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In-line with us but well above the Street. Here are our notes from PENN's Q3 conference call. 


"Third quarter revenue, EBITDA, net income and EPS surpassed guidance and reflect the combination of higher than anticipated contributions from new gaming offerings at two properties and our commitment to achieving operating efficiencies, and undertaking rational marketing programs and spending throughout the organization. Our properties' third quarter EBITDA exceeded guidance by $12.0 million pre-tax, or $6.9 million after-tax, amounting to $0.06 per diluted share upside relative to our guidance."

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



  • "Notably, third quarter 2010 property level EBITDA margins, excluding pre-opening costs of $2.8 million at Hollywood Casino Perryville, rose to 28.5% compared with 27.8% in the same period in 2009 and 27.0% in the 2010 second quarter. The significant margin increase is attributable to the further rationalization of our marketing and promotional offers to customers as well as the benefit of operating leverage related to the incremental revenue being generated at Hollywood Casino at Charles Town Races and Hollywood Casino at Penn National Race Course following the placement of table games at these properties during the quarter."
  • Acquisition and development update:
    • "Last month, we established a joint venture that will own and operate in Texas the Sam Houston Race Park in Houston, the Valley Race Park in Harlingen and a planned racetrack in Laredo, subject to regulatory approval and certain other closing conditions."
    • "Broke ground in August on Hollywood Casino Toledo, are proceeding with design, planning and environmental remediation activities related to Hollywood Casino Columbus ahead of a planned groundbreaking early next year, and have commenced construction of Hollywood Casino Kansas City."
    • "Early in the current quarter, Penn National purchased all the outstanding debt of M Resort from Bank of Scotland for $230.5 million... Since announcing the debt purchase, we have been in a constructive dialog with the property's equity holders regarding ownership and future operations."
  • "The Company repurchased 1,117,610 Penn National common shares at an average price of $23.21 during the third quarter."



  • Comment on the margin improvement "surprise" in West Virginia
    • They already started "smarter marketing" programs at PA & WV. They did expect margin improvement on the business in PA given the lower tax rate on tables and also saw business move from electronic table games to live tables games at a lower tax rate. Also saw a lot of un-rated play which is always more profitable.
  • Is there room for margins to continue to improve in PA & WV?
    • Hesitant to say that there will be improvement from here
  • M Resorts timeline and gameplan?
    • They own the debt today, not the property
    • Allows them to leverage their new database
    • Sees significant upside there
    • YTD revenues $106.5MM and EBITDA was $9.5MM through August
    • Drew down the R/C for $145MM and the rest of the PP came from cash on the balance sheet
    • Think that over time they can get this property to produce a nice investment for them
    • The current management team has continued to improve results at the property QoQ.  They also believe that their current customers would enjoy going to this property
  • What kind of EBITDA did they assume on M when they acquired it?
    • N/A
    • Feel very comfortable that they will be able to improve results at the property to produce a good return for their shareholder in the foreseeable future
    • They have 390 rooms there that they are struggling to fill and their database can help them do that. At the very least, they can fill those rooms during shoulder periods with gamblers vs. low quality guests.
    • The majority of their database will still want to stay on strip but there are only 390 rooms to fill here
  • Maryland win per unit per day was higher than what they were looking for.  How to think about the property on a run rate basis?
    • Has started to stabilize in October. Still very early to give an indication of where win per unit will settle out. It's meeting their expectations
  • Louisiana?
    • Have an advantage in terms of certainty of financing and execution
    • Not prepared to announce any capital plans.  They are looking at an existing boat that would be a good fit (not one that they currently own)
  • Capitalized interest was $1.6MM
  • Depreciation in Perryville?
    • Not a lot on $93MM
  • Doesn't think that someone that acquires Green Valley Ranch can actually invest enough money to make it nicer than M Resorts.  Not worried that someone will acquire it and make it better per se. It's already a really good property.
  • In Ohio - Gaming Commission will have its first meeting on Monday to swear in new members. Following meetings will be post election.
  • VLT's at tracks? Lottery commission is continuing to put together rules and regulations on how VLTs will function. They do support slots at tracks.
  • M Resorts timeline?
    • Stepped into the banks shoes. Sorting through their options. Whatever they do will require approval from the Nevada gaming commission - hopefully by 4Q2010
  • Maryland and Texas will be money losing ventures but are willing to incur that cost for a period of time until they decide otherwise. Hopes that TX follows PA's example.  Texas is in front of the racing regulatory commission for approval now.  The timeline there is for 2Q2011.
  • Cash at 9/30 $237MM
  • Capex: $74.1MM with $51.8MM in new project spend, $22.3MM of maintenance spend
  • In 4Q: 89.7MM of capex - $69.3MM of new project capex
  • Charles Town - how big can that market get?
    • Seeing very strong play. Table limits are high. Play has been strong and stable over the last few months - have seen no erosion in play so far.  Unclear how much better it gets from here.
  • Lawrenceburg a little under pressure?
    • 3Q was the anniversary of their refurbishment. Have a competitor whose asset is up for sale and has been very promotional to boost the numbers into the sale process. Will not follow suit.
  • Still seeing a bumping along the bottom across most of their properties. They are doing a better job managing their expenses and that's where they have seen margin upside
  • Public polls have shown that it will be a tight race in Arundel. Think that voters originally intended to have slots at the track, not at the mall. Think that the mall has traffic issues and is an inappropriate location. Think that the Baltimore Sun - who is in the pocket of Cordish - has exhibited "shameful" behavior. They can move faster to open slots at their sites and their site is already zoned and entitled.
  • Promotional environment in other markets - Kansas City market got better as the quarter progressed. Chicagoland has been fairly stable. Tunica has continued to be very promotional.  Other markets it has been reasonable - and PNK has actually been pulling back.
  • View on regional M&A?
    • Always interested in quality properties at a fair price
    • Pricing is likely to be too rich for them
  • Zia - they have seen higher price of oil drive the feeder markets that go into that market which is why they are seeing YoY growth there
  • What are they prepared to spend on lobbying in TX?
    • They are part of a coalition there. Always want to spend as little as possible
    • Think that is it goes to a vote that voters are in favor of gaming
  • Think that they will see YoY margin expansion in the 4Q, hesitant to go into 2011 now
  • Texas acquisition is not closing in 4Q
  • Think that markets are still tight and consumers are still not spending in most of the places they operate. It's still tough.
  • Alton and Aurora were clean quarters. Joilet - they had anniversaried the reopening of that facility. Saw declines there coupled with unusually low hold on tables which impacted results. Did continue to cut promotional spending there. Joilet will have a transformation in the 4Q with the full reopening and rebranding to Hollywood.
  • There is nothing that would preclude them from applying for the Laurel Park asset on Nov 3rd.  They think that the government will want to move as quickly as possible to get the process underway. The government has made it clear that slots belong at Laurel - can have an RFP out in 30 days.
  • Columbus - any concerns that the project will be delayed beyond 2012.
    • Still on schedule to finish up remediation in Feb.  Expect to break ground at the end of 1Q2011.
  • M is not their final goal for a strip property.  That said they don't think they will be acquiring anything there anytime soon
  • They are including the interest from the M debt but none of operating results in their guidance