Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Joseph Jaffoni

Peter M. Carlino - Chairman of the Board and Chief Executive Officer

Timothy J. Wilmott - President and Chief Operating Officer

William J. Clifford - Chief Financial Officer and Senior Vice President of Finance

Eric Schippers - Senior Vice President, Public Affairs & Government Relations

Analysts

Felicia R. Hendrix - Barclays Capital, Research Division

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

Matthew Cole

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Joseph Greff - JP Morgan Chase & Co, Research Division

Brian D. Egger - Topeka Capital Markets Inc., Research Division

Joel H. Simkins - Crédit Suisse AG, Research Division

Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division

Mark Strawn - Morgan Stanley, Research Division

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

Penn National Gaming (PENN) Q3 2012 Earnings Call October 18, 2012 10:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Penn National Gaming Third Quarter Results Conference Call. [Operator Instructions] I would now like to turn the call over to Joe Jaffoni. Please go ahead.

Joseph Jaffoni

Thanks, Tara, and good morning, everyone, and thank you for joining Penn National Gaming's 2012 Third Quarter Conference Call. We'll get to management's presentation and comments momentarily, as well as your questions and answers, but first I'll read the Safe Harbor disclosure.

In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. 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 10-Q. Penn National assumes no obligation to publicly update or revise any forward-looking statements.

Today's call and webcast may also include non-GAAP financial measures within the meaning of SEC Regulation G. And when required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are found in today's news announcement, as well as on the company's website.

With that, I'm happy to turn the call over to Peter Carlino, the company's Chairman and CEO. Peter?

Peter M. Carlino

Thank you, Joe, and good morning, everyone. I'm happy to be here to report our third quarter results. We view this as a very strong quarter for us and pleased overall with the results, colored only by our efforts in Maryland, which we will, in due course, I'm sure get to speak with you about.

Lots of good stuff happening this year as we reflect upon it since the quarter ended. Of course, we've opened in Columbus. That's going well. Tim will give you some color on that. Things continue to go well in Toledo. And we'll talk about the rollout of our additional facilities in Ohio.

So on balance, we're very pleased. And I'm sitting here today with what I'll describe as the usual suspects. As you know, it's always our choice to bring our entire team together to give you as full a sense of what we're doing and how we're doing as we possibly can.

So with that, operator, why don't we go to questions?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Felicia Hendrix with Barclays Capital.

Felicia R. Hendrix - Barclays Capital, Research Division

Tim, I have some questions for you. Relative to our estimates, there were definitely some puts and takes in the quarter. But your Midwest region did much better than we expected. Just wondering, can you give us any color at all on the flow-through that you're seeing at Toledo? And I noticed in some concern that the win per unit per day has been declining there since the opening. I was wondering if you can comment on that. Is that just a deceleration from the opening hoopla, or if there's anything else we should think about there? And then if you can give us any update on Columbus at all, that would be great.

Timothy J. Wilmott

All right, Felicia, sure. Let me talk about the win per unit first. We opened about 5 months ago, and we opened as well in the summer season, June, July. So the seasonality plus the newness of the operation typically does inflate the revenues. And we're just seeing, I think, normal evolution of a new business in months 4 and 5. It doesn't concern us at all. And from a database standpoint, we continue to identify a lot of new customers that are signing up to our rewards program. We have over 200,000 accounts signed up in Toledo since we've opened. And we're still very encouraged about the prospects as we move into 2013 there. With the 33% tax rate and as we manage margins, as we do from a labor and marketing standpoint, we're right now very pleased with the flow-through coming out of Toledo and expect similar kind of results in Columbus as that property now is, today, is day 10. The early results in Columbus are very much in line with what we would expect in a market of that size. In fact, on Saturday, we had 25,000 visitors to the facility, the first weekend of the operations. So the early results have been very good. It's a new opening, so there's a lot of new visitation, a lot of new trial. And the people -- the early indications of the people are enjoying the experience, they're enjoying the restaurants. We've had lines almost since we've opened in the poker room and very busy table games. So it's been all good in Columbus, and we continue to think Ohio is going to be a very good state for us for long time.

Felicia R. Hendrix - Barclays Capital, Research Division

Great. That's really a helpful color. Can we just maybe, Bill, throw a question out there for you? Just regarding your fourth quarter guidance, just at first blush, it looks better than your prior implied fourth quarter guidance. But the prior estimates didn't include St. Louis. So I'm just wondering, excluding St. Louis, is your fourth quarter guidance better or worse than what you were expecting when you reported second quarter? And again, I know you didn't give fourth quarter guidance, but it was obviously implied.

William J. Clifford

No. In the fourth quarter -- no, it implied in the year-to-date, we did not include St. Louis. And I think we're pretty upfront about that in terms of the assumptions underlying the guidance. So this quarter does have St. Louis. We're not -- I'm not really going to comment on individual properties. We don't give guidance on our properties, never have. Certainly, the bulk of the difference in the guidance is attributable to [indiscernible], but that's as good as I'll give you.

Felicia R. Hendrix - Barclays Capital, Research Division

It's attributable to what, I'm sorry?

William J. Clifford

It's -- I mean, the bulk of the increase in the guidance on a -- when you normalize it for what happened with Maryland in terms of what's implied in the fourth quarter, it's clearly affected by the inclusion of St. Louis.

Felicia R. Hendrix - Barclays Capital, Research Division

Okay. That's helpful. Okay. And then just on Charles Town, can you just talk to us about if -- obviously, that property is holding up well. But how are you thinking about promotions there? Are you doing any kind of promotions or anything there to kind of offset competition?

Timothy J. Wilmott

Felicia, the promotional environment is very, very stable in the Charles Town, Maryland Live! battleground. So we don't see any noticeable increase in promotional spending. We're just staying focused on customers that we think we have an advantage over from a proximity standpoint, and we just opened up a new Asian restaurant there. And our Asian play, especially in table games, continues to be very strong from Northern Virginia and the D.C. market. So I would characterize the promotional environment for Charles Town as very rational and very similar to what we saw pre-Maryland Live!.

Operator

And our next question comes from the line of Harry Curtis with Nomura Securities.

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

Just a couple of quick questions. First of all, if Question 7 in Maryland fails, what's the -- is the risk of tables dead for what, 2, 3 years?

Peter M. Carlino

Well, that's an interesting question. If it fails, of course, we hope that and would expect the legislature will go back and re-craft a more balanced and reasonable bill. I don't think -- Eric, you might want to talk about the timing. I don't think the issue is dead by any means. I mean, there will be table games in Maryland, and we think that's terrific.

Eric Schippers

Yes. I think it's way too early to predict from a timing perspective when or if they'd come back for expansion. But you can assume, given the incumbent operators, that there's going to be a strong desire to come back as swiftly as possible on the issue of table games. And we'll certainly, if we're fortunate enough to be successful on Election Day, we'll certainly be there with our Rosecroft hat on, making sure that we're represented at every opportunity.

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

The second question for Peter, when you survey the land of acquisition targets, do you think it's a buyers' or a sellers' market compared to couple of years ago? And by that, I mean, are there more or fewer competitors? What's happened to the bid ask? Is it up or down? And then, ultimately, what's the end game here for you? Is it -- are you simply trying to increase free cash flow per share? I'm trying to get a sense of where Penn is going to be, say, 3 or 4 years from now.

Peter M. Carlino

Boy, what a tough -- that's a very tough question, Harry. Look, your last one is the easiest one. We're always trying to increase free cash flow per share. I mean, that's all we're up about. That's the only thing that drives us, and that's building value in this company. Look, it's a platitude, but I think most of you know we actually mean it here. And that drives us every day to look at every possibility, including acquisitions. We've had our hands full with a lot of great stuff in Kansas and Toledo and Columbus. And we are working, of course, in Massachusetts. We're working in Texas. We've been working abroad. And I won't be specific about that, but it's kind of hard to find a place where we are not aggressively looking for just the perfect opportunity. And as these things come, I kind of visualize it this way, that if you think of a top gun analogy, we have our sights on a variety of things, but until you get locked, you're not ready to pull the trigger. So I mean, we are looking very, very hard. I think the environment is fine. We're as well positioned today as ever before. And if and when the right opportunity comes up, even new development or acquisition, we're open to it.

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

Last question then -- I'm sorry, go ahead.

William J. Clifford

I was just going to say I do think that it does appear that the sellers of assets have started to recognize the new normal. And so there's not this expectation that their business is still operating at '07 EBITDA levels. And that does seem to indicate that there is more willing sellers at more reasonable prices but that's all market-by-market and seller-by-seller specific. So -- but it's clearly better than it was a few years ago, and you're seeing more transactions in the [indiscernible] space.

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

Okay. And I just want to have one more quick question, which is in Massachusetts, my concern is that the winner of that site is ultimately going to be the loser. What's the risk of overpaying for this given the risk of perhaps Connecticut joining the -- jumping on the bandwagon?

Peter M. Carlino

Well, let's -- let me take a look -- a whack at that. By the way, that's the line around here that everybody knows I use all the time. I don't think I've won 2 auctions in my entire life, and we generally don't try to because the winner is often the loser. It's actually unknown how that's going to play out in Massachusetts. We think we've got the best site, I think, unquestionably, the best site. I think we will have the best project. And we're willing to step up and spend up to what we believe that marker can absorb, and it'll be a large number. However, the unknowns are going to be negotiations with the city and surrounding areas, and there is potential for some ugliness. So if we think this is worth winning, we intend to win it. If we come to the conclusion that it's not worth winning, we'll intend to lose it. So I can't be clear about that. It's not growth at any cost, not now, not ever.

William J. Clifford

I would just add on that when we do our internal analysis relative to how much we're willing to invest, we are factoring in Hartford and recognizing that Hartford, obviously, would be part of that market initially. And we have set expectations, internal expectations, that we would not keep Hartford for the lifetime of the project. In fact, we think that there is a very likely situation where -- not right away, but within a few years, and I think we've set our internal goal at 5 years, saying that within 5 years, you would expect to have a competitor in Hartford. And so that's factored in into our analysis relative to how much we're going to spend. I don't know if our competitors are doing the same. If they aren't, they're probably winners because they'll increase their bidding and projects and go to a level that we won't be willing to go to. But I think we're very practical about it. Now we do have a little bit of a benefit of a lower cost of capital versus some of our competitors. So hopefully, that will balance out and let us remain a little more competitive than maybe some of the other guys who'd be looking at a higher cost of capital.

Peter M. Carlino

Yes, and the root of that analysis is my belief that Massachusetts is really suboptimized legislation in this area. I mean, the state could have been much better balanced. And I think there is a belief that eventually, they'll figure that out. And that you'd be looking at competition.

Operator

And our next question comes from the line of Shaun Kelley with Bank of America Merrill Lynch.

Matthew Cole

This is actually Matt filling in for Shaun today. First off, just hoping you guys could kind of revisit your recent comments on '13. For the past couple of quarters here, it sounded like things should be picking up a little bit heading into '13, but we've really seen now the core regional gaming trends kind of slow down here with the same-store sales down about 2% over the last quarter. I was hoping you guys could comment on that a little bit and whether your expectations for '13 have been impacted at all by some of these recent trends or the increased cannibalization we've seen in some of the markets here?

Timothy J. Wilmott

Well, Matt, let me -- this is Tim. Let me talk about the current trends we're seeing in the business, then I'll turn it over to Bill to talk about our thoughts for 2013. Generally, I characterize our businesses that have not been impacted by new supplies generally flat. We're seeing visitation trends year-over-year flat and spend per visit generally flat in markets that are stable. We're really not seeing anything different than what we saw in the second quarter. We're not seeing any turnarounds in any noticeable way across there -- across our portfolio. But as we characterize 2012, many of our markets have been influenced by new supplies. So this year, when you look over year-over-year comparisons for most of our businesses, it's tough to get a handle on what's happening because there's so much disruption in the environment that we have to factor in that in our assessment of what's going on with the consumer. But generally, we characterize our third quarter across our businesses as generally flat consumer trends.

William J. Clifford

Yes, and I think -- listen, internally, in terms of how we're looking at '13, we're actually in the middle of our budgeting process today in terms of looking at next year. Each of the individual properties, of course, we have this ongoing negotiation between the properties who are looking to set their targets at levels that they can accomplish for bonus purposes. But as we go through that process, I think the initial feedback is most people seem to think that we're in a pretty stable environment. Nobody's projecting or feels comfortable that we're going to get a hockey stick recovery, nor do they feel like we're going to see any kind of significant downturn. Our focus and concentration relative to '13 is all about understanding what's the impact of all these different properties that we've had open this year, not only our properties that are growing, but also, clearly, those situations where we're faced with competition or new competition in our market. That's really, as we look at '13, where we're spending, I would say, 95% of our time trying to better understand those trends versus concerned about expecting anything other than a stable environment in the other markets.

Timothy J. Wilmott

The only thing I'll add to that, Matt, just to give you a little bit more color, as well as what we saw in the third quarter, across our enterprise, we're seeing a very rational promotional environment. So that's given us the opportunity to continue to look at ways to be more profitable and expand our margins where we have opportunities to do so. So I think that's generally our thinking, too, as we go into the fourth quarter and into next year that the promotional environment is going to be -- going to remain stable.

Matthew Cole

Perfect, I appreciate it, very helpful. And just a quick follow-up on that. Would you mind commenting a little bit what you've been seeing in the Indiana market? Any change in behavior from your competitor in Columbus after the opening? I was just trying to get an idea of how the promotional environment kind of play out in that region.

Timothy J. Wilmott

We really -- it's really too early to assess the reaction of our competitor in Columbus from a promotional standpoint. It's only been 10 days, and really, we haven't seen any noticeable change. We have seen erosion of business from the Columbus and Dayton markets into Lawrenceburg. Certainly, that will continue as we now have opened in Columbus. And as we put forth our efforts back in 2009 to try to pass this initiative in the state of Ohio, we knew that there was going to be a dampening impact on Lawrenceburg and assessed that into our thinking in making the investment in that state and doing what we did in Toledo and Columbus. And clearly, we're doing a lot of things to reduce our cost structure in Lawrenceburg to maintain our margins as best we can. And I think our efforts from that team there have been working, even though we are seeing the loss of visitation from those feeder markets that previously only had Lawrenceburg as a gaming option.

Operator

And our next question comes from the line of Steven Kent with Goldman Sachs.

Steven E. Kent - Goldman Sachs Group Inc., Research Division

So, a couple of things. One, I guess looking at your forecast for the balance of '12, the revenue and EBITDA guidance from the closing of Harrah's St. Louis, could you just quantify that maybe a little bit better? And then more structurally, the Maryland lobby expense, so far, $20 million roughly spent, but there's $11 million October to date. Is that in your EBITDA guidance for the balance of this year? It looks like the $20 million is, but $11 million isn't. And should we start to think about these lobbying expenses as part of the project cost? So for example, in Massachusetts, do you have some in the $800 million or $804 million, is there lobbying expense in that number?

William J. Clifford

Well, let me talk about the guidance first and clear that piece up [ph]. No, we do not have -- and listen, the amounts that we're spending in Maryland are decisions made on a day-to-day basis as the tactics of the campaign unfold. And so, therefore, what we're not doing is trying to project exactly how much we're going to spend, nor do we want to forecast how much we're going to spend for obvious strategic reasons. We did feel that it would be a good idea to let everybody know how much we've spent as of today for the quarter, but it's not in the guidance. And relative to the number that's in Massachusetts, that's a number that is counted towards the project as outlined by the -- our fees that are requested, and there's no line item in that number that includes any kind of lobbying expenses.

Peter M. Carlino

Well, I don't think we have any to speak of, up there. Eric, do we?

Eric Schippers

No, it's just I'm spending time up there, meeting the local officials and introducing who Penn is.

Peter M. Carlino

But no real expense, okay. That's right.

Eric Schippers

Correct.

Steven E. Kent - Goldman Sachs Group Inc., Research Division

So then the...

Eric Schippers

The first question is about St. Louis.

William J. Clifford

Well, we're not really going to -- as I had kind of indicated on the earlier call, we don't really comment on individual property level. We don't even disclose individual property results. We do it by region. And so I'll probably -- I'm not going to give you any more color other than the bulk of the normalized increase in the fourth quarter guidance is attributable to the addition of St. Louis.

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Okay. But just to be clear on the $20 million lobbying, that is in your current guidance, but the $11 million October-to-date and whatever you go above that is not in the guidance?

William J. Clifford

That's correct. Well, the $20 million is included in our actual results. So the guidance takes the first 3 quarter's actual plus expectations for the future. And we have excluded the Maryland lobbying expense because it's a fluid number that -- but we're giving people a good feel where we're at as of today, and there's just not that much time left to spend money in the next couple of weeks. So we've got maybe 3 weeks.

Operator

And our next question comes from the line of Joe Greff with JPMorgan.

Joseph Greff - JP Morgan Chase & Co, Research Division

Bill, just kind of going back and looking at the third quarter results. You mentioned in the press release revenues and EBITDA exceeded your prior guidance and exclude the lobby expenses. And I know you don't want to talk about property-specific stuff, but maybe you can just give us generally or regionally a sense of where you exceeded or where things turned out better? And maybe give us a sense of why, maybe relative to our estimates and investors that we're talking to this morning, it seems to be the thought that Toledo probably was better than originally expected, that the impact from Maryland Live! on Charles Town was not as severe as expected. Just to give us some sort of sense, and then I have a couple of follow-ups.

William J. Clifford

I think your general sense is correct. I think Toledo is doing a little bit better than we thought. And I think Charles Town is doing a little bit better than we thought, and then there is some offset to both of those in different markets across the United States. Clearly, the -- I'll call the Gulf Coast area is a bit challenging and truly not exactly as healthy as we would hope, but that's obviously a -- those are relatively small properties. And then candidly, I mean, if you look at it, the total that we beat relative to property operating results was roughly $3.7 million. So overall, I will tell you that I thought we did a pretty good job with projecting the fourth quarter -- or third quarter. Hopefully, we'll do an equally good job on the fourth quarter. And I think we've -- not that I want to get any of my analysis team too cool with themselves, but I think they've done a really nice job in the last couple of quarters. And candidly, I think they actually did a reasonably good job on the first quarter. But they're just -- we got to work on the weather forecasting abilities. So I think, generally speaking, that's how I would characterize it. I'm pleased with what's happened in Toledo and Charles Town, probably a little disappointed in what we're seeing in the Gulf Coast.

Joseph Greff - JP Morgan Chase & Co, Research Division

Okay, great. And then Tim, maybe you can just talk about Lawrenceburg? It seems to be that maybe we're seeing more of an impact from the track with slots in Columbus. And maybe you can talk about what you're seeing this month given Hollywood in Columbus opening up on Lawrenceburg? And I guess do you have a strategy or a marketing plan in place to sort of minimize those impacts?

Timothy J. Wilmott

Well, Joe, there's no question since Iota [ph] Opened in June, we've seen most of the loss you're seeing out of Lawrenceburg coming from the Columbus and Dayton markets, and we expect that to continue. We are doing a lot at the Lawrenceburg property to try to mitigate that. In the battlegrounds, we certainly are looking at opportunities to fight for those customers where we think we have a fair chance to, and looking very surgically at ZIP code by ZIP code and where we can do that. But inside the operation, too, we are doing a number of things to get our cost structure down to be more correlated to the new business volumes. We're going to be moving our poker room upstairs and trying to consolidate operations. And we've done a fairly large reduction in force in the month of September, too, because of the lower business volumes, and that's going to continue. And next spring, when Horseshoe Cincinnati opens, I think it's going to be another inflection point, where we're going to see another set of new business volumes that are going to cause us to react accordingly as well. So I think there's a lot left for us to do in Lawrenceburg. And as I said before, I'm encouraged by the results of that team in trying to maximize their margins given the declining business volumes that they've seen in the last 3, 4 months.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. And then, Bill, if you could give us cash debt, CapEx spend in the quarter and CapEx spend for the fourth quarter, that'll be helpful, too. That's all.

William J. Clifford

Sure. Cash at 9/30 was $217.4 million. Bank debt was $1.839 billion. Capital leases and others was 12, volumes were 325 million. Total debt of $2.176 billion. CapEx spending for the third quarter was $160.7 million broken out between $14 million roughly in maintenance CapEx, $146.7 million in project CapEx, most of that being Columbus and Toledo driving the bulk of the CapEx spend from the project CapEx side. Relative to the fourth quarter, we're expecting CapEx of roughly $155.5 million with $24 million of maintenance CapEx, $130 million -- $130.6 million of project CapEx.

Operator

And our next question comes from the line of Brian Egger with Topeka Capital Markets.

Brian D. Egger - Topeka Capital Markets Inc., Research Division

Just a quick question. I know you don't give too much specific -- property-specific feedback, but I don't know if you could speak at all to the impact to-date, generally, of the opening L'Auberge opening on Hollywood Baton Rouge or just a general sense as to how that opening has affected. I know it's early days, but just be curious if you have an initial sense of the repercussions for the market?

William J. Clifford

Tim?

Timothy J. Wilmott

It's been -- as you mentioned, Brian, it's been the first month or so. This is the honeymoon period. Typically, it takes a good 5 or 6 months for us to get the full effect of a new entrant into a market. And clearly, this one is going to be, given the capital spend that was made by Pinnacle in the market, this is going to be an 800-pound gorilla product. I would generally say so far, so good, slightly less than we expected, but there's a lot more that has to evolve before we can make any conclusions on what our new business volumes will be at our Hollywood Baton Rouge property.

Operator

And our next question comes from the line of Joel Simkins from Credit Suisse.

Joel H. Simkins - Crédit Suisse AG, Research Division

A couple of quick questions. Most of my questions have been asked. Can you just sort of give us an update here on the Ontario gaming expansion, or how much time you're spending up there, what kind of opportunities you're identifying? And then also moving into next year and the legislative session in Texas, if you'd give us a sense of how the stars are aligning there and also perhaps whether or not all the pro- gaming groups are lined up more proactively at this point?

Timothy J. Wilmott

I'll take Ontario first, Joel, then I'll let Eric comment on Texas. We have been up, looking at a number of different markets in the province of Ontario. And we are active in discussions with local governments and also the province themselves about certain markets there. I think there's no question that what they want to do is resolve the direction they want to head in Toronto before they do anything with the operations that are affected by the Toronto decision. So most of what we've looked at to-date have been markets that have no effect on a Toronto decision. We don't see ourselves competing for Toronto because of the level of capital investment required. We believe to compete in that market being multiple billions, but the process with the province has moved forward a little bit slower than I think they anticipated originally. But needless to say, we're active there. We think there's some good markets that we're going to pursue. We just haven't gotten to a point yet where they've been clarified for us, and we are comfortable in making anything public.

Eric Schippers

Yes, this is Eric. On Texas, we've got a pretty sophisticated operation, lobbying operation, underway to convince legislators to let Texans decide this issue. We have seen in the polling an overwhelming amount of Texans. Frankly, regardless of how they feel about the issue, they want to have a chance to decide the issue. I think our latest poll shows 2/3 of Texans want to have a chance to vote on gaming expansion. And so right now, our focus is in building our coalition, which includes business leaders in several key areas across Texas to continue that mantra of letting them put it out to the ballot. We think going in, that the position should be for gaming where the footprint of gaming already exists, which is at the race tracks. And so this may take various forms as we get through the legislative process. But first focus, let the people decide, and then we'll get a little bit more specific in terms of the actual legislative vehicle as we get closer to the session.

Joel H. Simkins - Crédit Suisse AG, Research Division

And one additional question on Ohio. Can you just sort of give us a sense what the next step is for your 2 racetrack casino projects? What are you still waiting upon for construction to begin? And is this still a -- is there a potential they could still open in the first half of the year?

Timothy J. Wilmott

Joel, we are waiting for the approvals from the lottery and racing commissions to relocate our tracks. We need to get that before we get this started. Hopefully, that will occur before the end of the year. We hope to break ground end of the year, early '13. And we're talking about a first half of 2014 opening if all goes well right now. So that's the timetable we're working on. Our designs continue to evolve, and we get -- we're getting better pricing on these projects as the design continues to move forward. But the big key milestones for us between now and the end of the year are the approvals from the lottery and racing commissions to approve our projects and allow us to relocate these tracks.

Operator

[Operator Instructions] And our next question comes from the line of Steven Wieczynski with Stifle, Nicolaus.

Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division

Probably a good question for, I guess, for Tim. But just a hypothetical question about Maryland. So if Maryland -- if Question 7 passes in Maryland, can you explain how you guys would essentially position Charles Town at that point? Did you think there would be -- not an advantage, isn't the right word, but somewhat of an advantage just because of differences in tax rates and how you guys could get a little more promotional and secure some of your better customers?

Timothy J. Wilmott

Steve, Question 7 really has nothing to do with Charles Town. It's all about our ability to grow in Maryland with our Rosecroft facility. We're not at all thinking about West Virginia and our Charles Town operation right now regardless of the outcome of Question 7. So we haven't given that any thought up to this point.

Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then going to a market you haven't talked about too much, just your current thoughts on the Vegas market and how you see that over the next 6 months or the next 12 months?

Timothy J. Wilmott

Well, we continue to show improved margins at the M, given a very flat revenue environment there. And I don't think -- as we look into 2013, that's not going to change at all. We don't see any kind of robust recovery in Las Vegas right now. Construction continues to move very slowly there. The general economic conditions for 2013, I think, are going to be very similar to what we saw in 2011 and 2012.

Operator

And our next question comes from the line of Mark Strawn with Morgan Stanley.

Mark Strawn - Morgan Stanley, Research Division

If you look regionally, are you concerned that some of your domestic competitors desperate, maybe more desperate for growth stories, are overbidding for new projects regardless of returns? And if maybe you agree with that statement, how do you view those potential projects and their returns versus, say, buying back your stock in the future?

Peter M. Carlino

Well, let me take a whack at that and Bill probably has a response as well. I thought -- I think we've answered that previously to say that nothing that our competitors do really has much effect on our way of running our business, that, by the way, in suicide missions and marketing spend, that from time-to-time our competitors embark on, our folks know well that we stick -- we stay disciplined. They eventually figure out that their behavior is moronic, and they eventually stop that and reality returns. You'd have to actually point out a specific market. As we pointed out in Massachusetts, look, we got -- we'll have the best project in that state, in the western part of that state. Now whether it can be had at a price that makes sense is still unknown. We'll have a disciplined approach to that. It pencils or it doesn't pencil, if somebody else wants to do something stupid, then let them. I mean, that's sort of our view. I mean, there's good news and bad news. And I know there's a lot of concern about cannibalization. And I must say that, "Look, we'd love to operate in an environment where we're the only player. We excel at that position, and we love it." But that's not the reality, and that's all baked into our thinking. There's good news and bad news. I think the bad news is that there has been cannibalization in a couple of markets, in Louisiana, of course, having the state put a boat in -- a third boat in what is clearly a two-boat market. But a lot of that is going to be over with relatively soon. If you just look around at the map, pick your worst thoughts, and frankly, competitive pressures state-to-state, cross-border and all that kind of stuff and new facilities in some of these markets are -- it's going to be pretty much over. And that's a good thing. I mean, that's a good thing. And we'll scramble in Texas. We'll scramble in Massachusetts. But look, our goal has been, and you've heard this mantra from me before, we're just running faster. So I have real confidence that despite what happens, picture the worst, when the history is written, a year, 2, 3 out, you're going to find that Penn is going to be in a terrific place. So, as I say, I wish we didn't have competition, but that's the reality. We're just running faster than that catch us.

William J. Clifford

I would also -- I would echo that. And I would also add on -- I would remind people that we've been involved in a lot of opportunities, some of which you don't know about, where we've hit our threshold for return, and we just walked away. Some of the more notable ones probably include Fountain Blue, even the old Harrah's asset purchase, which is many years ago at this point. We got to a point where we simply stopped when it hit our threshold. And I don't think there's anybody at Penn that's upset about having lost out on opportunities. So at the end of the day, stuff either works or it doesn't work. And we've got a return threshold that we expect to hit. If we hit it, we're as aggressive a competitor as you'll find on the planet. When it's outside that range, then we're happy to let the other guy walk away with the project and let him figure out how to make -- have a good, decent return.

Peter M. Carlino

And by the way, we might see that person later.

William J. Clifford

We may. So, anyway.

Operator

And our next question comes from the line of Rich Hightower with ISI Group.

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

The question was already asked, but back to M really quickly. I'm just wondering, are you happy with how the investment is playing out so far? And maybe a little more color on your longer-term expectations there?

Timothy J. Wilmott

Right now, Rich, we're very pleased with the $230 million investment we've made at the M. And as I said before to Steve's question, we continue to show improved margins in the business quarter after quarter, and we think there is further upside to that story going into 2013. And it's all going to be dependent upon getting some sense that the market out there, the Las Vegas local market is on the rebound, which we don't predict for 2013. There's always the opportunity as we continue to grow that business for an additional hotel tower, but that's out in the future right now. We're very pleased with the performance of the 390 rooms today. They're showing a very strong occupancy. But it can always be better, and it's obviously dependent upon group and convention business. And that continues to be somewhat bumping along both locally and on the strip right now. So I think you're not going to see much change at the M through the end of 2013 other than what I've already outlined as the task at hand.

Operator

And there are no further questions at this time. I'll turn the call back over to you, presenters.

Peter M. Carlino

Well, good. Operator, thank you very much. And thank you, all, for joining us, and we look forward to talking with you at the end of next quarter. Have a great day.

Operator

Thank you. Ladies and gentlemen, that does conclude the webinar for today. We thank you for your participation, and ask that you please disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Penn National Gaming Management Discusses Q3 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts