Here are our notes from meetings in Las Vegas last week
Costs:
- It looks like they have some more room to cut costs, unlike most regional operators
- They have room to cut/close food outlets – too many amenities
- It wouldn't take long to implement cuts
- We think this could be the focus of the Q3 earnings call
General commentary:
- Last year Labor Day weekend fell in August so it’s a tough comp. September will be better - look at August and September combined to see a real trend. Labor Day is a big weekend
- Unemployment first, then gas are the major economic inputs
- They think that the agriculture business is going to be down 38% and the effects of this will hit them
- Jackpot is having a record year
- No chatter of Nebraska legalizing gaming
- Business isn't really improving - bumping along the bottom. It’s just not employment rate but also that people are working less hours and, therefore, receiving less pay. 17.5% is the real unemployment rate
- Win per admission has gone up but the admissions are down. They have lost the bottom end - so the number is inflated because it’s also not an apple-to-apple customer
- ASCA is the only operator that has seen win per admission increase – because they are just not marketing to the bottom customer
Missouri:
- They think that table games would have been 10% better in Missouri – buoyed by the loss limit removal - if not for the economy
Colorado:
- Black Hawk- July was a substantial boost, August not as strong (holiday weekend)
- The hotel will open September 29th
Capex:
- Colorado was the last of the big capex
- Construction costs haven't really decreased. Labor has decreased slightly
- Council bluffs and East Chicago were the only other projects they ever spoke about - but based on HET results - there is no way they would do it (Chicago). In Council Bluffs they would spend 100mm but they can't construct anything for that little
- $50-$60mm in maintenance capex for 2009
- 2010 will include a little deferred maintenance so capex is expected to be somewhat more substantial that year
Credit facility:
- They still need to extend the agreement
- Penn was lower than they thought. So they will pursue one shortly
East Chicago:
- The 10th license in IL is 45 miles away from ASCA’s nearest property. They think it will be an immaterial event to them
- IL unemployment increased there much more than in their other markets
- They think that the Horseshoe impact has already been felt
Investment opportunities
- Kansas - they already have $400mm invested in the Kansas City market so they are not interested
- The tax rate is too high in other new jurisdictions
- There are a few local assets in Vegas that are interesting but not cheap enough
- Fontainebleau doesn't make sense and will cost 1.5bn to finish. It’s also in the worst location on the strip. No walk traffic (across from Circus Circus)
- ASCA would only buy something that's immediately accretive
- They don't buy into the cross marketing benefit so much (look at Harrah’s)
- They also wouldn't do anything until City Center opens
- ASCA took a look at Ohio - taxes and license fee too high
- They wouldn't be building new projects now (à la PNK). Banks don't like lending south of 5x-ish. They need the multiple to increase to create money. Their problem is the issue of losing the license
- ASCA would pay 6x EBITDA for an asset if they could improve that EBITDA
Balance Sheet:
- ASCA can add $6 of value in debt reduction alone over the next few years.
- Would like to get to 3.5x leverage - no sooner than end of 2011.
River City (PNK) impact:
- Very few customers come to ASCA from South County – ASCA is the most isolated
- ASCA thinks that River City will do only $25mm in EBITDA - pay a few hundred million at most for that opportunity, not $250 million.