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Takeaway: With or without a REIT spin, long term secular headwinds remain.

REIT value mostly in the stock as size of equity offering and timing of split disappoints investors. Meanwhile, an EBITDA miss is released

PNK 3Q 2014 CONF CALL - pnk


  • 3Q: 1st anniversary with ASCA
  • Positive signs on revenue front, could benefit Q4
  • 3Q:  visitation and spend per visit have improved sequentially; particularly encouraging in core properties and ASCA properties.  October looks pretty good.
  • ASCA integration:  Increase in VIP play of 8% and trips increased 4%; 7% growth in top 3 tiers
  • ASCA portfolio:  REVPAR: +6%
  • Universal card integration on track for 2015
  • Marketing SS down 60bps YoY;  promotional environment across portfolio is rational and stable
  • New Orleans, Belterra Park, and Lake Charles underperformed in 3Q
  • Belterra Park:  sees some improvement but very disappointed
  • St. Louis (2 properties): grew market share to 48%  RC tied its highest quarterly share.  St. Charles table share at highest level since 2007.
  • L'Auberge Baton Rouge:  performed well.  Strong VIP play and hotel performance and controlled marketing spend helped EBITDA. 
  • Lake Charles:  all-time revenues ; flow through hampered by certain items described in earnings release
  • Macro environment better and revenues have flattened
  • Sees opportunities to reduce food and labor costs
  • Lake Charles:  low table hold and special costs
  • Belterra Park:  expect 4Q EBITDA to be better than 3Q EBITDA; expect positive EBITDA in 2015
  • $61m cost ASCA synergies at end of 3Q
  • Team retention: $1.5m accrued in 3Q; retention costs will continue through 2Q 2015 
  • New Orleans hotel:  expect to open by end of 2014; budget $20m (incurred $17m through 3Q 2014)
  • Continue to reduce leverage and expect to see continued improvements in leverage
  • Expect equity issuance in 2015; options include rights offering to existing shareholders
  • REIT:  past evaluation stage, will submit IRS private letter filing in next 45 days.  E&P purge:  <$100m through 2016.
    • OpCo will not have meaningful taxes for a substantial amount of time
  • REIT protection shareholder vote in Summer 2015 
  • REIT will have broader mandate than only gaming

Q & A

  • Belterra Park:  still believe there is additional revenue that they're not capturing right now.  It's an awareness issue.  If revenues don't grow in 2015, 
  • REIT: 
    • Incremental costs related to REIT:  legal/advisory work (more of a 2016 event)
    • $1bn equity issuance:  not set in stone yet but it is a conservative estimate. Dilution concerns will be addressed.  
    • IRS private letter ruling may not come until mid-2015
    • Will be a diversified REIT - not just gaming
    • Total NOLs (Federal, State and carry forwards) at end of 3Q 2014: tax shield of roughly a billion
      • $700mm ($550m + Lumiere sale) 
      • $300 goodwill
    • Expect leverage post-spin to be lower than today's levels
    • PNK calling of bonds?   Too early to comment.
    • Tax-free spin jeopardized by equity offering?  No.
  • Improvement in consumer trends:  broad-based across all regions, particularly in >$100 segment
  • Saw revenue growth in October
  • Inflection point in regional gaming?  Maybe a little early. But optimistic on early November too. 
  • Majority of bad weather impact happened in the Midwest and began in late Dec2013/January 2014.
  • Monarch casino in CO:  PNK likes what they have done with the renovations.  
  • Black Hawk market could use more rooms