Boyd Gaming Corp (BYD) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter Boyd Gaming Corporation earnings conference call. My name is Kathrulay, and I will be your facilitator for today's call. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today's call, Mr. Josh Hirsberg, CFO. Please proceed, sir.

Thank you, Operator. And good morning everyone, and welcome to our first quarter earnings conference call. Joining me on the call this morning are Keith Smith, our President and Chief Executive Officer, and Paul Chakmak, our Executive Vice President and Chief Operating Officer.

Our comments today will include statements relating to our estimated future results including, among others, the financial outlook for the Company, our expansion and development projects, and other market, business and property trends that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today's date. We undertake no obligation to update or revise 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

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.

Finally, as a reminder, we are broadcasting this call on our website at boydgaming.com and streetevents.com.

I would now like to turn the call over to Keith Smith, our President and CEO. Keith.

Thanks, Josh. Good morning, everyone. Thank you for joining us this morning. Our first quarter results were very encouraging from an operating perspective. Despite difficult comparisons to last year's first quarter, our wholly-owned business showed year-over-year quarterly EBITDA growth for the first time since the recession began. Of our 13 major wholly-owned properties, 8 posted year-over-year growth in the first quarter compared to just 2 in the first quarter of 2010.

On a regional basis, we saw growth accelerate in the Midwest and South region. We returned to positive comparisons in downtown Las Vegas. And we had the year-over-year EBITDA GAAP steady in the Las Vegas locals region. We were especially encouraged by our March results when 11 of our 13 major wholly-owned properties reported increases from March of 2010, including all 7 of our major Las Vegas properties. Our wholly owned EBITDA was up in the low double digits for March.

The second quarter is off to a good start, as well, as our properties reported solid results in April. Our results for the first 4 months of this year give us confidence that we have reached a turning point. Based on these results, we expect to continue seeing year-over-year growth in our wholly-owned business through the remainder of the year. One of the key reasons for this optimism is continued improvement in the Las Vegas market. City-wide visitor counts continue to increase and have now risen for 17 of the last 18 months. While previous growth has come largely from visitors who drive to Las Vegas, more recently we have been seeing improved passenger counts at McCarran. Historically, visitors arriving by air spend more per visit, so growth in air passenger traffic is especially encouraging.

Continued growth in convention and meeting business is a bright spot, as well. The ConAg expo brought 120,000 visitors to Las Vegas in March. And NAB, the National Association of Broadcasters, convention in April, 93,000 grew attendees, up more than 5% from last year. Most major shows in 2011 have reported solid growth from last year. And based on current bookings we expect that trend to continue through the second quarter. The growth in convention and meeting business is having a positive impact on hotel operators throughout the city. City-wide room rates have increased for 12 consecutive months and total occupied room nights are up for 14 straight months. Our properties are directly benefiting from these trends, as well. Demand for our rooms and increased convention and meeting business at our properties drove an increase in cash room rates nearly 7% in our Las Vegas locals business during the first quarter. This increase in room rates was a strong contributor to our overall results in Las Vegas.

Improvements in convention and meeting business, room rates and occupancy are starting to benefit the entire Las Vegas economy, as well. Taxable sales have risen 7 of the last 8 months in southern Nevada. We saw a 6% increase in January, the strongest monthly performance in more than 3 years followed by more than a 3% growth in February. This is a clear signal that consumer spending has started to recover. In addition, it appears the job market may be turning in Nevada. In March southern Nevada saw its first year-over-year monthly increase since January of 2008. The job gains were particularly impressive on a sequential basis as Clark County added more than 10,000 jobs from February to March of 2011. As the job market continues to expand consumer confidence will continue to strengthen.

The news is encouraging outside of Las Vegas, as well. Strength from our Hawaiian customer base is driving healthy growth in our downtown Las Vegas business. And a brightening economic picture in the Midwest and South is helping drive year-over-year growth in that region. While concerns have been raised regarding high commodity prices, including gasoline, we have not seen an impact on our business to date. A transitory spike in gas prices did not have a significant impact on our business several yeas ago, and we do not believe the current spike in prices represent a substantial long-term threat to the recovery in our business. Again, we believe we are seeing a turnaround, and anticipate we will see continued growth in our wholly-owned business in the second quarter and for the remainder of the year.

Touching briefly on Borgata we saw our most difficult year-over-year comparisons at this property. This was principally due to lower table game volume and hold percentage. While the entire Atlantic City market is going through a difficult period, we are encouraged by the actions of Governor Christie and state lawmakers. By creating a tourism district and streamlining New Jersey's regulatory structure, they've taken important steps to ensure Atlantic City's resorts are able to compete effectively in the months ahead, and establish the region as a long-term source of economic strength. We look forward to working closely with them as we put Atlantic City back on the road to recovery.

Before turning the call over to Paul, I want to review the key strategies on which we will remain focused as business continues to improve. First, we remain committed to finding opportunities to strengthen our balance sheet. We took an important first step in this direction when we reached an agreement to sell Dania Jai Alai for $80 million. This asset was no longer consistent with our current growth strategy, and by selling it we raised a significant amount of capital that can be used to pay down debt and reduce our leverage. I'd also note that Dania represented a $4 million drag on our annual earnings. Between the elimination of this operating loss and reduced interest expense from the reduction of debt, we expect this transaction to be immediately accretive to earnings, adding about $0.06 annually to our earnings per share. We also remain committed to generating growth, both within our core business and through expansion of our Company. Generating growth in our core business as we move through this economic recovery is an important element to our overall growth strategy. We worked hard to improve efficiencies over the last several years, and we saw the benefits of this in our first quarter results with improvement in our operating margins.

Improved operating margins will be a primary focus for the Company going forward. We also remain interested in expanding our Company through the acquisition of operations that can contribute to earnings immediately. As we've said before, we will evaluate potential transactions in a way that is strategic, deliberate, and disciplined. Our intention is to pursue opportunities that are a good fit for our business, deliver a solid return for our shareholders, and are available at the right price. Finally, the ability of our employees to deliver great customer service remains a key differentiator for our Company and our brands. Our employees are a big reason our customers continue to choose our properties over the competition across the country.

Thank you again for joining us this morning. Now I'd like to turn the call over to Paul to talk more specifically about the results in each of our regions.

Thanks, Keith. Hello, everybody. The positive operating trends we saw in the fourth quarter continued into the first quarter. The Las Vegas locals region posted nearly flat results for the second consecutive quarter, while both downtown Las Vegas and the Midwest and South reported year-over-year EBITDA growth. While Net revenues declined slightly in the Las Vegas locals and Midwest and South regions, we were able to manage expenses more efficiently to either maintain or grow EBITDA margins from prior year levels. Margins were flat in the Las Vegas locals region, up 70 basis points in downtown Las Vegas, and increased 125 basis points in the Midwest and South. Additionally, we were able to benefit from significant revenue flow-through in our downtown region despite higher fuel costs associated with our Hawaiian Air Charter program. We're definitely beginning to see the benefits of our more efficient business model as economic conditions improve.

Now let me discuss our regional operating results in a little bit more detail. First, let's look at the Las Vegas locals business which is benefiting from an economy in the early stages of recovery. As was the case in the fourth quarter, the Orleans was the star of the region, posting nearly 20% year-over-year EBITDA growth in the first quarter. The Orleans saw growth across the business with increases in both gaming and non-gaming revenues. While an improving economic outlook and strong convention business helps, the Orleans is also generating significant growth from the efforts of its strong management team and employees, as well as very successful marketing initiatives. We're able to capture much of this revenue growth on the bottom line thanks to our operating leverage. We believe the Orleans' exceptional performance in both revenue and EBITDA is a preview of how operating leverage will play in our favor as business volumes recover in the months ahead.

The locals region has also seen a significant increase in convention and meeting business which should contribute to growth in the region going forward. Our convention and meeting business was up more than 20% in the first quarter and we expect this growth rate to continue. As business fundamentals continued to strengthen, all 4 of our Las Vegas locals property reported year-over-year EBITDA gains in March. The second quarter got off to an encouraging start, as well, with solid regional results in April. Though the promotional environment remains elevated, it is clear that the aggressive advertising and promotional campaign launched by our largest locals competitor has not shifted guests away from our properties. Our customers continue to enjoy the exceptional customer service and compelling value offered by our brand. If current trends hold, we expect to show year-over-year growth in the Las Vegas locals region in each of the remaining quarters in 2011.

Elsewhere in Las Vegas we saw particularly strong results in our downtown region which posted solid growth during the first quarter. Flow-through was an important driver of growth here, as well, as EBITDA rose 8% on a 3% revenue gain. It's important to note that this EBITDA gain would have doubled had it not been for higher fuel costs associated with our Hawaiian charter service. For the second straight quarter we saw significant growth in business from our geographic Hawaiian customers. These positive trends have mitigated the impact of higher expenses at Vacations Hawaii. Jet fuel prices are up sharply, and fierce competition on Hawaiian air routes limits our ability to pass along these increases in the form of higher ticket prices. While increased costs remain a factor, we are optimistic that positive trends will continue in the downtown business in the second quarter.

In the Midwest and South, year-over-year growth accelerated. The MSR posted an EBITDA gain of nearly 5% in the first quarter and we grew share in most of our markets. As we warned on our last call, severe winter weather reduced EBITDA by about $3 million during the quarter. However this weather impact was offset by a similar amount in credits from property tax adjustments that hit in late March. So the gain in EBITDA is an accurate reflection of the region's operating performance. In Louisiana, Treasure Chest continued to perform well in the quarter due to highly effective marketing and overall economic strength in the region. Delta /downs benefited from a strengthening regional economy, as well.

Further north, economic conditions in the Midwest are improving, and we expect Blue Chip and Paradise to post year-over-year growth in the quarters ahead. As you may have heard, all 9 casinos in Tunica, Mississippi were forced to temporarily close over the last several days due to flooding along the Mississippi River. This included Sam's Town Tunica which closed on Sunday. We do not yet have a reopening date. The situation is hard to predict with any certainty but we will keep you advised. This closure will have a modest impact on regional results in the second quarter though it is difficult to quantify how much at this time. Tunica normally accounts for about 2.5% of our wholly-opened property EBITDA. However, business interruption and flood damage are covered by our property insurance policy, subject to a $1 million deductible. We do not expect to have flooding issues at any of our other properties.

Our most difficult comparison during the quarter came at Borgata which posted declines in both debt net revenue and EBITDA. The $6 million year-over-year decline in EBITDA centered on table games and was principally due to two key factors. First, our table game volume was negatively impacted by competition from Pennsylvania. This impact was in line with our expectations, costing us approximately $2 million in EBITDA as compared to the first quarter of 2010. The second factor contributing to the decline was a decrease in table game hold percentage which was responsible for $4 million of the year-over-year EBITDA decline. As some Las Vegas Strip operators have previously noted, premium tier customers have been reducing the length of their play sessions which tends to have an adverse impact on table game hold percentage. Borgata has seen similar behavior with our customers over the last several quarters, particularly in black jack. This has caused volatility in our overall table hold percentage. In addition, sometimes customers just play Lucky, as a handful of premium players did in April. That contributed to an unusually low table hold percentage of just over 9% last month. We estimate that hold cost us about $6 million in EBITDA in April.

However, we continue to have confidence in the integrity of Borgata's table game operation and believe that table games hold will ultimately stabilize at 2010 levels of around 13%. Even as we experienced challenges centered around table games, the remainder of Borgata's business performed relatively well during the quarter. Slot wins rose 7% though the balance of the market declined 8%. In fact, we achieved record quarterly market share of 19% for both slot win and gross gaming revenue. Additionally, we saw positive results in cash ABR, room occupancy, and food and beverage revenues. While the city faces significant challenges going forward, we continue to have confidence in the long-term future of Borgata. There's more competition in the region than ever before, yet a wide range of customers continue to enjoy Borgata's unique brand of hospitality. We'll keep leveraging the strengths of our product and services that give Borgata a competitive edge. And we'll continue focusing our management efforts on building efficiencies into the operation.

Despite the current challenges at Borgata, the year started off on the right foot as our wholly-owned operations posted solid performance during the first quarter. An exceptionally strong March and healthy flow-through helped our wholly-owned business generate its first quarterly EBITDA growth since the recession began. We expect this growth to continue in the second quarter and through the remainder of the year. As the economy continues to regain its footing, we anticipate that spend per visit will rise across the business. . A significant portion of that increased revenue should flow through to the bottom-line resulting in healthy EBITDA growth.

Thanks for your time today. I'd now like to turn the call over to Josh for a review of the

Thank you, Paul. A few comments on items from the quarter from a financial perspective. Starting with the balance sheet, excluding Borgata, Boyd's debt balance at the end of the first quarter was approximately $2.4 billion, of which $1.4 billion was outstanding under our $2 billion credit facility. Borgata's debt balance was $829 million, of which $29 million was outstanding under their $150 million credit facility. On the income statement, corporate expense excluding share-based compensation for the quarter was $9.8 million, even with the prior year. Share-based compensation expense was approximately $1 million higher in the quarter due to a one-time accounting adjustment. So the amount in the first quarter does not reflect a good run rate for the remainder of the year.

Depreciation expense in the quarter, which includes both Boyd and Borgata, was $50.6 million, a decrease of approximately $6 million from the prior year. Boyd's depreciation expense represented $31.7 million of that number, which compares to $38.4 million in the first quarter of last year. The decrease in depreciation expense is due to our reduced capital expenditure program. Borgata's depreciation expense of $18.9 million was essentially even with first quarter last year. Consolidated interest expense for the quarter was $57.3 million. Interest expense at Boyd was $39.9 million for the quarter, an increase of $11.4 million over the prior year, reflecting the impact of our financing activity in the second half of last year. Interest expense for Borgata was $17.3 million for the quarter, an increase of $11.7 million over prior year, again due to the financing activity that occurred in the later portion of 2010.

Our effective consolidated tax rate for the quarter was 33%.

Before I complete our prepared remarks I would like to comment on the recent Dania announcement. As we disclosed yesterday, we have reached agreement with a group of private investors to sell Dania for $80 million in cash. We have already received $5 million of the sale's proceeds in the form of a non-refundable deposit. We expect to receive the remaining $75 million toward the end of September when the transaction is expected to close. From a financial perspective, selling Dania is significant for several reasons. Upon closing this transaction will be immediately accretive to earnings per share. Interest expense is reduced by approximately $4 million or $0.03 per share annually as a result of the $80 million in proceeds. In addition, Dania generates currently an operating loss of approximately $4 million, or another annual $0.03 per share. This loss is presented in the other line item below EBITDA in our non-GAAP financial statements. So in total this transaction is EPS accretive by approximately $0.06 per share per year.

We also expect to recognize a tax loss of approximately $60 million and a book gain of approximately $40 million. The tax loss will reduce cash taxes by about $20 million. The book gain counts EBITDA in the calculation of our covenants. As a result of this gain, the elimination of the EBITDA loss and the benefits derived by reducing debt, our covenants will improve across the board. So, for many reasons this is a solid step in the right direction for our Company.

With that Operator, we are now ready for questions.

Felicia Hendrix of Barclays Capital.

Good morning, guys. Keith and to all of you, clearly you're optimistic about your Las Vegas locals market for the rest of the year. I'm just wondering if you could parse out what you're seeing in your destination visitation for that segment. I know it's less than 20% of your overall business there. But I'm just wondering if you have any color on how that's trended in April. You did say that you're not seeing any impact from gas prices but I am just wondering how that's trending.

I'll let Paul take a shot at that. But I would say that I think the performance at the Orleans is a good indication of a property that has more destination business than some of our other Las Vegas locals properties, and its performance was quite strong during the quarter and quite strong in April. But I'll let Paul provide some more detail.

Felicia, we track, obviously, like everybody, gasoline prices, not just in the Las Vegas market but in all the markets we operate in, relative to pricing unique to those regions of the country. We have just not seen any correlation at all between the rise of gas prices and the amount of volume or revenues being generated on our properties. Revenues have been very consistent and have continued to show growth, the speed of which is different based on the market we're talking about, with obviously gas prices going up. As it relates to where we're seeing it as far as improvements are concerned in the Las Vegas locals market, it's really not necessarily unique to any particular segment overall. I think, to Keith's point, given nearly 2,000 hotel rooms at the Orleans, destination obviously has a bigger impact there than at other places. But as you'd expect, I think, in a recovery, those folks that are most interested in the products that we have that are in destination, or in our database, Emerald customers, which is our top tier, are really where we're seeing the most amount of growth.

That's great. And actually that is a good segue to my next question because the business in Las Vegas locals market did hold up very well in light of the competitive promotional environment. You guys had been talking about that throughout the quarter, how it wasn't affecting you. But I'm just wondering, did you show great cost controls. You also have your improved loyalty program. Was there one that helped benefit more than the other? Can you break that out at all?

I think, obviously, marketing overall, whether it is our Be Connected card, which is our database card, or just marketing overall. And really spending marketing dollars efficiently and effectively is a key part of maintaining margins and continuing to grow margins. And I think you just, over time, obviously, learn a lot in what is effective and not spend money, frankly, just to spend money, but spend it in a way that people really appreciate, and that's what we've continued to do.

Great. And then I assume that you're taking that same strategy in Atlantic City. Your promotional expenses are a little bit higher than we had expected so I'm just wondering what you're seeing there and what we should expect going forward.

In Atlantic City, clearly, as you look through the numbers, you'll see some elevated levels of promotional spend. It was aimed primarily in the slot area but also a little bit in table games. And that was a focused, planned effort and is not necessarily indicative of what you will see in the future. I will note that it was profitable at the end of the day that when you look at slot win less promotional expense, it was higher year-over-year, even though we spent more money. So it was more of a focused approach that took place during the quarter. Once again, not necessarily indicative going forward.

I'll just add one comment to Keith's remarks. Relative to the competition in Atlantic City, Borgata still has one of the lowest levels of promotional expenditures in the marketplace. Looked at that in terms of published results, as well.

Joe Greff of JPMorgan.

Good morning, all. Paul, in discussing the Las Vegas locals trends in March and April, you mentioned all 4 locals properties in March were up year-over-year from an EBITDA perspective. April was solid. When you look at those results in March and April, is that an increase in frequency, or is that an increase in spend per visit? If you can help us understand. And then, Josh, I don't know if you gave us cash balances at the end of the quarter or CapEx for the quarter and CapEx for the rest of the year. That would be helpful. Thank you.

First on the frequency question, Joe, to my point about our top tier customers, frequency is definitely up in that category. And I would say it is relatively stable as we go below that as opposed to where we were seeing frequency decline in some of our lower tiers pretty substantially throughout the recession. On spend per visit, really, honestly, it depends on the property, whether, frankly, it's in Nevada or elsewhere, as to where we're seeing spend per visit come in. I would say to you that spend per visit, generally speaking, is no worse than flat. And in some of our markets, including some of our properties in Las Vegas, spend per visit is starting to grow.

So with respect to your financial questions, with respect to cash, Boyd saw cash levels about $150 million, and Borgata's was $25 million. In the quarter we spent about $10 million at Boyd on maintenance capital, and just under $4 million in related capital at Borgata. When we gave guidance for the quarter for the items we give guidance for, we indicated that Borgata's CapEx for the year would be about $40 million, $5 million related to a portion of the room remodel that's going on. The other $25 million, the other half of that would be spent in the first quarter related to Borgata's room remodel, first quarter of next year. Then at Boyd, we indicated we expected our capital expenditure program for the year to be about $50 million.

David Katz of Jefferies.

Good morning. There was some commentary I think by Keith earlier about the prospect of acquisitions. Could you maybe talk about some of the key attributes you're looking for, or give us some characterization of what would be appealing to you? Obviously beyond just the economic ones. We presume you're looking for a good return, but what else can you tell us about things that you would draw a circle around?

Sure. Once again, as we look to continue to grow the Company, acquiring existing assets, acquiring cash flow, is in line with our current strategy. We've been fairly consistent over the years with what we look for. As you said, not just something that provides a good return to our shareholders but something that continues to diversify our asset base. So we're looking in markets, maybe, where we don't have a flag today. And looking for markets or states that have stable tax environments, stable regulatory environments, places where we are confident investing our capital, because the size of these investments gets larger and larger every year so we have to be confident in the regulatory structure and in the taxing structure. When you look at those two factors, along with making sure it is priced right and we can get a return for our shareholders, those are the 3 key elements we're looking for.

Do you have any inclination toward or away from the racino model versus the riverboat model versus land-based? Or are those not relevant factors at all?

They're really not relevant. I think we're probably agnostic with respect to whether it's a racino or a riverboat or a land-based facility. Clearly the acquisition of a major land-based asset probably provides more opportunities, so we're focused on something that maybe has larger cash flow than smaller cash flow. But whether it's land-based or riverboat or a racino, it's probably more in line with the size of the cash flow than the type of the asset.

And could we or would we rule out something that's transformational, since we're talking about size? Would you entertain doing something that was in the neighborhood of doubling the size of the Company?

I think we look at ways to increase shareholder value overall. Whether those are large or small, we'll take a look at those ways. We don't set something aside just because it's too large. We may set something aside because it's too small and doesn't move the needle. But the size of an acquisition doesn't deter us.

If I can just clarify one thing and make sure I have it right. With respect to April, specifically in the Las Vegas locals market, I think, Paul, you said that spend per visitor was starting to go up. And did you say that visitation was up in April, as well?

I said, I think to Joe's question, we have started to see frequency improve at the high end of the database. And I said spend per visit really depended on the property, where, at worst, we're seeing flat results, and in some cases we're seeing improvement.

Shaun Kelley of Bank of America.

Hi, good morning, guys. Just wanted to ask a little bit more about -- I think you gave some good data points on March and April. So looking out a little bit further, one of the consistent questions we get a lot about is just the limited visibility out there in Las Vegas. Is there anything you can help us get a sense around for? And I don't know if it's bookings at the Orleans or anything that you guys are looking at on the forward bookings side to get us a little bit more comfortable with how the environment is trending out there, beyond what you've seen to date? Particularly maybe in the summer period, because I think a lot of people are worried about that trough in Vegas during that period, as well.

I think the summer in Las Vegas, whether it's 2006 or 2011, everybody is worried about the summer in Las Vegas. It is clearly a soft period even in the best of markets out here. And I think we stay very focused on filling hotel rooms during the summer. It's a time when convention and meeting business, obviously, naturally falls off, as well. Between summer vacations for schools and other family outings, and just the fact that Vegas isn't quite the same destination in the heat of the summer that it is in some other periods during the year. So it will be competitive from a room product standpoint, and a pricing standpoint, this summer, like it has been every other year in the best and worst of times, No doubt about that.

Okay. Then the other thing would just be if you could talk about -- obviously the Dania transaction, you mentioned how accretive it was in removing some of the operating losses. If you think about the strategy behind Echelon and what the opportunity would be for that land, what's the latest thinking there? Obviously it's a big drag on operating earnings so that's why I ask.

With respect to the Echelon development, on the Strip, we continue to keep it as an option and assess our future. We are not taking any specific actions right now. We're obviously continuing to watch the market and trying to determine when the best time to move forward on that asset may be. It's clearly not today. It's clearly not this year. It's probably not next year as we look into the future of the Strip, and we look into the future of consumer demand and when it hits a point that you could add another project of that caliber. So if we had an opportunity to sell some of the land, 88 acres, would we entertain it? Sure. That opportunity hasn't presented itself. We clearly have long-term confidence in Las Vegas and the Las Vegas Strip. We look forward to having an asset on the Strip at some point in our future. As a Company, we think strategically that's important for us and still have that as a longer term focus as we look to the growth of our Company.

Chris Woronka of Deutsche Bank.

Good morning, guys. I think you mentioned you haven't really seen any impacts from gas prices portfolio-wide yet. But just want to ask you, if you're not doing anything on the promotional side, do you have any sense that any of your competitors might be trying to get ahead of that a little bit as the summer approaches?

In what way?

Just in terms of promotional activity.

Just broad-based promotional activity, gain, I think obviously from a destination standpoint, how you market your rooms. And obviously we spend a lot of effort marketing our rooms to our existing database and our existing group of known customers. And the values that those folks can obtain relative to room product in the summer is obviously quite competitive. But, again, you're comparing it to the same period last year in an economy that was obviously on pretty tough times, as well. So on a year-over-year basis, it's an apples to apples comparison.

I also think it's important to note that over the last several years, and the last year in particular, we've worked hard to maintain control of the marketing expense and to find the right level of promotional expense, and not react to our competitors who may be out there and decide that they want to launch a very aggressive campaign. I think we've been able to do that effectively, to spend our marketing and promotional dollars wisely, to build loyalty with our customers and have them continue to visit our properties even in the face of maybe some enhanced marketing from our competitors. So there will be enhanced marketing, I think, as you enter the summer. It's natural. I don't think you are going see us react to that. We're going to remain fairly disciplined on that front.

Great. I think the data points you put out on April are pretty encouraging. But on the ones you gave out for March, do you think there's an Easter impact in there? Is it even possible to quantify?

I think it is tough to quantify. I think your point is that Easter is one of the weaker weekends, and obviously its focus isn't necessarily on hotel casinos. And that hit in different periods year-over-year. Tough one to quantify. It's not that material a difference in any particular year.

Steven Ruggiero with CRT Capital.

Good morning. I noticed your maintenance and utility expense line was well controlled during the quarter, notwithstanding the higher energy prices we've seen year-over-year. I wanted to see if the maintenance side of that equation is just a cycling, such that it keeps the overall number down, or is there something specific you're doing with your utility expense to keep that in line?

Steve, it's Paul. We've spent a lot of time on the utility side of that equation. Our utility costs, natural gas, electricity, as a group, are generally actually down, even though pricing is up. We've created a specialty within the Company, like certainly others have as well, to focus on those areas, and I think we've been very successful, given de-regulation in many states, to frankly just purchase things smarter. We also have a pretty significant effort around not just going green but just being more efficient in electricity consumption. That, in many cases, includes changing out lighting fixtures and other things. But there are real short-term payoffs for us in a number of those areas relative to the capital spend that's required.

That's helpful, thank you. And just one follow-up question on a different subject, and that's your room revenues for your wholly-owned properties. Up mid single digit year-to-date-- or I should say for the first quarter. Is that driven more from the occupancy side or is it driven by the ADR side of that REVPAR? And could you just elaborate as to which regions are driving that? Is it mostly the Las Vegas properties? You made the reference to the 7% cash room increase.

First you've got to keep in mind that we've got about 7,000 wholly-owned rooms, and 5,000 are in Las Vegas. So Las Vegas, obviously, is going to be a key driver to the hotel aspect from an ADR perspective. We have seen ADR start to creep up slowly, I think just like our bigger competitors have, with higher end rooms. It is still, obviously, a bit of a commodity, a hotel room in Las Vegas. But there is some build, and certainly it has really helped. And my comments on meeting and convention business are really meant to hit spot on. Mid week over the last couple years it has been very challenging, obviously, to sell rooms at any price that you'd find acceptable, and that has started to improve. That has a pretty meaningful impact overall as we start to see some firmness in mid week, and is a key contributor to overall improved profitability.

Just adding to that, I think what we've benefited from is not only the broader convention business coming to the Las Vegas Strip, it enabled us to price our rooms more aggressively. But also demand for our own meeting space and product, primarily, again, at the Orleans.

Carlo Santarelli of Wells Fargo.

Hello, guys, thank you. I just want to comment a little bit or maybe pick your brain a little bit on promotional activity, specifically in Atlantic City. You guys have, obviously, not necessarily a new competitor but new ownership takeover, who I think it's been well documented has been pretty promotional. Next year in July you will have a new competitor and I would expect more of the same there. Could you talk about specifically as it relates to that market the way you will go about promotions in the near term, and then, as well, post the opening of Revel?

If you're talking about any level of specificity on promotions, would be probably a little bit too much of a roadmap for our competitors. I think we look at promotions on generally what's going on in a market in any given month, where we think we can pick our sports to maintain our customers and to improve our position. The Borgata, obviously, has had a leadership position in that market since it opened. It continues to maintain that and grow it in my respect, as we had some record market share numbers in this last go-round. We'll continue to very carefully, as I said, pick our spots with respect to promotional spending. It will be up some months in some quarters and down in other months in other quarters. We clearly realize that the opening of Revel a year or so from now will create a new dynamic in that marketplace, that it will get visitation. We are taking the opening of that very seriously. We'll have plans in place well in advance of the opening to compete with that and make sure that our property, the Borgata, maintains its leadership position in that market. It doesn't give it up just because a new competitor opens that market. So we will work hard. We're talking about it currently, about how we deal with it and how we position ourselves for it And we'll work hard over the next 12 months to make sure that we have good plans and operations in place to fight the opening of that property.

Great, thanks, Keith. And if I could just ask one follow-up, I think you mentioned in your remarks as it is related to Borgata a 13% hold similar to 2010. Going back historically in the '08-'09 period, hold was clearly on the table side north of 14% at Borgata. Is there a structural change in game mix or anything that leads you to believe the 2010 level is the right level go forward, or are we just there until maybe volumes and play levels come back?

I think it's the latter. I think that low 14% was our run rate over the years. I think as we've seen a higher level of premium tier play over the last couple years, as we've lost some of the lower end play, table games volume at Borgata, you've seen a shift. Hold has dropped. You've also, I think, seen a little bit of less time on the game by some of these players. I think that will cycle through over the next couple of years. So we think the 13% level is probably the right level for the next year or two and it will eventually, I think, trend back up just a little bit.

Dennis Forst of KeyBanc.

Good morning. I had a couple questions. Maybe just a follow-up on the Borgata question with Revel. On the other side of the equation, do you foresee any closures, maybe less competition from existing operators?

I'm not going to predict any particular property's demise. Clearly the Atlantic City marketplace can use more demand. And conversely, without being able to draw more demand out of less capacity is a good thing. There are some weaker competitors, I think, in Atlantic City. What happens to them ultimately, I don't know, and I'm not going to predict.

Do you think that it's possible that Revel could actually help Borgata by bringing in more quality type of customers?

I do hold that view. I do believe that having another high-quality operation with the right amenities and the right product can bring more customers to Atlantic City, more customers that maybe today don't come down because the right type of amenities or quantity of those amenities don't exist. And so that it can draw some additional customers. And I certainly am very confident in Borgata's chances of getting their fair share of those customers coming into the market.

If I could shift gears and go to Paul, again, and maybe harp a little bit more on the Las Vegas locals market. There was a lot of talk about improved amount of frequency of play, higher room revenues. What, in general, were gaming revenues for your 4 locals properties down in the first quarter?

What's the question, Dennis?

Gaming revenues were down.

Gaming win for the locals, for your local division.

Gaming revenues were slightly down in the first quarter, that is correct.

Okay. But in the month of March, you said all 4 properties were up EBITDA. Then you said April was a solid month. I'm just trying to get the body language. Does solid mean all 4 properties were up in April also, or were the 4 combined up in April? What does solid mean?

Obviously I didn't say that all 4 properties were up in April so you can probably guess that they weren't all up in April. But I think in April we were very positive on the fact the group as a whole performed well.

Okay. Good, thanks. And then on the downtown then, how was April in downtown?

I think absent fuel costs, we were very pleased with the top line and EBITDA performance of the properties overall. The burden of jet fuel on a year over year basis is a very significant number. And so we're certainly pleased with how downtown has continued to perform, and our expectations of downtown through the second quarter. And really the pressure overall on downtown as a group for the second quarter will be directly associated with, really, where jet fuel ends up on average for the quarter.

Okay. But the economy in Hawaii, as much it is suffering, just in general, and now with the Japanese earthquake, you're still seeing good strong demand from your Hawaiian customer base?

Before the tsunami in Japan, the Hawaiian economy was actually showing some very positive signs, very positive signs overall. There was significant strength there. Japan accounts for about 20% of the inbound destination tourism into Hawaii. Obviously with the tsunami and everything that's going on in Japan, there has been a direct impact on near-term visitation in Hawaii. And I know an awful lot of cancellations at resorts in Hawaii for that Japanese group. The flip side of that is there's obviously got to be a significant amount of rebuilding in Japan. With that economic stimulus, I think over the longer term, not unlike other natural disasters, we would expect some significant improvement in the Japanese economy over the medium term. And, again, I think Hawaii just benefits from that, given, again, 20% of their inbound visitation comes out of Japan.

Lastly, the upcoming closure of the Sahara. I can see it as being a two-edged sword for you. It will put a number of locals out of work, but on the other hand, it reduces the number of rooms in Las Vegas. How do you see that closure playing out for you folks?

I think, obviously, from a room standpoint, taking out room inventory is certainly a positive for everybody that operates in this town. As it relates to the employee base at the Sahara, I know firsthand many of their employees have been able to find work at other properties throughout Las Vegas. I also think given our experience at the Stardust, I would expect that some of the population at the Sahara would just take the opportunity to retire and enjoy life.

Justin Sebastiano of Morgan Joseph.

Thanks. No one has talked about the LVE Energy Partners fee that you guys are going to be paying. That's roughly $11 million to $12 million a year. Where is that going to show up on the income statement? I know you broke it out with the different segments between wholly-owned and Borgata, but on the actual income statement where do we find that?

It will be in pre-opening.

So roughly that's about $0.09 a year, roughly, after tax?

It's approximately $12 million per year.

Okay. That's the math I'm coming up with. This will continue until you guys decide what's going to go on then with Echelon, whether you actually develop it or sell off?

Consistent with our filings, both the 10-K and the 8-K, related to the agreement, it is that we will pay basically $1 million a month until we either start Echelon or a project back on that site, or choose to buy them out of their investment, a purchase option in that agreement.

Okay. And that's roughly $200 million is the buyout? About $195 million or so?

It basically represents their investment in that facility at that time. The way to think about it is they were one of the providers of services related to echelon, either through building the energy plant, or, like in other cases, folks were doing construction related work or services, contracting and consulting work. So no one had really contemplated the kind of delay associated with Echelon. We just needed to sit down and see what worked for both parties, and that's what came out of the agreement.

So, if you guys end up selling the land, does that then go to the new owner, the JV? Or are you guys on the hook for that $195 million that would be used to buy them out?

I think it would be dependent on the structuring of the transaction. It's 87 acres. So if someone bought 5 acres in one corner, then that wouldn't actually affect our agreements with LVE or the land that they lease from us. To the extent that someone wanted to buy 87 acres, then we'd have to understand what they were contemplating doing to factor that in. There's a range of possibilities both in terms of outcomes as well as in terms of our flexibility to consider alternatives there.

You've got keep in mind that a plant like Las Vegas Energy is required to operate any sort of facility on that site. It isn't like you can go buy what it produces from Nevada Energy or some other utility. It produces hot and cold water, effectively, which is used throughout the facility. It or something like it would have to be constructed if it wasn't used for whatever happens on the site.

Sure. Paul, I think you had mentioned that weather impacted EBITDA at your riverboats by about $3 million but you made that up elsewhere. Was that a property tax gain, or what exactly was that again? Forgive me for not hearing that.

That's right. Weather cost us $3 million in January and February, primarily in February. Late in March, we had been working on property tax issues. Actually, in this particular case it was in the Midwest and South region. And these are property taxes that had been expensed -- not paid but expensed -- through the income statement so they had a prior period impact negatively on EBITDA that were as a result of some revaluation work reversed. And so, since we had expensed it in prior periods, we reversed it into the first quarter. That accounted for just under $3 million. You can see it if you look at the EPS calculation. We adjusted out of EPS because it was a prior period adjustment. But it's included in EBITDA because it was a prior period expense so now it's a current period benefit.

Got you. So was that spread across all of your riverboat properties, or was it just a couple or one?

It was predominantly at one.

Which one?

Blue Chip.

And so the weather, I assume, was Blue Chip and Paradise? Is that the most affected by that?

Predominantly Blue Chip.

It's not a revision in estimate, it's a conclusion of the negotiation with the tax authorities.

Mark Strawn of Morgan Stanley.

One question on the locals market. You mentioned some strength on the room side and the cash room revenues. If we look through the P&L there in your locals market, what percentage of EBITDA or departmental profit does that account for? As you look forward and project out EBITDA growth going forward, Is that a main driver of it or is it really on the gaming side?

It's, in all honesty, a balance. Throughout our business we're obviously much more gaming-centric than full-scale resorts on the Las Vegas Strip. Roughly, depending on the property and the size of the hotel, 70%, 75% of revenue comes from gaming. And obviously the balance is non-gaming, with food and beverage also playing a pretty significant role. The benefit, obviously, of rising cash ADRs for us or any of our peers is simply the fact that the expense base associated with those rooms is a fixed cost. So if I get $1 more of cash ADR, I get really, practically speaking, $1 more of profit. You saw that in a huge way, obviously, on the downswing through '08, '09, and '10, and it's just going to come back the other way.

Okay. So as you look forward, is it really a mix of those two factors driving the growth going forward? Or do you expect one to lead the other? Or is it really more a broad-based gaming recovery that we need to see, to see more substantial growth rates in the locals market?

I think they will both have a positive impact. The velocity of the impact, I guess is what you're getting at, is really a question for what we expect to see in the future. Growth in the Las Vegas locals region, from our perspective, will be slow and gradual. It's not going to be an overnight type of thing. And obviously the way our business sets out here in Nevada, particularly in the Las Vegas locals region, gaming being a much larger piece of that will certainly benefit. The two initially may be a little bit more equal but I would expect there needs to be traction in Las Vegas relative to the local economy. By the sheer nature of the numbers, gaming should start to play a greater role as time goes on.

David Hargrave of Sterne Agee.

I was wondering if you had your leverage test overall and secured? And if you could tell us what they are pro forma for Dania if possible.

Sure. The leverage ratios were essentially the same that we reported in the fourth quarter. Secure leverage ratio, I think, was right around 4.2 times, which is exactly what we reported in fourth quarter, and total 7.1 times. And then I don't think we'll give out the exact ratios that we're projecting for Q3 when the transaction closes, because I think it would give you an idea of guidance. But what I will say is that we would expect, because they have different multiplier effects, there's a different effect on each one of the ratios. The secure leverage ratio probably will improve by about 60 basis points, and the total leverage ratio will probably improve by almost a full turn, 90 basis points.

Kevin Coyne of Goldman Sachs.

Thanks for taking the question. Just wanted to address the non-extended revolver. I know you have the ability to pay that down when it comes due with the extended portion. I was just wandering if you could give us a sense of, is that the basic plan or are there other alternatives of how you'll address that. And then I have a follow-up.

I think the way we look at it is, just as we talk about and thought about in terms of refinancing our balance sheet late last year, we have several alternatives that we're thinking about with respect to the non-extending portion. I think one of the most obvious is just to take the extending availability and use it for that purpose. And I think that while we might have less near-term availability than we would like to run the business, then we can come back at some future point and deal with that issue. In our ending current environment where our business feels like it's getting better, and we see the trends are headed in that direction, limited CapEx, you just don't have the need for the kinds of availability that we've had historically. So we have the ability to use the extended facility and then deal with it down the road. If conditions are more favorable for us before then or around that time, then we'll probably look at alternatives. But I think we're comfortable, if necessary, just using the availability under the extended portion and then dealing with it after the fact. That's what we talk about and thought about when we did the initial financing, and we'll see how things develop between now and then. We don't feel any real pressure to do anything different before then.

Okay, great. And then, knowing that you have that as the option, do you think you will start to consider addressing some of the other maturities such as the sub notes which are callable today?

I think in the context of how we're thinking about the business, we certainly will start thinking about those kinds of things. But, again, we have plenty of time. The sub notes don't mature until April of 2014. We like the long runway we have until we have to deal with any of those maturities. So we feel like, again, with the business, with the wind at our back and the trends in our business, we don't feel any need to do anything right now.

Great. And if I could just ask one more related to the Borgata. Obviously with a new competitor coming in, and with the state government trying to focus on the branding of Atlantic City and a potential focus on increased targeting of convention and larger group business, is that something you are going to start to work on and see as a potential driver for more growth? And would that include potential collaboration with that new competitor?

I think anything that will grow the Atlantic City market we are a strong supporter of and will be part of the conversation. I think, as I said in my comments, we're very supportive of the actions that the governor and the government has taken, and look forward to their continued involvement in moving Atlantic City forward, increasing the amount of convention business so that we certainly can take advantage of that. Once again, as they bring more customers to Atlantic City we are confident in our ability to get them into our building and have them become long-term customers for us. Any collaboration or cooperation with Revel, it's hard to predict what that might look like or how it would take place at this point. I think they're probably just getting their feet on the ground, moving their project forward. But we are interested in any and all conversations that help to move Atlantic City forward and want to be part of them and want to be part of that overall solution.

Just to be clear, Kevin, I don't think we are contemplating expanding meeting or convention space at our facility at this point. We don't see any need to do that. That's their business model. Right now we're just getting our product up-to-date, fully built out, and that's what we'll continue to focus on.

At this time I would like to turn the call back over to Josh Hirsberg for closing remarks.

Thank you, and thank you for everyone who participated in the call today. And if you have any follow-up question, feel free to reach out to the Company. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.