Here are the Planet Hollywood notes from our meetings in Las Vegas last week



Strip commentary:

  • The bridge connecting both sides of the strip should be completed by Dec 2010
  • They think that the Cosmo will open Dec 2010 in some limited capacity
  • There has been absolutely no activity on the Fontainebleau, and apparently they have shut down their office too – no one is picking up the phones there
    • We heard from a second source that PENN is trying to buy the project for around $100-$150MM, and other potential investors are looking at buying the site for similarly small amounts given the $1.5BN+ of funding the project still needs to open

Business environment:

  • “We’re bumping along the bottom”
  • For September, occupancies are in the 90%’s, but ADR is still very depressed. 
    • The next five nights in Vegas are booked solid with three conventions in town.
  • When we met with Planet Hollywood in April they told us that they were testing increasing rate… apparently they tested it and couldn’t pull it off
    • They are trying different strategies post guest bookings to up sell the customer
      • Selling early arrivals, giving free liquor with room stays, allowing guests to “bid” on a premium room when they are available
  • The lack of business travel is an issue, so the occupancy is lower quality
  • Value restaurants are doing very well, fine dining not so much
  • Summer occupancy was ok, but spend per customer and ADR continued to be weak
  • Groups are still struggling, when they are willing to make future bookings they want to make them at $150 per night, not $200. Leisure is a little better
  • Baccarat play is generally stronger than other segments



Here are the BYD notes from our Las Vegas trip last week



Las Vegas Locals:

  • BYD doesn't think the unemployment level matters as much as consumer confidence
  • People have adjusted
  • They believe that they are at a bottom
  • We were surprised they weren’t more negative on this market given current economic factors



New supply in LV Locals:

  • M resorts, Cannery East, Red Rock, South Coast, Aliante. (Cannery, Aliante, M resorts)
  • There is little change in the promotional environment other than some more free play.  There has been a rational response to M coming online
  • Going forward, there is not a lot of new stuff coming online



Blue Chip:

  • It is too early to tell about Firekeepers. It is likely to steal a lot more business from Four Winds as it is within an hour from their property
  • Competition is as rational as they could hope.  Wouldn't want to open the tower in this economy and they aren't getting the return they want




  • MGM in AC - If MGM has to exit - they may not want to buy the other half of Borgata. They can't buy the other half without causing some covenant issues/amending existing agreement
  • Impact from PA - There is very little impact from Bethlehem.  Table games will probably have an impact on them
  • AC - Revel won't be good for them. They think that the timeline laid out was aggressive
  • There is $20mm of dividend payments from Borgata annually




  • They are very interested in Stations
  • Offered $950 million on the OpCo – can do that under the existing financing
  • Timing is uncertain – they have an exclusivity period of 120 days




  • Pretty buttoned up on capex
  • They had $90mm to payout and it’s mostly done
  • No deadline to do anything there – need an economic recovery and with it, clarity on what is happening on the Strip
  • $700mm was of construction costs incurred on the property




  • They are still buying slots
  • Spending 50mm on maintenance (used to be 120mm) – slots was 50% of that but now it is more than 50%
  • They can maintain the lower level of capex for 2 years
  • Properties are very fresh and there is no need to increase the level of capex at present
  • All cash is going to pay down debt
  • Final payment on Danai Jai Alai – $47m + interest will be made in Q12010



Credit facility:

  • May 2012 – maturity of bank line
  • Going out beyond 2012 for a bank line is too expensive
  • They will leave the credit facility in place for now




  • No fixed multiple for an asset
  • One problem is that they can't buy anything cheap




  • Still a good niche operation
  • $700-$1,500 package deal from Hawaii
  • It is difficult to steal from the downtown market because everything is cheaper there - harder to relocate
  • 3Q - will not be an easy comp but 4Q will be
  • For downtown - need to see fuel indices




  • Never really participated in the bubble
  • Oil prices are helping. Delta downs - had easy comps due to the hurricane
  • They are doing creative marketing
  • Treasure Chest – there is more competition. Plus Katrina money is leaving. Business is derived almost exclusively on a local basis; there is no hotel at the property



General commentary:

  • It’s all about spend-per-visitor
  • It’s just a question of confidence
  • Non-rated business got hurt the most - lower priority. They are higher margin customers too


Here are the BYI notes from our meetings in Las Vegas last week


Replacement demand:

  • Casino budgets were set by corporate in October/November- so calendar 2009 will remain lackluster
  • They are not expecting big improvements in 2H09
  • They think normal replacement is 7-10 years. So 70-100k is "normal"
  • Ohio, IL and Italy are all centrally determined markets and BYI claims that WMS can't really participate in those markets



New casinos/markets:

  • BYI attained 20% market share at City Center, IGT got 50%, WMS got 22%
  • Illinois - They are meeting with a distributor in Chicago.  Video poker pays back 98% so you need a multi-pack offering. They don’t think that IGT gets more than a third. Systems is another big opportunity.  With respect to timing, they will have a better idea on timing Thursday
  • PA - doesn't think VLTs will happen




  • They only have a few products in the WAP category. They have 700 digital towers in the queue - lap or fixed fee
  • BYI differentiates their participation games by performance solely
  • They have 14 test banks to see what works.  Licenses are tough to get and expensive. They are launching new games in the WAP business, which is a very tough segment to penetrate
  • WMS is doing a great job in WAPs and community gaming. WMS is being very aggressive




  • Steppers: strongest space
  • Video: think that this will be their strongest G2E
  • V32 video is performing very well for them. They don't have great video for cinevision. They will do a bunch of wheel games too



  • The international market is a huge opportunity for them - 16% of revenues and 22% shipped
  • Europe is 70% Novamatic
  • Australia - ALL owns that market 60-70% but is 3rd in terms of ship share. BYI is about 20% there
  • BYI has very good relationships in some European markets/Australia
  • They are re-launching in Australia this month.  A monopoly expires in Victoria in 2012 - so that's a big opportunity consisting almost entirely of video machines
  • They are working on South America/Europe. They are getting bombed by distributor type deals



General commentary:

  • They don't think the economy is recovering - just bouncing along the bottom
  • No question that new units will be way down next year




  • They have 40k S6000k’s in the field
  • They have 46 titles on the big spinning reel games. Digital towers.  V32 (tower like - similar to “Deal or No Deal”).  Have 7 new titles vs just one
  • Dual vision is like a wheel of fortune game - 2 people can play together.  The performance has been very strong - couples play it. Daily fee or participation
  • Fireball - it’s their hottest title. Digital tower series
  • Power strike - very strong - cinevision
  • Reel money - V32 really cool. Cash meteors - can spin - touch screen
  • Cash wheel - spinner on cinevision


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Here are our notes from meetings in Las Vegas last week




  • 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




  • They think that table games would have been 10% better in Missouri – buoyed by the loss limit removal - if not for the economy




  • Black Hawk- July was a substantial boost, August not as strong (holiday weekend)
  • The hotel will open September 29th




  • 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. 


Here are our company notes from our Las Vegas trip last week




  • The 5 cent window in their guidance is related to the uncertainty around replacement demand
  • Sentiment has improved meaningfully - but they haven't seen any real pick up in orders. Taking a “wait and see” approach
  • In 2009, most of the casino capex budgets were very conservative and many weren’t really followed as things continued to get worse throughout 4Q08
  • 2010 should be better because you have a budget you will follow. They didn’t really want to quantify any expected increase



Hot Products:

  • Multi Layer Display (MLD) – selling for $19k.  Approximately 900 were shipped last quarter. One of their hottest products.




  • Claim that they aren’t really doing it - and that you can see that in the numbers and the margins that they report. 
  • We are hearing that a lot of discounting and deal-making is occurring.



Consolidating platforms & Cost Cuts:

  • Some of the different platforms are due to different geographies – for instance, Australia has their own platform, a lot through acquisitions (wager works/PGIC/Barcrest). Transitioning people to the same platform is a challenge and something that Chris Sachels (Microsoft former exec) is focused on integrating
  • Reducing material and design costs.
  • Game ops: trying to be more efficient on developed, more stream-lined boxes. SBG concept – they showed us the new MLD boxes that have about 100 different titles on the box (reels/ poker/ video) etc…
  • R&D is at the right level - but need better control about how those games get allocated. Better spend management.




  • Shift in focus towards content away from systems (SBG). 12-18 months title to go soup to nuts. But can compress that by going into vertical development.
  • Outsourcing content? They have a group of people that regularly develop content for them externally. 
  • We’ve heard from reliable sources that IGT plans on outsourcing much more content




  • They are not interested in large scale M&A, but would be stupid not to be thinking about online. Unclear how they will approach it: white label/content/operator?
  • Patti has been telling people that they plan to look outside of gaming. This scares us at Research Edge.




  • SBG purchase? Imperial Palace in Biloxi has signed ($6-10 per day per device) on 60 units.
  • Patty’s Comp: 2010 is tied to EPS growth. But will be TBD going forward – wants a more “soft” formula
  • Pre-G2E show with BYI this year - Sunday Nov 15th.
  • Reel/video: no changes in the mix.




  • Casino Club Rosario will open over Sept/Oct 2009 and IGT got 70% of the floor share
  • IGT provided Casino Clubs Argentina with a $100MM line of credit for development and $40MM line towards floor financing; $93MM was funded as of June 30th
  • Company told me that casinos will have 3,500 units (website says 2,000 so getting a clarification on that)
  • Since IGT also provided the system, they will account for it either in this coming quarter or the following quarter


Here are our company notes from our Las Vegas trip last week


RiverCity will have 2,100 slots, 300 of which are retrofitted IGT machines.  The breakout of the remaining 1,800 is as follows: 20% IGT, 31/32% WMS, low 20’s% share for BYI (mostly spinning reel)



Missouri and the President:

  • Cannot move, replace, or repair the Admiral President in downtown St. Louis. The governor hates the executive director of casinos and the executive favors another casino since he won't get his job renewed
  • They can probably put a floating device under the boat which the gaming commission doesn't need to approve



Lumiere Place (LP) continues to ramp:

  • Loss limit removal impact difficult to estimate
  • Four seasons is making money now. ADR is around $180. There is very little booking visibility



River City:

  • 15-20% of the LP customers are coming from River City markets. They hope to make that up by expanding and picking up extra visitation per month from people living closer
  • Casino utilization is worst on game days at LP because players hate the traffic - can deflect to River City
  • The target return is 15% on both LP and River City combined but they would be satisfied at 12%. They think they can hit 120mm EBITDA for both Missouri properties on 900mm




  • New Orleans - closest (10-15 min drive) customers have been the weakest because of the traffic
  • Bossier is doing well
  • L'Auberge resumed marketing to slot customers. BP's oil discovery in the region should be a big benefit for New Orleans/Texas economy.  September was ok although there was a weak September comp because they were closed for 9 days last year




  • Haven't started construction. They will start foundation work in 4Q09 - costs $16mm and will take 4-5 months. They are waiting to extend second tranche before ordering steel.  All the bond deal participants had to preliminarily agree on extending in the second tranche. It seems like they can get up to 7x for new construction and 6x for borrowings at L+450
  • Sugarcane could open in the tail end of 2011
  • They believe they can pull out 60mm incremental EBITDA at Sugarcane Bay. 70% of Coushatta’s customers come from TX on weekends because PNK is full. They don't think there will be a lot of construction disruption



Baton Rouge:

  • A year behind Sugarcane Bay
  • They just got another extension from the gaming commission
  • If it’s only 12 months behind then they get tight. 18 months would be ideal, which would bring the opening back to 2013.



General comments:

  • Rated and unrated plays are equally weak across the properties
  • Spend per visit is the issue
  • Reno made money last month - and this month so far.
  • Texas shouldn’t pop back up in legislature until 2011.
  • Bid on Ohio racetrack – but it’s a low ball bid so they won't win.

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