PENN Entertainment Inc (PENN) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Penn National Gaming third quarter earnings conference call. [Operator Instructions] I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please proceed, sir.

Thank you, operator, and good morning, everyone. Thanks for joining Penn National Gaming's 2006 third quarter conference call. We're going to get management's presentations and comments momentarily, as well as the Q&A session, but first I'll read the safe harbor disclosure.

In additional to historical facts or statements of current condition, today's conference call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the Company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the Company's filings with the Securities and Exchange Commission, including the Company's reports on Form 10K and 10Q. Penn National assumes no obligation to publicly update or revise any forward-looking statements.

Today's call and webcast may include non-GAAP financial measures within the meaning of FCC Regulation [G]. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the Company's website.

With that, I'll turn the call over to Peter Carlino, the Company's Chairman and CEO. Peter?

Thanks, Joe, and good morning, everyone. With me, as usual, today are Len DeAngelo and Bill Clifford, Jordan Savitch, Steve Snyder, Robert Ippolito, looking down the table. And we will, as has been our practice for a long time, give you just a brief summary and then rely on your questions to take us where you'd like to go.

We had a really outstanding quarter this quarter, although admittedly there's a lot of moving parts that I'll ask Bill Clifford to walk through. We have held on to our fourth quarter guidance, looking a little bit ahead. And significantly, I think our development pipeline is moving along very well. It's about as bland as I can take it, but things are good here at Penn.

We continue to seek new opportunities. That's a very active part of what we do here day to day. And I'm going to ask Bill Clifford right at the outset here just to talk about the quarter, since there were, I think, more than a few adjustments that he'd need to explain. Bill, why don't you start?

Thanks, Peter. I think the first thing--I think there's been a bit of confusion relative to where our guidance was. We certainly did come out in the last earnings call with $0.49, and then we did update that on August 9th for the insurance aspect, which was an additional $0.02. We didn't update the individual metrics associated with that.

And in the quarter, as we've indicated, there are certainly other moving pieces as well. Probably the most notable one is the income tax impact. And to add a little color to that, we have what has been described to us by our new tax advisors as probably some of the most complex tax transactions on the planet, is how they put it. I'm sure that's a bit of an exaggeration, but there have been a numerous number of things that have happened over several years that have created a very complex tax calculation.

Those include the acquisition of Hollywood and the bankruptcy associated with the Shreveport transaction, the Argosy transaction, and then the subsequent sale of an asset in the middle--basically within weeks of having acquired it. The Pocono sale with some rather unique provisions relative to the ability to put--basically send the property back to us, which we're very happy to report has obviously been resolved this quarter. And there were some definite tax consequences around that, as well as just other general pieces around certain transactions at Penn which continue to--continued endeavors. We've pursued different opportunities.

I think what I'd leave you with is that over the last two years, we've booked in total, between continued ops and discontinued ops, almost $300 million worth of taxes. So the fact that we've got a $4 million adjustment this quarter, which really came about as a result of the detailed preparation from our tax advisors, outside tax advisors, who, coincidentally, we've spent a significant amount of money, probably close to $2 million this year, on getting their help. But this represents less than a 1% adjustment relative to total taxes paid.

With that, I'll return it back to you, Peter.

No. I think that said it very well, Bill. Why don't we get straight to the Q&A, operator, and let's find out what folks would like to talk about today.

[Operator Instructions] And our first question comes from the line of Larry Klatzken from Jefferies and Co. Please proceed.

Hello, Peter. How are you doing?

Good morning, Larry.

Good morning. A couple of questions. What is the status--if you are at all, because you have some very good people there, and Len and such--the Kevin replacement. Are you guys still looking? Are you going to stay in house with some of the talent you have?

You've got to put me on the spot this morning, Larry? Thanks a lot. Look. We have set a fairly lofty objective in filling that spot. Obviously, not just looking for today but doing the responsible thing as we look forward to succession in the future. By the way, I'm not going anywhere in a hurry. But I think we set a very high bar, and we're really just into that process. So there is no race here.

I think you made the key observation. All of us feel that the Company's fine precisely as it is. We could go on indefinitely if not forever, frankly, with the team we have, although we could use some more depth, always. But we're going to see what develops from this process. It is a process, but it's not a race. So you could well hear me here next quarter saying the same kind of thing, and presumably the next quarter will look just as solid, and the wheels won't have fallen off the cart.

So we're very comfortable here at Penn. As I said, we set a lofty bar, but in the meantime, or indefinitely, we're just fine. So that's the best way I can answer that for you.

That's perfectly fair. Pete, second thing, could you maybe go over some of the political stuff going on? The current polls in Ohio. What's the story with West Virginia tables and [inaudible] [attempt]. Even talk about Pennsylvania tables and this appeal of the 3% tax in Illinois.

Well, we certainly can't talk about polling in Ohio. And look, my standard answer on any political question is, I'll let you know when it's over. Because none of us really know anymore than we know who's going to be elected into certain offices around the country. The voters will decide, and so it will be with us.

Look, what I can say is that we're in the hunt in Ohio. I think there's every reason to think we've got a good shot there. It's close. I think that's generally been the thought from the very beginning. But yes. We could actually win this. And if not, it's a long-term objective for us. We think it's inevitable. It should be inevitable. It'll happen there. Again, I'll say that with a little more confidence. But I think we have a good shot to win this year. We're just all going to have to wait until election night.

West Virginia, sort of the same thing applies. I think if you follow the press as we have, and I know many of you have, it's sounding pretty encouraging. And I think more encouraging is the fact to us that our local legislators and our local public reaction has been very, very good. So that we're optimistic that something could happen this year there. But again, it may take the full effect of Pennsylvania's impact for that to occur.

But again, I think that things are lining up much, much better in West Virginia. I think people have finally figured out that there's gambling going on here, and what's the difference if we create more opportunity for our customers and more revenue opportunity for the State? So I think that's fairly positive.

The 3% tax, that's sort of off in limbo. I guess Jordan could probably give you a quick summary of the litigation. Jordan, do you want to take a second with that?

Well, the litigation's going to be a long fight. There haven't been any recent developments there. The money continues to be held in escrow, and we'll just have to wait to see how the courts are going to decide.

Yes. For what it's worth, I think we have a great case. This is one that we ought to win, but we all know that fairness in life is not exactly and always the outcome. But we have a good case, and now it's hurry up and wait. And what was your last question?

Pennsylvania tables.

Oh, you're getting ahead of yourself there, honestly. I've got to tell you, we've been encouraged by the fact that the Gaming Commission recognizes that tables are an important part of the mix. But we have almost--we've really not closed out existing legislation in the state that's necessary to get us up and running. As you know, the legislature is going back and forth on a lot of what they consider to be loose ends.

I think the point for us right now is we have legislation to go forward. That hasn't changed. We're going to go forward. We're moving very quickly. We have a very aggressive construction schedule, and that's that. But do I think it's possible or likely? I don't know. If it happens in West Virginia, I think you've got to give it a little time to cook here in Pennsylvania first. We haven't even had the award of the second tier of licenses. So I love your thinking. But I think we've got to be patient.

All right. How about an easy question? The Pinnacle proposed third Baton Rouge casino. Do you think the town rejects it? And what do you think the effect would be if it doesn't?

Well, they haven't actually come out and made a statement yet that they are definitely going there. But I think we decided before that that market is, we think, amply served by two boats. And I think it's going to be very difficult for them to make out a case that a third boat is justified there.

Yes. Look, it would be bad for the City. It would certainly be bad for the other operators there, should they arrive. And as you might guess, if they come, we'll torture them to death. To death. I mean, they'll never make a profit down there because it just--it's stupid. It's really foolish to do it. Just look at the town population. It doesn't take a genius to figure that out. So needless to say, we'll fight it tooth and nail. It just is what it is. And we'll see what happens.

I'm sure Columbia Sussex will help you torture them. Last thing, Biloxi trends. How's the market looking? There was great results there. With MGM now open and everything, how is--is it still just looking as strong as you saw in the quarter?

Sure, Larry. This is Len. Yes. It started off very strong, as you would expect, after being closed for over a year. And the enthusiasm in the marketplace. The properties did do very well and continue to do well. And will probably, for the foreseeable future, settle out below what you saw for the initial months, but above what we experienced pre-Katrina. So somewhere in there. We haven't really--we really don't have enough experience yet to give you a good indicator of what we expect. But it is positive.

Let me add on to that a little bit. I think one of the things we have to put in perspective as well, though, is that there's this enormous chain and ball hanging off these properties, which is around the insurance. So even though the properties are doing well, on a full-year basis, the amount of insurance premiums that--between Boomtown, Rouge, and Bay St. Louis, that they're going to be absorbing versus historical references, it's almost $13.5 million on an annual basis. So certainly they have to perform better than they had been performing or we'll see--we would see very unsatisfactory results down there.

By the way, I hasten to add that that is going to become known to a lot of folks who think they want to go down there and open a lot of the casinos that are talked about. Let's see how many get insurance. It's going to be very tough for single property kind of operators to do that. Very, very difficult. What you see is spread across our entire portfolio. I think it's safe to estimate, though, that if we didn't have those couple of Gulf Coast properties, we could wipe off probably more than half of our insurance costs.

Yes. And we believe that's absolutely correct.

That's a data point for you.

Is some of the higher corporate related some of the insurance, or the insurance is all at the property level?

Insurance is at the property level.

All right. So corporate for next year, what should we use as a number?

We're not quite finished there with getting approval from our Board, so I hate to get ahead of myself there. I think I ought to give our Board of Directors an opportunity to opine on that comment before I go on record with you guys.

Thanks, guys.

Thank you.

Our next question comes from the line of George Smith with Davenport. Please proceed.

Hey. Good morning. I guess I need a little bit of help with the numbers, specifically guidance for the fourth quarter. And when I look at what you offered up versus what we and I think some others were expecting, and I factor in Biloxi and Bay St. Louis, it just--I feel like I'm missing something, and I'm wondering where we ought to be more cautious. Or Bill, what people need to make sure they're factoring in. It just looks like a low number, put simply.

Well, I think what we'll do--what I'll do is I'll walk you through kind of a simplistic reconciliation of this year against last year, which I think hopefully that will help. What we're expecting is roughly--in the fourth quarter, we're expecting about $8 million--a little over $8 million worth of property improvement offset by insurance of roughly $6 million, Illinois taxes of roughly $4 million. And then that gets you kind of to the EBIDTA line.

Then below that, there's the depreciation, which is climbing by roughly $7.5 million, which I would break down as Bay St. Louis and Boomtown, because they're open, versus last year they were closed, is roughly $4.5 million. There's about $800,000 for Charlestown. There's $1 million related to the fact that last year we had very preliminary estimates on depreciation which ended up being understated by roughly a million, which were caught up in the first quarter. We've got a full year of Bangor. And then there's just other general depreciation increases associated with the amount of maintenance cap-X we've spent and the fact that slot machines that we're putting on the floor are more expensive than the ones that are being depreciated. All of that totals up to about $7.5 million.

There's about a $3 million interest expense increase associated with LIBOR curve as well as the fact that there's a bit more borrowings out there. And then the last--a couple more pieces is we've got--last year, we had a $4 million pickup--well, we have a pickup in '06 versus last year because there's a $4 million charge in last year's number relative to the demolition of the Grandstand.

As an aside, that gets you to roughly $8 million on a tax adjusted basis. That picks up roughly $4.6 million, or $0.05. There's--this year, we're recognizing, as required by 123, option expense, which is roughly $3.5 million, or $0.04. And then there's a couple of other items that we're picking up, which were charges against last year. Hurricane Katrina net of tax is a $1 million charge in the fourth quarter. And then there was some debt extinguishment related to basically canceling our old credit facility revolver, which was undrawn, which was roughly $900,000 on a post-tax basis.

So all of that pretty much totals up to the $0.12. And if you--if that's not enough detail, or anybody's confused on what those elements are, I'm happy to answer phone calls.

Maybe it's the property improvement number that--I believe you said $8 million. Again, when factoring in Boomtown and Bay St. Louis, it would seem as though maybe you're being a little less optimistic elsewhere. That we're missing something elsewhere in the portfolio. Is there weakness in a specific market?

I don't think there's weakness in a specific market. I would say that there's--we certainly don't expect Baton Rouge to perform at the same level it performed the fourth quarter last year. We're also absorbing roughly $3.4 million--a little over $3.4 million worth of tax increases between those three properties.

And when you--so I will give you this much guidance. Basically, we're looking at the Gulf Coast to be relatively flat with last year. Now what we're saying is that the expected year over year declines at Casino Rouge will be offset with improved--with the performance of Bay St. Louis and Boomtown, and also absorbing the increased tax impact.

And then other than that, I don't--I think--I guess I'll leave you with is that we're very consistent with where we thought we were going to be. Our numbers haven't dramatically changed relative to our expectations from where we were last quarter. And we don't really see anything, quite candidly, going forward that would cause us to change our outlook from where we were in the third--last earnings call.

And it's safe to say that corporate was probably inflated by at least a couple million by Ohio [inaudible, crosstalk] in the fourth quarter? I guess it'll be what? A month or so of spending?

Yes. Well, probably the most intense spending. But there's also--we've had some, which I alluded to earlier, a bit of tax advice help that we've had to spend some money on to make sure we got it right. And that's one of the things that I'm very firm on, is that we're not going to find ourselves in some kind of a quagmire because we didn't spend enough resources to get the accounting right. And that was clearly one of the items that had a bit of an impact on our corporate overhead.

Okay. Peter, you mentioned looking for new opportunities, and I know every quarter someone will ask about Vegas or Atlantic City. And I'm wondering if--it doesn't seem as though there's anything on the horizon there. But what--maybe discuss the abundance of opportunities out there and/or the type of opportunities that you guys are looking for.

Well, I think we've said before that our standard thought is to look for properties where we can add value. That is always the case. And that's the goal. We typically don't look for greenfield projects. If we can find them in the right places--obviously, Maine is a greenfield project. But it's certainly a safe and a prudent one.

But we have said that given the opportunity, we would do on the right piece of property at the right price, and the usual caveats, a greenfield project in Atlantic City, if we could find a location. We're very focused there. I think [inaudible] has made it very clear that a new shiny, polished, focused project can be successful. So it's a big if. And we continue to work at that. So that is one point of entry that's possible in Atlantic City.

We look at a lot of stuff. We turn down obviously most of what we see. Our banks do a pretty good job of trying to keep everything that is real and maybe real, could be real, in front of us, and we look at it. So that process hasn't changed.

We're a little bit more relaxed about Las Vegas, because I've been fond of saying that for a company like ours, we have to have a story before we would go there. And that is to say that I don't think that Las Vegas needs another mega-property, although it would appear that [general] folks are going to try to build some. And that's just not us. That's not our customer base. That's not who we are.

At the other side, if you will, are the--sort of the niche properties. Palms would be a good example. They've got an idea. That's a storyline. And they pursue what they pursue. Those aren't our customers. That isn't our method of operations. So you've got to figure out that we've have to come somewhere in the middle to a property that would meet our customer base. And frankly, there's nothing on the horizon right now that looks opportune.

But we continue to look at that, putting a larger priority and emphasis on Jersey. Right down the street. Why not? But believe me, we have not ruled out Las Vegas either. So with that very broad thinking process, it's got to be the right answer and something that our shareholders are willing or would say, "Yeah. It's a pretty good idea. See what those guys are doing." We use that kind of filter with everything we do, so there's the most complete answer I can give you.

Okay. Thanks, and have a good day.

Our next question comes from the line of David Anders with Merrill Lynch. Please proceed.

Great. Thank you very much. Bill, was there anything unique in the Joliet line items this quarter? Or perhaps somebody could address operationally. It's running a little below what I was thinking it would.

This is Len. I'll be happy to take that. You've got the $2 million, obviously, in the 3% tax. And in addition, in the third quarter, the property management took an initiative, an aggressive marketing initiative, to try to chase some of the revenue that they may be leaving on the table during the fiscal year of July 1, '06 through June 30, '07 as it relates to the guaranteed tax. Quite frankly, those initiatives were less than effective, and the property is--they weren't able to get the revenue out of it that they had planned, and there is some additional marketing costs in that third quarter as a result of that.

Right. Because Hollywood Aurora came in pretty much--just slightly below what I was looking for. And so I'm assuming they didn't have the same marketing?

Correct.

Okay. And with respect to--Bill, just so I understand the insurance issue, do the Gulf Coast properties get like this disproportionate weighting then or allocation of the insurance hit? Or how does that work?

Well, I'm just going to--I'm going to read off some of the bigger property numbers. That way, we just won't have to worry about trying to dodge all these questions. What I'm going to do is give you the increased premiums basically on the upcoming year versus the other year on an annualized run rate basis.

Lawrenceburg is absorbing roughly $2.3 million. Charlestown is absorbing $600,000. Aurora is absorbing $2.2 million. Joliet's absorbing roughly $1.6 million. Riverside's $1 million. Alton's $1.1 million. Tunica's $1.3 million. Sioux City's about $0.5 million. And then there's just a hodge-podge of other small increases across the other properties.

The allocation method takes into account two things which are the most expensive components of the insurance. Obviously, one is windstorm and related storm surge, and then there's also just pure flood. So the properties that have windstorm and pure flood exposure obviously were hit the hardest, which--and then there's also a reflection of just what's happening generally with cost of insurance around catastrophic property damage. So that's kind of the piece.

And then obviously, the three properties up in Louisiana, Mississippi, Boomtown getting hit for $3.7 million. Casino Rouge is $4.2 million. And Hollywood Bay St. Louis is $5.5 million.

Wow. Okay. Now just to clarify, since you offered this up. You did say Mississippi would be--in the fourth quarter would be kind of in line with last year's EBIDTA?

Yes. On a combined basis across all three properties.

Okay. Because I had that at $7.3 million last year in EBIDTA. Maybe I had the wrong number.

No. Fourth quarter last year, Rouge alone was $20 million.

Oh, Rouge--including Rouge. Okay. I got you. Perfect. Thank you.

Thanks.

Our next question comes from the line of Dennis Forst from KeyBank. Please proceed.

Dennis Forst. Yes. Good morning. Bill, can you give us capitalized interest for the quarter to start with?

Sure.

And where it's going in the fourth quarter, maybe?

Cap interest in this quarter was roughly $2.3 million, and we're expecting a number very similar of maybe $2.4 in the fourth quarter.

Okay. Good. And then on a couple of the other items, the loss at Pennwood Racing, the $1.7 million in the quarter, is that a one-time occurrence?

It is. It was the cost of converting from a defined contribution or defined benefit plan, where all of the employees were entitled to--

Right.

--[inaudible, crosstalk] benefit.

Yes. I think you spelled that out.

Yes. We did in the last quarter. So that was basically the cost associated with actually getting out of their existing plan and implementing the new plan.

Okay.

And so those costs--those were one-time costs.

Yes. And the tax rate jump, that was a one-time situation also?

Well, [inaudible, crosstalk] quarter was a bit of a one-time, and the rate--and I can tell you that associated with the tax consultants, we're also taking a look at how to maybe potentially look at opportunities for reducing that on a going forward basis. I'm not--I don't want to comment as to whether I think that's going to be significant, because I think it's going to be fairly small. But we certainly are exploring opportunities for potentially lowering that tax rate going forward.

Okay. I'm not sure whether you answered or I missed the answer on the Ohio investment. How much are you spending on that campaign?

We're still not going there.

Oh, okay. I know somebody asked it. I just didn't hear the answer.

There you go.

Okay. Then that answers my question. Thank you.

Thanks.

Our next question comes from the line of Joe Greff with Bear Stearns. Please proceed.

Hey, guys. Bill, what's full year corporate spend this year?

Full year corporate spend is going to be roughly $51 million.

Okay. And that's exclusive of FAS123 expense. Correct?

Yes.

All right. As you kind of look back on that $51 million number, what do you kind of see as one-timers or non-recurring or things that shouldn't recur next year?

Well, gee. If I gave you that, you'd probably get right back to the Ohio number, so I'm going to have to [inaudible].

Give me credit for trying.

I will.

Okay. And just to clarify your earlier comment, you're saying that the quantum of Casino Rouge, the two Mississippi properties, the fourth quarter this year should be equal to the fourth quarter of last year, just to clarify your last comment?

Yes. After considering, obviously, the increased insurance costs.

Okay. Great. Thank you.

Sure.

Our next question comes from the line of Ryan Worst with Brean Murray. Please proceed.

Thanks. Good morning. Just a couple of questions. Most of my questions have been answered. But Bill, can you provide the balance sheet information and cap-X for the quarter, and what you expect in the fourth quarter? And then again, just getting back to Mississippi, looking at the Biloxi--the third quarter results, all the increases in insurance were included in those third quarter numbers, I assume. And then I was just wondering if you could provide some color as far as the decline in Biloxi that you saw at Boomtown in September after the other openings on the coast.

You've got a bunch of questions there, so if, by the time I answer some of them, if I forget one, I'll just ask. Let me go through the balance sheet stuff first.

Third quarter cash was $136.3 million. Total debt, which does include Pocono Downs, part of--we've got an increase--we're recognizing roughly on a net basis $24.6 million for the Pocono, which is the MPV of the payments that we've agreed to as part of the resolution. It leaves us with total bank debt of $2.3 billion. Capitalized leases at $11.6 million. The Pocono, $24.6 million. Bonds is roughly $450 million, for a total of $2.803 billion.

On the cap-X side, we've spent--in the quarter, we've spent roughly $55.3 million on project cap-X, almost $13.8 million on maintenance cap-X, for a total of roughly $69 million. The budget cap-X breaks out between Charlestown roughly $18.3 million, Boomtown, which is $3.6 million, primarily related around items of expansion on the pier that weren't included in the--would not be covered by insurance, and National is $2.7 million. Lawrenceburg, we spent roughly $10.7 million. Riverside is $15.5 million.

And then we've got an item that we haven't yet allocated back to the projects, which is roughly $4 million for Company-sponsored insurance for the benefit of making sure that if subcontractors don't have to get their own insurance, we expect that'll be a very cost-efficient program. And that all adds up--there's probably some other somewhere for a nominal amount, but it runs to a total of $55.3 million.

I already forgot some of your other questions.

The other question was really concerning Biloxi and the drop-off in September, and just a clarification that the insurance costs were all into--in the reported third quarter numbers.

Well, the insurance costs reflected two months, so it wasn't a full quarter in the third quarter. And that was roughly $2.2 million, $2.3 million for the quarter. And then I'll let Len talk to the trends in Boomtown.

Yes. Again, the properties opened strong, and the trend was down in September. And we are--but it's still, again, doing better than it did pre-Katrina, as it needed to be, as Bill clarified before. We had--we are not--we don't have enough history yet to project where those properties on the coast will trend out. But we're confident. There's nothing to open in the relatively near term, that they should continue to do fine.

Okay. Great. Thanks.

Our next question comes from the line of David Katz with CIBC World Markets. Please proceed.

I'm all covered. Thanks very much.

Our following question is a follow-up question from the line of Larry Klatzken from Jefferies and Co. Please proceed.

Actually, I think that cap-X one you gave out answered my question. Thank you.

And our following question is from the line of David Anders with Merrill Lynch. Please proceed.

Bill, maybe this was in the release, but what should we use for the tax rate for next year, then?

It is in the--or it is in the release--oh, next year?

Next year.

We're not commenting on next year at this point. We're still working on that with our advisors in terms of an expectation for '07. Sorry.

Okay.

And our next question comes from the line of John Maxwell with Merrill Lynch. Please proceed.

Hi. Good morning. Just two quick questions. Bill, the budget for the projects you have underway, how much contingency is built into that? Or are those firm costs at this point? I'm just wondering if there's any risk for cost increases as you go forward.

Well, there's always risk of cost increases until the project's done, even when you end up with a fairly firm contract bidded process. So I think there's contingencies within all of these projects. Obviously not the same percentages, depending on the stages that the different projects are in and the relative progress that we've made, and the--based on also on the amount of drawings that are in place in terms of what percentage of the project's been completely drawn out. Our architects have done their job and the contracts are set against those.

But I would say that clearly there is risk. But I think we feel very comfortable as we stand today that we're going to get these projects done within the numbers that are being reflected within the table on page six of the press release.

Okay. And then just a last question for--I know you still have time before you have to proceed with the Empress sale, but does that--do you wait for resolution of the 3% issue before you would proceed with that?

They're not related. They're really not related. Look, we make--I think it's safe to say that our desire would be to keep the property. We've always said that. We have, of course, committed to the Commission in Illinois that we would be prepared to sell. That was part of our original agreement. Of course, we have, from a tax point of view and from strategic points of view, looked at alternatives. And I think we're prepared to do what we must.

But let me be real clear that we would hope that any fears that the Gaming Commission may have had about the properties not acting independently or being sufficiently competitive, or any risk due to concentration, even though I think we recognize that there's no prohibition against having the properties that we do, that perhaps, and I just underscore that perhaps, they might be open to allowing us to keep the property. But that's going to be in their hands, not in ours. And I think we just have to play it out.

Okay. Thank you very much.

[Operator Instructions] Our next question is a follow-up question from the line of Joe Greff with Bear Stearns. Please proceed.

Peter or Len, can you just talk about the expansion of Charlestown for the additional 1,000 gaming machines beyond the 800 in the 1Q of next year timing thinking on that? And then sort of a similar question for Penn National in terms of the additional slot machines beyond the initial 2,000, in terms of your thinking there. Thank you.

Joe, I think your initial question was about the fact that we've announced that we're going to be adding machines at Charlestown in the first quarter, and we've got building space out there for an additional 1,000 machines following that. That project's based on, obviously, demand and how we see the customer acceptance and what-not. Certainly, it's--the most cost efficient solution is to build up the shelves and get it ready for that. We would expect that could happen as early--as soon as the customers and the demand warrants it, we would add those additional machines some time further down the road.

Relative to Penn National, we're following a similar concept where we're opening with 2,000 machines within a building that's sized to handle 3,000, and it would be our expectation that we would add machines just as soon as we saw demand that warranted it. Part of our thought process around why we go with two up front is to get a good read on where the demand and what types of projects are most popular and have got the most demand, and make sure that you end up ordering the products that customers want to play.

Now sometimes there's a little bit of a lead time. I can tell you we were pretty surprised up in Bangor in terms of what types of machines got the initial play. And that really revolved around some of the games that had--simple three-reel spinning slot machines were very popular up front, and then people tend to gravitate towards sort of the more modern products that are offered in the more mature markets over time.

That's a pretty good answer. So I guess Bill made clear that in Charlestown, we're shelving out the space so it'll be roughed in--we'll be in great shape. The new parking garage is up and open and kind of finished. The 800 machines can go in. So we're actually going to be--this may be the first time ever--slightly ahead of the curve at Charlestown, and really ready to meet demand very quickly when the time comes. That's the additional 1,000.

Okay. Thank you.

Gentlemen, there are no further questions at this time. I now turn the call back to you.

Well, thank you very much, and thanks, all. We'll see you next quarter. Thanks again.

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation.