PENN Entertainment Inc (PENN) 2014 Q4 法說會逐字稿

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

(Operator Instructions)

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

Thanks, Kayla and good morning everyone and thank you for joining Penn National Gaming's 2014 fourth-quarter conference call. We'll get to management's presentation and comments momentarily as well as your questions and answers.

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 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 anticipate, 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, 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 Form 10-Q. Penn National assumes no obligation to publicly update or revise any forward-looking statements. Today's call and Webcast will also include non-GAAP finance measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to their 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, it's now my pleasure to the turn the call over to the Company's CEO, Tim Wilmott.

Thank you, Joe. Good morning, everyone. I'd like to introduce the Penn team here with me in Wyomissing, Pennsylvania this morning. Our Chief Development Officer, BJ Fair; our Senior Vice President of Government and Public Relations, Eric Schippers; our General Counsel, Carl Sottosanti; our Chief Operating Officer, Jay Snowden; our Chief Financial Officer, Saul Reibstein; and new to the Penn team, two weeks old is our head of Online Gaming, Chris Sheffield. Chris has been brought on board to help us navigate the opportunities in the space, both social, commercial and all others. Chris, welcome.

Thank you.

Any other comments about your first two weeks here?

I'm enjoying the weather. I'm getting used to the snow and the cold. I'm very excited about the opportunity and really sort of spending the next few months to put together a total integrated strategy for Penn National Gaming. Really looking at four areas, the first one being social, where I think there's opportunity around revenue generation but also, how we can use social to drive more lump hole more footholds into the casinos. Obviously real money. I think it's a long burn gain but looking with very much interest at some of the earn states that are looking at bills now. In particular California, Pennsylvania, potentially Washington was announced yesterday. Land base about how we can use applications potentially to actually when people are on our property. And finally, looking at the racing business and possibly funds to gaming as well which I think is a very interesting area. So I've got a lot of work to do and hopefully in the next few months we'll start to implement some of the strategies around some of these key areas.

Welcome aboard, Chris. Thank you.

Thank you.

What I'd like to do is just give some color on the fourth quarter results and look out into 2015. Then I'm going to turn it over to Jay who will cover some of the trends we're seeing in our businesses with the consumer and then to Saul to talk a little bit more specifically about guidance and other financial information. Then we'll open up the call to questions that you all may have out there.

Certainly, as I now look back at the fourth quarter of 2014, one of the things that we're very pleased about is the first full quarter of our two VLT operations in Dayton and Mahoning Valley, Ohio. They are performing to our expectations and we're very pleased with the start we've gotten at both of those operations. Also highlighting the fourth quarter, we're very pleased to see that 60% of the voters in Massachusetts elected not to repeal the gaming legislation and that will allow us to proceed with our development in Massachusetts at Plain Ridge Park.

And as you get into the financial results and look at our performance versus the guidance we provided out there, revenues exceeded guidance by 5%. Clearly, the better weather year over year in December helped but Jay will cover that in a little more detail. EBITDAR beat guidance by 6% and EBITDA beat guidance by about 15%. I think that speaks to the continued focus we have in our operations and also at our corporate office to deliver improved bottom line results based on very strong efforts to be as efficient and as effective as possible. And even with these margins improving year over year, our employee satisfaction scores and employee engagement scores continue to perform very, very well.

As I think about 2015, certainly, we look forward to the June opening in Massachusetts at Plain Ridge Park with our 1,250 slot machines there. Everything is on schedule and on budget. We'll continue to move forward in San Diego County with the Jamul Village project which is scheduled to open up in mid 2016. We'll enjoy a full year of operating our two new Ohio recinos and the good news is, as we look at the environment out there with our portfolio of properties, we don't see any new supply entering our markets in 2015.

We do anniversary the opening of Horseshoe Baltimore in the third quarter of this year and we also anniversary the opening of Belterra Park in the Cincinnati market in the beginning part of this year. But no new entrants will be affecting us in absorbing new supply as we've seen in the prior periods. So I'm optimistic about 2015. We certainly, I think had a good fourth quarter and look forward to, hopefully a 2015 that's going to continue to deliver on our expectations that we provided in our guidance. So with that, I'll turn it over to Jay Snowden. Jay?

Thanks, Tim and good morning, everyone. Fourth-quarter strength really was largely driven by what was a robust and I think, well-documented month of December. Certainly, benefited year over year from milder weather, materially lower gas prices, favorable holiday calendar and at the macroeconomic level, affirming labor market and consumer confidence trends that are continuing to improve. Highlights for the quarter would include modest growth, in not only spend per visit, which is consistent with prior quarters, but visitation for the first time in years across most of our properties. Not only at the high end work segments but also, the mid to lower and the retail and unrated segments showed growth on a year-over-year basis which is quite encouraging.

The two new recinos in Ohio, as Tim mentioned, continue to ramp and certainly meet our internal expectations. We did also open a new hotel in August of 2014 and in Zia Park in New Mexico and that asset has performed very well for us through November, though no doubt our business model there is dependent upon the oil services industry. And December and January, we have softened up a bit due to the pullback in oil production and some of the layoffs that are well documented from the companies in the oil services business.

Our focus on EBITDAR margins continues. Year-over-year improvements, we experienced the majority of our properties despite what is still a pretty challenging overall operating environment. I think our property and regional operators continue to do a fantastic job. Some of the best operators in the business, certainly from my perspective. Corporate overhead was down consistent with prior quarters on a year-over-year basis.

As you look into the first quarter, no doubt that favorable year-over-year weather will continue to show in the month of January. I would certainly say that February and March, I believe, will serve as better barometers from a year-over-year perspective to provide more insight and really be able to extrapolate what it is we're seeing in the business as we drill down into last year's winter weather. The extreme weather really was concentrated in the months of December and January. So there's no doubt we're benefiting from milder weather this year. But when you look at February and March last winter, a number of snow impacted days across our portfolio was very consistent with the previous year winter, previous couple years winter. I think February and March will be a much better barometer and December and January no doubt, as I mentioned, is feeling some benefit due to milder weather.

Lastly, the promotional environment remains largely stable across most of our markets, which is also encouraging. No change from previous quarters. With that, I'll hand it off to Saul to take you through first quarter and full-year 2015 guidance. Saul?

Thanks, Jay. Our 2015 guidance considers many macroeconomic factors affecting the US markets today, including continued improvement in consumer confidence, ongoing declines of unemployment rates, fluctuations of short-term interest rates and uncertainty about future oil prices. These conflicting factors make for the usual difficulty in arriving at 2015 guidance.

For the full-year 2015, we are forecasting an increase in net revenue of $152 million or 6% over 2014 actual results, and of course includes a full year at Dayton and Mahoning Valley, a partial year at Plain Ridge Park and is offset by the loss of Sioux City and our current estimate of ongoing revenue declines primarily driven by continued competition in several of our major markets. Accordingly, we are expecting EBITDAR to increase over 2014 by $33.3 million or 4.7%, and EBITDAR margin to go from 27.3% to 27%.

The slight decline in EBITDAR margin is driven by our forecasted revenue declines from ongoing competition, the absence of benefits that we experienced in 2014 due to price fluctuations in the equities underlying our cash settled stock-based compensation, and of course, the loss of Sioux City. Our press release provides our current estimates for corporate overhead; pre-opening expense; rent; including 2015 escalation, and full year increases for our Dayton and Mahoning Valley properties; interest; non-cash stock compensation; and depreciation and amortization.

In addition, some other key data points are: cash on hand at December 31, 2014 of $209 million, all of our debt covenant ratios have been comfortably met, project CapEx inclusive of our Jamul Indian Village project for 2015 is estimated at $360 million, with $74 million in the first quarter. Maintenance CapEx for 2014 is estimated at $75 million, with $21 million in the first quarter. Our GAAP basis effective tax rate for 2015 is currently estimated at 39%. And finally, free cash flow before project CapEx and principal repayments of $138 million for the year. And with that overview, we can open for questions.

Thank you, Saul. Operator, we're now able to take questions from the audience.

Thank you.

(Operator Instructions)

Our first question comes from the line of Carlo Santarelli with Deutsche Bank. Please go ahead. Your line is open.

Hey, everyone. Good morning. Just as it pertains to the guidance, could you guys provide a little color on what you're seeing from the Q4 forgetting about the year-over-year and the weather benefit, but from the Q4 to the Q1, the implied $20 million top line boost?

If you guys wouldn't mind commenting a little bit, obviously, your implied margins on your new guidance are for relatively flattish but down maybe 20 basis points year-over-year. Clearly, some of that is going to be related to the new opening and the margin ramp at that property. But could you provide any color on how you foresee margin trends on your same store portfolio?

Go ahead, Saul.

Sure, Carlo. We've estimated margins at our store openings on a very consistent year-over-year basis, very consistent on a sequential quarter basis, with probably the exception of the new Ohio tracks where margins in 2014 Q4 were probably higher than what we expect them to be on an ongoing basis as a result of their newness. So there was a slight decline in margins there, but otherwise very consistent year-over-year.

Jay, do you want to take the first part of Carlo's question?

Sure. We typically see, Carlo, that our first quarter in some of our markets is one of the strongest quarters, if not the strongest quarter, so you're going to see sequential growth from fourth quarter into the first quarter. We obviously benefit from having the two race tracks in Ohio in the first quarter that we did not have in first quarter of last year. There's some Zia Park hotel benefit in there as well.

The other thing that I would mention from a margin perspective is that we did build into our guidance, not just first quarter but for the first 2.5 quarters up until we anniversary Horseshoe Baltimore, some delayed impact to our table game business. We've held up quite well, full Charlestown and at Penn National Race Course. We did see with Maryland live there was a bit of a residual impact as time went on. We built that into our guidance. Hopefully, that's conservative and incorrect and current trends continue on and margins are a lot more consistent with what we're seeing today but we did build that into our guidance.

We also built into our guidance, Carlo, the effect of slot revenues at Lawrenceburg from Belterra Park in the first half of 2015, as well, which we have seen in the fourth quarter. So Lawrenceburg and Charlestown do have some effect on margin and also on revenues based on the supply we're absorbing.

Great. Thank you, guys. That's all very helpful. Just one quick follow-up as it relates to Jamul. I know you guys have a responsibility maybe to help them try and obtain financing to ultimately get that off the balance sheet over time. But is there anything new to update in the near term in terms of that process and obviously the capital that you guys have tied up in there which couldn't come back any sooner than the lump sum post opening?

There's nothing that I can tell you that's official at this point, but you're right, we will probably look later, second half of this year to do some interim stage financing before the final opening.

Great. Thanks a lot, guys.

Thanks, Carlo.

Thank you. Our next question comes from the line of Joel Simkins with Credit Suisse. Please go ahead. Your line is open.

Hi, this is Christie Fredericks asking a question for Joel. I saw that revenue guidance looked good and the EBITDA was kind of a bit lighter than expected. Does this kind of imply greater rent expense and assume growth geared more towards the variable rent expense properties?

Saul, could you talk a little bit about the rent escalator that we built into the guidance and a little bit about how that escalator and the rent calculation is also affected by Columbus.

Sure. The total rent increase year-over-year is about $12.7 million, of which, again, all of these numbers on a year-over-year change basis, the escalator that you've all read about and know about is about $2.7 million of that increase. Dayton and Youngstown, I'll give you the numbers together because that's probably more effective. It increases the rent close to $13 million, based upon what we're projecting their revenues to be and results. Those numbers are offset by the benefit year-over-year of Sioux City of about $3.6 million. So that gives you the details of the total rent increase. And you're right, that does have a little impact on the overall EBITDA margin.

Okay. Thanks. And also just a follow-up. Is it fair to assume that the rent at the Plainridge development, and all new projects for that matter, will be similar to the race tracks with the fixed building component plus 4% of revenue for the first year and then 6% a little after?

No, the Plainridge development does not include our landlord for the other 19 properties. That is a Penn only development. There will be no rent associated with ours Massachusetts development or anything in California that we're doing with the Jamul Village Indian tribe.

Okay. Thanks.

Thank you. Our next question comes from the line of Demetri Typadis with Barclays Capital. Please go ahead. Your line is open.

Hey, everyone. Just on the new Ohio racinos, they seem to be performing pretty well. They have some of the better slot yields relative to the other racinos in the state. Given the amount of capacity that's come online in the market, and kind of the slower ramp we've seen for other recently opened properties, could you talk a little bit about the growth opportunity? I think you just mentioned margins might be a little higher at this point but what's the top line growth opportunity for those two?

Sure, Demetri. This is Jay. We typically see -- and we modeled our guidance and our forecast for these properties after what we experienced in both Toledo and Columbus, those being new markets for us in Ohio. We think that Toledo more mirrors what Mahoning Valley trends will likely be given there's more limited competition and Columbus and Dayton there's some similarities. We believe that there is growth if you look at what happened for Columbus and Toledo, maybe months 4 through 16, you'll have a good feel for what we're anticipating 2015 for top line assumptions for those two businesses in Youngstown and Dayton. And we're happy with the results. We're happy with the margins. We're just in that post opening stabilization mode and we anticipate being able to grow the top line from here.

Okay. Great. And then if we could just move on to Massachusetts. There's been some discussion about some of the rules that the Massachusetts Gaming Commission is considering implementing, seem a bit more onerous than in most other jurisdictions. I was just wondering if you guys could give an update on any potential loss limits or opting in, opting out, rules that you might have to abide by in that market relative to the other markets?

I'll let Eric handle that question. Eric?

Yes, we've been working very closely with the Mass Gaming Commission and our General Manager up there, Lance George at Plainridge Racecourse to work through some of the growing pains that you see in new jurisdictions. Making sure that they understand best practices, how the rules and regs work in other jurisdictions and certainly Massachusetts brings its own unique perspective to some of this. It's a work in process. There's nothing that is causing us too much concern at this point. We're working through some complicated issues and hope to be able to hit our target of a June opening with rules in place that we're all comfortable with.

The one concern that we're working with the Commission on, is currently there's an old provision in Massachusetts that requires interruption of play when a jackpot is hit at a $600 level and as you all know, in every other jurisdiction we have to comply with Federal law and do a W2-G at $1,200 and above. So we're working with the state to try to get that raised from $600 to $1,200 prior to our opening which we know will give us competitive parody with Rhode Island and Connecticut.

Understood. That's helpful. I guess just one quick follow-up for Massachusetts. Some of the other projects, I think Wynn in particular, is facing some litigation problems. Is there anything that could delay any of the other projects indefinitely? I guess if you could give some color on what's happening in Everett and then also what's happening with the southeastern license would be helpful?

Well, we read what you read about what's going on with Everett. I really can't comment on that. We still believe we're going to have 2.5 to 3 year head start on the Everett development. With regard to the southeastern license, Eric, do you want to comment on that? It's very difficult to predict at this stage as well.

Yes, there are three companies that have expressed interest in the early stages of their application. There's a lot of speculation going on right now where this will finally wind up. And I think a lot of people in Massachusetts, certainly in Boston, understand that we are the license in the Southeast that is already there, that is opening in June and that obviously clouds others who might have been interested earlier on in the process. So, it's hard to tell where this will finally wind up. I would say it's still too early to determine who's going to be at the final table for the application.

And also it's very difficult to assess what the Federal Government's going to do with the tribal issues in that part of the state as well.

That's right. That certainly clouds the issue as well.

All right. Great. That's it for me. Thanks.

Thank you. Our next question comes from the line of Shaun Kelley with Bank of America Merrill Lynch. Please go ahead. Your line is open.

Hey, good morning everyone. I was hoping if you could maybe elaborate a little bit more on the core consumer? It sounds like in December you gave some color in the beginning that retail and some of the unrated play, saw some year-on-year improvement both sounds like traffic and ticket. Was curious if you could just help us break that down a little bit more? Did that continue into January? Because when we read the release, you did kind of use the word choppy. So just wondering what you're seeing there a little bit continuing into the end of the year?

Sure, Shaun. And the reason we described Q4 as a continuation in the terms of being choppy is that you look at the quarter, we had a solid October. November was softer than we anticipated and then we had a very robust buoyant month of December. So that's why we termed it as choppy. I would tell you that December as a standalone we showed growth across all of our segments at nearly all of our properties. October and Novembers was more of a mixed bag.

So January, so far, looks a lot like December. I don't think that should be surprising given the extreme weather conditions across the Midwest a year ago January. And that's why I'd say, to me the true barometer as to whether or not we're seeing some stabilization and recovery, certainly from a fundamental perspective with the consumer, is going to be February and March where the weather was really average last year from an extreme perspective. And assuming the weather is average again this year, we'll have a better indication and more insight as to what's really going on.

Perfect. That's very helpful. And then I guess my second question would be, you're one of the first companies probably in a lot of areas that we cover that actually saw some direct oil related weakness. I think you guys called it out as it related to Zia Park. I'm curious as you look at places like Pennsylvania and West Virginia, which are going to be maybe a little further afield but might have some impact from the shale and fracking industries, have you seen any signs of impact at those properties or is it really been isolated to New Mexico?

Shaun, up to this point it really has been isolated. As you look at our core customer in Eastern New Mexico, much higher percentage, certainly are affiliated in one way shape or form with the oil industry or gas industry as compared to West Virginia, Pennsylvania, Ohio, where it'd be a very small percentage involved in the shale business. We've not seen anything in those jurisdictions. We don't anticipate seeing anything. But New Mexico, no doubt is being somewhat impacted early on.

Perfect. Thank you very much.

Thank you.

(Operator Instructions)

Our next question comes from the line of Andrew Berg with Post Advisory Group. Please go ahead. Your line is open.

Thank you. Just tacking onto Shaun's question, if you go back and parse through the December data, and maybe it's a little bit too fine-toothed, if you look at days that were non-storm impacted versus days that were storm impacted last year, are you seeing that same customer pick-up or is it just picking up from the better weather?

Andrew, I don't have a comb with teeth that fine. I really -- it's hard to say. You're looking at a number of variables on a year-over-year basis and if there's a snow impacted day in 2014 that wasn't there in 2013 and then the reverse the next day and what's pent up demand, it's very -- I would say it's impossible to really know with one month of data and I don't want to, again, embellish. I don't want to try to over analyze one month. I don't think it makes a trend. No doubt, January's will look more similar. But like I said, I think we need a longer period of time to go back and better understand how much of the benefit, the buoyancy that we're seeing right now is due to weather versus other factors like gas prices and just a healthier consumer overall.

But you get the general sense that the healthier consumer's probably -- you are seeing some economic benefit at this point, it's not just weather?

I would say it's impossible to know exactly what percentage of what we saw in December and are seeing in January is due to what. But I do think that there is more out there than just weather that would lead you down the path to say there's probably some other positives impacting the consumer behavior.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Joe Greff with JPMorgan. Please go ahead. Your line is open.

Good morning, everybody. Looking back at the Q4 and the $10.5 million of positive operating variance relative to your guidance, what geographies or what properties really drove that? And then when you look at it by month, was it really the entirety of that was in December given the comparison?

Joe, it really was broad-based, certainly in the month of December across the portfolio, down south, Midwest, west. We've actually been seeing some real nice trends out of our Las Vegas property and resorts. I mentioned New Mexico earlier and the Northeast. So it was broad-based in December. But we had a pretty good October and I would say that it wasn't necessarily in pockets. We were happy with the results. November, caught us a bit by surprise given that October performed as well as it did. But then December came through and January has certainly been more broad-based as well. Again, with the exception of Zia Park up to this point.

So it wasn't all December, Joe. There certainly was some lift we saw in October, November, again, as Jay said, mostly in October, but we did see it throughout the quarter.

Great. And with respect to the full year EBITDA guidance and the Massachusetts contribution as contemplated in there, I know you don't want to get into specifics of how much relates to that unless you really want to disclose that, but can you talk about --

You're correct, Joe, we don't.

Can you just talk about more qualitatively how you're thinking of the ramp there? Do you think it's kind of a multi-quarter ramp to get to stabilization or do you think it's a relatively quicker ramp compared to other properties that you opened over the last 10 years?

You know, I'll start and maybe Jay will follow. Even in markets like this where you're going in as the first entrant, it takes a couple years to fully mature your customer base and to establish relationships with your better players and to market and yield manage your peak periods. So I expect that we're going to have a couple years ramp up. It's certainly going to be a strong market to open, we believe, but it's going to still take us a couple years to fully mature and ramp up the revenues in the business and I do expect a run of about two or three years before we stabilize.

I agree with that, Tim.

Great. And then my final question and I guess this would be for Saul but anybody can answer it. If I look at your corporate expense guidance for this year, it's a bit ahead of what you spent last -- the past year in 2014. I guess why the bump there?

Joe, the primary driver of that is the benefit we got in 2014 from the market values underlying the stock-based compensation that we don't expect to see repeat in 2015.

Perfect. Great. Thanks, guys.

Thanks, Joe.

Thank you. Our next question comes from the line of Thomas Allen with Morgan Stanley. Please go ahead. Your line is open.

Thank you. Good morning, guys. On your -- just on your 2015 guidance, can you give us some color on what's implied in terms of same store growth? Thanks.

Jay?

Sure. We actually comment as we looked at our businesses that have been open for a number of years in more mature markets and look at a slight decline in top line revenue offset by continued ramp of the new projects and properties in Ohio, continued ramp of Columbus, Toledo, along with the race tracks, as well as Massachusetts hitting mid year. We did not assume top line growth in our existing businesses that are in more mature markets.

Very helpful. Thank you. Just on the Southern Plains segment, margins did a lot better than we expected based on the revenue numbers. Anything that you can kind of give there? And then as you think about 2015, following up on an earlier question, are you factoring in some impact from lower gas or lower oil prices impacting that region?

So to answer your first question for margins in fourth quarter, it really was broad-based. I think our operators are continuing to challenge what we've done in the past and figure out ways to drive improvements even in challenging revenue environments. Mississippi, as an example down on the Gulf Coast, we combined our property operations between Bay, St. Louis and Boomtown about nine months ago and our team is doing a great job of driving improved revenue performance as well as margins overall. Just as an example. But Mississippi's been a good story and most of the other properties throughout the Southern Plains have showed margin improvement. I'm sorry, can you repeat the second question about 2015?

Yes. Then just thinking about lower oil prices, have you factored that into some of the properties there? I know not all of your Southern Plains -- it's not like you have properties in Lake Charles, but there's some of those properties maybe impacted by lower oil prices or not.

We have not comments -- the only business we're really seeing early impact or any impact due to lower oil prices is in New Mexico because so much of our customer base is involved in that industry. But no, we have not seen any softness in Biloxi or Bay, St. Louis. There was a recently passed smoking ban in New Orleans that you may have read the headline which could actually benefit us somewhat in Bay, St. Louis. We don't anticipate any softness in Mississippi.

Great. Just a final question. Illinois has a new Governor. That's obviously a big region for you guys. Any thoughts on how they're going to deal with gaming and potential expansion there? Thanks.

Well, let me start with my comments. I'll turn it over to Eric to fill in. I had an opportunity to meet with the new Governor as he was campaigning and certainly, he has indicated that he is in support of the industry and believes that expansion should occur if local municipalities want it. But I also have heard him say that he wants to do a comprehensive study of how to navigate any kind of expansion of gaming in the state of Illinois. So I think there's a lot more to come here.

He's obviously just getting into office. He's got to reconstitute a Gaming Board in that state. So there's a lot for him to get his arms around here. I don't think anything's going to happen quickly, but I do think certainly the indications are that he is -- he's got a business background and he's supportive of our industry and how we could possibly grow in that state. Eric?

I think that says it well. He's taking a very thoughtful approach. I should note that there is still a burning desire among many in Chicago to get a standalone casino there. So we'll be fighting the perennial, what we call the kitchen sink bill, where everyone's trying to get new gaming in Illinois. We expect to be fighting that yet again. But every day you continue to read stories about the ongoing proliferation of the VGTs, the video gaming terminals, in Illinois where there are 19,000 now in operation in the state. And that certainly is going to impact, I think, the discussion about expansion beyond where we are today.

Great. Thank you.

Thank you. Our next question comes from the line of Steve Kent with Goldman Sachs. Please go ahead. Your line is open.

Hi, it's actually Afua Ahwoi for Steve. Two questions from me. I don't know if I -- if we missed it but could you discuss the impacts, the positive impact of lower gas prices on your consumer? Have you seen any change in spend per trip or frequency of trip that maybe you can talk about?

And then if you can remind us, I know last quarter there was no rent escalation because you weren't yet at threshold. But obviously now there is. Is it solely because December was so good or is there anything else that we should think about? Thanks.

Saul, why don't you handle the rent escalation first and then I'll discuss gas again.

Rent escalation kicked in November 1 on a full year basis, the total escalation was $3.2 million. And we've considered that year-over-year increase, the portion related to 2015 in our numbers. The impact is about $2.7 million additional rent in 2015's guidance. With respect to impact of gasoline prices, I think Jay and Tim have covered that in that we understand what's happening in the marketplace but it's way too early to give monetary impact of that in computing guidance numbers.

One other thing I'll add about the rent escalator. In our master lease agreement we take a look at that annually in the fourth quarter and we'll look at it again in the fourth quarter of 2015 to see what effect it will have on the following 12 months as we close out year two of our relationship with our landlord. That's something that will be an annual recurrence that will happen in the fourth quarter of the calendar year.

And I'm sorry, just to -- so you said the escalation kicked in, in November but I think when you commented on guidance in October it wasn't in. So it's just a few days between. So I guess I'm just wondering what changed from then until now?

We didn't have the full year closed out when we spoke to you all in October and we do the calculation at the end of the month. And that's why we didn't have that information finalized until early November.

Got it. Thank you.

Thank you. And our final question comes from the line of James Kayler from Bank of America Merrill Lynch. Please go ahead. Your line is open.

Hey, guys, how you doing?

Good morning.

Good. Just changing gears a little bit. Can you talk at a all about your continued appetite for acquisitions, what the acquisition landscape looks like and I guess maybe some financial parameters around how you would think about acquisitions?

Well, we certainly want to continue to look at growing our business, either through new developments or through strategic acquisitions. That hasn't changed. We still have an interest to find the right property at the right price at the right location in Las Vegas. That hasn't changed. We have a leverage level now that when you include rent is about 6 times and for the right opportunity it may go up a little bit for the short-term basis but we think that's the -- long-term, that's probably the right leverage level to look at for our Company.

Again, we have a good development pipeline with Massachusetts and Jamul over the next two years, but we continue to look at all opportunities to try to figure out where we can continue to grow this business beyond 2016. And that's not going to change. We have a fairly wide footprint already, so it does make it difficult in certain markets where we have strong concentration today to look at growing our presence there. But there's still opportunities out there that we'll continue to explore and grow profitably and allocate our capital with the discipline that we've shown in the past.

Great. I guess just one last question on the CapEx budget. Can you just give us some feel for what your slot budget is like for going into 2015 and if there's anything of note sort of where you're focused, what types of games, either increasing certain types of games or decreasing certain types of games? And, I guess, obviously participation games would be included in there.

I think Saul has given us our maintenance CapEx. It's about $75 million.

$75 million and typically --

60% of that typically goes into new slot product. That hasn't changed, James, over the last couple years. Jay, do you want to add about any commentary about change in strategy on our product offerings? I don't think it's changed that much from previous periods as well.

No, based on G2E and the new products being offered for 2015, I didn't see anything revolutionary. So, I would say our strategy region by region, property by property is going to be more consistent with what we've seen in the past. The mix of manufacturers tends to alter year by year, depending on who's got the best platforms and products and that will be no different in 2015.

Great. Thanks, guys.

Thank you.

Thank you. And presently we have no further questions on the phone line at this time.

Thank you, Operator. This will conclude our earnings call here for the fourth quarter. I do want to just say again, I think you see the results here in the fourth quarter reflect the strength in our operating platform and how well we do in challenging environments. And as I've said previously, if those environments get better as we progress through 2015, I think you're going to see continued improved performance in our bottom line results as well. And our two projects that we have in Massachusetts and in California continue to be on target, on budget and on schedule and will represent very good growth opportunities for us and our shareholders as we look at the latter half of 2015, 2016 and 2017. So with that, we'll talk to you in about 90 days. Take care.

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