PENN Entertainment Inc (PENN) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Penn National Gaming first-quarter results conference call.

(Operator Instructions)

I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.

Thank you, Amanda, and good morning everyone, and thank you for joining Penn National Gaming' s 2013 first-quarter conference call. We'll get to management's presentation and comments momentarily as well as your questions and answers, but first I'll review the Safe Harbor disclosure.

In addition to historical facts or statements of current conditions, 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 10-K and Form 10-Q. Penn National Gaming 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 SEC Regulation G, and when required, our reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, will be found in today's news announcement as well as on the Company's website.

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

Thank you very much, Joe. Good morning everyone, and welcome to our first-quarter call. Given the state of the economy and the general state of the world, we're happy to report a very, very solid quarter. We, as you know, don't make a lot of preliminary comments, but I thought it might be helpful up front to ask Tim Wilmott to share just some broad operational observations, and also Jordan Savage to talk a bit about the progress with our REIT approvals around the United States. With that, Tim, go ahead.

Thank you, Peter. We've just concluded the first quarter. And I need to remind everyone that, if you recall, 2012 was an especially good winter weather period. In fact, on a same store basis, 2013, which I would characterize as a normal winter, had twice as many snow days impacting our operations in the Midwest and Northeast as we did a year ago. And it was more in line with what we saw in terms of weather in 2011. Despite that fact, and despite the fact that we've had supply come in to the markets to affect businesses like Charles Town, Lawrenceburg, Riverside, and Baton Rouge year over year, I'm pleased with Penn's operating team results in delivering margins that were very, very solid. And I think we've managed in these markets where we've had this new supply, managed our cost structure to these new business levels very, very well. Jordan?

Thanks, Tim. Jordan?

We are very pleased with how productive we've been in the last couple months, pushing forward this transaction. There's a lot of moving pieces and we've particularly been focused on the regulatory piece, and have been working productively with all of our regulators, getting them the documents and information they need, answering the questions as quickly as we can. And feel like we're still on course to hopefully get this transaction completed by the end of the year.

That's succinct. Thanks, Jordan. And Amanda, would you open the floor for questions.

Joe Greff, JPMorgan.

Peter, I was hoping you can elaborate on the comments in the press release about you guys are in active dialogue with the Ohio State Racing Commission. I guess maybe more specifically, what are you in dialogue specifically about? Is it level of capital investment? Scope of investments? If you can help us understand that, that would be helpful.

That's a -- I'm going to let Steve Snyder handle that, because Steve really is point on all that process in Ohio. But broadly, the difficulty is that racing commissions, not just in Ohio, but elsewhere, just haven't caught up with the reality that the kind of racing business that we've known in the past is no more. So that facilities being built today are built with reality in mind. And frankly, it's just simply a debate about the -- frankly it's down to seating. But I'll let Steve answer that question. I think in the end, it will get resolved. Steve, go ahead, please.

Yes, Joe. Real quickly, we've been summoned now to the weekly meetings -- what have become weekly meetings -- of the Ohio State Racing Commission, because the Commission does remain, or claims they remain, committed to seeing these investments and these projects completed. But they have a notion of where the state of affairs are in racing in the United States in 2013 that is just obsolete. And is not reflective of where racing patronage and therefore, racing facilities need to be. We've invited them to visit our facilities, to see our newer products, to get a better understanding. We've encouraged them to visit other facilities outside the state of Ohio. They, for budgetary reasons, have refused.

So we continue negotiations to try and create an environment on the racing side that is not obsolete from day one, does not have a bunch of empty seats for every event. And they remain steadfast in encouraging us to maintain a higher level of seating than we think is anywhere remotely appropriate for current market conditions. So, as I said, with weekly meetings now, they seem it be engaged in trying to get to something for these two new facilities to be relocated that makes sense, and do not require us to spend capital in places that will just not generate any returns at all. As we've said in the statement, we hope it be able to get to an accommodation, but right now, we do not have clarity on what that accommodation will look like, nor when it will occur.

I should point out, Joe, that the deal in Ohio, with respect to the race tracks, involves very substantial up front fees that go to the state. First, for just the licensing of the facility, and a relocation fee that, again, has been publicized before. Given that, there is just a finite amount of money that can be spent on this facility. And we will be, as we always have been, extraordinarily disciplined about what we'll spend there. So it's -- there's really not any room here to go much further. We've got a facility. It's a terrific facility. We've invited them, and actually presented in extreme detail, what else is being done around the United States with new facilities and so forth. What we've proposed, of course, is completely in line with that. It's our hope that sooner or later they will come around to recognize that what we've proposed is what ought to be there. Let's leave it at that.

OK, great. Bill, with respect to your pro forma PropCo and OpCo guidance, has anything changed versus three months ago with respect to debt financing costs, or with respect to the capital structure?

No. We have made no changes in our guidance on anything dealing with the debt structure. Certainly, there's been some adjustments, as reflected in the release, around how we're going to solve for the related party tenant rules around the 9.9% ownership with the Carlino family, as well as, as a result of some of those adjustments, has allowed us to reduce the buydown required for the Fortress Group. And we've also, obviously, talked -- come to a resolution around the preferred equity that is held by the parties other than Fortress, one of which was a very small slug we actually repurchased in the first quarter. And then the other one, we have an agreement on a repurchase agreement at the effective date of the transaction. But the short answer to your question is no. There's no changes on the debt structure and no changes on the implied interest rate.

Perfect. And then two quick ones for you, Bill. With respect to financial guidance for Penn National Gaming, one of the items you referenced is an increase of about $11 million of full-year corporate overhead related to a number of different things. How much of that was recognized in the first quarter? How much of that incremental $11 million was recognized in the first quarter here?

Probably -- well, how much of that? Let me word it a different way. What we have in the second to the fourth quarter is approximately an incremental $9 million of corporate overhead for the second through the fourth quarter, of which we think about $3.5 million to $4 million is related to development costs. And roughly $5.5 million for the stock price movement through March 31. That expense will go higher, assuming -- because our stock was at roughly at $54 the end of the quarter and [totally] is trading higher. So we will continue to see some additional expenses there that are not reflecting guidance, because obviously, I can't foretell where the stock price is going to be between now and the end of the quarter.

But you'll get that back on the share count coming down, assuming the share price goes up. (multiple speakers) And then, Bill, last one here. If you can give us cash and debt balance at the end of the quarter, maintenance and project capital expenditures in the first quarter, and what your expectations are for the balance of this year? Thank you.

Sure. Cash at the end of the first quarter was $247.7 million. Total debt was $2.614 billion, of which $2.276 billion was bank debt. Capital leases of roughly $2 million, bonds $325 million, and $10 million for other. That represents roughly a $117 million reduction since fourth quarter

Going forward on the CapEx, CapEx for the first quarter was a total of $62.7 million, of which we would characterize $21.8 million of that as maintenance CapEx, and $40.8 million of project CapEx. Primarily, the project CapEx, roughly half the project CapEx was wrap-up spending between Columbus and Toledo. We've spent roughly $6.6 million in Dayton and Youngstown on site prep and other design costs. And then the last piece that's the predominant number is what we've spent in Hollywood St. Louis, on the conversion. And that's roughly $12.3 million.

Looking out for the year, we're expecting maintenance CapEx at $94.3 million, project CapEx of roughly $277 million. That would include total expenditures for Columbus and Toledo wrapping to be around $36 million. We do have in our number, and this is obviously subject to outcome of discussions with Ohio, there is roughly $173 million that we were planning on spending this year on the tracks. That may get -- depending on the outcome and the timing -- that may or may not happen. And that may not be a great proxy for what we're going to spend this year. It won't be higher than that, obviously, because we've obviously are not spending at the rate that this guidance contemplates.

And then we've got $13 million for the hotel at Zia. And then we expect to spend another $47.8 million in St. Louis. And then there's some other stuff kind of floating through that gets us to a total of project CapEx of $277 million for the year.

Great. Thank you, guys.

Felicia Hendrix, Barclays.

Jordan, can you help us think about when you might start hearing from the state regulators in terms of approvals? Do you have any better sense now than you did maybe a few months ago?

Yes. That's always a murky crystal ball to look into. It's wholly within their discretion, when they're ready to put us on agendas. So I can only offer a guess. And I think that the guess is that I'm hopeful that we'll start seeing a few put us on agendas in the second quarter. And I am more hopeful that we'll see a lot more being ready by the third quarter.

But, you know, you just have to keep in mind, this is a novel transaction. There's some new things that they're looking at. They're going to -- they'll put us on the agendas when they're ready and they're done with their investigations. And all we can really do is just answer their questions as quickly as they come up.

Given what you know now after working through this process, is there anything that makes you more or less optimistic that this will be a relatively smooth process?

I'm not. There's -- I remain optimistic that it's smooth. Look, -- they've -- things they're focusing on, I can give you a little color. They're looking at the REIT, and what the REIT's relationship is going to be to Penn. They're trying to figure out -- it doesn't fit into one of the really easy preexisting buckets of a supplier or vendor or investor. So they're looking hard at which of the buckets, what kind of licensing, what kind of suitability review do they want of the REIT. And then they're looking at the financing impact. The new financing. Basically, there's a new capital structure coming in for Penn, not just as a result of the REIT. But there's new financing that's contemplating. So they're looking at it like they look at any other new financing to make sure they understand the capital structure and what the impact on the financial viability enterprise will be going forward. I think we answer their questions as they come up. And like I said, it's been a very productive process.

And are you confident that they're -- because you know how committees could be and boards and things like that. Is there a risk that they could delay the whole process?

It's always a risk. (multiple speakers) We see nothing today to suggest this is going to be a problem. Fair enough? As strong as we can make it. We meet regularly on this as a group. And we beat up on Jordan. Believe me, we do. And look, things seem to be going fine. So until they're not going fine, in which case we'll let you know. But right now, they're moving along as well as we would hope.

Okay. Great. Good to hear. Yes. And this is either for Bill or for Tim. Just wondering if you could perhaps discuss the drivers with your guidance. You slightly reduced revenue. Just wondering what some of the drivers behind that might have been?

Well, the revenue guidance, it's kind of a little bit here and there. We're taking a look at trend lines across the different properties. We're actually taking our property level guidance up in the second through fourth quarter versus where we were before, by roughly $7.2 million. And as I touched on earlier, we're offsetting that with some expectations around development costs and the stock employee expenses of $9.1 million. So on a full-year basis in the second through the fourth quarter, we did take it down $2 million. But I would characterize that as actual trend line improvement from the property levels, offset by some corporate expenses related to what we're doing in the different jurisdictions.

Okay. That's helpful. And finally, Ohio revenues, they ramped nicely through the quarter. Just wondering, Tim, are you seeing that continued ramp in April?

I think the trends are continuing. Typically, Felicia, we're -- March is one of the strongest months of the year that we see. And even in new property openings, we're hitting month six, month 7 now in Columbus. And as we have seen in Kansas, saw in Toledo, there's going to be a period of continuing to build. But I think you're going to see another build that will start in the July, August timeframe as we hit the summer months as well.

But I was pleased to see in March versus February in Columbus, for example, we had almost a 14% growth in revenues. And we've shown sequential growth. And we're still working on marketing activities to continue to expose our new property to customers for the first time. And that's gone very well. Our repeat visitation has been very, very strong. Our database growth continues to be very, very strong. So this is very typical what we've seen and how Penn National opens a property in both Toledo and Columbus.

Great. Thanks a lot.

Shaun Kelley, BofA.

Good morning, everyone. Just wanted follow up on specific markets while we were speaking on Ohio. Could you give us an update on your thoughts around some of the possible restrictions on Internet cafes? Tim, is this a big issue that you guys actually think is impacting your slot volumes there? Or -- and this could be a meaningful positive? Or do you think it's more of a one off.

Thank you for this question. (laughter) I think the Internet cafes, of which there's potentially over 800 locations in the state, have had a material impact on our operations, both in Toledo and Columbus. We just can't understand why they continue to exist.

We saw this week that the Attorney General has started to do busts out of these operations, and we applaud his efforts. We know we've got a bill that cleared the House to severely limit these operations. And we know the Governor is behind it. And we're waiting for the Senate to act, as well. It's been frustrating for all of us. I'll let Eric add on to what I miss in responding to this comment.

But I've seen estimates that these Internet cafes that are unlawful, not being taxed, unregulated, that destroy the public trust and confidence of gaming within a state that has authorized it, can generate potentially up to $500 million of revenues. And it has -- there's no doubt in my mind, it's had a material impact on our operations there. That's why we want to see the legislation and law enforcement act quickly to put a stop to this.

Yes. The only thing I'll add, if you look at the front page of the Cleveland Plain Dealer today, you can see the photos from the bust Tim was talking about. Where they have these computer monitors that are actually incorporated into slot machine cabinets. And so we really are talking about mini casinos.

The Senate has held one hearing on this. Unfortunately, they have talked about including this issue as a part of a broader, more comprehensive look at gaming issues. And we're trying to lobby them to peel this away from those other unrelated issues and just focus on this. So we've got a very aggressive lobbying effort underway right now to try to get the Senate to act as swiftly as possible.

But either way, Eric, the Attorney General has clearly recognized, and said publicly, that this is an illegal activity. And he is meeting with prosecutors around the state to devise a plan to do an across-the-board wipeout of this unlawful industry. So we're very heartened by what we've just seen and what you can find in the press today.

And in fact, the courts have ruled to give the Attorney General the support that they have ruled that these are illegal operations and should not exist. So we're hopeful we're going to get these things closed. And I think once we do, you'll see some nice impact to our slot volumes at both of our Ohio locations.

That's helpful. And just curious. Are there any other states where you think this is a legitimate sub-industry that's undermining what else we're seeing in regional gaming? And we've heard places like North Carolina and Texas, which aren't so big for commercial gaming, but curious, do you guys see this as a broader issue endemic around the United States? Because frankly, prior to Ohio, this wasn't something that was hugely on our research radar screen until we actually went into one of these things.

Yes, and there's different forms. In Ohio, the issue is Internet gaming. In other states, it's pull tabs. In other states, it's some form of gray machines. There has been a proliferation of what we would refer to as unlawful, or at least gray gaming, going on around the states. You probably noticed In Florida, this issue actually brought down the lieutenant governor of Florida. And so they're very controversial. You all -- Tim can speak to our specific jurisdictions. But we have seen this across the country. And the American Gaming Association has just recently completed a white paper that's available on their website that talks about the impact of these types of Internet cafes across the country.

Besides Ohio, specifically to answer your question, with regard to the [respect] of Penn National, this is the only jurisdiction that it's having any effect, we believe, on our operations.

Okay. That's very helpful. Moving on to West Virginia for a quick second, you guys probably should have a first glance on the impact that tables at Maryland Live are starting to happen now through April. Is that within the boundaries of your original estimates for how that impact is trending?

It's only been open a week, way too early. They're getting a lot of trial. In fact, I was at Maryland Live yesterday to see the business first hand, and it was very, very brisk. But given just a seven-day opening of table game operations, it's way too early to give you any indication at this point what the effect is going to be. We saw about a 15%, 17% effect on slot volumes. It's tough to predict this early what it's going to mean for table customers. The big variable here, I believe, is the long term effect of customers that can smoke in West Virginia, they can't smoke in Maryland, that like to play table games that have mostly an Asian origin of ethnicity. I don't want to speculate too early yet.

Okay. And just one last one. Broadly on the core consumer, obviously, the March data came in better, slightly better weather. You don't have the leap year, the extra day issue, probably a better weekend calendar. When you guys look at traffic versus ticket, it seemed like the issue wasn't admission. The issue was really spend per visitor. Have you seen any signs of improvement to that in March and April? What are you feeling out of the core gaming consumer right now relative to last quarter?

Most of our data suggests that the weather had a big impact on visitation. We didn't see much change in spend per visit at our core properties year over year. Most of the effect was admission trends and visitation trends that I think were either impacted by new competition in our markets or weather related. It doesn't seem to be any change in consumer spending when they do visit our properties. It's been more of the same, generally flat.

I would agree. And we've done -- This is Bill. We've done some analysis looking back at '11, comparing '11, and '12, and '13. And after you look at factoring out cannibalization from new competition, 2013 feels an awful -- looks and feels an awful lot like 2011, with '12 being the aberration, last year with the weather. So I would -- quite candidly, I think it's just more of the same. I don't particularly see any trends that would give me any indication that things are getting any better or any worse. They just seem to be moving along on a fairly steady pace.

Great, thank you all. Appreciate it.

Joel Simkins, Credit Suisse.

A couple of questions on these jurisdictions, starting with Maryland and the RFP that's due shortly for PG County. What -- was curious on how that's shaping up and if you expect any additional competitors besides yourselves and MGM to emerge from that opportunity?

Steve --

Sure, Peter. There are obviously others that we've heard are looking in Prince George's County. The deadline for the submission is May 10. We'll have to wait and see who shows up and in what form on May 10. There's really not much more to say at this point in time.

Okay. And one other follow-up on Charles Town. Obviously, the property has taken a bit of a hit, the entire market has taken a hit from the wrap of Maryland as well as Pennsylvania. Is there any talk with the state about getting some tax relief? Maybe less racing days, some reduced subsidies to the horsemen?

Boy, that's a tough one. And you might get a couple different opinions. Look, the state itself is not in perfect financial shape, but by no means the worst economy there. So I -- this is just my sense, that I don't expect a lot of sympathy. Concern, but probably no adjustment that we'd be prepared to ask for. In other words, we view ourselves as partners with the state in every way. They've been a great state, frankly, to do business in. They've been stable. They've been reliable. So we -- and they recognize the kind of competitive situation that we have. But they're also hurting, too. So I can't, I must say, conscionably, ask the state to help us when frankly, they are suffering equally along with us from competition. So what we really want to ask from them is their support.

Now, as it relates to racing purses, things like that, I wouldn't want to speculate on what the state might do. If they were to step in and say -- we think that perhaps purses have risen to just too high a level or too much money is allocated to that area. More likely, they'd grab it back themselves. Now I'm not suggesting that's what they have in mind. I have no intelligence around that. But that is much more logical. So it's not likely to come to us. And we're not about to ask for anything. We're very happy with our working relationship there. And what we do ask for is just strong support and the status quo.

And maybe one follow-up for Tim on the development front. The Jamul announcement was incremental, certainly a new wrinkle for Penn in terms of tribal gaming management. How should we be thinking about this strategy going forward and will you guys continue to look for other asset light management opportunities?

I think this, Joel, certainly fits into Penn National moving forward post-spin very, very well. We were fortunate enough to get ourselves involved with the Jamul tribe and filed our documents with the NIGC. I think next week, Steve, we have a meeting with the NIGC to begin discussions about the submission and hope to get this done in the next couple quarters. And this location is really, really ideal for the consumers in downtown San Diego, about 19 miles due east. If there are other like deals out there, and we continue to talk with certain parties about this, this fits very well with the profile of Penn National going forward. As you know, though, Joel, the pickings around American Indian tribal management are very slim. And this was a unique opportunity and a unique market that we think will fit very well with the Hollywood brand there. But we continue to look.

Thank you.

Operator?

Carlo Santarelli, Deutsche Bank.

Good morning. Just a quick question on some of the financing, and the approvals, and the timeline, and how we should be thinking about that. Is it still your understanding, or to the extent that you could provide color on it? Are you guys able to get your state regulatory stamps of approval done prior to the pro forma or the split companies' financing being in place? Or is there a chicken and egg situation there?

No, I mean it's going to be just -- we've certainly given regulators proposed term sheets and what not on the financing side. I would -- it's no different than any other type of arrangement where you've got to get the regulatory bodies to approve it. But it's all done as part of the deal. And everybody understands that you'll start out with the basic level, and it's all subject to the extent that there are modifications on your terms during the marketing process, or maybe minor modifications which you have an obligation then to update the state regulators on, if, in fact, you should incur any of those. And there's an understanding that there's not going to be massive changes to anything that's totally structural. We don't really see any issues from that perspective.

Great. Thanks, Bill. And then Tim, if I can, on the casino side. It seems like you guys have continually driven casino margins higher, and obviously kept the promotional environment relatively in check. Could you talk a little bit about the delta, if you think about 140 basis points of margin growth year over year, just on the casino side? How much of that is mix-related and how much of that is some operating efficiencies you guys are providing?

It's a combination of both. The mix of adding Ohio operations certainly has had an effect on the overall margin. But, as I said at the outset of my introductory comments, the operating teams have done a very good job responding to new business volumes. I look at the team in Lawrenceburg and how we've responded to the effect of Columbus that hit in the fourth quarter, and then the Horseshoe Cincinnati opening in early March. That team has reacted very well in managing its labor to the new world of volumes. So I think it's -- I would characterize it as about half and half, change in mix, and then the response in terms of our overall marketing reinvestment and labor management that's contributed to the margin improvement.

If I could go a step further, would you say in terms of the properties where you guys are seeing the competitive threats, whether it be Charles Town, whether it be Lawrenceburg, if we were to look back to normal run rates for those properties, would you say that EBITDA margins have been relatively in line with what the historical experience, despite lower revenue levels?

When you have this kind of hit in business volumes, you do have certain fixed expenses that just can't get covered as you would. So I don't think it's a fair statement to say that they've been maintained. But I think they've been managed well.

Great. Thanks, guys.

Rich Hightower, ISI Group.

Good morning, everyone. A couple questions. First, on Columbus, I know that in the press release it was acknowledged that the ramp-up has been slower than expected. But I noticed you took out 500 slot machines from fourth quarter to the end of this quarter. And I'm wondering if that was a permanent shift? Is it a seasonal shift with the weather? Is that going to change after the Internet cafe crackdown? Just want to know what your thoughts are there.

We certainly looked at the slot count at 3000 and felt that we could reallocate those 500 units around the rest of the Penn properties so that we could better use those slot machines elsewhere to upgrade the facilities there. We feel very comfortable today that the 2500 unit count is right for the business volumes. And it will all be dependent upon where these volumes go. And what our win-per-units are. My expectation is once the Internet cafes do get contained, we will see improved business volumes. And it's just going to be a wait-and-see approach on how we address the overall count in the Columbus operation. I would expect at this point that the 2500 count that we have there today will get us through 2013.

Okay. Thanks for that. And then, second question, on the OpCo and PropCo guidance that you've given. It looks like there's some cost shifting in terms of depreciation interest, there's share count changes, there's a lot of stuff going on from quarter to quarter versus previous guidance. And I'm wondering, is that a function of accounting interpretation? Or, what really is changing that from quarter to quarter? And just some of your thoughts on the accounting there, I guess, is the general question.

I think we -- I thought we did a reasonably good job of delineating the things that are changing on us from the last set of guidance. The reality is, when you separate two companies that weren't formerly already segregated into separate operating businesses, the process of digging through the detail is rather huge, is a basic way of putting it. And it's very complicated, and there's a lot of subject of interpretation. And we've put out some original estimates, again, trying to be as conservative as possible, or knowing that we -- giving ourselves, when we made those original estimates, for instance, around depreciation, we took a conservative view. Because obviously, as we've refined the view, and as more depreciation has been, not necessarily moved, but as the assets identified more specifically and amount of depreciation. It's clearly helpful that depreciation is increasing on the OpCo and decreasing on the PropCo side for, obviously, for the tax benefits associated with that.

Right.

So I think from that perspective, it's really nothing more than a refinement, and an actual digging through the 100,000-plus assets sitting out on the fixed asset ledger, and going through piece by piece and asset by asset to come to an allocation. We're not 100% done on that. But we know that we've moved enough that we felt that it was appropriate to change what was in our guidance. There may, in fact, be some slight additional movement again in the same direction that we've gone now. But we felt that, given that we know what we've got, we should basically incorporate that into the guidance.

Okay.

The other components of some of the stuff that's changing is we're still working through the details of some of the solutions for some of the problems that we've got in terms of solving for the related party tenant rules and what not. And in our guidance, we always want -- we took -- we knew that there might be alternative solutions that could yield a better result. But we didn't want to necessarily assume that we could successfully get there. So as we get through these hurdles, and as we work through it, and with our advisors, both on the accounting, the tax, and the legal side, and as we come up with solutions that are advantageous to the transaction, and as we know that they're doable and feasible, we're incorporating those into the guidance, as well. I think that's about the best color I can give you on what's been happening.

Okay. That's helpful. And can we -- do you know when we can expect, perhaps, the S-11 to be filed? Is it second quarter, third quarter?

We would expect the S-11 to be filed in the second quarter. So that probably leaves me about 2.5 months. But that'll be the initial filing. The S-11 should get filed sometime this quarter.

Okay. Great. And then, final question, more broadly speaking, from PropCo's perspective going forward on the acquisition front, are there any markets around the US that you're especially excited about in terms of acquiring properties? And I know you can't be having conversations right now. But generally speaking, areas in the US where you think the economy is recovering better than the average and so forth, or where competition is more limited? And then, second question on that front, what -- if you can provide it, what sort of un-levered IRRs would you be targeting on these acquisitions?

I think I'll address -- the reality is from a -- on a going-forward PropCo basis, I would expect that we'll be looking -- it will be an asset-by-asset situation, and clearly, we'll be more excited about markets where we believe that the stability of the cash flow is certain. Obviously, most excited, obviously, in those areas where we might think that there's potential for growth. Stability second, and if it's in a declining market, probably less excited. I think, relatively speaking, does that mean there's some markets we're more excited about than others? It's also going to be a function of finding people willing to do the other side of the transaction. That's probably more indicative of where we're going to be excited versus regions.

And we'll make adjustments, as appropriate, in terms of looking at what kind of rent coverage we need, or expect, relative to the long-term prospects of the individual property and the market generally. I think it's a little too early to comment on what we think cap rates are going to be on acquisitions. I think that's, again, going to be a function of scale, diversification, as well as the market prospects in a market. All of those factors will come into play. And I think that's, quite candidly, what will differentiate ourselves from other people who want to get into the gaming space.

And we certainly have indications that there's other REITs who are, in fact, looking at gaming assets. I think what differentiates us from them is a long track record and history of understanding the nuances of the different gaming markets, which, although not rocket science, can be a little bit challenging for people who are outside the market and haven't been living, and eating, and breathing gaming risks, whether it be cannibalization, legislative, tax rates, et cetera, et cetera. So, I'd say stay tuned on that front. And you are correct that we cannot enter into conversations today. And it is killing us to not be able to come out with -- to start negotiations three months ago. But we are focused on one step at a time in getting the transaction done and then entering into negotiations as quickly as possible thereafter.

Can you disclose whether you're getting incoming calls from potential sellers that you just can't return the calls?

We are.

Okay. Well that's all I've got, guys. Thank you very much.

Thomas Allen, Morgan Stanley.

Following up on the OpCo/PropCo questions, can you help us think about the best way to extrapolate the 2013 guidance you give forward every year? I'm not asking for 2014 guidance, but can you just walk us through how to think about the various rent escalators, how margins should evolve, things like that? Thanks.

Sure. Looking forward to '14, we're going to be setting -- I think there's -- the rent is basically broken out into what I call three components. The one component is building values, which won't change. Looking at '13 guidance and extrapolating forward, the only thing you would add on for that would be new projects coming online, of which the two that are obviously in the pipeline are the Ohio race tracks. The cost of those buildouts would get incorporated into the building rent going forward.

The other piece is, other than Columbus and Toledo, the land rent base is going to be based on 2013 at 4%. So clearly, as all of the non-Columbus and Toledo properties perform this year, we'll be setting the base rent for the next five years for the land rents on the 4% piece. And then there's the 20% of Columbus and Toledo going forward. So those are the three rent components, in terms of what can get adjusted. The beauty of PropCo is really, the margins are going to be rent, less corporate overhead, because there are -- and interest expense. So forecasting where the interest expense is going to be and wherever corporate overhead is going to be is going to basically tell us the whole story on PropCo.

But the -- so I think the piece people should be focused on is, obviously, looking forward to '14, is factoring in -- and there's a 2% escalator on the building values, assuming that there's a rent coverage of 1.8 times or better that also kicks in. But other than that, it's really just a matter of forecasting revenues in terms of where you think 2013 is going to be for all of the non-Columbus and Toledo properties, factoring in next year where revenue's going to be for Columbus and Toledo, and that should give you your rent expectations for 2014 and moving forward.

Okay, thanks. Can you give us an update on where you are with any strategy for online gaming? Thanks.

I'll try to take that, Thomas. We were surprised in New Jersey that Governor Christie in February signed a bill that went beyond online poker. And we're watching how that gets advanced and, eventually, operationalized. I think the net result in New Jersey will be increased revenues for the state, but probably decreased visitation to Atlantic City, and probably a contraction of jobs overall in Atlantic City, given the decreased visitation. And a real question about whether it's going to increase profitability or not.

That said, we continue to have active discussions with partners that are very interested in talking to Penn National about working together for online poker or online gaming as it advances state by state. We continue to see that it's not something that's going to happen at the federal level in 2013. We think it will continue to evolve state by state. It's very difficult to predict how quickly. But we will be prepared if there is an opportunity to do this, both from a legislative standpoint to make sure it doesn't affect our bricks and mortar operations, as best we can, and then take advantage of an opportunity if it's there in a jurisdiction where we operate today.

Okay, thanks. And finally, on your Perryville property. I know it's not a huge property. But I think you recently added around 20 table games. How should we think about that property run rate -- revenue run rate going forward? I assume it also is getting some impact from Maryland Live. Thanks.

No question. We were the first in Maryland to open up table games in March. And we had a nice lift in business with that addition. But again, with only a week under our belt of Maryland Live with table games, it's too early to predict a run rate out of Perryville. They're just going to settle down. We're going to need a couple months of time before we can provide an answer to your question with any degree of precision.

Okay. Thank you all. Very helpful

(Operator Instructions). Justin Sebastiano, Brean Capital.

In the release, you state that you were rational marketers and promoters in Q1. Was this an enterprise-wide initiative, or was this market-specific or property-specific?

I think the philosophy of being rational marketers is an enterprise-wide discipline that we have. It's not market-to-market. And we have to take a look at competitive conditions in every one of our markets and look at trends of where business is defecting and becoming inactive. It's an overall enterprise discipline, but it's applied market by market based on the unique set of competitive conditions that each of our operations face.

Have your competitors been rational marketers as well?

I think generally, yes. It continues to be more of the same of what we saw in 2012. We don't see anyone out there chasing revenues to think that they can gain share and gain EBITDA growth. I would continue to characterize overall the promotional activity across these regional markets as fairly stable.

And that's continued through where we are today in April?

Yes.

Okay, thank you.

We have no further questions on the telephone lines. I will turn the call back to you.

Okay. Before we wind up, and we thank you for the participating today, there's some late breaking news that we think we should share with you. I think in the last 10 minutes, we just got a notice that the Iowa Gaming and Racing Commission has just awarded a license to Hard Rock Casino to build a facility in Sioux City, which we find to be both a mystifying and actual shameful development. In light of the fact that we are the licensee in the city and for the new land-based facilities, had proposed two are what clearly the best choices in the market from every economic and practical standpoint. Tim, do you want to make a couple comments about that?

Yes. The comment I have is just how difficult it is for all of us to rationalize this decision, given that our project had the highest amount of capital investment, provided the most certainty regarding financing, given the strength of our balance sheet, and that we have 20 years of operating experience operating in the Sioux City market. That's why as Peter characterized this decision as mystifying. We don't understand it. And certainly, I want to sympathize and empathize with our employees there who have done a terrific job maintaining a high quality casino experience. And we're going to work with them, whatever the eventual outcomes have here to make sure that they know they're valued members of the Penn family.

And look, this is not the forum now. We've just gotten this information. But suffice it to say, that this is not the last word on this subject. We look forward to exploring this further. That's the most charitable way I can describe it. And we just thought you should be aware of that event. So with that, we thank you for tuning in today, and see you next quarter.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.