Despite soft performance in its regional markets, Pinnacle Entertainment impressed an analyst or two by exceeding revenue expectations for the past quarter. Pinnacle’s cash flow was $3 million above Wall Street estimates, a feat attributed to fiscal discipline and improved margins. The company’s priorities have been — and will continue to be — reducing debt, increasing efficiency and absorbing Ameristar Casinos into the Pinnacle fold. No REITmania for those guys. J.P. Morgan analyst Joseph Greff called the results “particularly impressive given the broad weakness in regional revenues and competition faced in certain markets (Belterra, Bossier City).”
Deutsche Bank analyst Carlo Santarelli was also impressed, calling Pinnacle’s numbers “rather surprising.” He added that “better than expected” performance in the South made up for weakness in the Midwest.
Pinnacle is implementing an automated hotel-management program at all its Ameristar-branded properties and is in the process of rolling out a new loyalty program. It also just retired $260 million of debt with the proceeds of the Lumiere Place sale (Gary Loveman, take note). “While regional gaming fundamentals have been soft for some time, we believe PNK’s relatively healthier markets in Lake Charles and Baton Rouge can continue to do reasonably well, we remain encouraged by recent and prospective Ameristar acquisition-related cost synergies, and we are impressed with management’s expense control and marketing efficiencies,” Greff concluded.
Also reporting today is Penn National Gaming parent GLPI. Santarelli yawned that GLPI’s report was “so boring one could forget it’s a 5.7% [dividend] yield.” He called the REIT’s performance “broadly” as expected, clouded by several changes, such as the share-count calculation. GLPI didn’t have any news on its casino properties but Santarelli built his bullish case around the following factors: “1) meaningful growth opportunities via acquisitions as GLPI takes advantage of its premium cash flow multiples and inexpensive cost of debt, 2) a healthy dividend which provides downside support in shares (5.7% dividend yield on our current 2014 estimates), 3) continued tenant diversity which is likely to attract incremental investors, 4) relatively stable cash flows with several growth avenues, and 5) return focused management.”
Blank check. Penn and Pinnacle properties in Missouri will soon be able to offer high-roller lines of credit starting at $10,000, if Gov. Jay Nixon (R) signs a bill headed for his desk. Athletes are among the players (pun unintended) sought under this legislation. It also levels the playing field with Illinois, which can grant similar lines of credit.
The casino business just got a bit more profitable in Pennsylvania. Casinos that gave away cars, sports tickets, etc., were being hit with the state’s 55% tax rate (usually reserved for slot win). Parx Casino didn’t cotton to that, took the state to court — and won. The victory returns $300,000 to Parx’s pocket. Other casinos looking for similar refunds have to match Parx’s argument that “cars were given away to patrons who were eligible for the prizes only because they’d played slot machines.” (The eligibility of other casinos to appeal remains unclear.)
However, relieved of an onerous tax burden, they can afford to be a little more open-handed with promotional allowances now. Supreme Court Justice Donald Castille thinks so, too: “The unintended effect of the Majority Opinion will be to encourage increased casino giveaways, subsidized by the taxpayers.” Don’t cry for Pennsylvania: Parx is still on the hook for $200 million in taxes a year.
