PENN Entertainment Inc (PENN) 2013 Q4 法說會逐字稿

Welcome to the Penn National Gaming 2013 fourth-quarter results conference call.

(Operator Instructions)

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

Fourth-quarter conference call. We'll get to management's presentation and comments momentarily, as well as your questions and answers, but first, I'll read the Safe Harbor disclosure.

In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties.

These statements can be identified by the use of forward looking terminology such as expect, believes, estimates, expects, projects, intends, plans, seeks, may, will, should, or anticipates, or the negative or other variations of these or similar words. Or by discussions of future events, strategies, or risks or uncertainties, including future plans, strategies, performance, developments, acquisitions, capital expenditures, and operating results.

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 10Q. Penn National assumes no obligation to publicly update or revise any forward-looking statements.

Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP 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.

I'll take a deep breath, and I'll now turn the call over to the Company's President and Chief Executive Officer, Tim Wilmott. Tim?

Thank you, Joe, and good morning, everyone.

Well certainly, the fourth quarter had a lot of significant events that we'll talk about today. But clearly, the number one is the successful completion of the tax-free spinoff to our shareholders of Gaming and Leisure Property Inc, the first gaming REIT, which occurred on November 1 and created a lot of shareholder value with that transaction.

And now, we have 19 properties under a master lease agreement between GLPI and Penn, and Penn being the tenant. And that also includes two under development, the properties in Dayton, Ohio and also Austintown, Ohio. And also in the fourth quarter with this spin, the properties of Perryville, Maryland, and Baton Rouge, Louisiana, have moved over to GLPI and no longer are part of Penn National Gaming.

So as you'll hear shortly from Saul Reibstein, there is much noise in the fourth quarter results regarding this spin. But clearly, as we look forward today in early February 2014, we're working with a new Penn. And I did want to introduce the new team at Penn.

About two months ago, we were fortunate enough to bring on Saul Reibstein as our Chief Financial Officer. Saul knows Penn very well. He was a member of our Board for four years, and has now been in place here for about two months. And you will hear from Saul about our fourth-quarter results, and also about the guidance for 2014 that we've provided you today.

And then about a month ago, I was able to identify a Chief Development Officer, BJ Fair, who's with us today. BJ joined us about a month ago with significant development experience with Disney and Universal Studios. And most recently was the Chief Executive Officer of American Skiing Company and has a lot of experience in the hospitality industry and multifaceted amenities that attract consumers to that environment.

At about the same time, I was able to promote to my former position Jay Snowden as our new Chief Operating Officer. You'll hear from Jay today, talking about what we're seeing in operations as we proceed into 2014.

And also, just this week, we were able to promote to General Counsel with the departure of Jordan Savitch, our Deputy General Counsel, Carl Sottosanti. Congratulations Carl, as our new General Counsel, effective February 1. Also with us today are our Treasurer, Robert Ippolito, and our Senior Vice President of Public Affairs, Eric Schippers.

Before I turn it over to Jay to talk about what we're seeing within our operations, I did want to give you just a highlight of how we're seeing our development pipeline as we stand today. And in the fourth quarter, I'm pleased to let everyone know that we did finish the refurbishment and rebranding project in St. Louis. And that project got complete right before the Christmas holiday. And we now have a brand new property in the St. Louis market with a fabulous Hollywood Casino that we fully expect will be well-received by the customers in that market now that all the construction disruption is behind us.

I did mention that we have two projects in Ohio under development: the VLT operations tied with the race tracks in Dayton and in Austintown. And we are on target with a fall of 2014 opening for both of those facilities.

We also announced a couple weeks ago that we are moving forward with our partners in San Diego County, the Jamul Indian Tribe, with our proposal there to develop and manage a casino east of downtown San Diego. And that is looking at an early 2016 opening.

And we anxiously await the decision from the Massachusetts Gaming Commission on our application for a Category 2 license, which we expect will come the end of this month. And our proposal is for a $225 million facility, which is inclusive of a license fee, to provide 1,250 slot machines, as well as non-gaming amenities. And again, that decision will come at the end of this month.

And we're also awaiting a decision from the Pennsylvania Gaming Commission for the Philadelphia license. We were in front of the Commission last week, presenting our proposal. We're one of five applicants there, and we expect a decision coming from Pennsylvania in the second quarter of this year as well. So, that's just a brief update of our development pipeline.

I did want to, before turning it over to Jay, certainly mention that we continue to be challenged with the consumer, as we have seen through most of 2013 into 2014, and clearly have had some impact in December and into the early part of this year with the winter weather.

But I did want to highlight the job our operations team is doing in continuing to manage the cost at our businesses, in terms of managing labor levels and marketing dollars and other discretionary spending and highlight the fact that, even in this tough revenue time, we're showing EBITDAR margins that have improved year-over-year by 50 basis points.

So with that, I'll turn it over to Jay Snowden to give his comments regarding what we're seeing in our operations.

Thanks, Tim, and good morning.

As Tim mentioned, we continue to operate in what is currently a relatively soft and cautious consumer environment, particularly at the lower-end worth segments of our rated database, those who typically spend $100 or less per gaming visit.

We've also been contending with new competition. Several of our core markets, which has resulted in some cannibalization of two of our properties, most notably, Charles Town and Lawrenceburg. And the extreme weather this winter certainly hasn't helped, as Tim mentioned.

With all that said, as we look at the macroeconomic trends, the new supply in the marketplace, as well as Mother Nature there is a lot we can't control. Our position has always been, and continues to be, that we operate and work around these issues as efficiently as possible.

Tim mentioned the year-over-year improvement in Q4 in our property level EBITDAR margins, from 29% to 29.5%. It truly is a testament to our operators out in the field who remain laser focused on our higher-value and most profitable customers and continue to promote our cross-property visitation through our Marquee Reward loyalty card program.

We now are live with approximately three-quarters of our properties throughout the portfolio. The majority of those remaining properties will be implemented in 2014, including M Resort later this month. We know that our cross-property players, on an annual value basis, are about 2 to 3 times more valuable than single-property players. So that continues to be a very important initiative for us.

And our property leaders and, certainly, corporate leaders continue to be very focused and concentrate on our overall cost structure. We believe there's additional operating efficiencies to be pursued, and we will remain very disciplined operators and marketers, as we always have been.

As we look forward, Tim mentioned the development projects that are in the pipeline. We believe that the two Ohio tracks with slot machines only, the Zia Park Hotel addition, 155 rooms, which are all planned to open in the early Q4 timeframe, as well as the Hollywood Casino Jamul, 20 miles east of San Diego. And that project, in particular, we really love three things about. It's still bullish about the project. The location is the closest to downtown San Diego in the marketplace, the economics of that agreement, as well as our ability to cultivate hundreds of thousands of new gamers for our database from Southern California is very important to us.

The last I would note, before I hand this off to Saul, would be the promotional environment remains mostly rational in our competitive markets, with the exception of some well-documented flare-ups throughout the middle of 2013 and early Q4. But, happy to note that it's, currently, largely stable as we ended 2013 and head into the new year.

Thanks Jay. I'd like to now turn it over to Saul to talk about fourth-quarter results and 2014 guidance.

Thanks, Tim and Jay. It's a pleasure to be here today with everyone.

There was a recent quote in the Wall Street Journal on Tuesday that I think frames this conversation very well. The quote I took was, intense competition, weaker demand, and pressure from cost-conscious consumers, plus the weather. Those factors really encapsulate the results for 2014 and our guidance -- the process we followed for creating guidance for 2014.

Significant -- I just want to point out a few of the significant factors that affected both Q4 of 2013 and guidance for 2014, particularly in the fourth quarter. We had spin costs from the GLPI transaction that affected the quarter-over-quarter results by $14.1 million, and $25 million on a year-over-year basis.

The spin resulted in Perryville -- our properties in Perryville and Baton Rouge having less fourth-quarter revenue by $25 million less EBITDA by $5 million. And, of course, the fourth quarter 2013 saw our first rent payment to GLPI of $69.5 million. The factors below the line of EBITDA were driven by a significant impairment charge that was also the result of the spin transaction.

Moving to guidance. On an overall basis, we have done an extensive property-by-property, line-by-line review of our actual results for 2013, our budgets for 2014, and perhaps most importantly actual events to-date within the first six weeks of 2014. At the property level, our guidance, as we've indicated, includes -- considers continued cannibalization in Charles Town, given the impact of the Horseshoe Baltimore opening in September 2014, and for our Lawrenceburg property, a full year of the Miami Valley Gaming in Lebanon, Ohio, and Belterra Park opening in May 2014 in Cincinnati.

On the positive note, we've obviously considered for Ohio the opening of our two race tracks, Hollywood Casino in Mahoning Valley, and the Hollywood at Dayton Raceway opening in the fall of 2014. And, of course, the impact that those openings would have on our properties in Columbus, Ohio. We've considered a full year of operations at Argosy Sioux City facility, and a full year of management from our contract at Casino Rama.

At the corporate level, our guidance considered an overall overhead reduction. And, included in that, is about $12 million of overhead expense for the first of three -- what will be three annual dividend payments to Penn National employees who hold GLPI stock options as a result of the spin transaction. In addition, in our guidance includes about $7.1 million of pre-opening expenses for the Ohio tracks, with about a $0.5 million of that in Q1.

We have considered depreciation amortization charges of $182.4 million for the year, with $50.1 million in Q1, a full year of rent expense of $421.6 million, of which $103.2 million is in the first quarter, but we have estimated non-cash stock compensation of $13.3 million, and a blended income tax rate for the year of 39%. And for those of you that keep track, our diluted share count at the moment stands at 90.6 million shares for the full year 2014.

With that overview, we are all available to answer your questions.

Thanks Saul.

Thank you.

(Operator Instructions)

Our first question comes from the line of Felicia Hendrix, with Barclays. Please proceed.

Hi. Good morning, everyone.

Saul, as the new -- well, you're all new. But Saul, you're really new. So I'll give you the first question.

According to your 2014 guidance, your rent coverage is 1.66 times. I was just wondering if you could discuss this in context of the target rent coverage, and if there's any mechanism for the rent to go down if the revenues keeps declining? And then also, are there any debt covenants that get tripped, or any other penalties if the coverage falls?

Sure. Thanks, Felicia, I hope your back is better.

Thank you.

Sure. Actually, the calculation we're looking at on rent coverages is about 1.8. So maybe we'll go offline and compare notes. What was the rest of -- I'm sorry?

I'm just wondering if there is any -- I mean, I'm just taking your EBITDA and I'm adding it to your rent expenses and dividing by your revenue, and got 1.66. We can talk about that after.

Ah. Okay. So--

But I'm wondering, as the revenue falls, is there any mechanism? I mean, you have a target ratio. Are there penalties? Is there any mechanism for rent to go down? Are there any adjustments that can be made?

First of all, we are well within the confines -- based on our calculations -- of the covenants within the [master] lease. In terms of the rent going down -- in fact, the calculations for 2014 reflects a decrease in rent and as a result of the variable portion of the agreement.

About 80% of the master lease is fixed, and 20% is variable. Within the 20% piece, there is half of that, that resets every five years. And another half of -- really predicated on the results in Ohio -- that resets on an annual basis. So, there is a piece that is indeed variable.

Correct.

I was actually asking more about the fixed portion -- if there's a way to reset that? And, is there a level at which -- if the rent coverage does drop to a certain level -- there would be penalties?

There is. If the coverage goes below a certain level, the rent payment freezes, if you will. And we get relief until we recover above those levels. At which point, we would owe back rent for the relief period.

Okay, okay. Thank you.

And then, my next and final question. Tim, in the prepared remarks you and Saul gave us good overview of how you thought about the guidance. It was also in the release, which is very helpful. Thank you.

As I look at your guidance, there's really two parts to it. There's the [let's think] about the continued challenges in the regions. And then also to think through the new competition.

Just on the first point in the continued challenges in the regions. I know it's not fair to paint all of your properties and regions with one brush, but if we had to do that, is it fair to say that your guidance assumes some continued low, single-digit declines in revenues across the board? Or do you expect certain -- some recovery in some areas? I'm just trying to get a feel for -- as you contemplated the more mature regions -- how they would perform throughout the year.

Felicia, as we've looked at the guidance -- and, you know, extracting those markets that are facing new supply increases -- we assumed a very conservative consumer out there in 2014. That there is not going to be any uptick. And we assumed the current trends that we saw in the second half of 2013 would continue on into 2014.

Okay. That's helpful. Thank you.

Thank you. Our next question comes from the line of Joel Simkins with Credit Suisse. Please proceed.

Yes. Hello. Good morning, guys.

This might be for Tim or Jay. Tim, obviously, it's hard to parse out right now how much of this impact right now is weather versus cannibalization [in], maybe, some more of your steady state markets. Can you just give us a handicap of how much, again, is weather versus just absolute weakness in the low-end to mid-end consumer?

And then, I think obviously, it's been a pretty tough winter across the board. Is the setup potentially more compelling in Q2 as cabin fever sets in, in the spring?

I will let Jay handle that one.

Good morning, Joel.

Hello.

Listen. It's impossible for us to know exactly -- as you mentioned -- how to parse the impact of the weather versus soft consumer. What I would tell you is that, as we've looked at weather-impacted days versus non-weather-impacted days December and even into January, the days looked pretty similar -- on a year-over-year basis -- as they did in the months leading up to the weather-impacted months.

So, we have no reason to believe that the consumer is any softer than it was in October, November. But it's impossible to know the answer to that question at this stage.

Tim, obviously the business is still generating a decent amount of free cash flow here. I'm going to keep my fingers crossed and hope you guys get Plainridge. If you don't get Plainridge though, how are you thinking about using your free cash flow to potentially return capital to shareholders?

Clearly, we're waiting to see what our [development] pipeline is going to look like over the next couple months as we get these decisions. But as we always have done in the past, we look at all the different uses of cash -- repurchase [or in] leverage -- and those are all going to be options for us to consider.

But I would say, Joel, that we're not going to have clarity on that, probably, for a good three, four months. And we want to make sure, [because] of the attractive returns on some of the things we're looking at, that we want to know what the pipeline is going to look like before we look at other options. Because we think our development pipeline, right now, looks the best use of our cash today.

You've talked about, I think, returns -- historically, in Columbus -- being sort of north of 20%. As you would evaluate Plainridge, is this a project you think you'd feel comfortable with a 20% stabilized ROI on?

Early on, with being the first one to open up, I think that's a fair characterization.

Okay. Thank you.

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

Good morning, everybody.

Good morning, Joe.

When you look back at St. Louis -- and obviously, results there were impacted by the rebranding and renovations -- have you estimated what the EBITDA impact was last year, directly related to the renovation and the slot floor reconfiguration?

Tough to say, Joe. The market in St. Louis in the second quarter was down 8%. We had a weather impact with tornado closing -- hitting our operation and closing our business for a bit. And then in the third quarter, the market was soft again.

You know, I certainly think the revenue softness was at least 3 or 4 percentage points greater than the market softness that we had there. But we haven't looked at the EBITDA impact of that revenue softness due to the construction disruption. But I would certainly believe it was material.

Okay.

And then, with respect to the Jamul project in San Diego, can you talk about the cadence or the timing of the loans to the tribe to build that property? And can you remind us of the spread between your revolver and what you're loaning [to them at]?

Saul, can you take that question from Joe?

I can. Our CapEx for 2014 anticipates our advancing funds for that project of about $257 million of a total construction budget of $360 million. And -- I'm sorry -- it's $81 million in 2014, spread fairly [rateably] once we get going in June, July of the year. We'll spend $81 million, in 2014, of the $360 million.

Got it.

And the spread?

We have a very favorable spread between what our agreement with the tribe is and for repayment of those funds until permanent financing is obtained. The spread is probably in excess of a 10% spread.

Got it. And the interest that they're making to you. Is that paid in cash, or is that accrued until it's opened and they secure permanent financing?

It's accrued.

Accrued, but it's not cash realized?

Correct.

Not until we open.

Until opening.

Not until opening. Got it.

And then, my final question. You talked about it in the past -- and you talked about it today -- that consumer who spends less than $100 per visit. At this point, what -- how much of your business is comprised of that customer? I don't know if you look in terms of visitation, trips, volume, gaming revenues. But how big is that?

Joe, this is Jay. You know, we've seen softness across all of the worth segments in our database. We just happen to see them more acute at that $100 and below. You're looking at, as a percentage of our overall rate, at about -- that segment, in particular -- being around 20% of our database.

And there are declines in the worth segments north of $100 spend per visit, but the declines drop pretty significantly. And then, in many of our markets we're actually showing growth at our VIP and what we call AEP -- Avid Experience, the mid-level -- worth groups.

So, it's really across the board. It's quite different, depending on whether there's new competition in the market or no new competition. But to answer your question specifically, you're looking at 20% to 25% of the overall rated at that lower worth level.

Great. Thank you, guys.

Thanks Joe.

Our next question comes from the line of Steven Wieczynski, with Stifel Nicolaus. Please proceed.

Yes. Good morning, guys.

Tim, I guess the question is for you. In terms of your guidance, you laid out a bunch of properties that are going to be coming online in 2014 that will impact your existing operations. Can you just walk us through -- how do you think about new competition today versus a couple years ago? Do you think the impact from new properties is worse, the same, or less?

I think you have to look at that, Steve, market by market. Starting in Charles Town -- clearly, the opening of Horseshoe Baltimore in the August, September, time period will have far less effect from what we saw with Maryland Live opening up in 2012 and then adding table games in 2013. I think, similarly in Lawrenceburg, the Horseshoe Cincinnati effect on Lawrenceburg will certainly have a much greater effect on the Miami Valley opening -- which occurred about a little less than two months ago -- and less an effect on what's going to happen with River Downs with Belterra Park opening up.

So we shouldn't see those major hits to our top line like we saw with Maryland Live and Horseshoe Cincinnati. That said, however, they certainly are going to have depressing effects on business volumes. But to a lesser extent from those big openings that I just described.

Okay. Got you.

And the second question -- in terms of your overall database, how have new sign ups been recently? Are you still seeing folks sign up at this point, or has that been pretty stagnant as well?

Steve, this is Jay. Again, it depends on the market. We've obviously seen more sluggish trends in the markets where there's new competition. And where there is not new competition, or it's a stable environment, we continue to see growth in new card sign ups -- consistent with what we've seen in the past.

Steve, we were -- a couple weeks ago -- visiting a couple of our largest properties. And for example, in Columbus, they told us that new card sign ups were still over 10,000 a month. We have over 300,000 active accounts in our Columbus database. And I think we're now probably in month 16 of our operation there.

So that is still a very healthy sign for us that people are identifying themselves and allowing us to know who they are and how to contact them through this sign up process. In a place like Toledo -- which is now almost two years old -- we are seeing that number drop down to about a 5,000 a month level. Which is pretty typical at the end of year 2 of the evolution of a new property.

Okay. Great. Thanks guys. Thanks for the color.

Our next question comes from the line of Harry Curtis with Nomura. Please proceed.

Good morning.

Tim, a quick question on cost savings. You know, these properties have been run quite efficiently over the last several years. What incremental cost savings do you plan to pull out over the next 12 months? Is there much left on the tree, if you will?

Harry, I'll let Jay answer that.

Good morning, Harry. I mentioned in my opening notes that we believe there's still some additional operating efficiencies out there to pursue. We believe that to be the case, not only at the properties, but here at corporate as well.

We're taking a hard look at everything that we've done in the past, and how we can operate more efficiently going forward. That includes, obviously, payroll. We still have -- approximately 25% of our labor costs remain variable. So there's opportunities there.

And certainly, from a marketing perspective, we have found time and time again that these marketing wars that do tend to heat up from time to time really erode margins more than anything else. So we tend not to participate in those. We tend to be very disciplined in our approach.

And you constantly have to reset your expectations on how you look at customer valuations going forward, when there is new competition introduced in the market. So we do believe there are still additional opportunities, though it does, obviously, become more challenging, as time goes, if revenues continue to drop.

Yes. I mean, you -- and you are seeing higher insurance and benefit costs. How does that factor into your thinking?

We do. But one of the things we've done, Harry, over the past couple years is continue to manage our workforce to a greater percentage of part-time employees to try to mitigate the effect of rising healthcare costs. Two, three years ago, we had a workforce composition that was probably 85% full-time. We're now down to 75% full-time. And many of our properties are even below that threshold.

So, that's a way we've focused on over the last couple years to try to mitigate some of that cost. We can't control at the higher level of control, but through our workforce composition, minimize the effect of rising healthcare costs on our labor line.

Okay.

And then, shifting gears back to the Jamul investment. Is this a typical seven-year contract, or have you been able to get a longer term?

No. We have got the max economic terms allowed by the NIGC -- seven years with the 30% of EBIT. And we also have royalty fee for the use of the Hollywood name. But this is the term that is allowed by the NIGC of seven years, which we couldn't push past that at this time.

You know, it's -- Ceasars has had some success extending one or two of their contracts. Is that a possibility, going forward?

This is Jay. Here's how I would answer that question. The relationship with the Tribe is in a very good place. And we're confident we'll prove our worth and value to the Tribe over the seven years. And hopefully, there will be some extensions involved in the future.

It's a smaller Tribe, as well. You're looking at approximately 50 members. So, there are certainly opportunities for that, but it will all be based on our performance. And that management agreement term is for the first seven years.

Got you. Thanks.

Thanks Harry.

Our next question comes from the line of Carlo Santarelli with Deutsche Bank. Please proceed.

Hey, thanks. Good morning, guys.

Just a quick one on the margins as implied by your guidance. If you look at the Q1 margin -- and I look at what you did in the Q4 -- obviously adding back the $11.7 million. I get to a margin increase that's implied of a little over 200 basis points, I believe, for the [first quarter], and a pretty nice lift over the course of the year as well -- off that Q4 lever. Could you guys tell me what's changing Q4 to Q1 on the cost side of the business -- just given that the revenue implication is down about $4 million, sequentially?

Absolutely. The biggest impact is what Jay and Tim spoke about on the last response. And that is the management of the two main variable parts of the business -- namely, payroll and marketing costs.

Our forecast and estimate has considered continued management of a variable workforce to keep that as a percentage of net revenue -- net gaming revenue -- under control. And as well as the ongoing management of our marketing spend. And those two factors give us the leverage that you're looking at.

The other thing too, Carlo, is -- as we go into year 2 in properties like Toledo and Columbus, we get a lot smarter in how we operate those businesses. And the teams there have done a very good job -- year 1 into year 2 -- of improving the margins. And we expect that to continue through the course of 2014. Those, as you know, are very large properties to the overall story.

Yes. Thank you.

And just one quick one, just quick hitting on a few model points. One was -- the cash balance was a little bit higher, obviously, than we expected. I was wondering if there was anything that changed in the split on that front? Or if this is the new balance going forward?

Then, if you guys could provide some CapEx? And maybe corporate expense run rate color for the year? That would be really helpful.

The cash balance is a reflection of our generation of strong free cash flow. And we are actually undergoing a program to look at further -- a reduction in cash through management of our cages at each of our properties. The use of which will probably be -- in the short term -- to pay down existing outstanding obligations.

So -- and the other thing I will point out to everyone is that -- in measuring our debt covenant requirements under our debt, we're measured on a net debt basis. So we get credit in calculation of covenants for our cash balance.

In terms of capital expenditures, our CapEx budget for 2014 includes maintenance CapEx of about $88 million. We'll continue the historic spend of about 60% of that on gaming floor refreshment. And the project CapEx for new projects is $176 million for the year.

And does that include the $81 million?

Sorry. The $176 million does not include the $81 million I mentioned before for Jamul.

Okay. And would you mind, just the Q4 -- with those numbers as well?

CapEx number for 2013. Do you have that?

I do not. I have to get back to you.

We'll get back to you, Carlo, on that one.

No problem, guys.

And then, just really quickly, if you don't mind. If I look at the adjusted Q4 corporate expense of -- call it -- $26.5 million, how should we think about that number on a go forward basis?

It's very consistent.

Great. Thank you, guys.

I think, $26.5 million for the quarter is a bit above what we have in our guidance for --

Tim's corrected correct on that.

And by a bit, are we talking like, $4 million or $5 million a quarter? Or it's a little lower than the implied $105 million?

Yes. I think it's more implied somewhere in the neighborhood of $80 million to $85 million.

Great. That's really helpful, guys.

Inclusive of the $12 million.

Of the $12 million? Right.

Of the $12 million, correct. That's right.

Thank you very much, guys. Have a good one.

You too.

Our next question comes from the line of Shaun Kelley with Bank of America. Please proceed.

Hello, guys.

I think you may have just hit on my question, but it was the corporate spending. So just to be clear, with the $12 million, it's $80 million to $85 million? Is that the corporate spending number? Sorry. I got confused with the CapEx.

That's correct.

That's the neighborhood, Shaun.

That's right.

Okay. Okay, great. Thanks.

I guess, guys, a lot of my questions were already answered. But big picture, we get relatively regularly right now, you know, questions from investors.

Just wondering if there's something bigger, structurally, at work? As it relates to the gaming consumer, just given some of the magnitudes of declines that we're seeing. And obviously, I know it's very difficult to separate -- given the weather impacts and probably some smaller calendar months -- just given the way everything's falling.

Could we just get your thoughts on whether -- when you guys do some of your focus groups or your consumer discussions, are you hearing anything back as it relates to how that consumer is spending? Not just their wallet, but maybe their time -- when it comes to things like whether it's online spending. Are you beginning to see any anecdotal signs of online gambling trickling in here? Just curious, given what we hear back from investors.

I'll take that first, and then I'll open it up for any other thoughts anyone else in the room has. But Shaun, I don't think there is any substitution going on with the consumer -- that they're finding other ways to spend gambling dollars on other forms of gambling entertainment. I think, generally, what you're seeing is the macro effect on the consumer.

We've talked about this previously -- about the effect of the repeal of the payroll tax. Which, if you look at a household -- $40,000, $50,000 annually -- that represents about $80 to $100 of discretionary dollars per month taken out of their budget. I think you are seeing in a lot of other different industries where the middle-income consumer is feeling squeezed. And I think what we are seeing in our 2013 results are reflective of consumers that don't have -- for various reasons -- don't have the confidence in spending that discretionary dollar.

I think in some cases, they've made big ticket purchases. And now have other obligations as a result of those big ticket purchases. But I don't see any evidence that they're looking at other forms of entertainment replacing actually visiting our casinos. I do think -- more than anything else -- it's the pressure they're feeling on their own budget that's affecting their spend with us and with others in the industry.

Saul?

Shaun, we are not going to fall on the sword of weather. However, in analyzing our daily results over the last And so we're, just not seeing any real decline in a meaningful way at all.

Okay. That's very helpful color.

And I guess, my last question -- Tim. Just curious, given some of the magnitudes of declines we've seen out there. But what's the opportunity for property tax appeals of some of these?

I mean, ironically, we hear in other categories of real estate -- particularly in hotels that property taxes are a pressure point on going the other direction. But here with revenue declines, is that an opportunity for you guys? And are there any specific or obvious appeals that are coming up in 2014?

Shaun, that's a great question, and it's something we focus on intently. And we've had a number of different exercises go on into 2013 -- into 2014. And we'll continue to look at any opportunities to appeal our tax assessment based on changes in business levels across our entire Enterprise.

And the one that's out there, that we're focused on today, is in St. Louis County -- with the property we purchased from Harrah's in the fourth quarter of 2012. And we've appealed a number of different years, [Carlo], on that one.

And we'll continue to pursue that, and hopefully -- knock on wood -- we get some kind of answer this calendar year. I am not exactly sure we will, but we're completely focused on that, and think it's opportunity, again, to reduce our cost structure when business volumes adjust downward like we've seen in certain markets.

Great. Thanks a lot.

Our next question comes from the line of Thomas Allen, with Morgan Stanley. Please proceed.

Good morning.

I remember last year there was internal debate about how conservative you were being with guidance. How do each of you feel this time around? Thanks.

Well, we're completely aligned.

(Laughter)

And I think, from Felicia's question before, we believe that there's -- we're not expecting any consumer rebound in any of these numbers. And trying to be as -- I think -- appropriately conservative as we possibly can be. But realize that there are still a lot of unknowns and a lot of time left in 2014, and trying to give you our best guess of how it's going to turn out -- is what you saw in our guidance today.

And I know Penn historically gave a point estimate for guidance. [But any] thought about giving a range?

We did not consider giving a range. We think that we've considered the range at the property level, and are comfortable with the point that we've given. We'll think about a range for future quarters.

I know others give ranges. We've always used -- like you said, Thomas -- a point. And we try to be as accurate as we can be.

I don't think -- either way is not going to give you guys anymore feel for how we're thinking. We do try to give you our best guess on what the numbers are going to be, and try do that based on all the inputs we have from our different properties and how we're seeing the environment out there. So certainly thought for consideration, but we'll have to discuss that internally if we do change anything.

Okay.

And then, just because Ohio seems to be a variable and is obviously an important state for you, can you give us some more color on what your expectations are for the new racinos in terms of EBITDA in 2014 and then longer-term? Or just give return -- thoughts on return? And then, how we should think about the ramp at Columbus and Toledo going forward -- adding in the impact of new competition? Thanks.

We don't provide individual guidance on properties, and we won't do that. But certainly, we think the returns on these new developments are going to be attractive -- maybe not 20% like we saw in Toledo and Columbus, which we previously announced, but still very solid.

And we have, with those developments, looked at the slot counts for both Dayton and Austintown. And we're opening up with 1,000 in Dayton and about 850 in Austintown, and be able to grow beyond that as demand warrants. And we'll certainly be a little bit more prudent in our capital with that lower slot count. And that's how we think about -- we think we're going get good returns there.

Now, turning to Toledo and Columbus, I was encouraged in the fourth quarter in Toledo to see that our net slot win for the quarter was up 5.5%. That would have even been a little bit higher if we didn't have the December weather. But with the closing of the Internet cafes and plus the maturing into year 2, that was an encouraging sign for Toledo. And we fully expect Toledo to grow, because we don't really have any other supply affecting that business as we go into the balance of 2014 into 2015.

In Columbus, we certainly think there's going to be an effect of the opening of our Dayton operation this year and current opening -- recent opening of the Miami Valley on the Dayton customer. So that's going to have some dampening effect on Columbus as we absorb that supply.

We share, right now, the Dayton customer with Cincinnati and Miami Valley. And that's going to -- from a slot standpoint -- going to go a little bit away when we open later this year.

But we do continue to see year 2 growth with the locals market in Columbus and continue to believe that, that market is still years away from being fully penetrated. And expect growth to occur there once we get through the supply shock, primarily driven by further penetration of the about 1.7 million, 1.8 million people that live in the Columbus MSA.

We're still looking at margins in those two racinos in the high 20%s or better.

Okay. That's helpful. Thank you.

Just on Columbus, is there way to think about what percentage of your customer base now may be cannibalized, versus ones you think are really local customers?

Well right now, over 90% of those customers are local. So I think that's the right way to think about that.

Helpful. Thank you.

Our next question is a follow up from the line of Felicia Hendrix, with Barclays. Please proceed.

Hi, thanks.

On the corporate expense and $12 million-ish dividend payment, is that a one-year payment? Or is that something that will last for several, multi-year payments? How should we think about that?

It's a three-year commitment.

Three-year commitment. Okay. Thank you.

It looked like your promotional expenses picked up about a percentage point in the quarter, year-over-year, and -- a little bit less than that -- but also up for the year. You talked a lot about cost and how you guys don't chase bad dollars with [bad] in your marketing, but just wondering what the driver was for the higher promotional expenses.

It's largely -- Felicia, this is Jay -- largely been in the markets where new competition has come in -- in some cases guns a-blazing -- and so we have not attempted to necessarily match. But in some cases, promotional offers have crept up a bit in those markets.

In the stable markets, we continue to be as disciplined as we've always been. And even in the competitive markets certainly more disciplined than the competitive set.

Felicia, remember that in the quarter-by-quarter comparisons, the Toledo and Columbus properties didn't open until late fourth-quarter 2012. So there's a dollar difference there on a same store basis.

Columbus opened in the fourth quarter of 2012, and really did not have any promotional spending to speak of in the first couple months of operation as it was building its database.

Right.

Okay. So would you see, as run rate basis, that 5.5%-ish range, or are you trying to get that down?

Our goal is to continue to get that number down. I think it's a safe number to use for modeling purposes, but our goal is to continue to bring that number down.

Okay. Great. Thanks.

Operator, we'll take one more question please.

I am showing no further questions.

Okay. Very good.

Well thanks, everybody for listening to our fourth-quarter earnings. And we look forward to hopefully getting some improved weather conditions and business getting back to normal. And we'll be speaking with you all in about three months. Take care.

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.