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Pinnacle Entertainment (NYSE:PNK)

Q1 2013 Earnings Call

May 01, 2013 10:00 am ET

Executives

Vincent J. Zahn - Vice President of Finance & Investor Relations

Anthony M. Sanfilippo - Chief Executive Officer, President and Director

Virginia E. Shanks - Chief Marketing Officer and Executive Vice President

Carlos A. Ruisanchez - Chief Financial Officer and Executive Vice President

Analysts

Felicia R. Hendrix - Barclays Capital, Research Division

Joseph Greff - JP Morgan Chase & Co, Research Division

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Carlo Santarelli - Deutsche Bank AG, Research Division

Chad Beynon - Macquarie Research

Richard A. Hightower - ISI Group Inc., Research Division

Operator

Good morning. My name is Tamisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2013 conference call. [Operator Instructions] Thank you. Mr. Vincent Zahn, you may begin.

Vincent J. Zahn

Thank you, Tamisha. Good morning, everyone. My name is Vincent Zahn, Vice President of Finance and Investor Relations for Pinnacle Entertainment. Thank you for joining Pinnacle Entertainment 2013 First Quarter Earnings Conference Call, and thank you for your interest in our company.

Earlier this morning, we released our 2013 first quarter financial results. If you don't have a copy of the announcement and would like one sent to you, please contact us by e-mailing investors@pnkmail.com.

On the call with us today are Pinnacle Entertainment's President and Chief Executive Officer, Anthony Sanfilippo; our Chief Marketing Officer, Ginny Shanks; and our Chief Financial Officer, Carlos Ruisanchez. We'll begin the call with prepared remarks from Anthony, Ginny and Carlos, and then we'll open the call up for your questions and answers.

Before we get to that, we'd like to remind you that during the course of this conference call, management may state beliefs and make projections or other forward-looking statements regarding future events and future financial performance of the company. We wish to caution you that such statements are just projections and expectations and that actual events or results may materially differ. We refer you to the Safe Harbor statement that's included in the press release and to our annual report on Form 10-K, quarterly reports on Form 10-Q and to our press releases and documents filed with the SEC.

In addition, today's call may include non-GAAP financial measures within the meaning of Regulation G. A reconciliation of all such non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in today's press release.

It's my pleasure to turn the call over to Pinnacle's President and CEO, Anthony Sanfilippo.

Anthony M. Sanfilippo

Thank you, Vincent, and welcome, everyone, to Pinnacle Entertainment's 2013 first quarter earnings discussion. I'd like to be able to comment on 3 subjects. First, we'll spend a little bit of time talking about our first quarter results; then, I'm going to talk a little bit about our investment in ACDL; and then, front and center is the Ameristar transaction.

And here's the first quarter results. The first 2 months of the first quarter continued what we had seen in the fourth quarter of 2012, which is really a less than what we would be -- we would consider a robust enthusiasm for leisure entertainment.

In Lake Charles, we have been performing an extensive room renovation program, with approximately 16% of year-over-year room nights out of service. This is particularly impactful on our weekends. The good news is our newly refurbished guestrooms are terrific and our guests love what we are doing.

In St. Louis, we are on the homestretch of our $82 million expansion. Our event center, which is the second component of the expansion, will open in June and our 200-guestroom hotel opens in the fall.

Our property in Baton Rouge continues to blossom. We are very proud of the team we have in place and the facility that we've developed. We continue to believe this investment will prove to be the right investment over a long-term view.

And the final 2 properties I'll comment on are both our New Orleans property and our Belterra property. We state in our earnings release we have a new management team in place at Boomtown New Orleans. We are seeing immediate improvements with multiple metrics at this property. And in Belterra, we believe, we have the right strategy in place to maximize our position in a market that continues to experience increasing gaming options. We just completed a wonderful buffet that opened up just a few weeks ago, and we're focused on continuing to upgrade that property so that we can very effectively compete. This really is a one-of-a-kind property, a property that is a resort destination like no other property in a 3-state region.

One common threat to other company is the leadership we have in place. We have a collaborative and focused leadership team, who works each day to be the very best we can be. We've been encouraged by a more enthusiastic response by our guests in March and in April for leisure entertainment. We will continue to focus on providing memorable guest experiences at each one of our properties, as we believe this is a point of difference between our company and others.

Let me now turn to our investment in ACDL, the project that we've been a part of in Asia. We announced today a further write-down of our investment. This continues to be a very fluid situation. We were disappointed that MGM terminated their agreement to operate the first facility. We were encouraged when ACDL received the amended investment certificate, which we have been seeking for some time.

We see Pinnacle's greatest opportunity going forward at the successful merging of Pinnacle Entertainment and Ameristar. So let me now focus on the Ameristar transaction.

Since our last earnings discussion, we have spent considerable time with Ameristar team members and have visited all of the Ameristar properties, with most properties more than once. While our enthusiasm for our 2 companies merging together has been great, it continues to grow as we further get to know the team members of Ameristar. I just can't imagine 2 companies having a closer cultural fit. We have very similar values with a common focus on team members, guests and shareholders.

We believe we're on track in the process to close the transaction. It was terrific that the Ameristar shareholders voted last week in an overwhelming fashion to approve the transaction. We begin today the process of state-by-state approval, as we meet later this morning with the Nevada Gaming Control Board.

Another regulatory hurdle is the Federal Trade Commission. We continue to work closely with the FTC. We won't further comment on this process, other than stating it is following a process and timeframe, as experienced by similar type transactions.

We are confident the Ameristar transaction will close. Our focus is the successful integration of our 2 companies, along with maintaining our focus on continuing to improve Pinnacle legacy portfolio of properties. We will focus also on continuing to strengthen our balance sheet, most notably reducing our debt.

I'll now turn the call over to Ginny, our Chief Marketing Officer. Ginny?

Virginia E. Shanks

Thank you, Anthony, and good morning. I'm going to spend the next few minutes talking about trends we're seeing in the business and then provide some color around specific property performance for the quarter.

In terms of how the quarter unfolded, there was broad softness in January and February, with a rebound in March. The positive trends we saw later in the quarter continued into April.

Weather is also more of a factor in the Midwest this year, with multiple days of significant business impact versus 0 weather days last year during the first quarter.

Marketing reinvestment as a percentage of revenue was flat versus prior year. We continue to be very focused on driving profitable revenue and applying a measured and rational approach to our marketing spend in all markets. As compared to the fourth quarter, marketing and reinvestment decreased by 130 basis points.

At our newest property, L'Auberge Baton Rouge, an expanding data base has allowed us to be more efficient in our marketing spend, with reinvestment down 150 basis points from the fourth quarter.

In terms of guest behavior, in January and February, we saw the trips declined at a greater rate than spend per trip, meaning people came less often but their spend was pretty much in line with historical play levels. In March and then into April, both trips and spend patterns came back close to prior year levels.

April marked the month for our annual renewal of mychoice members. For the third straight year after rehashing [ph] our loyalty program in 2011, we have seen double-digit growth in our top 3 tiers. This led to record-setting attendance at a renewal event in April. mychoice, with its compelling benefits, continues to gain momentum and provides true differentiation between our loyalty program and those of our competitors.

Let me now provide some color around specific property performance during the quarter. First, at L'Auberge Baton Rouge, we're seeing very good momentum, with all-time highs during the month of March in GGR, EBITDA and margins. Guest acquisition continues to be very strong, with over 27,000 people visiting the property for the first time during the quarter. Repeat visitation is also very strong, with over 50% of those who have visited returning for a second trip. The hotel continues to be a good story, with occupancy now over 90% and RevPAR increasing over 30% since opening. Lastly, showing our ability to expand the Baton Rouge market, there has been over 50% growth in the market since last September's opening.

Moving now to L'Auberge Lake Charles, similar trends we're seeing in terms of softness early in the quarter with a rebound in March, where the property actually recorded the highest GGR in history for that month. This record performance was accomplished even with the impact of an extensive hotel renovation. As was mentioned in the release, [Indiscernible] repeating due to the impact of this renovation, there was a 16% decrease of available room night year-over-year. The renovation has concluded until the fall, so we now have access to all hotel rooms during the peak season.

In St. Louis, there was considerable softness during the quarter, with a market decline of 5% as compared to 3% growth seen last year. Both Lumière and River City managed these lower business volumes well, increasing margins by 33 basis points in a declining market. This was accomplished with disciplined cost controls and rational marketing spend.

We continue to look for ways to grow the market by leveraging our existing assets, such as the Four Seasons, where we increased casino guestroom utilization by 43% over prior year. And we await the completion of new assets, with the Events Center at River City opening in June and the hotel coming online in late September.

Finally, similar to St. Louis, the Southern Indiana market was soft in the first quarter, down 13% year-over-year. We continue to see the impact of new competition in Columbus affecting visitation.

In terms of the Horseshoe Cincinnati opening in March, it's still too early to quantify, but thus far the impact has been muted.

We remain focused on differentiating Belterra with its resort destination positioning and have recently completed an extensive buffet remodel, are in the process of building a new Stadium Sports Bar and will undertake a hotel renovation project this year.

All in all, we're encouraged with the trends we've seen in March and April. And I will now turn the call over to Carlos.

Carlos A. Ruisanchez

Thank you, Ginny, and good morning to everyone on the call. We've made lots of progress over the first quarter and are very encouraged by how the business progressed as the months went on in the quarter. The business got stronger and rebounded from the first couple of months of softness. Our team responded well to lower business levels with a focus on cost containment and operating efficiencies, and the results in March reflected that. Overall, we are optimistic by the improvements in the environment that we have seen in the last couple of months after a soft start of the year.

In particular, we are very pleased in the progress made by L'Auberge Baton Rouge over the quarter and are confident of the ramp-up of that facility as we continue to go through the rest of the year.

On Ameristar, we have made tremendous progress on the process of bringing the transaction to a close, including completing a consent solicitation on Ameristar's bonds in April. The consent will allow us to execute the financing of the transaction in a more simplified, streamlined and cost-effective manner that will help all of our investors. The consent eliminates the need for holding company financing, thereby reducing our cost of capital and provides a scale and diversity across the credit that everyone knows is a big part of this transaction.

Turning to our development pipeline. On River Downs, demolition of our grandstand and the other older facilities is complete, and we have begun construction of the new facilities, with a scheduled opening in the second quarter of 2014. We are excited about the prospects for this facility in light of the market growth seen in Cincinnati over the last month and the outstanding location of our property. We look forward to this addition to our portfolio next year.

At River City in St. Louis, as Ginny mentioned, the last 2 elements of our $82 million expansion are rapidly progressing. The multipurpose room is expected to come online early June, and the hotel will open in the third quarter of this year. The project is on budget and ahead of schedule.

Turning to ACDL. This investment clearly has not played out as we had expected. There are uncertainties surrounding the investment including full resumption of the funding by ACDL's lenders, executing an operating plan in light of MDM's departure, funding needs and the delay in the opening from the original expectations. Given the current circumstances, we took a non-cash impairment from the carrying value of our investment of about $92 million. ACDL continues to focus on resolving those issues.

Turning back to Pinnacle. We continue to be focused on executing our operations across our portfolio, maximizing the opportunity in front of us with Ameristar and utilizing a very strong, diversified growing cash flow base of a combined company to delever our balance sheet as quickly as possible post transaction.

With that, I'll turn the call back to Anthony.

Anthony M. Sanfilippo

Carlos, thank you. Ginny, thank you. Tamisha, we are going to open it up for any questions that anyone who is on the line may have.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Felicia Hendrix.

Felicia R. Hendrix - Barclays Capital, Research Division

I was just wondering if you could discuss some of the things you did to mitigate the softer revenue environment besides lower promotional spending. And will those be permanent structural changes, or were they just more triage type of efforts to get through a challenging time?

Anthony M. Sanfilippo

That's an interesting question, Felicia. The answer to that is we're -- first, we want to make sure that we're appropriately taking care of our guests when they come to each one of our properties. So we're -- we won't do anything on the cost side that is going to really take away from the experience our guests have property to property. We never stop looking at how can we be more efficient in how we operate each one of our properties or how we operate from a corporate standpoint. So we just continue to make sure that we're running these businesses in a way that we're putting the value where it makes a difference, both with our guests and also with our team members. And we find efficiencies on a regular basis. It's just a never-ending process. It's not, boom, we went in to do something that's going to change the -- really, the fabric of a property. We just -- when business levels go down and then they were noticeably down in last year's fourth quarter and in January and February, we make appropriate adjustments.

Felicia R. Hendrix - Barclays Capital, Research Division

And can we just move to St. Louis for a second. Just wondering if you can quantify the benefit perhaps that you're seeing from the new parking garage. Obviously, March picked up. That opens in November. So just wondering if you can kind of talk about if you're seeing any benefits there. And then on Lumière, Ginny, you talked about the Four Seasons and how can -- you can use that to leverage the property, but the property has been kind of a $13 million, $14 million, $15 million of revenue -- million revenue a month property for some time now, lower than the peak levels there. So just wondering what it'll take or even if you foresee returning to those peak levels at that property.

Anthony M. Sanfilippo

Let me start, and then I'll hand it over to Ginny. With River City, we have been under construction for some time, and our team has done a great job in trying to contain the construction. When the parking garage opened up, there was still a bit of a walk our guests had to make to go from the garage through a temporary walkway to get to the facility. We just recently opened up the permanent pavilion that leads into the casino within the last 30 days, we opened that up. So the parking garage, to specifically answer your question, the whole reason the parking garage is making a difference is purely from a convenience standpoint. And while we opened the garage last fall, our guests still had a bit of a walk to get into the facility. Over the last 30 days, we've opened up the permanent connection. It is difficult, especially in a market such as St. Louis where you have some extreme weather, not to have covered parking, so we believe long-term this is very helpful for us for serving our guests. We have the hotel that is still under construction and the Events Center that comes off the new pavilion that is being finished up right now. Again, we've done a very nice job trying to contain that, but you still have construction activity that's taking place in even a surface level lot that's next to the hotel that's being used for construction staging. So not only when we have the use of those facilities, will we believe it'll be a meaningful difference to the property, but also it'll prevent the use of other piece of that property, such as additional parking, that's being used for staging right now. I'm going to start on Lumière, and I'll then turn it over to Ginny. We continue to reinforce we're focused on profitable revenue that our focus is less on trying to drive market share and more on -- focus on profitable revenue. And so the use of a quality hotel, such as the Four Season, just reinforces our ability to attract individuals from outside the State of Missouri to come in, experience the amenities we have at the property or in a lot of cases, we treat them to a baseball game or entertainment in downtown St. Louis. And we really aren't a company that focuses on quantity of guests; we really focus on having guests that really are profitable guests, is the best way to say it, or had the potential to be profitable guests. Ginny, you want to add to that?

Virginia E. Shanks

I'll add a few things on that in terms of Lumière [indiscernible] back to your question about improving or increasing the revenue and the EBITDA of that property. What we've done over the last 6 months is really taking an expanded view of how we attract people to the Lumière property, and we have increased regional advertising. We have an expanded independent agent program, where people come in from other cities, they stay at either Hotel Lumière or the Four Seasons. We capitalize on the events and the attractions that are in downtown St. Louis. We have a branch office in Chicago that was set up largely to bring business into St. Louis in our Belterra property. So what we've done is we expanded the reach of the Lumière property in terms of who we market to. We know we have unique assets, with the Four Seasons in a downtown location, so we've set up a structure in which to capitalize on that, with the intent of growing, as Anthony mentioned, profitable revenue and providing a complementary situation to our property with River City.

Felicia R. Hendrix - Barclays Capital, Research Division

Just a last housekeeping. Just the preopening of $7.6 million, you talked about that in the release, but I'm just wondering, is that mostly really transaction costs, or what's in that?

Carlos A. Ruisanchez

It's -- good morning, Felicia. It is -- largely almost all of it has to do with Ameristar. Fees and expenses, we'll like that to go -- it's mostly legal bills.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay, so it's designated in preopening, but it hasn't -- it's not a preopening; it's mostly transaction costs?

Carlos A. Ruisanchez

Correct.

Operator

And your next question comes from the line of Joe Greff.

Joseph Greff - JP Morgan Chase & Co, Research Division

A question for you on Lake Charles. Obviously, it was a bit better than what we had forecasted, which is nice to see, and that's obviously given the room night disruption there. Is there any way to sort of quantify the EBITDA impact of having 16% of your rooms displaced?

Anthony M. Sanfilippo

Sure. Yes, definitely. [indiscernible]

Carlos A. Ruisanchez

[indiscernible] Definitely, yes, there is.

Joseph Greff - JP Morgan Chase & Co, Research Division

Can you provide that?

Carlos A. Ruisanchez

Yes. We -- I think that the real point there, Joe, is, as I think you know and most people know, we manage our hotel not just purely on rate, but the type of guests that we have in there. And certainly, you try to manage with basically a lower inventory. There is a lot of demand in that market that we normally turn away, and that was obviously exacerbated in -- over the quarter and especially during the weekends. So there -- I don't think you can extrapolate exactly and say the income from our hotel guests, no, it's down 16%, but it was down meaningfully. And we generally don't talk about specifically what we expect out of those guests, so hard to quantify that for you, other than to tell you that it definitely had a meaningful impact.

Joseph Greff - JP Morgan Chase & Co, Research Division

Okay. I thought the EBITDA margins at Baton Rouge were encouraging. And Ginny's comments about, I guess, margins being the high in March, which is intuitive and makes sense to us. Can you sort of tell us what the margins were in March, or maybe how much the margins were higher than the aggregated overall 1Q results? And is that March result on a margin basis, is that sustainable? I realized as we go into summer months, you might have some customer mix shifts and tables, so that might change things. But just to help us understand the progression of margin there, that might be helpful.

Anthony M. Sanfilippo

Let me address it this way, Joe. We don't want to get in this specifically what a particular month's margins are, but what we are doing is sustainable. The -- how we're managing the business, how we continue to improve the business in Baton Rouge is not one-off for a particular month; it is a continued build, both on the revenue side. And really, it's like we're in a pair of shoes; you've got to fit into them and get comfortable with them, and our team in Baton Rouge is doing a really good job in doing that and establishing itself for the reason we built that property at very specific guest mix for about a 90-mile region. So you should continue to see improved operating margins there as time goes on. As long as we continue to build the revenue, we'll have corresponding margins with that revenue.

Joseph Greff - JP Morgan Chase & Co, Research Division

Okay. And then my final question is with respect to your ACDL investments, are you -- I guess, it would be more the ACDL folks. How active or how close are you in the search for a new third-party manager post MGM's walking away?

Anthony M. Sanfilippo

Yes, let me respond to what we do. I'm a board member of ACDL. I participate, as does Carlos, in ACDL. We really are, coupled with a third colleague in our office, are the 3 that focus on ACDL as part of our responsibility. So first, I know it's not your question, but it's not a distraction for anybody else in the company. It's not a distraction for Carlos and myself. It's a responsibility that we both have to work with ACDL. We feel very good about what the leadership today at ACDL is doing, and they're very focused on trying to bring that property to a successful opening. And we're participating in the manner of a board member, and as you know, we've got the operating agreement to run the second property down the line. So we really don't want to comment on what ACDL is doing, other than to tell you we like what we see from -- what the management today is doing to try to make that property -- or that project really a success.

Operator

And your next question comes from the line of Shaun Kelley.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

I guess, maybe just to stay on ACDL for the first question here. I guess, I'm just curious like accounting-wise what triggered the write-down in this quarter since you got the certificate in April. So everything you mentioned in the release is very clear, but the fact is, all those things were in place and the issues were theoretically worse last quarter. So why write it down and why write-down the full amount now?

Carlos A. Ruisanchez

Hi, Shaun. The -- certainly, there were a few things that are different from the last quarter, the biggest one of which, as Anthony mentioned and as what's disclosed, MGM providing its notice of termination. The investment still has a number of material uncertainties that are yet to be resolved, including an operating plan to manage the resort. The banks need to resume funding from the company, which originally was expected following the receipt of the investment certificate, but MGM threw a curveball into that. The company still needs a working capital facility to open the first resort, and they need to remain in compliance with the amended terms of the investment certificate and will need capital in order to remain compliant beyond just the working capital in -- for the first resort and the resumption of funding from the banks. Given those uncertainties, we believe that we decided to do in a carrying value of the investment was a prudent thing to do. And we'll -- I could tell that ACL continues to work towards the resolution of all those challenges, and ACL expects to open the facility. So the -- when you take that into account and go into the process that we did, this is where we ended up, and like I said, it's -- this is the prudent thing to do from our perspective.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Yes, I mean, I guess, I followed to some extent on the -- so -- but to be clear on one thing you said in there, Carlos, I guess, the MGM pulling out, does that now -- without having a manager, does that violate the terms of the investment certificate you just received, is that a critical element? Because, like I said, the rest of this -- all of this was in place and theoretically, all of this was more or less prior to April 5, when you received the certificate. So I can understand if you wrote it down a bit more, but going to 0 seems extreme if you're confident that thing is going to open.

Carlos A. Ruisanchez

Well, to answer your question, MGM walking, it is not a violation of the investment certificate deadline. However, the property, obviously, we just had to push back the ability to open as it needs to transition out of MGM into whatever may do, including losing the brand. So ACDL is working through that. They're -- as clearly increased risks, given some of those questions, and as it relates to time, and therefore, we decided to do what we did in the first quarter.

Anthony M. Sanfilippo

Yes, let me add, Shaun. We didn't say we're confident it's going to open; you said that. We -- what we've said is that there's a number of items that have risks with them that need to happen before ACDL can open and that the management team is working on those items, that's what we've said. So us having a prediction whether -- with any sense of confidence that ACDL will open or not open, we just -- we're not in a position to do that.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Okay, that's fair. And I apologize for characterizing it that way. I guess, just moving on to 2 other things. Carlos, in terms of CapEx for River Downs, it actually came in at a decent amount smaller this quarter. So could you just give us the cadence for how the spending on that is going to trend between now and open?

Carlos A. Ruisanchez

Yes, there -- no, the budget is $209 million, which is consistent with what we've set out on the outset. It will start trending up as the building comes out of the ground, which has started to come out of the ground as the foundations are in. You -- I think the heavy spending will start going into the third quarter in reality. And really, the fourth and the first quarter will be the bulk of it. The fourth quarter this year and the first quarter of next year, with the property opening in the second quarter of '14.

Shaun C. Kelley - BofA Merrill Lynch, Research Division

That's helpful. And then last thing would just be on the Atlantic City land. You've given, I guess, additional commentary about that, and it sounds like you guys have an agreement in place. But curious on -- just kind of -- what's the update in terms of your ability to -- if you -- if and when you close that transaction to treat the losses there as NOLs, a, is that still the kind of overriding assumption that you'll be able to do that, and, b, kind of when will you know for sure?

Carlos A. Ruisanchez

Well, as it relates to the NOL being created, yes, that will happen as soon as the transactions get consummated. And the -- our expectations are that, that will happen in the third quarter of this year. It was amended. There is a nonrefundable deposit from the buyer that is of significant size relative to the purchase price, and all indications are that it will take place. But obviously, no assurances until it does.

Anthony M. Sanfilippo

Shaun, let me add one other realtime update, and that is that earlier today, the Ohio Racing Commission approved our request to race at Beulah Park, which is in Columbus, which is important because it allows us to continue with our complete ground up development in Cincinnati with our River Downs facility. So we're pleased that, that occurred earlier today, and our racing season now will happen at that property, really under the direction of Penn National, who we have an agreement with to operate our racing season. So we're happy that happened and allows us to have a complete focus on opening up next spring the new River Downs.

Operator

And your next question comes from the line of Carlo Santarelli.

Carlo Santarelli - Deutsche Bank AG, Research Division

Most of my questions have been answered. I just had one quick follow-up as it pertains to Baton Rouge. Obviously, in March, you guys saw considerably a better month than your prior months and did about $15 million in GGR. Was there anything in the quarter, be it holds or anything else, where that was off, or is that kind of a comfortable newer run rate maybe thinking about it on a per day basis? And could you maybe try and break out where the strength came from, whether it's slots, tables, and how we should think about it going forward?

Carlos A. Ruisanchez

Carlo, there -- certainly, there was nothing unusual on hold or the like. Obviously, March had 5 full weekends, which is not the norm for your average month, so that really had some to do with it. I do think that this property will continue to grow from where it is as a whole rather than focusing specifically on March and what you may expect on the coming months. As a whole, we think that, that business will continue to build from there. So March was -- did have a good calendar. But having said that, nothing unusual about that operation.

Anthony M. Sanfilippo

As Ginny pointed out, we continue to see many first time guests come to that property. And the key is that they have a great experience and they become a second time guest to that property. So we repeatedly reinforce that, one, the facility itself is a wonderful facility and, two, the management team is doing a great job in providing experiences for guests to want to come back.

Carlo Santarelli - Deutsche Bank AG, Research Division

That's helpful. And then if I could, just one follow-up. Has the radius of your customer segmentation at that property been any different than how you guys envisioned it would be as you are opening it?

Virginia E. Shanks

The type of guests that we're seeing, I wouldn't characterize as notably different, but we do have a larger range or a broader range in terms of where the guests come from. As Anthony mentioned, we target about 90 miles out. This is a regional destination designed to grow the Baton Rouge market while still providing a compelling option for those who live in Baton Rouge. We're focused on attracting VIP customers from the regional markets given the quality of the assets that we have and the superior offering that we provide. So it's a good balance of local business, as well as an expanded reach into the regional markets for higher-worth guests.

Operator

And your next question comes from the line of Chad Beynon.

Chad Beynon - Macquarie Research

Most of my questions were asked, but maybe just 2 quick ones, more legislative type questions. First, on taxes, given that it's an odd number year and the taxes legislation has been in session for a little while, and they need the 2/3 vote to put on a referendum. Could you give us any update here on momentum or lack thereof regarding liberalization in Texas?

Anthony M. Sanfilippo

The feedback we continue to get is it's not very likely to happen during this session. As you know, Chad, we have Retama Park in Selma, Texas just north of San Antonio. We're extremely pleased with that facility and the potential for that facility over time. But we don't anticipate there'll be any legislation that will move forward this session.

Chad Beynon - Macquarie Research

Okay. And then just wanted to touch on the subject of Internet cafés in Ohio. We've heard a lot from your competitors kind of talking about the pervasive nature of these facilities, but more in Columbus and Cleveland. And I was wondering if you could touch on kind of what you've seen on the western side of the state, and if maybe the opportunity for River Downs could be bigger if there's higher regulation on this.

Anthony M. Sanfilippo

Chad, we've paid close attention also to the Internet cafés, and we're in support, as I think broadly our industry is, that, that is not something we'd like to see as part of the states' makeup. We don't -- we question the benefits. They're not regulated. There's a number of things that are wrong with it. We don't know. We haven't quantified the impact it could have on River Downs. That really hasn't been a key focus of ours other than what I just said to you. We're not in favor of that as something that's offered to the public in any state.

Operator

Your final question comes from the line of Rich Hightower.

Richard A. Hightower - ISI Group Inc., Research Division

I guess, I'll try to make it a good one. I guess, back to the Ameristar merger, we can obviously run the numbers, but post closing, what do you expect the pace of deleveraging to be? So if you're going in at, let's call it, around 6x on a net basis, where do you expect to be maybe 2 years after that point?

Carlos A. Ruisanchez

The -- Rich, in regards to the deleveraging, this company will have a pretty sizable amount of free cash flow, which will get augmented hopefully by good execution on the rates that we will lock into here for the transaction to close. And obviously, we have very significant NOLs that will avoid taxes, certainly on a federal basis for some time. So we think that we'll be able to delever pretty quickly. The -- not only we'll be following capital expenditures both in Lake Charles and River Downs, where we have cash flow to actually pay down debt, but obviously, those -- our cash flow base, it's growing, both by virtue of Baton Rouge maturing, as well as River Downs and Lake Charles adding to that base. So we have talked publicly about our targets between 3.5 and 5x of leverage. We think that we will get there relatively quickly at a faster pace than would be normal because of the dynamics that I just talked about. And really, our goal is to get to 4x or lower within a few years.

Richard A. Hightower - ISI Group Inc., Research Division

Can I ask one follow-up on ACDL?

Anthony M. Sanfilippo

Absolutely.

Richard A. Hightower - ISI Group Inc., Research Division

Okay. A lot of the questions have been asked, but now that you've written down the investment to 0, I mean, what for Pinnacle really is the worst-case scenario end plan? Could you potentially sell your interests for a positive mark-to-market at some point down the road, or -- what really happens here? Then as you're sourcing a new manager -- as ACDL is sourcing a new manager, have you given any added thought to maybe changing the business model from what it was previously, or is that premature to discuss?

Carlos A. Ruisanchez

Certainly, in a lot of regard to it's a bit premature to see what will happen, we will evaluate our options as the circumstances change. As Anthony mentioned, ACDL is currently in a very fluid situation, and our focus is going to be Ameristar. But obviously, we'll do what we can for our constituencies.

Richard A. Hightower - ISI Group Inc., Research Division

And any comments on potentially selling your interest in ACDL?

Anthony M. Sanfilippo

No comment. Thanks, Rich.

And to everyone, thank you for your continued interest in Pinnacle Entertainment. We are very excited about what the future can hold for us. For those team members that are listening to this call, thanks for what you're doing each and every day to make our company great. And we will continue to do everything we can to deliver great results for our shareholders. Thank you, all. Thanks for joining us.

Operator

And this does conclude today's conference call. You may now disconnect.

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