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Howard Stutz

Penn National continues to stay busy

15 February 2011

LAS VEGAS, Nevada -- Penn National Gaming has proved itself to be a casino operator that doesn't like to wait.

The regional gaming company began preliminary site work in January on a potential location in New Orleans for a $145 million casino, even though Louisiana won't award the gaming license until later this month.

Wyomissing, Pa.-based Penn National has taken a similar attitude with M Resort.

The company, which acquired the debt covering the nearly 2-year-old, 390-room hotel-casino last fall, has begun marketing M Resort to its customer database.

In January, Penn National mailed more than 100,000 marketing and promotional pieces on M Resort to customers of the company, which owns more than a dozen casinos and racetrack casinos in the south, Midwest and Northeast.

Many of Penn's casinos operate under the Hollywood Casino brand.

"We began sending offers to stay at the M to some of our highest value players," Penn National Chairman and Chief Executive Officer Peter Carlino said. "And while it is still early, the response has been encouraging."

Penn National spent $230.5 million in October to acquire $860 million in debt covering M Resort, which included $160 million in subordinated debt formerly held by MGM Resorts International and $700 million in debt from Bank of Scotland.

Carlino told analysts that negotiations are nearly complete with M Resort's owners on a purchase agreement for the hotel-casino. During the company's fourth-quarter earnings conference call earlier this month, Penn National executives said they expect M Resort's results to show up on the company's balance sheet in the last half of the year.

M Resort opened in March 2009 and was built and operated by Anthony Marnell III and his family.

"We believe we are close to completing negotiations with the property's equity holders regarding ownership and future operations," Carlino said. "We are simultaneously working with Nevada gaming regulators to secure necessary approvals for the transaction."

M Resort is one of seven development projects Penn National Gaming has on the company's books.

Macquarie Securities gaming analyst Chad Beynon has maintained a cautious view of Penn National, even though the company is the only regional casino operator with a fully funded pipeline of development projects.

Still, he believes there is too much uncertainty surrounding the payoff from the potential in new jurisdictions. Beynon advises clients to invest in gaming companies with significant holdings in Asia, such as Las Vegas Sands Corp.

"Penn has arguably the top regional gaming team and most well diversified of U.S. assets," Beynon said. "Given (the company's) relative underperformance in 2010 versus gaming operators, we believe momentum in the name is quickly building. And, should the support continue, Penn could be a solid investment during the remainder of the year."
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