PENN Q2 2014 CONF CALL NOTES

Solid quarter relative to expectations. Management guidance is setting up Q3 for another beat. July should prove a big improvement over Q2 when states release revs.


 

CONF CALL

 

Prepared Remarks


Upcoming Openings:

  • Hollywood Dayton, Aug 28
  • Hotel opening at Zia Park New Mexico, Aug 28
  • Mahoning Valley ~850 slots, September 2014 opening.
  • Plainridge MA - late Q2 opening
  • Jamul CA - mid 2016 opening, backed up by 2 months
  • New York - expect decision by end of 2014

 

Q2 2014 Results

  • Operating environment remained challenged, but positive on relative basis
  • Low end segments remain sluggish but health in VIP
  • MW and East improved trends
  • Corporate & Overhead expenses run rate $20m savings
  • $253 million cash on hand at end of quarter
  • CapEx $20.2 million in quarter and forecast at $72.5m for year
  • Preopening expenses forecast at $8.2 million for year
  • Argosy Sioux City Iowa: awaiting Supreme Court, disappointed with decisions thus far, rent reduction to GLPI of $6 million if asset closes. 

Q&A:

  •  Regional trends, what drove the June pullback?
    • Calendar driven: May better, June weaker
  •  Regional trends thus far in July?
    • MTD: mixed bag, some mkts better, some markets feeling saturation and competitive pressures and reflected in guidance.
  •  EBITDA flow through, why not greater?
    • Elevated pre-opening expenses in Q3 due to new facilities.  Outlook remains choppy and uneven.  No clear indication of meaningful movement to change previous guidance. 
  • Massachusetts
    • Other licenses will not impact the PENN facilities, expect to have 2 to 3 year opening advantage.
  •  MA Referendum
    • Public opinion polls show >10% lead
  • New developments expect to increase active database from 4 million to 5 million - current data base additions include 10k/month in Columbus and 6-8k/month in Toledo
  • Kansas JV restatement - why now and driving reason, coverage ratio impact to GLPI.
    • Change more appropriately reflects PENN, co-wide adjusted EBITDA, no impact on any ratios.
  • Upstate New York - how consider an upstate property as compared to Mid-Atlantic landscape and potentially Meadowlands/Jersey City casino?
    • Watching closely, New Jersey voters will need to amend state constitution.
  • Dayton is not in Cinci market which is crowded - separate MSA. Parking situation is good there
  • Youngstown over an hour away from nearest casino - great location off interstate 80. 
  • Unlike PNK's Belterra Park, PENN views Youngstown and Dayton as 2 new markets.
  • PA rightly being cautious and protecting existing casinos so not sure if more will be allowed
  • Cash flow should be immediately generated at new racinos
  • No change in acquisition strategy
  • Database under-leveraged without destination property (LV Strip).  Couldn't get to the right valuation on Cosmopolitan.
  • Atlantic City - mgmt not bullish on AC particularly with what is being considered in NY and North New Jersey. Further revenue declines likely.
  • Plainridge - stated in MA filing that $250m in revs is the number and that forecast hasn't changed.

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