Penn National Gaming, the industry’s largest regional casino operator, recently announced the results of its first full quarter since closing on its $2.8 billion buyout of Pinnacle Entertainment, announced in March and completed in October, which included 12 properties. Penn officials reported net fourth quarter revenue of $1.155 billion, up 50.2 percent from $769 million a year ago and expected to increase to $1.3 billion in the first quarter.
Revenue also is forecast to increase after Penn adds figures from acquiring Margaritaville in Bossier City, Louisiana and its $300 million purchase of Greektown resort in Detroit, still awaiting state-regulator approval; Penn has partnered with real estate investment trust VICI Properties on these two deals. However, the company had a net loss in-quarter of $42 million, meaning a loss of 37 cents per share.
Penn had revenue of $3.6 billion for 2018. That could increase to $5.2 billion by the of 2020, when the company expects to operate 42 casinos in 19 states, including 49,000 slot machines, 1,200 table games and nearly 9,000 hotel rooms.
In a conference call with analysts, Penn National Chief Executive Officer Tim Wilmott said, “Certainly as we think about the end of 2019 from where we are today, our company is going to be radically and positively different than it was before we started the fourth quarter of 2018.” He said the company was “on track” to meet its projected 2-year costs savings of $100 million thanks to the Pinnacle purchase.
Asked how Penn has leveraged the Pinnacle deal, Wilmott said, “There have been so many learnings over the last several months. We had a good idea pre-close what the opportunities would be, but the number of ideas and initiatives that we’re now pursuing in earnest has expanded probably twofold from what it was pre-close. Some of the things Pinnacle legacy properties have done better than the Penn properties have done is a real focus on the high-end table game customer. They did a much better job of moving their customers around the network. Obviously, they didn’t have a Vegas location, but they had some real destination properties in Colorado, Louisiana and the like, so there’s a lot of opportunity on the revenue synergy side.”
Penn also is awaiting approval from Pennsylvania gaming regulators to build two smaller casinos. In addition, Penn plans to spend a total of $231 million to add properties in York and Morgantown over the next 12 to 18 months. “We feel very comfortable that these are going to be good solid investments for us. Obviously you’re mindful of the effect that it’s going to have on Penn National outside of Hershey, Harrisburg. But we are absolutely confident it’s going to be accretive to our shareholders,” Wilmott said.
Wilmott said Greektown deal should be closed by the end of June. “We really like the Detroit market. It’s very stable. We’ve been very, very impressed with the Renaissance Hotel and what’s going on in downtown Detroit, and how the area has improved dramatically over the last 10 years,” he said.
Wilmott told analysts Penn is considering “a couple of markets where we don’t have a presence and they’re getting fewer and fewer.” He added that Penn has “a lot on our plate now,” integrating 14 properties into the company, which has nearly double the number of casinos as competitors in the regional gaming category–Boyd Gaming and Eldorado Resorts. “Our focus right now at hand over the next couple of quarters is to integrate these businesses and realize the synergies we’ve committed to our shareholders to deliver. There obviously are other things out there that we’re going to look at. But I would characterize right now our focus as more internal than external,” Wilmott said.
But he noted “opportunities present themselves. You always have to be prepared to take a look at opportunities to grow your company.” For example, Penn officials said they’ll continue to build on the legalization of sports wagering where their properties can offer it, in Nevada, Pennsylvania, Mississippi and West Virginia.
Union Gaming Group analyst John DeCree noted, “The U.S. domestic macro backdrop remains strong, and we expect this translates into continued momentum across all of regional gaming. Penn has evolved into the largest operator of regional gaming assets, with very few geographic voids in its portfolio.”
