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Refer to important disclosures on page 4 to 6. Analyst Certification on Page 3. Link to Definitions on page 3. 11128060
Gaming and Lodging
2012 BofAML Gaming
Conference – Day 1 Takeaways
Day 1 of the BofAML 2012 Gaming Conference
On the first day of our 2012 BofAML Gaming Conference, we hosted 4 panel
discussions today and a keynote lunch covering regional gaming trends,
financing/capital markets, the health of the Las Vegas locals market and key
issues in online gaming. Key takeaways below and inside.
Regionals: Modest growth, benign promotions will continue
Our regional roundtable panel (Dale Black, CFO of ISLE; William Clifford, CFO of
PENN; and Anthony Sanfilippo, CEO of PNK) was generally upbeat on revenue
trends, expecting modest growth in 2012, though lower than Dec's strong
pace. The promotional environment should remain fairly consistent, though one
panelist mentioned they have seen a recent uptick they are watching closely. As
for new jurisdictions, the recent OH delay for the commercial properties
(related to licensing shareholders) should be manageable, but VLT's are still
dependent on a lawsuit that remains difficult to predict the timing and outcome on.
Las Vegas locals market demand recovering with the Strip
Our panelists (Ned Martin, CFO of American Casinos; Josh Hirsberg, CFO of
BYD; Tom Lettero, CFO of Cannery Casino Resorts) seemed more optimistic for
2012, after a steady but modest recovery in '11. Spend per visit ($48-50 vs. $60
peak) and a lack of unrated play are the key challenges. Economic headwinds
from housing and unemployment are abating, but Locals customers remain very
sensitive to promotions. Station has been more aggressive since exiting
bankruptcy, but our panelists all said they were disciplined on not chasing
unprofitable offers.
Prospects for online gaming “as strong as ever”
Both our expert panel and keynote speaker (Frank Fahrenkopf from the AGA),
believe the climate for federal legalization of online gaming is as favorable as
ever. Optimism follows the Dec. DoJ ruling which should boost support from social
conservatives, and given cont’d support from commercial operators. Timing would
be opportunistic, but before the Nov. election with implementation unlikely until
mid-late 2013. Still, all parties noted the DC environment is as negative as
ever, making it impossible to handicap an outcome. A state solution (if
federal falls through) is less preferred and would result in a smaller, more
fragmented environment for customers and operators.
Debt markets healthy given low interest rates
According to our financing and capital markets panelists, the debt markets remain
healthy given historically low interest rates and benign default rates. The markets
have seen many refinancings the last 3 years, and panel participants believe this
could continue in 2012. Leverage tolerance for new projects is highly “cash”
equity dependent (investors looking for 30-50% equity) and run rate leverage of
no more than 5.0x.
Industry Overview
Equity | United States | Gaming and Lodging
19 January 2012
Shaun C. Kelley +1 646 855 1005
Research Analyst
MLPF&S
shaun.kelley@baml.com
Andrew G. Didora, CFA +1 646 855 2924
Research Analyst
MLPF&S
andrew.didora@baml.com
Matthew A. Cole +1 646 743 0210
Research Analyst
MLPF&S
macole@baml.com
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Gaming and Lodg ing
19 January 2012
2
BofAML Gaming Conference
Today we hosted day one of our 2012 BofAML Gaming Conference. Our
takeaways and highlights from company and panel presentations are below.
Regional Gaming Roundtable Recap
We hosted Pinnacle Entertainment’s President and CEO Anthony Sanfilippo,
Penn National Gaming’s CFO William Clifford, and Isle of Capri’s CFO Dale Black
for our regional gaming panel. Management discussed general consumer outlook,
region specific performance, and new jurisdictions for 2012.
General consumer outlook. The regional operators remain cautiously
optimistic on consumer spending for 2012. PNK currently sees the strong
December rebound continuing into the first half of January. PENN was less
encouraged the consumer would continue “roaring back” crediting
December’s strong performance to the timing of New Years and moderate
winter weather. Management stated the Southern gaming regions (i.e. Biloxi,
Tunica) remain under heavy pressure and see no near-term recovery.
Promotions. Each operator stressed the importance of keeping promotions
conservative. PENN said they have has seen a close competitor become
more promotional after challenging property managers to raise revenues but
limiting property improvements.
Ohio and new jurisdictions in 2012. PENN specifically cited the surprising
strength of the Northeast market and remains bullish for its two Ohio
openings despite recent regulatory delays. Specifically, the Toledo property
will now open two months late, being pushed back to May 2012, while
Columbus remains on track. Both PNK and PENN were cautious when
discussing the overall prospects of Massachusetts and believe some of the
proposals will over estimate the market’s ability to absorb the supply. PENN
remains highly interested in Texas, and sees the state’s legalization of
gaming not an issue of if but when.
Trends in the Las Vegas Locals Market
Our panelists (Ned Martin, CFO of American Casinos; Josh Hirsberg, CFO of
BYD; Tom Lettero, CFO of Cannery Casino Resorts) seemed more optimistic for
2012, after a steady but modest recovery in '11.
Spend per visitor remains down. Spend per visit ($48-50 vs. $60 peak)
and a lack of unrated play are the key challenges. Overall, economic
headwinds from housing and unemployment are abating, but Locals
customers remain very sensitive to promotions.
Promotional environment. Station has been more aggressive since exiting
bankruptcy, but our panelists all said they will remain disciplined in not
chasing unprofitable offers.
Internet Gaming Panel and Keynote
Both our expert panel (Behnam Dayanim, Partner at Axinn, Veltrop, Harkrider
LLP, Dan Walsh, Senior Director at Greenberg Traurig LLP, and Peter Reynolds,
Director at bwin.party digital entertainment) and keynote speaker, Frank
Fahrenkopf (President and CEO) of the American Gaming Association believe the
climate for federal legalization of online gaming is as favorable as its ever been.
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Gaming and Lodg ing
19 January 2012
3
Federal solution chances boosted by DoJ ruling. Optimism reigns
following the December DoJ ruling that should boost support from social
conservatives, and given organized support from commercial operators.
Timing would be opportunistic, but before the election with implementation
unlikely until mid-late 2013. Still, all parties noted the DC environment is as
negative as ever, making it impossible to handicap an outcome.
State solution less favorable but is the alternative. A state solution is less
preferred and would result in a more fragmented environment env't for
customers and operators. However, Internet gaming in some form in the US
seems like an inevitability in the next 12-18 months.
More to come. Clearly, the online gaming issue faces a complicated
decision and event path over the next several months. We believe interest
remains high from both the industry, certain political constituencies and
investors, so we will be monitoring and exploring this topic in more detail in
the future.
Debt markets healthy given low interest rates
According to our financing and capital markets panelists, the debt markets remain
healthy given historically low interest rates and benign default rates. The markets
have seen many refinancings over the last 3 years, and panel participants believe
this could continue in 2012. Leverage tolerance for new projects is highly “cash”
equity dependent (investors looking for 30-50% equity) and run rate leverage of
no more than 5.0x.
Link to Definitions
Consumer & Retail
Click here for definitions of commonly used terms.
Analyst Certification
I, Shaun C. Kelley, hereby certify that the views expressed in this research report
accurately reflect my personal views about the subject securities and issuers. I
also certify that no part of my compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or view expressed in this
research report.
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Gaming and Lodg ing
19 January 2012
4
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Gaming and Lodg ing
19 January 2012
5
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