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PENN in line with recently reduced estimates but guidance far worse than consensus. Demographic headwinds continue to pressure revenues.

 “Given the trends from the first two quarters, results thus far in July, and a lack of visibility on factors that would improve national regional gaming revenue trends, we are guarded in our outlook for the remainder of the year. 

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


  • 2Q was disappointing 
    • General softness through most of the properties
    • Cannibalization effect was already taken into their guidance
    • Missed expectations mainly due to slow Ohio ramp
  • Lower trip visitation across mature properties; a different trend from spend per visit weakness in the past
  • Hollywood St. Louis:  tornado impacted 1st couple days in June; facility had some damage but nothing long-term. Significant construction disruption in 2Q as they rebrand to Hollywood.  About 5 months of construction left.
  • Lawrenceburg:  impacted by Horseshoe Cincinnati's aggressive promotional discounting. PENN views the promotions as 'insane'.
  • Toledo:  margins continue to get better but below mgmt expectations.  Expect year 2 to be better than year 1. Worried about Greektown ownership and potential to be Cincinnati-like.
  • Maryland Live! operators have been rational.  Charlestown in-line with expectations.
  • Columbus:  performance below expectations - had expected to be market leader.  50/50 share with Scioto Downs even though they outspend PENN 2:1
  • Ohio will take time to ramp
  • Ex all the noise, 2Q was really a miss of $15MM.  Previous guidance had priced in a much better 2nd half of 2013.
  • Confident Columbus will eventually get to cash-on-cash 20% return
  • Level of construction disruption have been higher than expected
  • Baton Rouge/Maryland have suffered from cannibalization but mgmt have expected those

Q & A

  • July trends:  looking like June
  • Reduced trips trend:  customers visitation patterns have lessened (down a couple of % points); consumers more conservative with their discretionary spending
  • Lower guidance breakdown:  $15MM Ohio EBITDA guide downs each for 3Q and 4Q (assume Ohio market share and margins to remain constant), bonus/legal costs are a couple of million due to Sioux City, St. Louis expectations brought down.
  • Penn National will have a 3Q report
  • Borrowing costs have not been changed
  • 2Q Cash: $235MM; bank debt $2.137BN, capital lease: $13MM, bonds: $325MM - total debt $2.476BN
  • 2Q capex $53.9MM ($23.9MM Maintance capex, $30MM project capex (Columbus-- little less than 1/2 the balance, Hollywood St. Louis spent $9.4MM) 
  • 2013 capex guidance: $196MM project capex
  • Dayton/Youngstown: will be conservative with slot count;
  • Slot licene Massachusetts: still speculative stage; 1,250 slot units 
  • Diversify outside regional gaming? Highly focused on gaming
  • Should compare Columbus to Kansas City, Missouri
  • Conservative guidance? It's realistic.
  • Lowered cash component of E&P distribution to $294MM - came to conclusion of similar debt leverage for both companies; to reduce amount of borrowing, they had to reduce cash.
  • PropCo dividends:  if they lose Sioux City, it will have a minor effect on dividends; expect to see increase in Toledo/Columbus rent in 2014
  • To fund acquisitions, they will use secondary equity offerings that will be accretive to shareholders
  • Promotional activity: Cleveland/Cincinnati are high. Are reinvesting with VIP slot players, particularly female ones
  • No obstacles with REIT spin-off process
  • Columbus: can get to 30% margin
  • 2014 EBITDA should be 'clearly higher' than the 2013 guidance of $805MM
  • Internet Ohio cafe ban:  Governor has given cafe operators 90 days to collect their signatures. Senate legislation has passed a bill enforcing the ban; hopeful the House will come back in early September and support the bill.
    • In PENN survey, 10% of respondents have been to an Internet cafe