Concerns that MGM National Harbor would put Penn National Gaming’s signature property in Charles Town, West Virginia on life support are failing to materialize, the company’s executives noted during its fourth quarter earnings call this week.
“While it is still early, we are indeed encouraged by the first 50-plus days post MGM’s opening of National Harbor on December 8th,” said Jay Snowden, chief operating officer of Penn National Gaming. “In the month of January, our slot volumes exceeded prior year on 20 of 31 days.”
“Seeing those results, it’s given us a level of encouragement that we were within the guidance we thought, within the ranges that we’ve previously provided on the impact of National Harbor on Charles Town,” said Penn National chief executive officer Tim Wilmott.
Prior to the MGM opening, there were predictions that as much as 25 percent of EBITDA at Hollywood Casino at Charles Town Races, which is located in West Virginia’s eastern panhandle just a 90 minute drive from Washington, D.C., would be cannibalized.
Several analysts were pleasantly surprised as the property fared better than anticipated.
“We now have six weeks of weekly data since National Harbor opened and collectively Charles Town is tracking down 17%,” said Cameron McKnight of Wells Fargo Securities, who is now predicting a 20 percent year-over-year drop in EBITDA for the full year.
“Concerns over National Harbor cannibalization of Charles Town seem overdone, in our view, as the impact to date has been less than management initially expected,” said Chad Beynon of Macquarie Securities. “In particular, Charles Town’s core customers in Northern Virginia, have proven to be resilient, as seen by GGR declining only 8-8.5% (year-over-year) since MGM’s National Harbor opening.”
John Decree of Union Gaming is now forecasting just a 15 percent drop in EBITDA at the property for 2017.
Snowden said that the Charles Town property has benefitted from fewer regulatory restrictions, the traffic-free nature of its location and enhanced efforts to build relationships with its customers.
“In West Virginia, we have comp drinks as an option for our better players, and really you hear a lot of customers just talking about ease of access to ease of parking, whether valet or self-park, at Charles Town versus National Harbor,” he said. “We obviously also benefit by virtue of smoking – something that we can offer on our gaming floor.”
The property has proved particularly appealing to older customers in the 60-65 year age range that find the drive through Washington-area traffic to National Harbor challenging, Snowden said. He added that many of these customers “just really value the convenience factor and the service levels. We’ve got long standing relationships with these customers – nearly 20 years and we feel good about that.”
But as National Harbor has only been open for two months, Penn National executives aren’t ready to take any victory laps.
“We remain cautiously optimistic, but want to stress again that it is still in the very early innings in West Virginia,” Snowden said. “MGM is building their database. Maryland Live! is focused very much right now on non-gaming development….and we are focused on continuing to enhance the relationships with our best players.”
Executives from Gaming and Leisure Properties, the REIT that owns most of the real estate underlying Penn National properties and serves as their landlord – were also encouraged by the showing.
“What Penn highlighted on their call was predictable; I mean National Harbor is in a terrible location,” said GLPI chief executive Peter Carlino, in reference to its placement in the middle of what was predominantly a Penn National feeder market just a couple years back.
He noted that while National Harbor is centrally located in a major population center, the traffic and headaches involved in getting there are a net gain for Penn National. “There’s a lot of ugliness in getting close to it makes it still appealing, I think, towards…a lot of the Virginia market to continue going over to Charles Town.”
Bill Clifford, GLPI’s chief financial officer, said that more time is required to arrive at a true understanding of the impact of a transaction or new competition. “It takes about six months after the event before you can get enough data to really start to say ‘okay, I can see where this is going.’”
