Icahn Enterprises LP (IEP) 2005 Q1 法說會逐字稿

[called joined in progress]

--First Quarter 2005 Earnings Conference Call. I'm John Weber, AREP's President. Keith Meister, our CEO, will make a presentation, followed by a question and answer session in which other members of management will also be available. Participants are now in a listen-only mode. You may submit questions via the webcast at any time during the presentation by using the form shown on your screen. We'll give you instructions for asking questions by phone at the beginning of the question and answer session. If you have any technical problems during the presentation, please the help button shown on the screen. Today's Tuesday, May 10th, 2005, presentation will be recorded and archived in the IR section of the American Real Estate Partner's website, located at www.AREPLP.com.

This presentation contains certain non-GAAP financial measures, including EBITDA. Reconciliation information for non-GAAP financial measures presented here can be found under the IR section of the AREP website, also located at www.AREPLP.com.

Before we begin the presentation, I'd like to remind you that for purposes of the Private Securities Litigation Reform Act of 1995, parts of the presentation are forward-looking and are based on our view of the general economy and our business as we see them today. You can tell that we are making forward-looking statements when we use words like, ``expects, anticipates, intends, plans, believes, seeks, estimates, and will.'' Forward-looking statements include, but are not limited to, statements about the expected future business and financial performance of AREP, its subsidiaries and businesses that we have acquired but have not yet acquired. These statements are based, among other things, on assumptions made with information currently available to management, including management's own assessments of our existing core businesses and businesses that we've agreed but not yet acquired. Please interpret all of our comments in that light.

I'd now like to introduce Keith Meiser, the company's CEO. Keith?

Good morning, and welcome to the Q1 2005 American Real Estate Partners Earnings Call. With me here today in the room are John Saldarelli, CFO of American Real Estate Partners, and Jon Weber, our new President. In addition, on the phone in Las Vegas is Rich Brown, who runs our casino businesses, and on the phone in Texas are Bob Alexander, Phil Devlin, and Randy Cooley, who represent the senior management team of our oil and gas businesses.

I am going to walk through some prepared presentation materials and also allow Jon Weber to introduce himself. Then we will open up the call for a brief Q&A sessoin, during which Bob and Rich and their teams will be available to assist the team in New York in answering questions.

The first slide highlights our key achievements for the first quarter of 2005. Q1 was a strong quarter for American Real Estate Partners. Our core businesses - hotel and casino, oil and gas, and real estate, continue to benefit from both secular tailwinds as well as individually, from strong performance by our respective management teams. During the first quarter of 2005, we achieved revenue and EBITDA increases of 27.8% and 12.8%, respectively, as compared to the first quarter of 2004. In addition to our strong operating results in the first quarter, we also accomplished several key corporate initiatives.

We closed on our $480 million senior notes offering due 2013 and we continued to realize profits well in excess of book value from our initiative to monetize portions of our mature, triple net lease real estate portfolio. This initiative has been driven by our belief that real estate market valuations continue to be robust and are at or near cyclical peaks. We sold five properties during Q1, 2005, for a price of $51.9 million, representing a gain of $18.9 million versus book value.

The next slide provides a summary of subsequent events since March 31st. We continue to be very active. Today, we intend to file our preliminary proxy statement, seeking unit holder consent for the issuance of depository units in conjunction with the previously signed acquisitions of 100% of [Panneco], membership interest in NEG Holdings, and common stock in GB Holdings, giving us an approximate 77.5% ownership interest in the ultimate parent entity of the Sands Hotel and Casino in Atlantic City. We hope to achieve final approval from our unit holders, subsequent to SEC approval of the proxy statement, during the second quarter of 2005.

Since March 31st, we closed on the cash purchase of Trans Texas Gas Corporation for $180 million. Each of these business units continue to execute according to our plan during the period under which they are under contract.

Additionally, at the end of April, Jon Weber was appointed president of American Real Estate Partners. I have had the experience of working with Jon within the Icon organization over the last two years, and I know that Jon will be a great resource to AREP, as we continue to add the appropriate infrastructure in order to ensure that we can add value to our subsidiaries and provide incremental scale to our back office, to make sure that can meet the increasing demands of our business units and our corporate transaction activities as we move forward.

With that, let me introduce Jon.

Thanks, Keith. I'd like to thank both you and the board for your confidence and very much look forward to this opportunity to work with you and the rest of the team at AREP. Initially, I will focus on our [inaudible] based partnership activities to both streamline and improve our reporting, to enhance our controls, and to upgrade our capital allocation processes. I'll also work closely with John Saldarelli, our CFO, to more clearly portray our segments in a way that underscores the intrinsic value and potential of our core activities. Over time, I look forward to working closely the leaders of our core oil and gas, gaming, and real estate units, to support their businesses to better position the company for continued growth. I do very much appreciate this chance to be associated with AREP.

Thank you, Jon, and welcome aboard.

As I said on our 2004 year-end call, AREP has been undergoing a transition over the past two years into a more complicated, more diverse company, with three core, scalable operating platforms. The addition of Jon Weber to our team is a key part of this transition that will help us to scale our businesses in the years to come.

Moving forward, the next slide provides a year-over-year comparison of first quarter 2005 versus first quarter 2004. These are our actual numbers, and they are not pro forma for the pending transactions. Revenues increased to $130.6 million from $102.2 million, representing a 27.8% increase. Revenue growth was consistent across all our business units. In addition, EBITDA increased to $93.4 million from $82.8 million, representing a 12.8% increase. Net income was $59.4 million versus $63 million in the comparable quarter. While we did have a non-cash gain in the first quarter of 2005 from securities sold short, that gain was not as large as the $28.8 million one-time gain in the first quarter of 2004 from the sale of Revlon bonds. On an apples to apples operating basis, each of our operating subsidiaries performed well in excess of its 2004 results in 2005.

Moving forward, the next slide shows pro forma for the pending transactions a comparison of first quarter 2005 versus first quarter 2004. Pro forma for the completion of the acquisitions of Trans Texas, Panneco, NEG Holdings, and the interest in BG Holdings, all of which will be accounted for under pooling of interest accounting. 2005 first quarter revenues would have been $210.7 million versus $184.9 million in the first quarter of 2004, representing a 14% increase. EBITDA would have been $124.3 million versus $114.8 million, representing a gain of 8.3%.

Looking at each of the segments, our hotel and casino business reported $27.7 million of EBITDA in the first quarter versus $25.3 million in the comparable quarter in the year before. This represents a 9.5%.

I would like to commend Rich Brown and his team for another phenomenal quarter, specifically the Las Vegas properties, where our ASAP credit achieved EBITDA slightly in excess of $25 million, once again exceeding plan.

Our oil and gas businesses achieved $37.9 million of EBITDA, representing a 3.8% gain over the $36.5 million of EBITDA in the first quarter of 2004. As we have mentioned before, we are investing substantially in our oil and gas businesses and expect to bear the fruits of this investment in the second half of 2005, when production growth, combined with the current strong commodity markets pricing, should produce increased profitability.

Specifically, we are projecting increased production at Trans Texas and Panneco as a result of our investments in these entities, since these businesses emerged from bankruptcy.

For each of our oil and gas and gaming businesses, we continue to feel comfortable with our 2005 outlook. Our ability for our real estate business to reach our 2005 outlook will be driven by our development cycle and our ability to bring finished product to market. As you will remember, we book revenue and profits on our homes as we deliver them, and our delivery schedule will drive our ability to meet our profit expectations within our home-building business.

Income at AREP decreased to $29.6 million versus $70.2 million, representing a decrease of $57.8 million. Most of this decrease comes from our oil and gas business. This decrease is the result of the non-cash effects of the present value of the liability associated with existing hedges. As a reminder, we had hedged about 50% of our production and 2006. While market conditions are robust, current commodity market prices are well in excess of our hedges, and we are required to run the cost of those hedges through our income statement on a non-cash basis. However, when we entered into these hedges, we were comfortable locking in realization prices at these levels and based on these levels, we built our 2005 outlook, which we continue to be comfortable with.

Moving forward, the last slide shows our balance sheet. AREP has a very strong balance sheet, and this balance sheet allows us competitive advantage, as we look to buy specific assets as well as to acquire other asset-intensive businesses. Historically, AREP has been a balance sheet story. Today, it's an income statement, cash flow, and balance sheet story. Looking at the March 31st, 2005, balance sheet, you will see that assets total approximately $2.8 billion, of which over $1.65 billion represents cash and marketable securities. Another $250 million represents longer-term security investments. This $1.9 billion, approximately, of non-operating assets provides additional support to the asset coverage and cash flows we receive from our three core operating businesses.

On the liability side, we have a $1.046 billion of notes outstanding, of which only our two corporate bond issues, of $353 million and $480 million, respectively, are recourse to AREP. Our net worth is $1.36 billion. When we adjust and add back our preferred units, our net worth approaches $1.5 billion. Please note that all these balance sheet figures are not pro forma for the pending transactions.

In summary, AREP is a company today with three strong operating platforms -- real estate, oil and gas, and gaming. Each of these core platforms are performing well. We have strong management teams in each, in whom we have developed tremendous confidence, and we look forward to allocating our sizable balance sheet to help these businesses achieve superior risk-adjusted returns in the coming quarters.

With that, I'd like to turn the call over to questions. Jon?

We'll now open up the presentation for questions. [Q&A instructions] The replay of this webcast, including the slide presentation, will be available at www.AREPLP.com within about 24 hours after today's call. The slide presentation and non-GAAP financial measure reconciliations are available at that same website, www.AREPLP.com, under the IR section. Questions?

[Operator Instructions] Larry Klatzkin, Jefferies and Company.

Can you give us a little bit of breakout on the revenues, EBITDA, for each of the casinos that you guys have in the system, for the quarter-- for the quarter, yes, please.

We have not, Larry-- before I let Rich take a crack at that, I do not believe we've disclosed the revenues and EBITDA by property within the ACP credit. However, if you want to break out ACP versus GB Holdings or the Sands, we can do that.

OK, is there any way to break it out by casino, so we can do some forecasting on individual casinos?

Well, one of the reasons in the past that we haven't done that is for competitive purposes, and as I said, Keith, it's up to you -- how would you like to handle this?

Yeah, we're not, Larry, at this point, we're not providing disclosure on a property by property basis. We'll take note of the request and think about it for the future. But at this point, what I can provide you is a breakdown between ACP and the Sands.

OK, I'll take that, if you do that, at least.

Sure. Yeah. For the first quarter for 2005, we had revenue at ACP of $82.3 million as compared to $75 million for the comparable period of the year prior, EBITDA of 25.214 versus EBITDA of 20.86 in the year prior. For the Sands, revenues were $39.965 million, EBITDA was $2.501 million. In 2004, revenues were 40.990 and EBITDA was 4.482 million.

Can you talk about win per unit at the company, on ACP versus Great Bay?

We would prefer absolutely not to talk about that, from a competitive standpoint.

How about an ADR in revpar?

I will say this, that in Las Vegas, one of the key elements that buoyed our performance was a huge improvement in hotel ADR, especially at the Stratosphere. Overall, we're looking at ACP alone of having an improvement of about 18.4%.

OK. And then how about what- capex the rest of the year at the properties, what you're planning to do with with the individual properties.

When we think about expansion capex, let me start in Las Vegas, with the Boulder property. We're in the process of a $4.5 million casino expansion, about 8,500 square feet, over on Boulder Highway. As you're probably well aware, there's been strong growth over there in that- on that side of town, a lot of new residents moving in. At the Decatur property, we really don't have any expansion plans right now. And at the Stratosphere, we've been looking and putting a plan together for a potential expansion of rooms and a potential convention center down the line, but those are just preliminary plans at this point in time.

On a maintenance basis, nothing surprising there.

And how about in Atlantic City?

In Atlantic City, again, on a maintenance side, we're actually reducing our maintenance. We've put quite a bit of money into the property in the last couple of years, in terms of refurbishment. From an expansion capex standpoint, we are looking at the potential to add rooms.

OK, OK, and would- that could be under the tax benefits that some of the other casinos have gotten?

Yes, absolutely.

OK. And how do you see the competitive environment in Atlantic City? You know, I realize the first quarter being down had to do with-- you know, weather had a large part of it, but how's it going forward, for the summer?

Absolutely. Larry, you're absolutely right, there's almost like two pieces to the first quarter. January, as you know, the weather was probably the worst that it's been in Atlantic City in the history of Atlantic City. But if you take a look at February and March, speaking for the Sands, we bounced back very strongly and if you take a look at our share of EBIT in those months compared to some of our competitors, the property has done very, very well and it has gotten back on track.

Your point about the competitive environment is a good one. It's an extremely competitive environment. What we're seeing is a lot of marketing reinvestment to the customer right now and a real fight for share of market and as you mentioned earlier, the weather in January hasn't helped. But I'm confident now that the weather has balanced out, we're operating very well on a cost-control basis there. I think our key challenge there is getting back to this whole issue of what everyone is reinvesting in the customer right now, with the addition of competition in a lot of the building that's taking place in town, there's just been a strong-- a strong reinvestment in the customer, which I think puts pressure on the margins.

OK, great, well, thank you very much, guys.

John [Malkeith], Bear Stearns.

What was capex for the quarter for AREP in its entirety, and is there any update to the number for the full year of '05? Second question, can you give any more detail on the trading gains that you booked in the first quarter and then some detail on what may have happened in the second quarter? Mainly is that the same security that has moved in that period of time? Are we talking about several securities that are going in and out of the book on that? And then lastly, for Rich, with the monorail been running for the full quarter here and a little property down the road opening up in April, have you seen any impact on the north of the Strip for you at the Stratosphere? That's it for me.

Great, let me take those questions one at a time. Vis a vis the trading, obviously we're not going to make any projections as to the volatility in future quarters. The primary volatility, though, in the fourth quarter of 2004, the first quarter of 2005, and the subsequent period has been from one position, in which we have a short interest in equity securities. We had a $23.6 million loss in that position in the fourth quarter on a non-cash basis. In the first quarter, we recouped $21.7 million, which is in our Q1 earnings. Subsequent, as in a marked to market, as of April 29th, there was a $27.7 million reversal that you will see in our second quarter, so it's hard to continue to project the results of this position. It's one that has been volatile and will likely continue to be volatile until we realize the position and we will do so when we think the risk-adjusted returns of holding the position are no longer justified.

Rich, do want to tackle John's other question, and then I'll provide the capex figures?

Yes, I do. John, right now, as you're probably well aware, the monorail has not really been running on a consistent basis, other than over, I'd say, the last month or so, so from the standpoint of I think the expectations of everyone in town, it hasn't had the kind of impact on the Stratosphere that we'd like to see. I think as they get over some of the problems in terms of the operation of that monorail, they may start to see some impact, as ridership grows there.

In terms of the opening of the new property down the street, as you know, it opened about a week ago or so. It's a little bit too soon to really determine whether we're seeing a huge impact on that. I can say that things-- I believe that the second quarter will be a solid quarter.

In terms of the question on capex, John, you'll see in the first quarter, there was slightly under $5 million of consolidated capex. That capex was almsot exclusively related to the three ACP properties. We have yet to consolidate in our financials any of the oil and gas properties. We articulated a capital plan for the oil and gas businesses of approximately $155.2 million in 2005. That plan will be slightly weighted, but not significantly weighted, towards the back end of the year.

Our core real estate businesses, the home building and triple net lease, have next to no capex requirements, as all the building costs are expensed, and on our triple net lease properties, the tenants pay their own capital costs.

[Operator Instructions] Chris Midleman, Spencer Clark.

Yeah, hi, I'm wondering about the overall corporate structure of ACP. You guys have had this as a massive limited partnership since inception, and for as long as I can remember, going for 10 years, you've generated substantial free cash flows but inexplicably have never paid out any dividends. I'm wondering, you know, given the shift to more of an operating structure, away from just a real estate pass-through entity, are you guys going to change the corporate structure to a C corp or are you going to institute a dividend at some point?

Thank you for the question. I think there's two questions in there. Let me start with the corporate structure. At this point, we have no intent to revisit our corporate structure. We think the MLP structure gives us the benefit of being able to pass through and be more tax efficient in the asset classes that qualify and we're able to hold our operating businesses in C corp form. So at this point, we think we get sort of the best of both worlds.

In terms of dividends, historically AREP's board has felt that continually investing the capital back in the business has been the best way to achieve returns. We've achieved compounded annual growth rates in our book value and have done well with that. However, I think as you'll see in our Q, as the business has changed and as you rightfully said, become more of an operating business, the board is currently reviewing our dividend policy. Any decisions on that will ultimately be made by the board, but part of that exercise does involve benchmarking ourselves against peers and it is something the board is currently considering and I would stay tuned to see what they come up with in coming quarters.

[Operator Instructions] I'll turn the call back over to [management].

Great. Thank you very much, everyone. This concludes the question and answer session. Thank you for joining us today, and we look forward to future communications with our unit holders, bond holders, and other interested parties. Thank you.

[Operator Instructions]