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Very weak quarter underscores our negative domestic gaming call. Full value of REIT conversion still not recognized in stock price even with lower 2013 numbers

"Fourth quarter operating results fell short of our guidance targets as our newer facilities have taken longer than expected to ramp up and industry-wide regional gaming revenue trends softened during the period. Consolidated results reflect a number of factors, including lobbying expenses, development costs associated with new greenfield opportunities, transaction costs associated with our proposed REIT transaction, and litigation accruals."

- Peter M. Carlino, Chairman and Chief Executive Officer of Penn National Gaming


  • 4Q softer than what PENN anticipated.  October was particularly tough, ahead of the fiscal cliff decision.
  • Higher taxes have affected the middle class
  • Ohio continues to ramp up, but slower than anticipated slot volumes especially in Columbus.  Table games/F&B revs, however, has been ahead of goals.
  • Slot volumes in Columbus will improve sequentially in January 
  • REIT making significant progress. 
  • St. Louis:  Breaking up casino floor in chunks; 400 slot machines will be offline during construction work in Phase I which will be done by December 2013.
  • New supply in gaming markets affecting about half of its properties.  Average quality of its customer database has improved a bit but attendenace has declined.  
  • 4Q: 170bps improvment in EBITDA margin
  • January gaming volumes have been similar to 4Q


  • Feel comfortable with 2013 guidance.  50/50 range of changing expectations as 2013 progresses
  • Central Ohio market: primary issue is penetration, not saturation.
  • Corp expense run rate:  should normalize around $80 million
  • 2013 revised EBITDA guidance:  combination of what PENN saw in NOV/DEC/JAN and base levels for Columbus/Toledo and construction disruption from Hollywood St. Louis
  • Columbus market:  CZR spent 4:1 in slot promotional spend in December
  • Toledo market:  will be prudent in any reinvestment
  • 2 OH racetracks:  confident on reaching ROI goals
  • 4Q end: Total cash: $260.5MM (higher than usual given calendar was broken out); bank debt: $2.394 billion; capital leases: $2.1MM; bonds: $325MM, other: $10MM. Total debt: $2.730; total capex: $108MM ($87.8MM capital ($77MM Columbus/Toledo, $8.9MM St. Louis); $20.3MM maintenance)
  • 2013: $175MM project capex; $97.9MM maintenance capex;
  • 1Q 2013: $49.4MM project capex; $27.2MM maintenance capex
  • 4Q Southern Plains margin weakness:  St. Louis pre-opening had some impact on margin;  Gulf Coast has been under pressure and also Baton Rouge underperformance due to new PNK property.
  • PENN undergoing 'egregious' lawsuits on higher real estate taxes
  • PROPCO spin:  Financing is going well; may lower interest expense expectations;
  • Financing new acquisitions for PROPCO: will have a nice revolver; there will be equity raises; 
  • Lower end consumers are taking less trips
  • New competition (Cincinnati/ Northfield Park):  will not affect Central Ohio businesses
  • Illegal internet cafes impact in Ohio:  over 800 internet cafes with slot machines; it is having some effect.  Bill HB7, hearing next week, will crack down on these illegal cafes. PENN expects a positive outcome from this bill.
  • PROPCO leverage levels:  no change from guidance; expect PROPCO to stay at 5.5x.


  • PENN reported 4Q revenues $744MM, Adjusted EBITDA of $152MM, and EPS of $0.19.  All 3 metrics missed company guidance, our estimates and consensus. The miss was concentrated in the Midwest & Southern Plains segments. Other contributors to the miss included: 
    • Maryland lobbying expenses were $2.2MM in 4Q
    • Cherokee County litigation accrual of $6.4MM
  • "While full year 2012 regional market revenue trends and customer visitation levels proved to be largely stable, quarterly visibility and performance was impacted by volatility that did not follow historic trends. Due to this volatility as well as the still challenging economic environment, we are approaching 2013 with caution as consumers continue to adjust to lower discretionary income levels related to higher taxes and other factors. In this environment, we continue to vigilantly address operating efficiencies while maintaining a disciplined approach to marketing spend and promotional activities." 
  • "We remain focused on expanding the EBITDA contributions from all facilities as we rationalize operating costs, fine tune the slot floor and table game mix, build our customer databases at newly opened facilities, improve player marketing efforts and adjust food, beverage and entertainment offerings."
  • "With our Zia Park Casino benefiting from a healthy economy in its feeder markets, we anticipate commencing construction of a hotel at the facility in the second half of 2013, which would feature 150 rooms with six suites, a board/meeting room, exercise/fitness facilities and a breakfast venue. The new hotel, budgeted at $26.2 million, will allow the property to become more of a destination location enabling us to build relationships with key customers from eastern New Mexico and western Texas as the new integrated hotel, casino, and racing facility will far surpass any of the limited options currently in the market."