PENN Entertainment Inc (PENN) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Penn National Gaming third-quarter results conference call. (Operator Instructions). I would now like to turn the conference over to Joe Jaffoni with Investor Relations. Please go ahead.

Thanks, Amanda, and good morning, everyone, and thank you for joining Penn National Gaming's 2014 third-quarter conference call. We will get to management's presentation and comments momentarily, as well as your questions and answers, but first I will review 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 expects, believes, estimates, 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 and uncertainties, including future plans, strategies, performance, development, 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 10-Q. Penn National assumes no obligation to publicly update or revise any forward-looking statement.

Today's call and webcast will also include non-GAAP financial measures within the meaning of SEC 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.

I will now turn the call over to the Company's CEO, Tim Wilmott. Tim?

Thank you, Joe, and good morning, everyone, to Penn National Gaming's third-quarter 2014 earnings call.

With me here in Pennsylvania today is Penn's Treasurer Robert Ippolito; our Senior Vice President of Public Affairs, Eric Schippers; our Chief Operating Officer, Jay Snowden; our General Counsel, Carl Sottosanti; our Chief Development Officer, BJ Fair; and also our Chief Financial Officer, Saul Reibstein.

I'm going to say some introductory remarks, and then Jay is going to follow me to talk a little bit about the business trends we saw in the third quarter and also give a bit more color to the two openings we had in Ohio with the racinos that occurred in the third quarter.

Saul is going to follow Jay with an update on our fourth-quarter guidance thinking and also some general financial statistics, and I also thought it would be good for Eric to give an update on our Massachusetts campaign, given the fact that we are less than two weeks away from election day and how we are seeing that campaign up in Massachusetts at this point.

But to begin, you all saw the results, and again, I think it showed in a tough environment out there that we were able to deliver very solid results and exceed our guidance for the third quarter in revenue, EBITDAR, and EBITDA, and that was inclusive of slightly over $2 million we spent in the third quarter on the Massachusetts campaign.

I have to continue to applaud our properties for continuing to manage their businesses and keep control of their variable cost and deliver the margins that we produced in the third quarter, as well. The team continues to manage very well in a difficult environment.

In the third quarter, we had a number of things that were significant. We saw on August 28 the opening of a 154-room hotel at our Zia Park facility in Hobbs, New Mexico, and also, the same day, we opened up our Dayton racino. And then a couple weeks after that, on September 17, we opened up the last Ohio VLP facility in Mahoning Valley, near Youngstown, Ohio, and I am pleased to report that both of our Ohio new operations are off to solid starts.

As we look into the fourth quarter, I mentioned before in a very short period of time we will know the outcome of the question three repeal, the casino vote in the Commonwealth of Massachusetts, and also we expect probably shortly after that to get the decisions from the State of New York regarding our proposal for a New York Live! facility in South Blooming Grove, Orange County, New York. We are one of 16 applicants competing for those four licenses and we have partnered with the Cordish Companies, and the indication we get from the state of New York is that a decision is most likely to come very, very shortly after election day.

We also continue to proceed very well with our development in southern California with the Jamul Indian Village and continue to project a mid-2016 opening for that facility, as well.

Those are my introductory comments. I'd like to now turn it over to Jay Snowden to talk a little bit more about general business trends. Jay?

Thanks, Tim.

As was highlighted in our earnings release, our regional and property operating teams continue to do an admirable job navigating what has been and continues to be a challenging consumer environment to deliver solid margins and results certainly on a relative basis.

Of particular note in Q3 from a database perspective, our trends were less negative than previous quarters. Visitation and spend-per-visit trends improved slightly on a sequential basis, particularly at the mid, lower worth, and unrated segments.

Revenues held up better than anticipated in markets with new supply, namely our Charles Town and Penn National Race Course facility. The Horseshoe Baltimore property opened on August 22, so it's been open for a little north of two months now and has had no material impact to date.

Consistent with previous quarters, we saw a slight margin improvement in two of our three regions. Actually, it would have been three of three if you exclude the preopening expenses associated with the two tracks in Ohio, and again were successful at reducing our corporate overhead to the tune of approximately 20% year over year.

We had strong openings at three new assets -- Dayton, Ohio; Mahoning Valley; and our 154-room hotel at Zia Park in Hobbs, New Mexico. We're certainly pleased with the aggregate results, though the composition is (technical difficulty)

Ladies and gentlemen, please stand by. The conference will resume momentarily. (Operator Instructions).

The conference will now resume. Please go ahead.

Thank you. Again, I apologize for the disconnect we had on our end here in Pennsylvania. I will again turn it back over to Jay Snowden to give a bit of an overview of the general business trends that we saw in the third quarter. Jay?

Thanks, Tim, and not knowing where I got cut off, I will start at the top.

As highlighted in our earnings release, our regional and property teams continue to do an admirable job navigating what has been and continues to be a challenging consumer environment to deliver solid margins and results on a relative basis. Of particular note in the third quarter and from a database perspective, we are seeing visitation and spend-per-visit trends that improved slightly on a sequential basis, particularly at the mid and lower worth, as well as unrated, segments.

Revenues have held up better than anticipated in markets with new supply, namely our Penn National Race Course and Charles Town facility. The impact from Horseshoe Baltimore opening on August 22 had been nonmaterial to both properties up to this point.

Consistent with previous quarters, we saw slight margin improvement in two of our three regions. It actually would have been three for three if you exclude the preopening costs associated with the two Ohio track openings in late August and September, and we again were successful at reducing corporate overhead year over year for the quarter by approximately 20%.

We had strong openings at three new assets, one in Dayton, Ohio; Mahoning Valley, Ohio, that Tim mentioned; as well as our 154-room hotel addition at our Zia Park facility in Hobbs, New Mexico. Certainly pleased with the aggregate results, though the composition has been a bit different than we anticipated, as Mahoning Valley has shown a strength beyond our forecast and Dayton, being in a more competitive market, is likely to be a bit of a slower ramp, but overall happy with all three of these new assets and what they are delivering for us.

As was broadly covered by the local media in Dayton, Ohio, we did have a one-time promotional error in our second full weekend of operation that impacted us on a net slot revenue for the month of September of over 10% impact, so, though not material overall for the Company, certainly for the property in the month of September, it was material.

Now when you combine all those factors, it resulted in net revenue and EBITDA that exceeded guidance for the third quarter, and as Tim mentioned, that's inclusive of $2.3 million of Massachusetts lobbying expense that was not contemplated in our Q3 guidance.

Looking forward, October month-to-date trends largely mirror what we experienced in Q3 and our new offerings in Ohio and New Mexico continue to ramp nicely. The promotional environment across our portfolio of properties is largely stable and remains rational, with the exception of the two major markets in Missouri, St. Louis and Kansas City. It's elevated from a competitive perspective, as we experienced in Q2. That continued into Q3, as well as what we are seeing in October, unfortunately.

Q4 guidance is perhaps a bit -- we are taking a bit of a conservative stance, but given that when Maryland Live! opened, we did see more of a delayed impact to our Charles Town and, to a lesser extent, Penn National facilities, we felt it was the prudent position to take at this point. We hope that does turn out to be conservative.

With that, I will turn it over to Saul to walk you through the details of our Q4 guidance.

Thanks, Jay. Good morning, everyone.

As you have seen from the press release and as many have already noted, our guidance for the year is unchanged for the second quarter, other than to include the $3.5 million beat for the third quarter. Our process for estimating guidance has also been unchanged. We undertook our regular, detailed, property-by-property review and considered all available factors and data.

Guidance for the remainder of the year is very consistent with the trends we have seen throughout 2014. Our Dayton and Mahoning Valley properties are still very new and we continue to believe our original estimates for those markets are the right ones. We have yet to see the full impact of Horseshoe Baltimore on our Charles Town facility, and as you know, the low-end customer continues to be challenged in today's economic conditions.

Just to emphasize one point from our press release, however. After removing the impacts from the now-closed Sioux City facility, our revenue for the third quarter exceeded guidance by $10.8 million or 1.7%, which produced an EBITDA beat to guidance of $6.5 million or 10.7%. This 60% flowthrough results confirms the effectiveness of managing margins, controlling costs, and controlling corporate overhead.

Now to highlight some of the important data points for you. Cash on hand at the end of the quarter was $230.7 million. Maintenance CapEx for the quarter was $21.4 million and 65 (technical difficulty)

(Operator Instructions). Please go ahead.

Thank you, Amanda. Again, I apologize and we will make sure this doesn't happen again on our next call. But Saul, why don't you continue with your financial statistics?

Sure. I was at the maintenance CapEx for the year is projected to be $78.3 million. Project CapEx without Jamul for the quarter was $106 million or $229.5 million for year to date. On an annual basis, our cash tax rate is at 38% and our GAAP effective tax rate at 69% for the year.

Weighted average shares outstanding are 80.377 million. Preopening expenses for the quarter were $5.7 million and $8.8 million for the three quarters.

Thank you, Saul. Next, we have Eric Schippers to give a brief update on what we are seeing in Massachusetts approximately 12 days before election day. Eric?

Thanks, Tim.

One thing that's been unique about our campaign in Massachusetts, there certainly has been no shortage of polling that has been publicly reported by the news media. And as you can see from the latest numbers from the Boston Globe today, which are pretty consistent with what other news outlets are reporting, the current polling is about 53% for the no side -- in other words, preserving the current gaming act -- to 39% for repeal of the act.

As I said, that's pretty consistent with reports from other news media. Having said that, we are taking nothing for granted. As we have reported before, we are part of a very broad-based coalition that includes organized labor, local and state officials across the state. We're going to be making an announcement later today that the fire and police unions are with us as well, and so, again, it's a very broad-based coalition. And we're going to be spending the next week continuing to get our voice out there to talk about what's at stake in this election, which is namely the 10,000 new permanent jobs, the $2.6 billion in economic development that is going to occur in the three communities that voted overwhelmingly to support this.

As we talk to Mass voters about recapturing the $1 billion that crosses the border every year to neighboring jurisdictions, we feel pretty confident, but taking nothing for granted, as I said, and are hopeful for our chances on election day.

Thank you, Eric, and just to remind everyone that in our fourth-quarter guidance numbers, we do not include any spend for this Massachusetts campaign, like we did in the third-quarter guidance that we had provided a while back.

With that, Operator, I would like to now open up the call to any questions that may be out there from the audience.

(Operator Instructions). Shaun Kelley, Bank of America.

Just wanted to go back to -- I think it was in Jay's prepared remarks where you talked a little bit about some of the -- some modest improvement at the lower end of the consumer database. It's been a while since we've heard anything positive on that side. Could you just give us a little bit more color maybe about what and perhaps where you are starting to see some of that improvement?

Sure, it is slight improvement, as I mentioned in my remarks, and still down year over year, but it's just nice to see that the negative number is less than it was in Q2 year over year and Q1 year over year.

So I wouldn't say that we've bottomed out. I wouldn't say that we are seeing stable results from the low end of our database, but we are at least seeing some improved, again on a sequential basis, results versus previous quarters.

Are you actually seeing any signs of -- could you just break it down in traffic versus ticket for us? Just are you seeing any signs that non-rated or lower-rated plays actually -- some of those customers starting to filter back into the properties at this point?

Again, it's relative to where we have been. We are not seeing growth, per se, at the unrated or the low-worth segments of our database, but the declines are less severe than they were in previous quarters, and that's both on the visitation side, as well as the spend per visit.

So it's -- I would call it encouraging. I would not say, like I mentioned earlier, that we are in the clear here, but we hope to see that continue and October has shaped up similar to what we experienced in Q3 to date.

Okay, that's helpful. My last question would just be when we go through the segment reports, it looks like the west segment saw some pretty material year-on-year growth. It definitely beat our model for what we were expecting. Was wondering if you guys could provide some color, because I think largely in that segment we are looking at M Resort and Zia Park, maybe what you saw those properties and particularly the contribution from the new hotel. That would be helpful.

Sure. So we opened the Zia Park hotel on August 28 and have been very pleased with the results thus far. We have seen strong visitation and reaction from our database to the hotel, and the spend per trip from the customers who are staying in the hotel is up 50%-plus from their typical trip value, so we are seeing nice results out of the database.

It's also a strong cash market for us during the week. It's been a little bit slower ramp on the weekdays, but the weekends have been very strong, and M Resort, the Las Vegas locals market has been one of the more stable, rational from a reinvestment perspective on the marketing side, and we are holding around there.

We saw some improvements in a couple of our database metrics in the third quarter. We did have a little bit of noise last year in our M numbers that deflated the results a bit, so there is a few factors to keep in consideration there. But overall, we are pleased with both the performance of Zia Park and M.

To remind everyone, the Zia hotel, it depends on a number of feeder markets from west Texas -- Lubbock, Midland, and Odessa -- that are about two-hour drive time away. Now offering a lodging alternative for those customers, and there are some very good slot players coming out of those markets, to spend an overnight with us and extend their stay has really, early on, produced some encouraging results.

Thanks, Tim; thanks, Jay. Appreciate it.

Joel Simkins, Credit Suisse.

A couple follow-ups, I guess, to Shaun's questions. As we start to think about 2015, we're obviously going to have very easy comps, hopefully, into the first quarter, given the weather. With that in mind (multiple speakers), what's your -- I haven't got my weather forecasting crystal ball out yet, but I guess maybe with that in mind, perhaps also, as I say, lower gasoline prices, does that give you a little bit more confidence on the consumer heading into next year?

I think, Joel, you laid it out well. Q1, we would all hope weather impact is less severe in 2015 that it was in 2014. It really did start in December, so again if weather works in our favor, we hope that our guidance figures here are a bit conservative. To be determined.

Gas prices, we really haven't seen over the years that that's a material impact to the good or the bad as those prices grow and decline. So I would not bank on that.

But certainly as we look at Q1 in particular next year, given the severe declines we experienced in 2014 and given the modest improvements we are seeing that I mentioned earlier, sequentially in the database we would hope that Q1 would show some level of improvement versus what we have seen through most of 2014. But beyond the weather impact in Q1, it's hard to say at this point what will happen in 2015.

Sure, and I (multiple speakers)

Joel, the only other thing I will add to that is what has got me encouraged about 2015 is the maturity of our development pipeline with the opening and the maturity of the hotel at Zia, the two VLT operations in Ohio, and, knock on wood we get a favorable outcome on election day, the opening of our new Massachusetts facility in the back half of 2015. Our development pipeline is, I think, going to generate some very positive momentum for us as the year progresses next year.

If all goes well in Massachusetts, ultimately how long of a window do you think you will have before any incremental competition opens up in that state?

Difficult to say, but we think it's going to be somewhere in the 2.5- to three-year neighborhood. We continue to expect our facility to open up in June of 2015 if we get a favorable outcome in November 4, and then it's probably going to be 2.5 to 3 years. A lot has to happen, as you know. Both MGM and Wynn have not started their projects yet, waiting for the outcome of election day, so that's our best guess at this point.

Thank you.

Thomas Allen, Morgan Stanley.

It's Mark Savino on for Thomas. Obviously with the Ohio racinos, you had very strong openings at both properties, so really I am just wondering if you could maybe give us some color as to how much of the EBITDA outperformance versus your guidance came from the racinos versus your existing properties.

Mark, it really was a combination of the two. We don't get into that level of detail property by property, as you know.

But I would say that our Charles Town property and Penn National really had solid Q3s that drove a good portion of the guidance beat for Q3, and then the tracks, as you mentioned, opened up well. Mahoning Valley has been a really impressive story. As we closed out September, you saw the results, and October looks good again, following up on what was a strong opening.

So it was a combination of factors, but it was the large property outperformance as much as it was the tracks in Ohio.

Got it, that's helpful. Then just on Columbus specifically, I know year-over-year trends at that property also improved this quarter. I guess I wanted to get a little more color as to some of the underlying trends you are seeing there.

And then, I know you had previously said that some of your customer base at Columbus actually comes from the Dayton market, so I wanted to know if you had seen any cannibalization yet with maybe some of those customers trying out the new Dayton property?

Sure. Well, we have always considered Columbus, Ohio, to be a deep market. You are looking at an adult population of over 1.5 million people and very comparable to Kansas City. As you add our results up with Scioto Downs, we are nowhere near the Kansas City market performance.

So we have always said that we believe in Columbus. We have been happy with the early results, but we think that we've got a nice long runway to continue to show growth in that market at our facility there, and we saw that -- a continuation of that in the third quarter. The database trends were encouraging all across the board, from the high end to the low end, in Columbus.

To answer your question with regards to Dayton, true that some of our customers at the Columbus facility did come from Dayton, but that was really before Miami Valley opened. Once Miami Valley opened, the majority of those Dayton customers started to frequent that offering, so we have not experienced much of an impact, really nothing material, quite frankly, and you have seen the state results for the month of September, since we opened Dayton, on our Columbus property. Our Dayton property is now competing largely with Miami Valley and no early impact at Columbus.

Mark, since we have opened a lot of new properties in the last five or six years, we have said in the past that it takes about three or four years for a new property to fully mature, and we just had our second anniversary in Columbus a couple weeks ago. So, we still think we have another one to two years of increased penetration in the Columbus market to get to the full potential of that facility. So we're still growing in the market and penetrating new households and I think that's going to continue, as I said, for another couple years.

Great, very helpful. Thanks, guys.

Carlo Santarelli, Deutsche Bank.

I just had a question regarding the Southern Plains segment. Obviously, we look at the numbers and try and make an assessment of what's real operating expense reductions versus what is the removal of Argosy Sioux City year over year from the comps and obviously Baton Rouge. Would you guys be able to help us a little bit about how you are controlling costs at, say, the go-forward portfolio, say St. Louis, as well as the Illinois properties and Riverside?

Sure. One of the things that I would note about Southern Plains, Carlo, and you know this, is that a couple of the states that report their report on gross revenues -- Missouri and Illinois -- so even with regards to how you forecast revenues and how you track revenues, what those look like -- again for us, that's five properties, three in Illinois, two in Missouri -- might look different than it does for us.

On a net revenue basis, the declines tend to be less than what you see on a gross revenue basis because we are controlling our costs there. Our cost-control measures really focus on primarily in the areas of labor management and our marketing expenditures, although we have taken a hard look at areas that in past we have deemed to be uncontrollable, such as facilities.

And we have had great results there. Our property and regional operating teams, I think, are best in industry and we share practices amongst them, and we think that we can continue to adjust. As long as the environment stays about where it is and no worse, we can adjust to that and continue to preserve our margins as we have throughout 2014.

So Jay, if I asked it a little bit differently, if we looked at year to date just OpEx through September at the overall Southern Plains segment, it looks like it is trending down somewhere in the mid to high teens year over year. Could you maybe try and put parameters around what percentage of that is the go-forward asset base?

I am not sure I follow the question, Carlo.

I am trying to effectively isolate how much operating costs have been out of the business this year with what's going forward and what we are just taking out with Sioux City and Baton Rouge, and try and get a better sense (multiple speakers) as we look ahead.

Why don't we do this, Carlo? I think I understand the question now. Why don't we take that question off-line and we will get back to you with a more thoughtful answer?

That sounds good. Thanks, guys.

(Operator Instructions). Joe Greff, JPMorgan.

Carlo took my Southern Plains OpEx-related question, but my other question, a rather easy one, Saul, maybe over the next five quarters by quarter, if you can give us the cadence of advances to the Tribe in San Diego? Thank you.

I don't have 2015 spend information with me, Joe. The spend at the Tribe in Q3 of this year was $18.2 million, taking us up to $40.7 million for three quarters. We expect to get to about $76 million by the end of this year against a total spend of approximately $360 million, and of the remaining spend, two-thirds of it will occur in 2015, the balance in 2016.

Good enough, thank you.

George Smith, Davenport Asset Management.

Just wondering if you could talk about how capital priorities change now that we have got the two Ohio properties behind us. Soon we will have some conclusion on Massachusetts, and I guess with the exception of maybe a wild card in New York, spend will be down. So I'm just wondering how you think about capital allocation now over the next two years.

I think that we will be extremely consistent with the record that Penn National has followed in its history in that to the extent there are capital needs for additional development or acquisition, that we will look first to fund those with increased debt, at the same time of keeping total leverage within our comfort range, below 6 times, and utilize the debt markets to fund capital expansion, as we have in the past.

But you are right, George. We certainly recognize that as we start to conclude Massachusetts next year, continue Jamul, we still, obviously, have to look at opportunities to continue to grow and use our balance sheet and the opportunities out there in the capital markets to continue to grow beyond what is, I would characterize, a very healthy development pipeline today.

That's going to be our continued focus, to try to find the right opportunities and be disciplined allocators of capital to fund these high-return projects that I think you're going to start to see realized as we evolve into 2015.

I guess more top of mind for me would be at which point does -- especially with the stock here, does a buyback become a more material consideration?

George, as you know, we consider that option on a regular basis. We have in the past year discussed that option with our Board and continue to believe that the most effective use of our capital is to continue the growth and expansion of our property base. And that will continue to be the philosophy for the immediate future.

Okay, and I may be repeating an old question, but if you could just talk about how much, if anything, is left in terms of cost reductions, whether it be operating costs or overhead, and margin improvement, and then what you expect to see in the way of flowthrough as we get into a period of easier comps and hopefully slightly better revenue trends?

Sure, George, this is Jay. Listen, we -- this is something we work at every day as an organization, and for as long as revenues don't decline steeper than they have over the course of what you have seen in 2014, you have seen our margins hold up quite well, so we are prepared to continue to do that.

It becomes more challenging if the environment of revenue declines continues on beyond much of what you have seen here the last couple of years. But certainly with regards to flowthrough, assuming that Q1 we see some level of improvement from a revenue perspective, outside of the gaming tax impact, I think you can assume most of that would be able to flow down quite nicely in the majority of our markets, given how tight our cost structure is across the enterprise.

Just give me some feel for the one-time costs from this year, whether it be preopening costs or Massachusetts spend, just sum total of things that hopefully won't be present in 2015?

George, there is a number of those items. Why don't we give that a little bit more time and we will get back to you directly with that, as we think about Massachusetts, preopening, and a couple of other things that are out there? And we will follow up with you on that answer.

Got it. That sounds great. Thanks a bunch.

(Operator Instructions). Felicia Hendrix, Barclays Capital.

This is actually [Dimitri] for Felicia. Just regarding Massachusetts, I know a number of politicians that are running for governor have publicly stated they would push for the Springfield project, the [M James] project, to stay alive, should the repeal pass. I was just wondering if you have had any similar conversations or any indication that Plainridge could get some support for a similar carveout?

No, we have been singularly focused on a successful outcome on election day. Haven't given any thought or discussion at all to alternatives or speculation that politicians who are running for higher office may be throwing out there. We are just focused on, at this point, just getting the vote out.

Okay, great, and then in New York, is there a scenario that you can envision as far as -- let's assume you get awarded new license. How are you thinking about competitive pressures potentially in northern Jersey, but also -- I guess it depends also who else gets awarded the license, whether there is two Catskills license or just one or three or four in that state total. How should we be thinking about that and is there a scenario in which you may reconsider the development?

A lot depends on what's going to happen with where these licenses get allocated. We continue to believe -- maybe we're not entirely correct, but we continue to believe that the Catskills region will get two of the four licenses and one in Orange County, one in Sullivan County, the Catskill region.

I continue to believe and I am a resident of New Jersey that threats of northern New Jersey casinos are not a done deal. It would have to go back to the voters of the state of New Jersey, and there's a lot that is involved with that and the protection of Atlantic City.

If we were fortunate enough to get the Orange County license, and there is one in Orange County, one in Sullivan County, we are very confident to move forward with that $750 million-plus development with our partners, the Cordish Companies, if we are fortunate enough to get that award.

All right, great, and just one quick housekeeping item. You mentioned Dayton seems to be a slower ramp, at least relative to Mahoning. It sounds like both are going well, and so, congratulations on that. But as far as the impact from that one-time item, when you're saying it's a slower ramp, are you accounting for the add back for that or is it in general just a slower ramp for that property?

My comment, Dimitri, with regard to it being a slower ramp was just relative to what we had forecasted between the two. Mahoning Valley has outperformed what we anticipated and Dayton is a bit behind what we anticipated, and I chalk that up to it being a more competitive market, sharing some of that Dayton customer base with Mahoning Valley, and Columbus being a pretty mature market up to this point.

So we're still feeling very good about the prospects of return on our Dayton facility, and it certainly is not going to be the lowest performer within the state, but I do think it will be a slower ramp as compared to Mahoning Valley or what we anticipated originally.

All right, great. Thanks for the color. That's it for me.

David Rainey, Broad Run Investment Management.

My question is by the time MGM opens its casino in the Washington DC area sometime in the second half of 2016, the two Baltimore area casinos will have been open for anywhere between two to four years, by my estimates. My question is when we are two, 2.5 years out from today, what incremental impact do you all think the opening of MGM will have on Charles Town, particularly given that the Baltimore casinos have been open for so long and have already ramped up nicely?

Taking that question maybe and approaching it a bit differently, the Horseshoe Baltimore, as I mentioned in my earlier comments, opened a couple of months ago, and the majority of our Baltimore-based business at Charles Town had been cannibalized when Maryland Live! opened over the course of their first 12 to 15 months of operation, to the point where we haven't even seen a material impact to our Charles Town facility, slots or table games, since Horseshoe Baltimore opened. Hopefully that continues to be the case.

With regards to our database, really our database today is a western Maryland and northern Virginia-based customer, and so there will be some impact, obviously, from MGM National Harbor when they open in middle of 2016. But difficult to say at this point, given that you are looking at two years from now, exactly what that impact will be, but no doubt there will be some additional impact, though a large portion of the remaining database at Charles Town would still be closer to our facility than it would MGM National Harbor.

Okay, so Jay, as a follow-up on that, our firm is in northern Virginia. I'm pretty familiar with the area. I would think that a DC customer or an inside-the-Beltway type customer in and around DC on the Virginia side would likely sample and trial one of two Baltimore-area casinos pretty substantially over the next couple years, rather than going out to Charles Town. That's just either time of day or the degree of traffic or just Baltimore is simply closer. Have you all started to see that northern Virginia, tighter-to-DC customer already migrate north up to Baltimore?

Not to a large extent. Like I had mentioned earlier, most of the impact to Charles Town to date has been more Baltimore-based customers.

There has been some trial, but I think it's encouraging that through the first two months of Horseshoe Baltimore, we haven't seen any incremental impact, which would lead you to the conclusion that most people who have tried Maryland Live! maybe are now thinking about spending some of their visit and gaming time at Horseshoe Baltimore, but not to the impact of our Charles Town facility.

We really haven't seen anything incremental over the course of the last four or five months that would lead us to believe that we are going to leak any additional business from northern Virginia to the Baltimore casinos in advance of National Harbor opening in mid-2016.

One of the cautions, David, this is Tim, it's only been two months now with Horseshoe Baltimore, and we know that it takes a little bit more time than that to really understand the impact of a new entrant into a marketplace.

I certainly can promise you that by the end of 2015, early 2016, we'll have a much better handle on the two operations in Maryland and what we are seeing out of the DC/northern Virginia markets and be able to answer your question with a much higher degree of precision as more time passes.

Okay, thank you.

(Operator Instructions). Joel Simkins, Credit Suisse.

Just one more follow-up and perhaps this is for Tim and Eric Schippers. I guess the last time we had spoken we talked a little bit about the historical racing opportunity in Texas. I'd love to get your thoughts on that, and then perhaps Eric can chime in a little bit on the legislative outlook for more traditional gaming expansion in Texas next year as the legislature comes back.

Eric, why don't you go ahead?

I can start on the political front. There is a gubernatorial race, of course, in Texas that may turn Texas even more conservative than it is today, so there's not a lot of near-term hope for full-on Class III gaming expansion in Texas, though we're still going to be sharing some of the same message points we're using in Massachusetts about the amount of cross-border revenue that is lost to neighboring states and we will have a coalition in Texas with the horseracing industry that is going to keep pounding away on those.

So we're not giving up the effort, but certainly politically, the climb may get a little bit more steep.

The historic wagering is separate completely from our efforts on the Class III front. This is something that has been approved by the racing commission by a vote of 7 to 1 and the commission is still working through the application process. We're going to be prepared to apply for games when they're ready for us. I don't know if BJ, from a development perspective, wants to weigh in on that.

I just think that, as Eric had stated, the commission on their approval, there is some -- or there is some legal challenges to that, and we are monitoring the situation closely and we will be prepared to submit an application at such time as the commission is prepared to accept applications, and we're just working with them right now through that process in understanding what that litigation may bring.

Joel, we're not going to take any action, as you heard, until we know the courts have cleared the way and that the horseracing commission in the state of Texas is willing to accept our application, and that's a timing to be determined yet that we don't have an accurate handle on as we watch what happened in the court system in Texas.

Okay, that's very helpful. Thanks.

Kevin Coyne, Goldman Sachs.

Thanks for taking the questions. Just one for Tim. I know in the past you have spoken about the aggressive promotional strategy that the new Horseshoe properties took in Ohio, and we certainly saw them in the gaming board's disclosures, but when you look at Baltimore, are you seeing or sensing a similar strategy? Or, alternatively, can you remind us when the promotional acceleration took place in Ohio? Was it after three months of building a database? If you can give us any color there, it would be great.

Kevin, I will let Jay answer that question for me.

We really -- again, just a reminder, it's been two months, so it's hard to predict what the next three months may look like, but up to this point, we have not seen out of Horseshoe Baltimore the same level of heightened reinvestment or elevated promotional activity that we did from the two Rock Gaming/Caesars Horseshoe properties in Ohio, and that really was right out of the gate, both Cincinnati and Cleveland, they were very aggressive from opening day through the first, I believe it was, up to nine, 12 months. We have not seen that yet out of Horseshoe Baltimore.

Great, thank you.

The other thing, Kevin, in Maryland, the tax rate is a bit higher than what -- on the slot side than what we had in Ohio, so that certainly makes it much more difficult to be very aggressive from a marketing standpoint when the tax rate is that much higher in this jurisdiction.

That's helpful. Thank you.

Daniel DeYoung, Columbia Management.

Thanks for taking the question. Just curious, Saul, if you could just provide some clarification around your leverage comfort and how you guys go about thinking about leverage with the leases and the rents in place on a lease-adjusted basis when you think about pursuing other capital projects and acquisition? Thanks.

Saul?

Sure, that's actually one of my favorite topics because it gets me right to my favorite multiple of factoring in our long-term lease at an 8-time multiple, which someday somebody will explain to me how that logic prevails.

But having said that, our leverage ratios, first and foremost, are well within our comfort level of our existing bank agreements, and even on an absolute overall basis are well within our comfort levels currently and historically below the 6-time levered ratio, even including, if you will, the long-term lease, which I would remind everyone that in times of rising interest rate represents a long-term fixed-rate obligation at a relatively low rate. So I think our current leverage situation is comfortable and we would expect to maintain those comfortable levels going forward.

Just one follow-up. When you think about if you were to have an opportunity to do a much larger acquisition, would you consider equity as a proponent or a component of an acquisition if you were to do something on a large scale?

Not likely. Our history has been to finance acquisitions, both M&A transactions, as well as greenfield, through the debt markets. We have been very successful in that approach, and everything that is on the horizon at the moment is consistent with that historic approach. So equity is not something that is top of mind in any way at the moment.

All right, thanks.

We have no further questions at this time. Mr. Wilmott, I will now turn the call back over to you.

Thank you, Amanda. Again, I apologize for the technical problems we had on our end early in the call.

I want to thank everyone for their attention and look forward, when we get together in the first quarter of 2015, to give you further updates on our development pipeline and obviously, hopefully, further continued improvements to the consumer as we are seeing it in our businesses, and I hope our results again demonstrate that the team here at Penn National continues to operate very well in a challenging environment. And as that environment improves, we certainly believe we can continue to improve on these results as well. Take care, everybody.

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.