Boyd Gaming Corp (BYD) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2006 Boyd Gaming earnings conference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Keith Smith, President and Chief Operating Officer. Please proceed.

Thank you, operator. Good morning, everyone, and welcome to our fourth quarter conference call. Joining me on this call is Paul Chakmak, our Executive Vice President, Chief Financial Officer, and Treasurer; and Bob Boughner, our our President and Chief Executive Officer of Echelon Resorts.

Before we begin, I need to remind you that our comments today will include statements relating to our future results, including the financial outlook and expectations for our first quarter and full-year 2007, our expansion and development projects, and other market and business and property trends that are forward-looking statements within the Private Securities Litigation Reform Act. The Company undertakes no obligations to update or revise the forward-looking statements whether as a result of new information, future events, or otherwise. Actual results may differ materially from those projected in any forward-looking statement as a result of certain risks and uncertainties, including but not limited to those noted in our earnings release, our periodic reports and our other filings with the SEC.

I would also like to remind everyone that during our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures please refer to our earnings press release and our form 8-K furnished to the SEC today, both of which are available in the investor section of our website at Boydgaming.com. We do not provide a reconciliation of forward-looking measures due to our inability to project special charges and certain expenses, including preopening expenses. Finally, as a reminder, we are broadcasting this call on our website at Boydgaming.com and streetevents.com.

Earlier this morning we released our fourth quarter and full-year results, which we are proud to report exceeded Wall Street consensus estimates for both the quarter and the year. As we look back at 2006, it truly was a transitional year for the Company. We dealt with the effects of significant capacity additions in our Las Vegas locals business, we opened key expansions at two of our most successful properties, Blue Chip and Borgata. And we executed transactions to sell the South Coast and trade the Barbary Coast for 24 acres on the Las Vegas strip adjacent to our Echelon Place development. As we moved through the year, we committed to you that we would look at every facet of our business to find ways to strengthen and grow the Company. And we've done just that. And the results are beginning to show.

The most notable are the improvements we are seeing in the Las Vegas locals business. The management and operating changes we implemented last quarter are starting to take hold. For the fourth quarter, both revenue and adjusted EBITDA nearly matched last year's fourth quarter, and we are continuing to see improvement. At Blue Chip, our continued focus on the business was reflected in improved revenues, improved EBITDA, and increased market share. And at Borgata in the face of an intense promotional environment, we continue the process of refining and fine-tuning that operation and preparing for the launch of the Water Club. The Water Club will add not only much needed rooms capacity, but will allow for the full potential of a public space expansion to be achieved.

During our last call, we announced a new branding initiative that will position our individual properties as part of a larger network, creating additional synergies and further leveraging our highly regarded blend of gaming excitement and personal services. Today we announced the proposed time line for the rollout of that program. The first phase will launch in the second half of this year with our four major Las Vegas locals properties moving to a single player's card program and our six central region properties joining in their own players' card program. With our downtown properties already under a unified system, the program rollout in the Las Vegas locals and central region will provide the platform for bringing all of our properties together under a single company-wide players' club system in the future.

Turning to our growth initiatives, we've made significant progress on each of our projects during the quarter as we continued building at the Borgata, planning at Blue Chip, and designing at Echelon. The Water Club at Borgata is proceeding on schedule with plans to top off the tower in May of this year and open in early 2008. With an additional 800 rooms and suites, Borgata will be complete allowing us to realize the full benefit of the expansion of the nongaming amenities and hotel.

In Indiana, we are about done with the planning and design phase of our $130 million hotel project, and we expect to break ground next month. With the early success of last year's expansion project guest rooms have become an increasingly important aspect of this operation. And our expansion appropriately includes a second hotel with 300 Borgata style guest rooms as well as a spa and fitness center, additional meeting and event space, new dining and night life experiences, and a new entrance in Portica share. This expansion will provide us the opportunity to extend our draw both geographically and demographically.

In Florida, we received our slot license and plan to move forward with the purchase of Dania Jai Alai in March. We also modified a purchase agreement such that the Company will pay $77.5 million at the closing and we will be required to pay an additional $75 million at March 2010 or earlier if certain conditions are satisfied. In north Las Vegas, we continue to work through the design phase for this project and are continuing to monitor the growth dynamics in this part of the Las Vegas Valley.

With regards to our Echelon Place development, we have finalized the scope and largely completed the design phase. We're excited about embarking on this tremendous opportunity to build a next generation world class resorts on the Las Vegas Strip. I have the utmost confidence in the management and design team we have assembled for this project and I know that they will deliver a project we will all be proud of. In summary, we feel good about the progress we are making in the operating side of our business. We feel good about our growth initiatives, and we feel good about how the Company is positioned for the future. Now, I would like to turn the call over to Bob to share with you more details.

Thanks, Keith. And good morning, everyone. As we said this morning, we plan to begin construction of Echelon Place in the second quarter, with a planned opening in the third quarter of 2010. It's been a little over a year since we announced our plan for Echelon Place. It's been a very exciting and productive year for us and an exciting and productive year for the Las Vegas Strip. I'm going to share our perspective on both fronts. We'll start with our worth.

As you saw in our press release this morning, we recently completed the synaptic design phase of the $3.3 billion wholly owned components of Echelon and we continue to advance the work on the two joint venture elements which will include the Delano, Las Vegas and Mondrian, Las Vegas, as well as the retail promenade that connect those hotels with Echelon Resorts. Morgan's Hotel Group has developed an extraordinary design for their two hotels and has made great progress in their development. We have a point that major architects, designers, and consultants have directed their work through the schematic design phase, and we have made substantial progress in design development. Lawrence Lee & Associates is designing the Echelon Resort hotel. Lee previously designed the guest rooms and suites of the successful Borgata in Atlantic City, as well as several other projects in hospitality throughout Asia. Two other internationally recognized interior design firms, Jeffrey Beers International, and hirsch Bedner Associates are designing the as yet unnamed all suite hotel, and the Shangri-la hotel respectively. Five hotels, 5,000 rooms and suites, 7 principal access points, all designed to minimize waiting and walking.

In addition to the hotel design works, we have made considerable progress in the design of our meeting space. Incorporating some of the best features from large and small meeting venues from around the world. Echelon face will feature 750,000 square feet of meeting space. Approximately 80 individual meeting rooms plus 5 divisible ballrooms ranging in size from 5,000 feet to 75,000 feet. It has shaped up very nicely and we believe it will be a strong competitor, not only in the Las Vegas Strip market, but in the meetings community overall. Dougall Design Associates is designing our meeting space as well as our casino and the potential of other restaurants.

Each of our three wholly owned hotels, Echelon, Shangri-la, and the as yet unnamed all suite hotel will house their own port per share, guest reception and hotel elevator access. Each will feature their own spa and their own room service kitchen to help better meet service delivery expectations amongst discriminating customers. Check-in is steps away from the entry and the entry is steps away from the center of tower elevators. The Shangri-la has only 14 rooms per floor to further enhance its luxury appeal. We have developed a gaming, dining, shopping, and night life plan that should allow our patrons to explore Echelon in a very engaging way. We're engaged in conversations with successful, bright, and fresh thinking restauranteurs from around the world. Design development of the retail promenade will commence this March, slightly ahead of our schedule. And expressions of interest among prospective tenants has been very gratifying, and have grown as the project becomes more visible and more defined.

We have made great progress and our just past the midpoint of our 24-month design process. And as you know an additional land exchange involving the Barbary Coast, which is nearly complete will bring our total holdings to 87 contiguous acres on the Las Vegas Strip. The additional 24 acres allowed us to modify the site layout for the project. These modifications increase the overall size of the initial project to 65 -- pardon me to 65 acres. It improved both pedestrian and vehicular access and very importantly enhanced the views from each of the Echelon Place guest rooms and suites. We have also master planned the site to provide a 6 acre expansion parcel for Echelon Resort. This expansion parcel could allow for the adoption of another distinct hotel of approximately 1500 rooms and additional meeting dining, meeting, and/or casino space following the completion of Echelon in the third quarter of 2010. And it could be done with a minimum of site disruption.

Additionally, we have reserved a 16 acre site for a future casino hotel at Echelon Place. All of the site roadways and principal infrastructure are included in our initial development, minimizing disruptions when future projects are developed. While we have been designing and documenting our work, our competitors and colleagues along the Las Vegas Strip have been playing to the market. And the market has been very, very strong and sometimes very lucky.

Las Vegas visitor volume is at an all time high. The market grew 3% in 2005 and another nearly 1.25% in 2006 without the benefit of any additional supply in 2006. Business visitation continued at accelerated growth going at more than 6 times the rate of total visitation. 2006 Strip gaming revenue grew by approximately 9.7%. The Las Vegas Citywide daily -- average daily rate grew by 16%. The highest year-over-year gain since 2000. Visitor spending on dining, lodging, and entertainment has had a 5% average growth since 2000. 4.5 million more affluent visitors visited Las Vegas in 2005 than in the prior year. And we believe that trend continued through the majority of 2006.

Las Vegas is now the second most popular destination for affluent travelers only behind New York City. It's our belief that this market has a very solid foundation and is poised for solid growth with some of the most compelling architecture and product just a few years away from completion. I'll tell you that we are mindful of the challenges, the hard work, and the number of chips on the table. But we really like our chances. Now I'd like to turn the conference over to Paul Chakmak.

Thanks, Bob. Hello, everybody. The fourth quarter turned out to be a little stronger than we first anticipated. And a lot of that had to do with our locals business, which is rebounding nicely. If we look back just one quarter, we note that the Las Vegas local segment posted a third quarter 2006 decline in adjusted EBITDA of 21% as compared to the same quarter last year. However, the present quarter decreased by only 4.5% as compared to the fourth quarter of 2005. Sam's Town, Gold Coast, and the Orleans essentially matched the fourth quarter last year while Suncoast understandably is taking longer to return to 2005 levels. All in all we narrowed the gap considerably and plan to build on that trend in the upcoming quarter. The strength of our brand has endured the trial phase typically associated with new capacity. Furthermore, the continued strength of the Las Vegas economy has helped to drive the quarter-over-quarter improvement.

Last quarter, we talked about cost savings programs associated with the further integration of our Coast Casinos business. That's beginning to take hold, and we've started to see the benefits of those programs. In our central region at Treasure Chest, business is stabilizing well ahead of prehurricane levels. We are also continuing to see strong market acceptance of our Blue Chip brand. Elsewhere we've intensified our marketing efforts to more effectively compete.

Downtown was once again steady. With last year's quarter and year-end results setting new record highs for both net revenue and adjusted EBITDA, we are very pleased that this year's fourth quarter and full-year results were also essentially the same as last year's record highs. At Borgata, Keith touched on the fact that we're still fine tuning the operation in light of its latest expansion. We've normalized marketing expense and moderated spending in spite of the intense promotional environment in that market. The new openings in nearby Pennsylvania are competing for our customers in that region. However, we maintain our view that Borgata's destination appeal will allow it to effectively compete with these regional casinos. We look forward to the coming quarters and especially to the time where we can more fully realize the benefits of our expansion, including the Water Club, which will open in early 2008.

As you know, we closed the Stardust November 1, and are presently preparing for its implosion, which is scheduled for the middle of next month. And just to the north, our land exchange for the Barbary Coast is nearly complete. Pending final regulatory approval, which is expected in a couple of days. With that, we plan to close the transaction on February 27. As a result of the pending exchange, we will post a related gain of approximately $280 million in the first quarter.

Before we get into specific guidance, let's discuss current trends. The locals business is coming back. The market is absorbing the new capacity. And our revenue and expense initiatives are taking hold. In the central region, Treasure Chest has stabilized at levels well above prehurricane performance. Though significantly below the first quarter last year. Blue Chip also has a tough first quarter comparison, given the record performance of the property following the opening of the new casino last year. In addition, persistent weather has also been an issue in the Midwest during January and February. With the Water Club coming online in early 2008 Borgata is well-positioned to remain atop the Atlantic City market. However, the ramp-up of our recent expansion has been slower than anticipated. Nonetheless, we look forward to fully realizing the benefits of a larger Borgata with all of the pieces working together to offer one of the truly great casino entertainment experiences.

Now let's move into the guidance part of the call. For the first quarter 2007, we're estimating adjusted earnings per share from continuing operations to range between $0.50 and $0.55, and comparable adjusted EBITDA to be between 152 and $162 million. For the year, we're estimating our income tax rate to be about 36% and maintenance capital expenditures to be approximately $115 million. Development capital expenditures for 2007 are a little harder to nail down with Florida and expansions to our Las Vegas locals business still in the planning stages. However, we can quantify that Blue Chip will account for about $50 million for the year. And we expect to spend roughly $180 million in 2007 on the wholly owned components of Echelon Place. Operator, at this time, we'd be happy to take some questions.

Thank you. [OPERATOR INSTRUCTIONS] Your first question will come from the line of Larry Klatzkin, representing Jefferies. Please proceed.

Hey, guys.

Hey, Larry.

Good results here. Some housekeeping first. Capitalized interest for the fourth quarter?

About -- 7 to $8 million, Larry.

All right. And for next year, I guess it depends on your CapEx. How about corporate expense for the year going forward?

Should run in '07 right around $50 million. That's certainly higher than you saw for 2006. And as we've talked about, a lot of that will relate to some of the branding initiatives that we have rolling out now.

And depreciation?

Depreciation for the year -- you can use the fourth quarter numbers probably a real good run rate for the full year.

Okay. Perfect. Now you said you had a hold hit in Atlantic City, could you quantify that? And how's Atlantic City looking in February now with some of the stiff competition going on?

Larry, this is Keith we do have a hit in the fourth quarter. And probably amounted to something north of $12 million in total revenue.

Okay. How's February holding up?

It showed up in the fourth quarter, it's not an ongoing problem.

I meant revenues in general for Atlantic City for you guys?

Revenues in general, I think are fine. You saw the January numbers come out. And the Pennsylvania property is certainly producing some level of competition for the market. But we're monitoring and watching it haven't seen anything significant yet, but we're continuing to watch it.

All right. And then as far as you gave a 400 million increase on the wholly owned portion of Echelon Place, is there any increase in the 850 JV?

At this point in time, Larry, where we are in the design development process on the -- the 2JVs, the retail piece and the Morgan's piece, we're just not as far as along in the design development work on those aspects. It'll be a little bit later when we provide updated numbers on those.

Okay. And your status on the Indians and Blue Chip and how you're preparing for it?

Well, best as we know in looking at the website for the [Bokaggens] it looks like they're planning on opening in August of this year, we haven't heard anything different. We're continuing to operate our property and plan for the new hotel projects and the other amenities to come online as quickly as we can get them done to be able to compete. Certainly when you open an additional property as close as this will be to the Blue Chip, there will be some impact to that operation. So we expect to see an impact to that operation, but we also expect to work hard to offset to the best we can.

Last question. You guys still open to acquisitions?

Absolutely, Larry. Part of our focus with the development initiatives is to maintain capacity, take advantage of opportunities that come up on the acquisition side. Obviously we have to react to developments as they come up. And I think we're well positioned from a balance sheet standpoint to deal with that.

Thanks, guys.

Thanks, Larry.

Your next question will come from the line of [Jay Togan] representing Banc of America. Please proceed.

Yes, hi, good morning. Got a couple questions for you. First on Echelon, if Bob or somebody else could just help us from a -- I guess a little bit more detailed point of view how you get comfortable with the new budget update at 3.3 billion, incrementally 400 million for the wholly owned site. Can you tell us a little bit more about the process? Have you taken your plans to the subcontractor community? What kind of feedback you're getting from them and perhaps what types of contingencies you've had from here? Also I was wondering if you could talk a little bit about some of the changes in scope. It seems as though the number of rooms have come down by about 300 in total. And also, I don't know if the total meeting space is 750,000 square feet now, or if that's just in the conference center. I remember you were going to have about 8.25 before plus some additional space, that got you over 1 million total square feet. I was wondering if maybe you could give us a little bit of an update on why those numbers might have changed some. Then I've got a follow-up question for Paul.

This is Bob Boughner, I'll work backwards. As we did our initial announcement at really the conceptual level, we had not developed the plans sufficiently to understand all of the costs and all of the scope that would be required to drive our building. We took a look at the direction in the marketplace for the last several years, including more recent years and determined that our focus was principally going to be on the higher yielding meetings business rather than becoming a very large exposition area. Within 0.6 of a mile of Echelon are some of the largest exposition areas in the world, and they're actually in walking distance. We've rationalized that and ended up with 650,000 square feet of meeting space at Echelon Resort. And then when you roll in the incremental space that's in the Delano and Mondrian hotels, and the Shangri-la hotels is where we get to just over our 750,000 square feet.

With regard to the process, not unusual -- some operators do think differently. A little over a year ago, we drew a plan that was, I think 6 pages of drawings at the time and that's what we estimated for our conceptional budgeting. We are now at the multithousand level pages of drawings and we've taken -- done takeoffs on all of those drawings to determine the actual square footages and the nature and quality of those square footages and have put estimates against each and every one of the faces on that drawing in order to calculate what at the schematic level our costs would be.

With regard to contingency, we believe that we have developed conservative numbers. And accordingly, we think that's what it's going to take to build the project throughout the next 3 years. And we are very confident at this point in time given not only conversations with subcontractors in the marketplace, but a pretty good insight into where the market is moving both forward and backward in terms of price points. There's been a significant number of projects announced in Las Vegas in the past couple of years. Both casino hotel resort projects and condominium projects and there's been billions of dollars worth of projects that have been canceled and other projects that we suspect will fall in the category of delay. And those delays may be substantial, given the balance sheet of what will become highly leveraged private company. So our view towards that is really more than the commentary that we receive from the folks who do the work in the field. And we have a great degree of confidence that not only will there be sufficient subcontractor support to do the work, but that there will be available work for us in the marketplace to accomplish the work.

And I'm sorry just also, that's very helpful by the way. As it relates to the number of hotel rooms going from 5300 to 5,000, is that the right way to think about it? Have the rooms just become larger? What's caused that change?

The rooms have become larger. Every room type that we developed we added square footage to. And we added multiple bedrooms to some. And as a result of that, that brought the number of keys down to about 5,000. And when you start to add in bedrooms and creep back up there a little bit. And then you have to deal with how you want the hotels to look. And we wanted to achieve a certain look. So there was nothing magical, necessarily about 5,300, but we feel that at 5,000 rooms with the potential to add future rooms, 1500 in one location and maybe as many as 2,000 or 2,500 in another location on the site, Echelon Place in initial stage at 5,000 rooms with the ability to get it up to close to 7,500 or 8,000 rooms will be quite sufficient to provide the horsepower necessary for the property.

Got it. And then as it relates to my question for Paul -- there's obviously been a lot of talk for a number of months now about potential structural changes, financial engineering throughout the group. I was wondering, Paul, if you could talk a little bit about the commercial mortgage backed securities market and how that might work from a Boyd Gaming standpoint in regards to potentially refinancing some assets that you're partnered in.

Well, the CMBS market for Boyd or frankly any other gaming company adds yet another avenue and source of debt capital to complement what the bank market and the high yield market already provide in significant numbers. At this point in time, I think as everyone has probably heard and followed, the CMBS market is incredibly aggressive relative to total leverage points. It'll play most likely a key role in a number of the going private transactions that are occuring within this industry to really maximize overall leverageability of the underlying asset base. We look at CMBS just like we look at our alternatives in the band market in the bond market relative to how we want to position the Company on a going forward basis. I would say -- my inclination relative to CMBS is that it lends itself more to mature assets and unique assets, less so to riverboats. But once again as you look at how we lay out or how any company lays out, very asset rich from that perspective and can and could provide a significant amount of debt capital at very, very aggressive pricing.

Okay. That's helpful. Thanks again.

Your next question will come from the line of Joe Greff representing Bear Stearns. Please proceed.

Hey, guys.

Hey, Joe.

Paul or Keith, in Atlantic City can you talk about current trends with respect to marketing expenses or promotional allowances? In the first quarter Borgata, the market where are you guys in the first quarter relative to the fourth quarter? And I guess my question for you, Paul or Keith too, is with respect to the public space expansion, do you think you get kind of a low double digit EBITDA return on that? Or is it really, you don't get much of a return until you get the complement of the room expansion?

This is Keith. With respect to the marketing environment, the competitive environment, in the fourth quarter was very heavy on promotional activity. We were actually phasing out of our launch phase from Q3 into Q4. So in the fourth quarter we were probably at a low point with respect to marketing and the industry was probably at one of the higher points we've seen in a while. There were some very aggressive promotions and a lot of money in the marketplace that drove it. As we moved into January and early February we've seen the market moderate a little bit. There's not quite as much money out there, it's still somewhat aggressive but not aggressive as we've seen in the October, November, December time frame. We hope that that continues to be -- continues to be moderate promotional environment. We're monitoring it, we're acting accordingly to make sure that we run a profitable business.

With respect to the public space expansion, we always said that we were opening it early when it was ready and that it would not be fully -- we wouldn't get a full return, it wouldn't be fully functional if you will, or fully leveraged until the hotel came. We needed to provide some additional dining opportunities for our guests. We needed to provide some additional gaming capacity so that we weren't chasing people out of the building. And with respect to that, it's -- the early results of the public space expansion have done exactly what we intended them to do. We're right on track, we've grown the lower end of the business, we've seen our nongaming revenues specifically in the dining areas go up dramatically. We're very pleased with those results.

With respect to a specific return target in -- I guess what you would look at is year one of that prior to hotels. I don't have an answer for you. It's clearly, clearly in the -- probably the high single digits or low double digits. It's not 15 or 20% return at this point. We expect it to be a good return, once again when you look in its entirety. You can take a hotel in the public space expansion in its entirety, we will get a good return on that project.

All right. And then a question for Bob on Echelon -- obviously we've seen, Bob, some good initial success from selling residential components at City center. Has your thinking changed with respect to adding any future residential component to Echelon? Obviously there was nothing in the press release or your comments earlier about adding a residential component. Could you talk about that a little bit?

Yes. We could certainly -- as we look to develop the 6 acre parcel and the 16 acre parcel, we could look to residential development to happen on those sites at some point in time. But Echelon Place as we've announced the scope and clarified it today does not contain residential. From our perspective, we're very much interested in hot beds, which is beds that are occupied. We're not necessarily driven by a one-time capital event. We're more interested in the continued revenue stream and cash flow stream associated with owning and operating hotels. And in the future, we'll evaluate the marketplace and one of our comments early on is that we believe that residential associated with good quality brand in the right environment should see high levels of success. And I think what we hear anecdotally about the early success of the Mandarin Oriental residences at City Center and all very positive I think just really proves that point. And we'll be mindful as we go forward with any incremental development at work at Echelon Place. But at this juncture, we have no residential component and don't intend to add any to the work that we're currently developing.

Great. Thanks, everyone.

Your next question will come from the line of George Smith representing Davenport. Please proceed.

Hey, good morning. First question, at Borgata, do we think margins will probably stay down around this level into the new year until the new tower opens? This is Keith. I wouldn't expect to see a lot of change in our margins as we go through 2007. Once again, you will see a change in 2008 as we leverage up that public space expansion. But 2007 shouldn't see much change. And I'm not sure, specifically what you're looking at. But Q3 was our launch phase, in Q4 we were refining the operation. So we probably expect some improvement, a little bit of improvement over Q3 and Q4. Remember that as you get to the summer time, margins are higher. It is a seasonal business there. We will refine the operation somewhat this year. And do you guys -- this is kind of getting back to that earlier question on acquisitions. Do you feel as though right now you have the critical mass from a regional perspective to drive traffic to Las Vegas? Or are you not really, do you not plan on following that model and just hope that Echelon really speaks for itself and you don't need a Harrah style model with which to drive traffic? I think one of the benefits we have is we have one of the largest slot patron databases in the market. We have good graphic diversity with the addition of our project in Florida that will continue to grow. And I think it's a real benefit to the Echelon project to be able to have that source of customer or that source of business. So we certainly will leverage that up. We will look to use that database to bring people into Las Vegas, to take advantage of the Echelon development or the Echelon Place development.

George, with Florida coming on end of 2008, we'll be well-positioned in 7 different markets, regional markets, not including obviously Atlantic City in 5 different states. I think that's certainly a key driver to -- but not the only driver to the success of Echelon.

I gather from a comment earlier that, we're not opposed at this point to buying more regional assets if they're presented.

Like I said, we'll take advantage of those types of opportunities. We've take advantage of those types of opportunities. We've always bought things, bought things smart. From a strategic standpoint we'd look at things that make sense for the Company to blend in.

Last thing. Could you just touch or maybe describe what you did to improve margins in Las Vegas locals market? Well, I think a number of things. As we talked about on the last call, we made some management changes to those properties, we began to maybe more actively manage those properties, look at synergies that we could get with those properties and combining them with Sams Town and some of the other things we do. We also took advantage of some revenue opportunities that we saw in those properties as we began to manage them more actively. And I don't think we're done yet. I think we're seeing the beginnings of that. We saw some of that in the fourth quarter. Obviously when you make a management change early in a quarter, it takes a while for those things to take hold, but we're seeing them take hold early and we're seeing them take hold quick. It's a combination of expense opportunities as well as revenue opportunities. Thanks, have a good day.

Thanks, George.

Your next question will come from the line of Celeste Brown representing Morgan Stanley. Please proceed.

Hi, guys. Good morning.

Hi, Celeste.

Couple of questions. First you mentioned briefly that in the central region you're seeing more promotional spending in some of the markets, can you give a little more detail on that? And then also some of your expectations in terms of margins, without giving specific guidance in terms of margins without giving specific guidance for 2007 with all of the changes going on with Treasure Chest normalizing and Blue Chip starting to - its on its own, but also tough comp in the first quarter. And secondly, can you also discuss the conditions for the rest of the payment in Florida you discussed the rest of the payment coming in 2010?

Well, relative to marketing, first off in the comment I made -- I think specifically in Louisiana as you would expect, following the hurricane and then the impact of the positive impact on business last year as properties began to open, you're certainly getting into a -- I'll call it a much more normal type of market. You know and have seen revenues by us and our competitors in each one of the markets we operate in, all really three of the markets in that state, and with a normalization comes a ramp-up in marketing really across the board. That impacts margins. There's no question about it. I didn't quite catch your second question about margins, Celeste. Can you repeat that?

Just how to think about them roughly in 2007. I know you don't like to give annual guidance, but with all of the changes going on in that business. Should we think more about 2004 as a good place to look? Or 2005?

Well, it's going to depend on the segment of the business we're talking about. I think as it relates to the Louisiana business, looking back prehurricane is probably fair to some extent. To my comment, Treasure Chest is still operating and stabilized the levels well above where it used to operate in the 2004 time frame. So that's certainly a big positive. Relative to the other markets that we're operating in, whether it's Indiana, Illinois, or Tunica it's pretty much steady as she goes. Relative to the Las Vegas locals market, we've seen this picture before. You've seen significant leverageability of those assets. You also saw as revenues were impacted deterioration in margins last year. And we believe based on the recent performance you're back on the up cycle there. And so you have -- definitely have margin opportunities as you continue to grow revenue on top of the expense initiatives we've undertaken.

This is Keith. With respect to your question on Florida and the second payment. We fully expect to make that second payment. But we really aren't at liberty to disclose the conditions under which that payment's made based on, based on our modified agreement. So -- but we do fully expect to make a payment.

Okay. Thank you.

Your next question will come from the line of Kent Green representing Boston American Asset Management. Please proceed.

Great quarter, fellows. Question pertaining to the new branding initiative and the added expenses. Somebody alluded to earlier you didn't want to go to the Harrah's routine, why not go to the Harrah's routine since it works so well with property EBITDA. Could you do that as well as with the individualities? It seems like you've got a Las Vegas property coming out of the best property in Atlantic City. Why don't you drive it -- your best players to that market? And could you give us a little elaboration? Two or three tiers? To just how it works.

Well, I think with respect to elaborating on some of the additional details, I'm not sure that I want to lay out the road map for our competitors at this point. But suffice to say that we do have significant number of properties across the country. We will be utilizing those countries to leverage that database to use at Echelon. We've taken the approach to combine the local properties into one players' card system and combine the central region properties into their own players' card system to do it as quickly and as efficiently as possible. Today there's a distinct market and they each have their own needs to enhance their businesses. And so the first goal was to enhance those two businesses. The local businesses and the central region businesses and do it as quickly as possible. And once we achieve that then to further combine those into a single platform.

So just from a pure business standpoint, we were able to move the needle quicker. Doing it this way, we will eventually get all of those on one platform. As I mentioned in my comments the downtown properties have actually been on a single card platform, the three downtown properties have been on a single card platform for quite sometime now. So this isn't a foreign concept and we'll continue to leverage it up. Today the focus is on, providing the benefits of those distinct regions, tomorrow the benefit will be on leveraging it up and leveraging it into Echelon.

Kent, don't get us wrong, we believe -- what Harrah's has done is they've done just a fantastic job with their data base. We're not going to do certainly an exact copy of it, there are aspects of how they market their regional properties and how they drive Las Vegas visitation through that data base is very much a part of our focus.

Second question on the two sites at Echelon Place, the 6 and 16, certainly the 16 allows you the opposite of what you did in AC with that big of footprint. It's the same as the double footprints of Tropicana originally proposed. Would you invite a joint venture in with a competing casino of a Las Vegas based casino company in which there are several both economic and international to do a similar relationship? Or would you want to run the casino yourself and just the hotel or other amenities do a joint venture with?

This is Bob Boughner. We recognize the value inherent in that 16 acres, where it's located on the Strip, where it is located in reference to Echelon place. And we have no particular strategy pulled together at this point in time and are not going to limit ourselves in terms of how that piece of property may be deployed in the future. I can tell you that it's got a very high use for us in the next 3 years. It serves as a significant staging area for the construction of Echelon Place with trailers and on the larger piece and a tree farm. By the same token our 6 acre parcel will serve as a very effective concrete batch plant so that we can have on-site production. We know that the longer term future of those are not necessarily dedicated towards constructing the first phase or project known as Echelon Place and will be very flexible. We've had approaches from a variety of individuals and we'll look at those on an individual basis before we determine what is best for us in the long-term and we want to take a long-term view towards their development.

Very good. Paul, not going to leave you out. Propco/opco techniques, are you looking at, thinking about, dismissing?

I think all the companies have looked at propco/opco. In all honesty, Kent, propco/opco doesn't go back to the old days of the use of that structure relative to, paired share reach and what have you. I think propco/opco is in vogue because it's an underlying structuring method for CMBS transactions. So it really is just an outcome of how to best sell paper in a highly leveraged environment. And I think you'll see some folks do that. I think Harrah's has talked about that, it's necessary to make those transactions work. And we'll just take a look at those things like we do everything else, relative to capital availability and cost of funds.

Thank you.

Operator?

Your next question will come from the line of [Amanda Havicek] representing the News Dispatch.

I was just wondering if you could elaborate on how Blue Chip has contributed to this last quarter and how the announcement of the hotel expansion on that site has affected their performance?

With respect to Blue Chip, I think we indicated in the press release, we saw some nice improvement in EBITDA and in revenues at that property . And with respect to the hotel, the construction hasn't started so there hasn't been any impact to the operation. The location of that hotel is such that there probably won't be a lot of disruption until we start some of the work around the front door in the Portica Share and some of that work. There will be a point in time when the property will incur some disruption. But most of the work will be done to a side of the building that won't create disruption.

Thanks, operator, can we have the next question?

Your next question will come from the line of Adam Steinberg representing Morgan Joseph. Please proceed.

Yes, hi. Congratulations on the quarter. Paul, real quick on the CapEx that you gave for expectations for '07. You didn't mention Dania and I was wondering approximately how much you're looking to spend there for '07?

Dania was intentionally not mentioned. We're deeply into the design development phase of that overall project. Expected starter construction would be late summer. And it'll probably be the next call where we give you a much firmer number rather than taking a guess at it at this point associated with that buildout. Give me another quarter.

Okay. I'll give you that. And I know it's really -- this is a theoretical question, but if the JV portion for Echelon Place does go up, will Boyd will required to add cash to maintain their 50% ownership of that JV portion?

We don't expect to, Adam. I think you're talking about the Morgans transaction?

Yes.

The anticipation on the Morgan's transaction is that Boyd contributes 6.1 acres of land valued at $15 million an acre and Morgans contributes the same valuation in cash.

So if the budget were to go up, it would just be more debt as opposed to an equity contribution to partners?

That is the current plan.

Okay. And then on the last call you suggested corporate expense of 10 million, it came in at 11 million for the quarter, now you're guiding 12.5 about per quarter for '07. What's driving that higher? And also last quarter you mentioned you identified 10 million in savings from Coast. Will I be seeing that in corporate? Or would be seeing that in the Las Vegas locals?

You'll see the Coast savings in the Las Vegas locals, no question about it. Our fourth quarter corporate expense will always be higher than the other three quarters relative to how bonuses are paid based on performance. And per GAAP, the inability to accrue those bonuses that are performance-related. As it relates to why it'll be higher in 2007 to really the previous answer, it's really going to relate to branding initiatives. Additions of staff in those marketing areas at corporate that will drive those initiatives.

Okay.

Thanks, Adam.

Your next question will come from the line of David Katz representing CIBC World Markets. Please proceed.

David?

David?

Two things. Most of mine have been addressed already. But with respect to the branding effort, did you mention sort of what kind of -- what you expect the cost order of magnitude on that to be? And sort of how you think about the return? And then if we could just revisit the M&A front -- when we think about what you would consider buying, would you be thinking about branded versus unbranded? Are there any specific markets you really don't want to be in at this point? And whatever color you could give us there would help.

Let me take the last question first and I'll kick it over to Keith and talk about the branding a little bit more. I'm not going to get into a lot of detail. We all know there's been a lot of consolidation that's gone on in this industry. There's certainly or let's take it a step back. We're well positioned in many of the major markets throughout the United States. This company has built a big chunk of the backbone of the operations through acquisitions and that philosophy doesn't change. With total leverage today now in the low 3 times area, albeit with a significant amount of capital spending out there, we will be opportunistic and strategic in how we look at things on a going forward basis

With respect to branding, we have not indicated a dollar amount that we're spending on that. There's many different facets to the branding initiative from media issues and technology issues and customer service issues, marketing issues. We have not -- we haven't added all that up and put a number out there for you. We certainly do expect that the dollars that we invest in these programs on the -- in the branding program will have a return and will have a good return to the Company otherwise we wouldn't be pursuing them, we're confident that we'll get value out of these investments.

Thanks.

Your next question will come from the line of [Justin Savastino], representing Nollenberger, please proceed.

Thanks, hi, guys. Most of my questions have been addressed. Just real quickly, on Echelon, the $400 million increase, how much of that is from the construction cost?

A significant amount was related to construction costs, but it's difficult to assess that specifically because we also increased the square footage of most of the buildings. What we've seen in terms of construction costs, the good news there is a level of moderation in the rate of increase in construction costs. But it would be difficult to pin down specifically how much was construction and how much was related to the scope of the project.

Okay. And I thought previously I'd seen in a presentation of yours that the Water Club was going to be completed in the fourth quarter of '07. Now you're saying it's going to open early '08. Do I have that wrong?

This is Keith. I think we've always looked for around the beginning -- the end of '07 beginning of '08, much like the public space expansion, much like the original Borgata Club, we just haven't pinned down a date yet. We've had some challenges with weather recently. But we're just not close enough to pin down a date. It's still sometime in that around the beginning of the year frame.

Okay. Paul, real quick. On the corporate expense, the $50 million number that you gave, that includes the option expense for the year?

Yes, it does.

And how much is that about?

About 16, $17 million.

Okay. And one last thing for housekeeping. Long-term debt for '07 and the interest expense for '07?

We haven't really provided any forecasted guidance on that. I think if you look at the CapEx on a going forward basis in 2007 it's honestly pretty modest, certainly relative to where it will be in '09 and '10. As far as interest expense is concerned, pretty decent blend of fixed and floating, it'll depend a little bit on where you expect LIBOR to be. But it shouldn't honestly be material different thatn the run rate you're seeing today.

Okay. All right. Great, thanks a lot, guys.

Your next question will come as a follow-up from the line of Larry Klatzkin representing Jefferies. Please proceed.

Actually a follow-up to the question just asked. So we would -- your EBITDA guidance for the first quarter, that's after taking out the option expense? So preoption expense you'd be talking like 168 to 179?

No, Larry. The adjusted EBITDA number does not take out the option expense since it's noncash.

Okay. That's it. Thanks.

Your next question also comes as a follow-up from the line of Joe Greff representing Bear Stearns. Please proceed.

I apologize if you guys already discussed this, but you talked about the performance in the fourth quarter and your outlook in the 1Q for the Las Vegas local markets as one where the new capacity's being more rationally absorbed, the economic undercurrent in Clark county is generally strong. And you're doing specifically some things to enhance revenues and expenses. Can you just talk about both the fourth quarter and your perspective here in the fourth quarter just what the promotional environment is like in the Las Vegas locals market?

Well, I think that the promotional environment in the Las Vegas locals market has been aggressive in the fourth quarter and continues to be aggressive in the first part of the first quarter. And if you look at food pricing, which is always an indication of what's going on in the market and some of the other promotional activities, it is at a higher level than we've seen in the past. There's some very aggressive pricing, some very agressive promotional opportunities out there. We're fighting our way through it, we're not trying to -- we're trying not to overreact, but to act appropriately for our business, and make sure that we have the right level of reinvestment for our customers and for our properties. But it is an aggressive environment for that.

So you're not seeing the promotional environment improve now versus the last couple of quarters even outside of the Red Rock versus Sun Coast dynamic?

Well, Red Rock is obviously part of that promotional environment. I don't think you can carve them out or carve out any particular competitor out of that. So they are part of what's going on. They are part of what's driving the promotional environment out there today. And what they're doing to attract business to their property. So as I said, has it gotten over the last probably two quarters, it's been relatively consistent, it's been fairly aggressive.

Great. Thanks.

Your final question will come from the line of Jay Togan representing Banc of America. Please proceed.

Yes, again. Just three real quick ones here. First, Keith or Paul, if you can talk about what you think weather is impacting the first quarter by? Second, -- in regards to your guidance -- second, what's the update on North Las Vegas? It doesn't seem like there was much of an update in the press release or your overall comments thus far. Just kind of curious if the timing or the scale or anything's changed there. And then finally, can you remind us why it's going to take until the late '08 or so to open your full blown casino in Florida?

Well, with respect to weather, I think we all watch the news forecast and the snow and the ice and I personally made a trip to our Blue Chip property about 2 or 3 weeks ago and was in the middle of some of that. It has a significant impact on the business, people choose not to drive in conditions like that. And so we've seen it whether it has been in Atlantic city or whether it's been at Blue Chip or our East Peoria property in Paradise. We've seen some impacts clearly in the first quarter, I don't think we're prepared to quantify that. But we have seen some of those impacts.

With respect to North Las Vegas, again, we're continuing to go through the design process. We're also watching the growth dynamics in that part of the market as we said to make sure that when we start that project that all the elements are right and that the population will be there to support that project. So we're continuing work forward on it. And just kind of watch everything and make sure we make that investment at the right point in time. That's probably why we didn't say anything else.

Does that mean you're leaning the other way with regards to take a little bit longer or would be scaled down in terms of size? If you had to lean one way or the other relative to your prior comments?

No, I'm not sure we're in a position to make those determinations at this point. We're watching it. We have not scaled back our drawings, we're drawing the same building we were drawing 6 or 8 months ago in terms of the size and the scope. And part of it is just making sure the market will be there. Could the project be delayed? It's possible. But we're just going to monitor it and make sure we make the investment at the right point in time.

With respect to Dania, it's just a matter of construction time frames. We'll be ready to go in the ground as Paul said late in the summer. And it will take 12 to 18 months to get the project built. Those are just construction time frames in this day and age. We certainly want to get it open as quickly as we can and we'll work as diligently as we can to get it open. That's about as quick as you can do those things.

No ballpark for CapEx beyond the acquisition cost yet?

No, I think as Paul said, we'll talk more about that in our next call, be able to give a little more flavor, a little more color on that conversation.

Thanks a lot.

There are no further questions at this time. I would now like to turn the call back over to Mr. Smith for closing remarks.

Well, thank you all for joining us today, we look forward to talking with you on our next call. Thank you.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.