Icahn Enterprises LP (IEP) 2006 Q4 法說會逐字稿

Welcome to today's American Real Estate Partners fourth quarter and full year 2006 earnings call and webcast.

I would now like to turn the conference over to Ms. Felicia Buebel, Counsel to American's Real Estate Partners. Please go ahead, ma'am.

Thank you, and good morning. This presentation includes forward-looking statements within the meaning of the Safe Harbor provided by section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934 as amended by Public Law 104-67. Particularly statements regarding our future financial and operating results and our businesses. These statements are based on our managements current expectations or beliefs and are subject to risks and uncertainties that could cause actual results to differ materially from expected or projected results. More detailed information about these risks and uncertainties may be found in our filings with the Securities and Exchange Commission, including in our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q, including but not limited to the section of these reports entitled risk factors.

We are under no obligation to, and expressly disclaim any obligation to update or alter our forward-looking statements whether as a result of new information, future events, or otherwise. Please note that quantitative reconciliations between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure are available on our website by viewing a copy of this presentation at www.arep.com\investor.shtml. Now I'm going to turn it over to Keith Meister, our Vice Chairman and Principal Executive Officer.

Thank you, Felicia. Good morning, and welcome to the fourth quarter and full year 2006 American Real Estate Partners earnings conference call. Joining me today are Peter Shea, our President. Peter joined AREP in December and we welcome him aboard and look forward to working together; Hillel Moerman, our Chief Financial Officer; and Andy Skobe, our Treasurer.

Let me begin by briefly reviewing this mornings agenda. I will provide an overview of key highlights from 2006 and some perspectives around key events as we enter 2007. Following that, Hillel Moerman will provide a detailed review of our fourth quarter and full year 2006 financial performance. Peter Shea will then follow with a business segment review. After Peter's remarks, we will be available to address your questions. 2006 was a strong year for American Real Estate Partners and we enter 2007 well-positioned to succeed. During 2006 we strengthened significantly our holding company liquidity. As of your end AREP had cash, cash equivalents and liquid investments of approximately $2.5 billion. In January of '07 we completed a $500 million add-on financing.

Pro forma for this financing AREP ended 2006 with approximately $3 billion of cash, cash equivalents, and liquid investments. Key highlights from 2006 include the divestiture of assets that produced approximately $667 million of gain for American Real Estate Partners and the acquisitions of new assets that position AREP to succeed in the future. I will discuss these transactions in more detail in the following slots.

Let me first spend a moment reviewing our business strategy for 2007. We are a diversified holding company with core operations. Today in gaming, real estate, and home fashion. Our strategy remains consistent to create value through the attractive allocation of our capital. We intend to continue to invest capital in our businesses to grow organically, as well as through bolt-on strategic acquisitions. Furthermore, to the extent we find an opportunity to add a new business platform to our portfolio which presents an opportunity to acquire assets in an out of favor industry at attractive risk adjusted valuations, we will always seek to maximize the value of our capital.

During 2006 we were able to enhance the value of our assets by divesting our oil and gas holdings and our gaming assets in Atlantic City at what we believe were attractive valuations. During 2007 we will look to redeploy this capital in our businesses as well as new opportunities. Specifically, during 2006, we succeeded with regard to our gaming businesses and executing on our strategy. We completed the acquisitions of the Aquarius, formerly the Flamingo Laughlin and the Traymore site from Harrah's for approximately $170 million and further deployed capital to reposition and grow the assets we acquired as well as to continue to invest in the continuing repositioning of our existing Las Vegas assets. This capital improvement plan provided some miner hiccups to our operating results during the third quarter but as Peter will speak to later our fourth quarter results were right back where we expected and well ahead of 2005 results and we leave the fourth quarter of 2006 with a $16 million per quarter operating income run rate. Well-positioned for success in future growth from Laughlin and continued steady performance from our Las Vegas assets.

With regard to our home fashion business, West Point International, 2006 was a year of restructuring. During the year we successfully changed the culture by bringing in a new management team and moving the corporate headquarters from WestPoint Georgia to the New York area. Our new team, led by Joe Pinacchio is executing on the key objective at WestPoint which is moving from a high cost manufacturing footprint where substantially all of our products were manufactured in the U.S. to a low cost manufacturing footprint where more than 80% of our products will be manufactured offshore. We've begun to successfully execute on this plan by creating the Indus joint venture in Pakistan as well as acquiring the Manama textile mill in Bahrain. We believe we will exit 2007 with more than 80% of our production being manufactured in low cost countries. If we execute successfully on this plan, we believe there may be up to 20 points of gross margin potential from being a manufacturer in the lowest cost jurisdictions as opposed to the highest cost ones. As you think of this across $1 billion revenue base that 20 points of gross margin presents a substantial opportunity. With our cost structure fixed we can then go out and regrow the business by winning new placements from key accounts.

One of the key positive achievements during 2006 were our new contract wins at customers such as Target, JC Penny, Wal-Mart, and Hilton. We believe we have the right team, the right plan, and our success in WestPoint will be driven by our ability to execute. Much like our prior acquisitions of bankrupt assets in the gaming, oil and gas, and real estate industries there is a lot of up front work that needs to be done at WestPoint. During 2006 we laid the framework and made tremendous progress in advancing the restructuring of WestPoint. In 2007 we'll complete this restructuring and begin to see the fruits of that labor. In 2008 we believe the business should execute on all cylinders and ultimately WestPoint management feels confident that WestPoint can achieve both top line revenue growth, as well as double digit operating margins.

Moving forward to discuss the Lear acquisition. In February American Real Estate Partners entered into an agreement to acquire Lear Corporation for $36 per share and cash consideration. The total transaction value is slightly in excess of $5.1 billion. The sources of financing for the transaction will come from an approximate $1.4 billion equity investment from AREP, committed financing from Banc of America of $3.6 billion, of which $2.6 billion will be a drawn term loan and 1 billion will be an undrawn revolver providing what we believe will be substantial liquidity at the Lear level. Additionally 1.3 billion of Lear bonds will remain outstanding.

In 2006 Lear achieved revenues of approximately $17.8 billion and Lear has previously publicly disclosed projected 2007 core operating earnings of between 560 and $600 million. We believe Lear provides AREP with an attractive opportunity to acquire a best of breed tier one auto parts manufacturer serving the seating segment and the electrical and electronic segments with a leading market share, a first rate management team and the significant scale and platform to provide further capital to invest in other opportunities that will be presented in the automotive industry in the years to come. While there can be no assurances that this acquisition will be completed, we believe if completed, the acquisition provides substantial operating leverage. And if AREP and the Lear management team are able to execute on our business plan the transaction should provide rewards for the American Real Estate Partners unit holders. The transactions is currently estimated to close at the end of the second quarter or the beginning of the third quarter.

Moving forward to other previously disclosed potential acquisitions. American Real Estate Partners has entered into discussions with entities affiliated with Carl Icahn, to acquire Carl Icahn's interest in American Rail Car and Phillips Services. We believe it makes sense to consolidate Mr Icahn's holdings in operating businesses under one roof, AREP, where we have the operational expertise, infrastructure and oversight to help provide resources to grow these businesses. American Rail Car and Phillips Services provides us with these opportunities. Let me spend a brief second on each of the businesses.

American Rail Cars a low cost efficient manufacturer of rail cars with a first rate management team and a very solid revenue backlog. American Rental Car completed its IPO in January of 2006 and is currently 52% owned by Carl Icahn. 2006 revenues were $650 million.

Moving to Phillip Services. Phillip is a diversified business with two core segments. Scrap metal and environmental services. AREP currently owns a 4% into the interest and the remaining 96% is owned by Carl Icahn. By acquiring Mr. Icahn's interest we believe we can provide additional capital into the business to complete small bolt-on acquisitions to increase the market share of Phillips's component businesses in each of their individual markets. By adding American Rail Car and Phillip Services to AREP's portfolio we believe we will significantly enhance the value of our operating businesses and dramatically increase our operating earnings. We believe that these businesses have first rate management teams and present an opportunity to allocate resources to help them grow and complete bolt-on acquisitions. Obviously there can be no assurances these transactions will close.

Moving forward to divestitures. The reason we are able to look at this active acquisition pipeline is in part driven by the cash flow received from our successful divestitures. Previously AREP acquired both our oil and gas businesses and our interest in the sands from entities affiliated with Carl Icahn. And our history or track record with related party transactions is fantastic. AREP realized approximately a $600 million gain on its investment in its oil and gas businesses, representing a return of approximately 50% on the annualized basis since it acquired these assets.

Our total sales price for our oil and gas business was $1.5 billion. We were able to achieve this value not just by buying the assets at a good price, but empowering the management team, investing capital organically to grow the business and also completing bolt-on acquisitions. We took a distressed property, invested all of our free cash flow back into the business, and then also used AREP's strong balance sheet to help complete the acquisitions of Longfellow Ranch and the Mandan Field. By positioning the oil and gas business as a business with strong production growth we believe we were able to realize a top dollar price and achieve substantial returns for our unit holders. This is a great example of us executing on our strategy.

The same can be said for the Sands in Atlantic City. Prior to our sale the operating performance of the Sands was lackluster at best as the asset was physically inferior to its market competitors and its stand alone prospects were limited. However, by acquiring the adjacent Traymore property, we were able to reposition a physically inferior asset into a superior piece of real estate that had unique development opportunities in Atlantic City. In total we sold the sands and the Traymore site for approximately $270 million to a buyer who plans to redevelop the site into a multi-billion dollar casino hotel.

If you back out the $60 billion allocated to the Traymore purchase price we received a value of $210 million for the Sands. An asset that was not earning a profit. This represented a return of investment for AREP of approximately 21% on an annualized basis. In deciding to sell this asset, we stuck to what we do best. Operating gaming assets with a compelling value proposition to our customer. Not developing multi-billion dollar gaming properties.

So, in summary, during 2006, AREP enhanced the value of its existing businesses continuing to drive value for all AREP unit holders. Several clear examples of this value enhancement can be highlighted. The WestPoint restructuring, capital improvements and investments in our gaming segment and an overall focus on operating objectives at our businesses. One of the things we are most proud of is the performance of our operating businesses over the last three years. In addition to running our businesses well, we also continue to invest to grow our operations. We have a high level of corporate liquidity and a willingness to deploy that capital to grow our businesses. Additionally, when we find opportunity to create value through new investments such a Lear, we have the ability to move quickly to attempt to consummate those transactions. We believe Lear, if we are successful in closing that transaction, can provide a platform for further growth in the years to come. And then finally, in addition to hopefully acquiring assets at the right point in the cycle, we've proven during 2006 that we have a willingness to divest assets when we've achieved substantial success in repositioning them and can earn high levels of profits. With that, let me turn it over to Hillel to walk through our financial performance in detail.

Thank you, Keith. I will begin with an overview of our financial results and then our President, Peter Shea, will discuss the performance of each of our operating segments, as well as other key factors that affected our financial performance during the fourth quarter and full year of 2006. Overall revenue for the fourth quarter decreased 7% as compared to the prior year, primarily due to decreased revenue from our home fashion business, partially offset by increased gaming revenues due to the acquisition of the Aquarius casino in Laughlin.

Operating losses from continuing operations before taxes and minority interest increased to a loss of $23.5 million primarily driven by the ongoing restructuring efforts at WestPoint which were partially offset by increases in interest and investing income both which will be discussed in further detail later in the presentation. Our discontinued operations income of $573.5 million in Q4 2006 is primarily due to the successful sale of our oil and gas business and Atlantic City gaming operations. As a result our net income in the fourth quarter increased to $565.4 million.

For the full year, overall revenue increased 64% to almost $1.5 billion due to the inclusion of a full year of results for WestPoint, the acquisition of the Aquarius casino in Laughlin, and increased revenue from our home building business due to the approval of our New Seabury property for residential development. The full year loss from continuing operations increased to $31.8 million primarily due to the ongoing restructuring efforts in our home fashion segment. Our discontinued operations income of $775.7 million includes a $659.8 million gain from the successful sale of our oil and gas business and Atlantic City gaming operation. As a result our full year net income increased to $798.8 million and a basic and diluted EPS of $12.69 per LT unit.

I will now turn to our balance sheet. At year end we had over $4 billion in assets and a net current position of approximately $1.4 billion. At year end our investment portfolio consisted of approximately $160 million invested in short-term mostly fixed income, short duration securities managed by an unaffiliated third party investment manager. Our remaining investments consist of exposures to long and short securities and equivalents of specific issuers with liquid markets and approximately $240 million of SandRidge Energy common shares that we received as part of the consideration for the sale of our oil and gas business. We expect to continue to manage the balance sheet to provide ample short term liquidity to enable us to execute on potential opportunities consistent with our strategy. At year end our cash and cash equivalent, plus short-term investments, were about $2.4 billion. Double that of our total debt outstanding of $1.2 billion for net cash and short-term investments of $1.2 billion on a consolidated basis.

In January of 2007, we issued a $500 million add on to our existing 7 1/8 notes due 2013. Pro forma for that offering our cash plus short-term investments would have been approximately $2.9 billion with debt outstanding of $1.7 billion. In summary, we are proud of our accomplishments over 2006. Our net cash position increased from $976 million debt position in 2005 to over $700 million in net cash at the end of 2006. Our net income and earnings for LT unit both increased substantially over last year due to the successful sale of our oil and gas and Atlantic City gaming operations. I will now turn it over to our President, Peter Shea, who will talk about each segment in more detail.

Good morning. The revenue by segment slide illustrates our revenue mix for our continuing operations only. Excluding the revenue of the Atlantic City casino and the oil and gas businesses that were sold during the year. It does include the revenue from our Aquarius casino in Laughlin, Nevada from the date of its acquisition in May, 2006. As you can see, home fashion accounts for 63% of revenue from continuing businesses. Followed by 29% for gaming and 8% for real estate. It's important to note that this slide represents the revenue composition of AREP only and does not reflect our views on the values of each business. As margins and profitability of each segment can differ materially from one to another.

Next, let's turn to our gaming segment. For the year, overall net revenue increased 17.6% from 2005 to $385.7 million, primarily due to our acquisition of the Flamingo Laughlin in May of 2006. Now known as the Aquarius Casino Resort. On a same store basis, excluding the Aquarius, our overall gaming business delivered lower results. For 2006, Las Vegas net revenue increased slightly to 328.1 million while operating income fell 12.7% to $57.7 million. Primarily due to expected disruptions resulting from an expansion of the Arizona Charlie's Boulder casino, coupled with renovations to the casino floor and adding a new center bar at the Stratosphere. Also affecting results was the entrance of a new competitor in the local markets served by Arizona Charlie's Decatur property as well as increased labor costs and approximately $6 million in additional marketing expenses.

Though our overall net revenues increased by $0.1 million on a same store basis overall net casino revenue declined 1.8% due to lower slot coin in and table handle. Hotel and food and beverage revenue grew 5.7% and 3.3% respectively, due to increased occupancy, and average daily rates, and an increase in the average check amount. But offset by lower tower revenue. We also spent $22.5 million capital on our Las Vegas properties in 2006, and plan a significant investment to refresh our slot floors there in 2007.

For the fourth quarter, overall net revenue increased 30.6% from 2005. To $106.9 million. Primarily due to the acquisition of the Aquarius resort. On a same store basis, again excluding Aquarius, our overall gaming business delivered lower results. Las Vegas net revenue decreased slightly to $81.7 million, while operating income fell 6.5% to $14.7 million. Primarily due to the previously-mentioned construction disruptions at the Stratosphere that were not completed until mid December. Also affecting results was the entrance of a new competitor in the local market served by our Arizona Charlie's Decatur property as well as increased labor costs and marketing expenses.

Though our overall net revenues decreased $0.2 million, on a same store basis overall net casino revenue declined 1.7% due to lower slot coin in and table handle. Hotel and food and beverage revenue grew 4.9% and 4.5% respectively due to increased occupancy and average room rates, and an increase in the average check amount, but was offset by lower tower revenue. We have substantially completed the first phase of improvements at the Aquarius. Spending $24.4 million to renovate the casino floor, upgrade the slot floor, provide new signage and the renovation of the front entrance. The remainder of our $40 million capital plan will include hotel renovations in 2007 and 2008. We are encouraged by the strong operating results after our Aquarius grand reopening in November. It is important to note that in the fourth quarter of 2006 our operating income plus D&A increased 14% to $23.8 million over the previous year. We fully expect this to be more indicative of a baseline run rate, which we believe will improve further as the operating benefits of the Aquarius capital projects are fully realized. We also believe that over time our prime Colorado River Walk location will out perform other successful local properties.

I will now turn to our real estate business. While our results were down in the fourth quarter, reflecting decreased property development activity, strong development results for the full year drove a 34% increase in revenue to $134.6 million. And a 57% increase in operating income to $28 million as compared to the same period in 2005. Our property development business increased $32.7 million to $91 million mostly from New Seabury, where our property became available for residential development in '06. We sold 37 units during the year in New Seabury for 36.1 million and have 420 lots available for future development. Eight units and two lots are now under contract.

At Vero Beach, 22 units were sold during the year for $16.4 million. We have an inventory 320 improved lots and 35 homes in various stages of completion. Of which 7 units are in contract. In Westchester, New York, we sold 12 properties for 24.1 million and have 21 units remaining in various stages of completion. Of which 9 units and one lot are under contract.

Our Falling Waters Florida development had $14.4 million revenue in '06. Selling 57 units. And we have 52 units in inventory of which 39 units are under contract. Rental real estate revenue increased to 14.9 million from continuing operations, primarily due to the leasing of previously vacant space. Included in discontinued operations was rental revenue of 5.1 million from property sold during or in the process of being sold. We sold 18 rental properties during the year for gross proceeds of $25.3 million and recorded a gain on these sales of $12.8 million in discontinued operations. We are exploring the sale of certain of the remaining 37 properties on an opportunistic basis.

This was a record year for our development segment. However continued general softness for residential and vacation real estate will produce strong head winds for us in 2007. With sales and profits expected to decline compared to 2006. Our resorts improved and recorded a small profit. This compares to an operating deficit of $1.6 million in '05. Resulting from both increased club dues and reduced operating expenses.

In our home fashion segment, fourth quarter net revenues of $236.6 million were 18.2% less than a year ago. And operating losses increased to $40 million from $17.3 million principally resulting from volume softness and heavy price competition in the marketplace. Included in these results were 12 million of restructuring and impairment charges relating to the cost of closing high cost manufacturing facilities. During the quarter, WestPoint's management team took further significant steps with respect to its overall strategic plan to reposition its manufacturing capacity from the U.S. to lower cost country countries.

As mentioned in previous presentations the operational transition and associated costs would continue throughout 2006 and 2007. We expect that stronger results will be realized in 2007, as we believe that gross margins should more than double on average, from 6% in '06 to the low teens by the end of the year. We believe that WPI may potentially reach a break-even EBITDA by the end of the fourth quarter. We will leave '07 with a much more competitive company and enter 2008 poised to see the full year effect of many of the actions being taken.

In December, WestPoint completed a $200 million convertible preferred stock offering. This offering was made available to all existing WPI shareholders with AREP agreeing to backstop the offering. Ultimately AREP was the sole investor in the offering. A significant portion of the proceeds were immediately used to complete the acquisition of Manama texta Mills in Bahrain, and WestPoint anticipate that the balance of proceeds will be used for additional acquisition and joint venture opportunities that may arise. To fund the continued realignment of its manufacturing operations and for capital expenditures and other corporate needs.

WestPoint's newly-acquired betting operation in Bahrain, coupled with a new towel operation in Pakistan, which was acquired in September 2006 will deliver highly-competitive low-cost products to the WestPoint markets in 2007. WestPoint continues to be a leader in product innovation, securing a major product placement with Wal-Mart for 2007. During the fourth quarter of '06, WestPoint had new product placements with other key customers, such as Target, JC Penny, and the Hilton Corporation. Throughout 2006 the new WestPoint management team continued to make substantial strides in repositioning the Company. Working with major customers to strengthen relationships, providing new product introductions, restructuring operations to reduce costs, realigning overhead costs, and ensuring sufficient capital resources. 2007 will be a year of continuous improvements, with additional strategic steps being implemented by WestPoint. As we've mentioned in prior calls, this will be similar to other challenging situations in which we have been involved. Patience will be required to realize the full potential of our investment in WestPoint.

I will now turn to some investments and financing highlights. Investment income of $91.3 million compared to losses of $21.3 million. And include substantial gains on equities and equity equivalents as compared to short losses in 2005. Interest income increased 23.1% year over year to $52.7 million due to the proceeds from the oil and gas and Atlantic City transactions. Interest expense of $106.6 million was 16.9% higher due to additional borrowings in our gaming segment.

The next slide, discontinued operations, reflects partial period results for our oil and gas operations that were sold on November 21, 2006 for $1.55 billion, which represented a gain for AREP of $598.7 million. That concludes our presentation. Operator, can you please open it up for questions?

[OPERATOR INSTRUCTIONS] We have a question from Andrew Berg. Please go ahead.

Hi, guys. Couple of questions, if I can. In terms of American Rail, and I guess we'll see what happens, we'll start with American Rail first. What is your ability to get any cash out of that? I know that they just did a bond deal and I have not seen how tight those covenants were. So to the extent you complete that acquisition I know they are sitting on a bunch of cash, can you guys upstream that to you guys, or does that need to stay down at American Rail.

This is Keith Meister. The indenture at American Rail needs to speak for itself, and they raised that money with the intention of using it for general corporate purposes. To the extent we were to acquire the interest held by Icahn, that would not change the management plan or the Board's intentions at American Rail Car and the Board at that subsidiary will make its own decisions about how to use its capital. So I would not expect to see dividends from that subsidiary.

With respect to Phillips Services, I think you guys said that part of what you'd like to do if you acquire them is be able to use your balance sheet to help them make acquisitions as they go forward. I haven't seen financials for them. Are they so levered that they don't have the ability to do that themselves or?

Correct. Phillip Services is not levered. The Company does not have any indebtedness. If it were acquired there would be no restrictions that would provide capital flow either up or down from American Real Estate to Phillips. It is a business that was a series of roll ups that really competes in local markets and by increasing its market share in any given market there is, we believe gross margin and operating income margin expansion potential. It does generate substantial free cash flow. It is a business that generates cash not uses cash. And we believe having a strong sponsor behind it in the form of AREP can help facilitate growth but there is not the need for capital in order them to operate their business according to the ordinary course.

Okay. And then the $200 million preferred that you did for WestPoint is that in your investments line? Or where do I see that? How are you recording that?

We consolidated WestPoint. So that will cancel out in the inner company consolidation. It does not show up in our investments.

Oh, okay. Then let me ask one last question and then I'll get back in and let other people ask questions. With respect to the real estate business and you guys rattled through it and unfortunately I didn't get a chance to scribble it all down. But it looks like at least in the fourth quarter you had $32 million in revenues versus roughly 34 last year on twice the number of units sold. It sounds obviously pricing is softening up a little bit. Can you talk a little bit now what you are seeing if the first quarter as we're two-thirds of the way through it?

Sure let me just make one other point before I address that with regard to WestPoint and about the 200 million of preferred. One helpful way for you to think about it is our original cost basis of the AREP investment in WestPoint in the aggregate was approximately $428 million. Now we've invested another $200 million. So if you want to think about the total cost basis of our investment not from a consolidated financial perspective but from a flow of funds perspective we have approximately $628 million invested in WestPoint.

In terms of -- I'm going to let Pete address your comment on rental -- sorry on the residential real estate business. But one point I might make is that is driven more by a shift in mix than by a -- than by an assessment of the markets. That's not to say that the home building markets are not slowing. However, our Falling Waters project, which is selling out in its final phase of sellout, is a much lower sort of town home product with average price points in the couple hundred thousand dollars per unit price point as opposed to New Seabury which when it is fully ramped you can think of price points on average approaching almost $1million. Then if you look at Hammond Ridge or a Penwood which were our previous products that drove a lot of our revenue in 2004 in the case of Penwood in 2005 and then Hammond Ridge coming online in '06, those are much higher price point products with Penwood north of $2.5 million and Hammond Ridge slightly in excess of the $2 million type mark. So I think you've got to be careful about mix.

Obviously, there is a slowing that's going on across residential real estate. We believe we are, in part, isolated from that. Obviously not completely. We believe we are isolated because New Seabury happens to represent a very unique product and one of the few offerings available for homes on the cape overlooking Nantucket at Martha's Vineyard. Clearly we will be affected by the market, we have a very low basis in the land regardless of market prices, and we'll realize sizable profits off of the units. The key thing that I think the market will drive is the time for absorption. Meaning will it take us four years or will it take us seven years to sell the remaining 400-odd units that we have available for sale.

Great I appreciate the clarification on that. I was hoping it was mix so it's nice to hear that.

Great. Thank you.

[OPERATOR INSTRUCTIONS] We have a follow-up question from Andrew Berg. Please go ahead.

Seems like nobody else wants to ask. So I'll take a second bite at the apple. Can you give a little bit of color on how you are seeing gaming now in this quarter.

Let me let Pete address that.

Yes. As we discussed in our presentation, we did have some softness last year. And we attribute it directly to the construction disruptions that we had at the Stratosphere in Boulder. We also are very pleased with what's going on at Aquarius. It is living up to our expectations. And as we enter into the new year, we certainly do have a pickup in activity. Our hotel occupancy rates are up. Our average daily rates are up. And we see our gaming revenue also recovering. So we're please with what we're seeing as we enter the new year.

Got you and then obviously the new opening is back to the Arizona Charlies, is that -- do you feel like it is starting to abate? Or is it pretty much hanging in there? I would suspect you are probably still getting some pressure from that.

On Arizona Charlie's?

Yes.

Yes. It is hanging in there. I mean, there is competition in the local market. But we do have a very local -- a loyal local customer base where things have not really declined much, they are pretty much holding their own. So we're looking at some things that we can do to combat what's going on in the marketplace, which would involve some new programs and some new investments.

Okay and then with respect to Lear when is the shopping period over? The 412 days?

We entered into the acquisition agreement, I believe February 10. There is a 45 day go shop so you can do the math and see that that ends toward the end of March.

Okay. We'll look forward to hearing stuff at that point. Thanks, guys. [OPERATOR INSTRUCTIONS] It appears there are no further questions at this time. I would like to turn the conference over to our speakers for any additional or closing remarks.

Well, we'd like to thank everyone for attending and we look forward to providing you another update on our regularly scheduled first quarter 2007 earnings call. Thank you for your continued interest in AREP.

That concludes today's teleconference. Thank you for your participation. You may now disconnect.