is trying to project exactly how much we're going to spend, nor do we want to forecast how much we're going to spend for obvious strategic reasons”
    • “Just to be clear on the $20 million lobbying that is in your current guidance, but the $11  million October to-date and whatever you go above that is not in the guidance? Correct”

IMPACT OF PNK’S NEW PROPERTY ON BATON ROUGE?

  • WORSE:  Increased pressure from L'Auberge Baton Rouge.  Baton Rouge had weaker margins than seen historically.  Baton Rouge 4Q revenues were down 27% YoY.
  • PREVIOUSLY: “I would generally say, so far so good, slightly less than we expected, but there's a lot more that has to evolve before we can make any conclusions on what our new business volumes will be at our Hollywood Baton Rouge property”

OHIO RACETRACK UPDATE

  • SAME:  Dayton and Austintown racetracks on track for 2014 opening.
  • PREVIOUSLY: ““We are waiting for the approvals from the lottery and racing commissions to relocate our tracks. We need to get that before we get this started, hopefully, that'll occur before the end of the year. We hope to break ground end of the year, early 2013, and we're talking about a first half of 2014 opening, if all goes well right now.”