PENN 2Q2010 CONF CALL NOTES

Solid Q2 and guidance


 

"While the economic recovery remains unpredictable, Penn National expects to continue to benefit from our focus on operations and margins, the substantial cash flow from our diversified operating base, modest maintenance cap-ex requirements and robust development pipeline. We remain confident in our ability to deploy our capital to generate significant value for our shareholders by continuing to execute on our long-term strategy of expanding and diversifying our facility portfolio through yield focused investments in existing facilities, the development of greenfield projects and, when available, accretive acquisitions. We believe this approach has served Penn National and its shareholders well and we intend to adhere to these financial and risk management strategies while remaining opportunistic in the current environment."

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

 

 

CONF CALL NOTES (Q&A)

  • Business isn't wonderful but it is stable with some bright spots (mostly on the development side).
  • Impact of table games in PA?
    • Have 40 table games and 12 poker games. Have seen some lift on slot play, but it's very early. Other competitors just opened on Sunday.
    • Charlestown has been a ramp up, as employees get licensed. Operating 60 table games and 14 poker tables.  Have seen a lift in slot volume and an increase in Asian play from the DC market.
  • Impact of Buell Park and Maryland Jockey Club on EBITDA guidance
    • Maryland track has a highly profitable 2Q with Preakness and then, they lose money for the other quarters of the year. For both quarters, they will have $3.5MM of total losses from this track in 2H2010.  2011 will have the benefit of Preakness.
  • Stock buyback?
    • Purchased stock because they thought it was cheap and even more accretive than a potential acquisition.
    • How about a 10b5-1 program? No, they like the discretion of being able to buy back stock.
  • $398MM of cash, $1.518MM of bank debt; $2.1BN of total debt; $60MM Capex in Q2, $23MM of which is project Capex; 2010 capex of $431MM, $92MM of which will be maintenance.  Assumed that license fees for Ohio will get paid this year instead of next ($100MM).
  • Ohio - VLTs at racetracks?
    • Don't have a sense of timing on the declaratory judgment that the governor requested.
    • Whatever the governor does will end up in the courts.
  • Any opinions on the proposed gaming rules in Ohio?
    • It's all preliminary at this point, so there's no point to speculate on them now.
  • Christie's proposed changes for AC... any opinion?
    • Thinks that there will still be a lot more pressure on AC given all the new supply coming to the NE in the near term.  So while the proposal is positive, AC still has too much hair on it for them.
    • Still years away from gauging when AC will even out.
  • Kentucky - opinion?
    • Just moved to instant racing machines, so it will be interesting on whether this will turn into a push for full slots... may just push it back since they just couldn't get there on legalizing full slots.
    • Rules and regulations are just being formed - no games yet.
  • Vegas?
    • Not aware that Rio is for sale. There is no active process that involves them..
    • Looking at Green Valley ranch, but are realistic that they won't get there on valuation or that they may not trade and just remain with the existing debt holders.
  • Margins implied for back half guidance?
    • Implied downtick - single biggest factor is negative factor from race tracks and then Perryville ramp when they open.
  • Spend per customer? Any change in trends?
    • No, still sluggish.
  • Aurora margins were very low - business was moved from Joliet last year plus one time payment to city and $330k of severance.
  • Racetrack (MD and OH) EBITDA could be break even next year.
  • Arena District land book value is now $10m - no time frame yet on disposal.
  • Pre-opening expense reflected in corporate, Penn National, and Charles Town.
  • Q2 cap interest was $1.7m, $2.1m expected in both Q3 and Q4.
  • Referendum will be held on whether to allow slots at the Cordish mall - PENN doesn't think it will pass.
  • $25m buyout of 10% Ohio minority interest was a negotiated price.
  • No major impact on Gulf casinos.
  • No public polls on Anne Arundel but a lot of support for slots at Laurel Park versus the Mall.
  • PENN opting not to open temporary casino in Ohio - great sites, so no need for temporary casino--don't want to pay pre-opening twice.
  • No change in spend per visitor in July from Q2.
  • Promotional activity - most of it is at St. Louis and southern MS (has been ongoing). PENN reduced it at most of its properties in Q2.
  • Gaming capacity in OH - reduced number of slots expected at opening, was just fine tuning.
  • Ohio budgets - no cost increases associated with remediation.

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