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Gaming Guru

Howard Stutz

Penn National Gaming again views expansion on Strip

25 April 2014

LAS VEGAS -- Penn National Gaming, Inc., which owns M Resort, is again looking at the Strip for possible expansion opportunities.

During a conference call Thursday with analysts to discuss the casino operator’s first quarter earnings, Penn National CEO Tim Wilmott was asked about reports that Australian casino company Crown International was interested in buying the Cosmopolitan of Las Vegas for $2 billion.

Wilmott said he thought the figure “sounded high.”

If Penn were to get into the bidding for the Strip resort, which owner Deutsche Bank reportedly wants to sell, it would probably be with a partner. Wilmott added that Penn is “not actively engaged” in the potential The Cosmopolitan of Las Vegas sale.

“We still have an interest to get the right asset on the Strip in Las Vegas,” Wilmott said. “Our database continues to grow and get stronger as each month passes. Eventually, we are going to get there. It’s just difficult to say where and at what price.”

Penn National was linked to several potential casino deals on the Strip in 2008 and 2009 and company officials commented openly about different properties.

In 2010, Penn acquired the debt covering M Resort at a discount, taking full ownership of the 390-room hotel-casino a year later.

Earlier this month, J.P. Morgan gaming analyst Joe Greff said Penn officials expressed an interest in operating a resort on the Strip. Greff said the comments were made during an investor dinner he hosted with Penn CFO Saul Reibstein and COO Jay Snowden.

In a research report, Greff said owning a Strip casino would allow Penn National to unlock additional value from the company’s player database, which has almost 5 million members. He said Penn “made the interesting point that it views” the database as an “undervalued asset.”

A Strip casino was the “missing piece” to the Penn’s puzzle.

“While we will of course have to wait and see, our sense is that Penn is willing to look at any and all opportunities on the Las Vegas Strip and will be flexible with potential financing solutions, should an opportunity present itself,” Greff said.

Last November, Penn National spun-off the real estate ownership of its regional casinos into Gaming and Leisure Properties, a publicly traded real estate investment trust. Penn leases back 19 of the facilities from the REIT, which is required to disburse 90 percent of its taxable earnings to shareholders.

In the quarter that ended March 31, Penn National said its net revenue declined 19.7 percent to $641.1 million. Net income fell from $65.3 million to $4.5 million. Earnings per share fell from 63 cents to 5 cents per share.

Wilmott said weather issues were “a significant drag on earnings” in the company’s regional markets, including the segment which includes Penn’s three largest resorts. Wilmott said weather issues hadn’t subsided in April.

The company restructured its reporting segments, placing M Resort in the West division with the Zia Park Casino in New Mexico, and an Indian casino the company is building and will manage for a San Diego area Indian tribe. Revenue in the division fell less than 2 percent in the quarter to $60.9 million.

Penn is spending $26 million to add a 154-room hotel to the New Mexico property, which includes a race track. In San Diego, Penn is helping to finance and build the $360 million Hollywood Casino Jamul for the Jamul Indian Village. Penn will manage the casino, which is expected to open in 2016.

Penn National is spending a combined $326 million on two Ohio racetrack casinos that are expected to open later this year and $225 million on a slot machine-only casino in Massachusetts, that is scheduled to open in the summer of 2015.

Wilmott said Penn also interested in a casino license in New York state. The company is in a partnership with the Cordish Cos. for a potential casino license in Orange County, N.Y.

“We actually like the attractiveness of the opportunity in New York and the returns that are associated with our proposed development,” Wilmott said.
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