Penn National Gaming on Thursday reported its first full quarter of results since completing its buyout of rival Pinnacle Entertainment, giving the investment community a clearer picture of the industry’s largest regional casino operator.
The company’s net fourth quarter revenue of $1.155 billion is expected to increase to $1.3 billion in the first quarter, Penn officials said. Also, once Penn adds two other properties – the recently acquired Margaritaville in Bossier City, Louisiana, and Detroit’s Greektown resort, a transaction still pending approval – revenues are expected to continue to increase.
During the quarter ending Dec. 31, Penn’s cash flow and operating income rose substantially with the addition of the 12 Pinnacle properties, acquired in a $2.8 billion transaction. However, the company had a net loss in-quarter of $42 million, which translated into a loss of 37 cents per share.
For all of 2018, Penn National had revenues of $3.6 billion, and the company told analysts it could report revenues of $5.2 billion by the end of next year, when the company expects to have 42 casinos in 19 states.
“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,” Penn National CEO Tim Wilmott said on a conference call with analysts.
Penn National said it was “on track” to meet its projected two-year $100 million in cost savings through the Pinnacle purchase.
“The U.S. domestic macro backdrop remains strong, and we expect this translates into continued momentum across all of regional gaming,” said Union Gaming Group analyst John DeCree. “Penn has evolved into the largest operator of regional gaming assets, with very few geographic voids in its portfolio.”
Penn National is also seeking approval from Pennsylvania gaming regulators to build two smaller casinos in the state as part of an overall gaming expansion effort approved by lawmakers a year ago. The company plans to spend a combined $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,” Wilmott said. “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.”
Penn is in partnership with real estate investment trust VICI Properties in both the Margaritaville and Greektown deals. Penn is spending $300 million to purchase the operating of Greektown and will make annual lease payments to VICI.
Wilmott said on the conference call the Greektown deal had been cleared by the Federal Trade Commission and that the company is awaiting approval from Michigan gaming regulators. He said Penn anticipates the deal closing by the end of June.
“We really like the Detroit market,” Wilmott said. “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.”
Penn National has nearly double the number of casinos of its closest rivals in the regional gaming space, Boyd Gaming Corp., and Eldorado Resorts.
In response to an analyst question about further casino acquisitions, Wilmott said the company is looking at “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” in merging 14 properties into the company’s system.
“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,” Wilmott said. “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.”
However, Wilmott admitted “opportunities present themselves” to a company like Penn National.
“You always have to be prepared to take a look at opportunities to grow your company,” Wilmott said.
Shares of Penn National closed at $25.75 on the Nasdaq Thursday, down 9 cents or 0.35 percent.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
