Bally's - Earnings Call - Q1 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the Twin River Worldwide Holdings, Inc. First Quarter Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker for today, Craig Eaton, Executive Vice President and General Counsel.

Please go ahead, Mr. Eaton.

Speaker 1

Good morning, everyone, and thank you for joining us on today's call. I hope that each of you, your family, friends and colleagues are safe and staying healthy. By now, you should have received a copy of our Q1 twenty twenty earnings release issued earlier this morning. If you haven't, the earnings release and presentation that accompanies this call are available in the Investor Relations section of our website at ww.twinriverwwholdings.com under the News and Events and Presentations tabs. With me on today's call are George Papaneer, our President and Chief Executive Officer Steve Kapp, our Chief Financial Officer Mark Crissoffoli, our Executive Vice President and President of Twin River Rhode Island Jay Minas, our VP of Finance and Joe McGrail, our Chief Accounting Officer.

Before we begin, we would like to remind everyone that comments made by management will contain forward looking statements. These forward looking statements include plans, expectations, estimates and projections that involve significant risks and uncertainties. These risks are discussed in the company's earnings release and SEC filings. Actual results may differ materially from the results discussed in these forward looking statements. During today's call, management will refer to certain non GAAP financial measures.

Reconciliations to the most comparable GAAP financial measures are included in the schedules contained in our earnings release or the presentation that accompanies this call. I will now turn the call over to George.

Speaker 2

Thank you, Craig. Good morning, everyone. I hope that everyone is staying safe during these unprecedented times and appreciate everyone joining us. These trying times remind us how sacred life, family and friendships are. And we would like to thank all of the frontline workers for their hard work and bravery every day in fighting this battle.

In response to the COVID-nineteen outbreak, we announced and have executed on a multifaceted response, which have been outlined over the last several weeks through our press releases, including this morning's earnings release. We'll have more on our response in a few minutes. However, this is our first public opportunity to discuss some exciting new developments and our ongoing corporate strategy. So I want to start there. About two and a half weeks ago, we announced our intention to acquire the Eldorado Shreveport Resort in Louisiana and the Montblu Resort Casino and Spa in Lake Tahoe, Nevada from Eldorado, as well as an agreement to acquire Valley's Atlantic City from Caesars and Dietschy Properties.

These transactions are expected to be immediately accretive to earnings. We are extremely excited about the prospect for future growth from these three properties. These acquisitions represent a unique opportunity to continue executing on our expansion and diversification strategy in attractive markets and even more attractive valuation multiples. As we have stated before, our disciplined approach to M and A, strong balance sheet and low leverage compared to others in the industry, as well as our proven track record of successfully integrating new properties and to effectively compete position us well to take advantage of opportunities as they arise. And these acquisitions are a perfect example.

Starting with the El Arata transaction, the company will acquire Shreveport's operations and real estate and Montblu's operations. Dollars hundred and 55,000,000 purchase price for these two properties includes a $15,000,000 deferred cash payment bearing no interest payable one year after closing. This purchase price on a combined basis represents an implied trailing twelve month pro form a EBITDA multiple of approximately 4.1 times, excluding any potential impact from costs and revenue synergies. We also entered into an amended agreement with Montcaloo's Landlord, including the extension of the lease term to the end of 02/1935 with options to extend through 02/1960. Shreveport is a top tier property in Shreveport Bossier City market with a lot of characteristics of our Hard Rock Biloxi property, where we have had considerable success.

Montblu is a beautiful resort property and recently went through a major renovation. We're looking forward to offering an experience there as a great reward destination for customers throughout our portfolio. The company's proposed acquisition of these two properties is subject to FTC and state and local regulatory approvals and is conditioned upon the completion of the merger of Eldorado and Caesars. The acquisition has been subject to a financing condition. However, that was satisfied this past Monday, when we closed on our new debt financing of $275,000,000 which Steve will cover in a few minutes.

Turning to the Bally's acquisition. The purchase price of $25,000,000 represents an implied trailing twelve month EBITDA multiple of approximately 2.1 times, excluding any potential impact from costs and revenue synergies. The agreement with Caesars and BT's is structured as an asset purchase covering certain assets of Valley's and the property on which they are operated. Part of this acquisition, we will also acquire the license to build out a sports book and launch online sports betting and iGaming, which we believe will provide nice upside to the existing cash flows from the property. Our executive team collectively has had many years of experience in that market, and we believe our current model fits very well there.

Being able to acquire Bally's with its center of the Boardwalk location was also incredibly attractive to us. We note that all three of these assets have been well maintained and do not require any material deferred maintenance CapEx or any short term significant capital investment. So we do expect to refurbish 700 or so of the rooms at Bally's, which will be phased over a three year period and is not expected to require significant capital investment in total. Along with our previously announced acquisitions of Kansas City and Vicksburg, we believe that the addition of these five contracted properties will meaningfully enhance our financial profile, while strengthening our presence in a number of key geographic markets. We see significant opportunities to create cross marketing for customers at multiple Twin River locations.

We believe all these assets are great fit for our portfolio and are eager to apply our proven operating and integration approach to drive incremental revenues and cash flows. We're currently working diligently through the regulatory process, including obtaining the required approvals from the FTC in respect to state jurisdictions and note that Kansas City and Vicksburg acquisitions remain on track to close in Q2 twenty twenty, pending Missouri regulatory approval. We expect the Bally's acquisition will close in late twenty twenty. And Shreveport and Montblu are likely to close in the first half of twenty twenty one. We're currently on the agenda for the next Gaming Commission meeting in Missouri later this month and expect to close on that transaction soon after.

I'm extremely excited about our M and A successes and what they will mean for the company going forward. Within the next twelve months, we will be operating five additional properties, which we collectively acquired at five times. I'll now turn it over to Steve to provide an update on our recent financing and liquidity. Steve?

Speaker 3

Thank you, George. As George mentioned, this past Monday, we closed on our new $275,000,000 Term Loan B. That financing satisfied the financing contingency under Twin Rivers' previously announced agreement to acquire the Shreveport and Montblu assets from Eldorado Resorts. As the regulatory approval process for these transactions will take some time, the company did repay all $250,000,000 of revolving credit borrowings under the bank credit facility. However, that revolver will be available for future borrowings in accordance with the credit agreement.

Borrowings under the increased term loan facility will bear interest at LIBOR plus 8% per annum through the 2026 maturity date. Let me make a couple of comments about the covenant amendment that we successfully executed very recently. First of all, we were in compliance with our leverage covenant through the 03/31/2020 quarter. Nonetheless, on April 24 and prior to the new financing, we also announced that we had worked with our lenders to amend the financial covenants the financial covenants, I should say, and certain other terms of the company's bank credit facility to provide financial covenant relief from the effects of the COVID-nineteen pandemic. The company need no longer comply with the maximum total net leverage ratio covenant applicable under the bank credit facility, but instead must comply with a minimum liquidity covenant measured at the last day of each month during the relief period.

In essence, the company will be required to have unrestricted cash on hand at the end of each month in the following amounts: We need $75,000,000 of liquidity at April 30, which we had $65,000,000 at the June, dollars '50 '5 million at the July and $50,000,000 even at the end of each month thereafter through the covenant relief period, which is March thirty one of twenty twenty one. Following the leverage ratio covenant relief period, leverage ratio, which is essentially net debt divided by trailing twelve month LTM EBITDA, is 6.25 for that quarter at 03/31/2021, '6 times at June 30 of that year, 5.75 as of September, and then 5.5 as of 12/31/2021, and five times thereafter, which brings it back into conformance with the original terms of the credit agreement. And by the way, in those calculations there is a calendarization effect, if you will, a pro rata effect on most recent cash flows, which will be annualized for purposes of that measurement. So it's a very commonsensical amendment for us, we believe. The applicable interest rate on credit facility borrowings will be LIBOR plus 2.75% for the entirety of the leverage ratio covenant period through 03/31/2021.

Let me turn to cash balances, liquidity and our expense burn rate. Cash on balance sheet at the March '30 '1, '20 '20 was $361,000,000 Pro form a for the addition of the $275,000,000 financing, concurrent repayment of the full $250,000,000 balance on our revolver and factoring in the fees and expenses, we had cash of more than $370,000,000 together with the availability of the $250,000,000 under the revolver for total liquidity of more than $620,000,000 and we have no substantial debt maturities before 2024. Even pro form a for the effect of all five of the contracted acquisitions, our liquidity, including availability under the revolver, is in excess of $210,000,000 As George will discuss in a few minutes, we have taken steps to manage our expenses. We have used the March period to both position to reopen and prepare for the possibility of a lockdown mode of reducing costs to the bare minimum. If the situation dictates that we move to lockdown or Phase two as we refer to it, perhaps in the June or July timeframe, assuming we do not see a path toward opening on the horizon, we expect to reduce our monthly OpEx cash burn rate to approximately $3,000,000 And that will position us to endure a prolonged shutdown given our current liquidity position in excess of eighteen months, including funding all five acquisitions and debt service costs.

Based on our current cash requirements and ability to endure a Phase two extended shutdown scenario, our cash balances provide us sufficient resources during these challenging times. In terms of CapEx, all major capital projects have been suspended, and we have greatly reduced our expected CapEx spend for the remainder of the year depending on the timing of our facilities reopening. We are definitely still committed to moving forward with our proposed CapEx at Kansas City for approximately $40,000,000 as we think the project there will greatly enhance the property and guest experience to drive growth and a very nice return on investment. However, with the timing of the close and the need for required approvals, this CapEx spend is largely a 2021 event. We also have talked about CapEx related to the proposed VLT contract and joint venture with IGT, which would include an expansion to our flagship property in Lincoln.

Mark will provide an update regarding this in a few minutes, but again, that is subject to the legislation being approved. On taxes, we expect there are certain aspects of the CARES Act we will be able to benefit from. These include, but are not limited to, utilization of NOL carrybacks as well as some additional interest deductions. We think these, combined with refunds owed, could result in positive cash flow of as much as $15,000,000 or $20,000,000 perhaps even somewhat more in the next year or so. On the subject of our return of capital program, under the program, we purchased approximately 1,600,000.0 shares for a total investment of about $30,000,000 during the quarter, which is just under $19 per share.

As a result, our current shares outstanding are 30,400,000.0, which is reduced from a total of approximately 41,100,000.0 shares when we went public in March of twenty nineteen. That's down a full 26%. Since those repurchases and as a condition of the amendment we signed to our credit facility, we have halted spending under our capital return program, including share repurchases and the payment of a quarterly dividend. On the subject of guidance, as we noted in our release this morning, given the uncertain impact of the COVID-nineteen pandemic, we are withdrawing our twenty twenty full year guidance provided on 03/03/2020, and will not be providing further guidance at this time. But I'll finish in reiterating comments by George earlier.

Within the next twelve months, we'll be operating five properties not previously reflected in our historical financial results. Remember, we're acquiring all five of these for an average purchase multiple of approximately five times, which reflects the most recent three acquisitions at a purchase multiple of 3.6 times, which actually is both highly accretive and deleveraging simultaneously. So we're very excited about the future prospects of the company. With that, George, I'll turn it back to you.

Speaker 2

Thanks, Steve. So turning your attention back to the quarter. While the mandated closure of our properties was a necessary part of the broader effort to stop the spread of COVID-nineteen, the impact to our company, our team members and our communities have been impactful. Before the pandemic began in March, our company was on track to report strong first quarter results opening the year with two consecutive months of solid year over year revenue and adjusted EBITDA growth across all but one of our properties, the level of which exceeded our internal expectations. Through February, overall revenues for the company were up $17,100,000 or 23%.

Adjusted EBITDA was up $2,000,000 or 8% compared to the same period in 2019. This included a strong start to the year at Biloxi, which saw revenue and adjusted EBITDA increases of 1335% in the first two months of the year, respectively, as well as Tiverton with increases of 1566% year over year, respectively, which continued to ramp and showed market resilience in the face of competition. Finally, Dover contributed $17,300,000 of revenue and $3,800,000 of adjusted EBITDA in the first two months, a continuation of the success story there. We also closed on our acquisition of Mardi Gras, Golden Gates and Golden Gulch Casinos and Blackhawk in late January. These transactions were immediately accretive to generating positive EBITDA in February in line with our expectations.

And we integrated those properties in the first month of operations. In addition, on May 1, sports betting included online and mobile went live in Colorado and through our announced partnership with DraftKings and FanDuel. We're excited about the opportunity and look forward to opening our DraftKings Sportsbook Lounge inside the Mardi Gras later this year. The only property that did not report year over year increases to revenue and adjusted EBITDA in the first two months of the year was Twin River in Lincoln, which will not lap the year over year impact of new competition in the region until late in Q2. However, this story there was one of stabilization and recovery as on a GAAP basis gaming revenue for the first two months at Lincoln was down 21% year over year with slot volumes down only approximately 1%.

Factoring in the gaming revenue from Tiverton, total gaming revenue for Rhode Island was down approximately 15% in the first two months, while our slot volumes were actually up approximately 3.6% year over year. Upon the COVID-nineteen closure, Twin River was at the point of handling the storm of the new $2,600,000,000 Encore casino that opened in June 2019. Twin River was continuing to outperform market expectations in the fourth quarter twenty nineteen and more importantly profitability. And through the first two months of this year, we were exceeding not only the performance of the fourth quarter twenty nineteen, but our expectations of the first quarter twenty twenty. With the $8,600,000 of adjusted EBITDA in the month, February represented the strongest month of operating contribution at Lincoln since Encore opened, and we believe we were on track to exceed our recovery expectations.

As expected, performance deteriorated dramatically in March as a result of the closing of all our properties mid month. As a result, our total Q1 consolidated adjusted EBITDA was down just under 50% to 22,000,000 with Rhode Island down 53% and Biloxi down 42% compared to the prior year, offset by the full quarter impact of Dover and a partial quarter of Blackhawk, which were acquired in late Q1 twenty nineteen and the current quarter respectively. Response to the shutdowns, we've taken broad based actions to reduce expenses and also enhance liquidity as Steve just mentioned. Beginning with our team members, the crisis has forced us to make some difficult decisions and by far the most difficult was placing most of our team members on furlough. We care deeply about the well-being of our team members and we recognize the impact that these furloughs have had on those affected.

And while we can't possibly mitigate the full impact to them, we have sought to provide continued support in the form of ongoing health benefits coverage at no cost. We also established a fund to provide financial assistance for those employees experiencing significant hardship. We hope to bring these employees back as soon as possible. And as Mark will speak in more detail in a few minutes, we are actively preparing to do so. When we do, protecting health and safety of our team members and customers will be our utmost priority, and the safety protocols we put into place will meet or exceed the standards set forth by local, state and federal health officials.

To those team members who have remained on the job throughout these closures, thank you for your hard work and keeping your property safe and secure. Your dedication and efforts have positioned us to open quickly when the time comes. As we look forward and prepare for a return to business, we believe we will benefit from our status as a regional gaming company that is largely focused on local and regional visitation. The majority of our business comes primarily from local customers. We're not reliant on airlift, destination or convention businesses to drive results.

As operations resume, we believe our local customer base will position well within our industry. While these are certainly unprecedented times, we know that they will come to an end, and we will look forward to the start of the recovery. One byproduct of the current environment was a heightened focus on cost control and the potential to leverage the experience we've gained through this experience to better manage costs in the future, which we think will help us improve margins and profitability long term. Though it will vary slightly by property, we estimate that property level EBITDA will breakeven with 30% to 36% of prior year revenues. It should be noted that even socially distanced, we believe we can achieve 65% of prior year's revenues after an adjustment period based on occupancy.

I will now turn it over to Mark to discuss in a bit more detail some thoughts and updates on reopening efforts. Mark?

Speaker 4

Thanks, George. I wanted to reiterate that I hope everyone is safe and healthy. As we think about reopening, consumer confidence is going to be the key to economic recovery and thoughtful reopening strategies are going to be crucial to success for us in the short term and the long term. We have been laser focused and hard at work on this. And while it will vary slightly from state to state, let me briefly outline our thinking about the question of how we reopen using Rhode Island as the example.

In Rhode Island, Governor Raimondo's stay at home order expired this past Friday and the state has begun the process of reopening its economy in a smart and measured fashion. It has not yet been determined when the state will authorize us to reopen the casinos. However, beginning almost from the moment we closed the properties, we started working on a detailed comprehensive reopening plan. We have been working very closely with state and local government officials, public health officials and experts in epidemiology and biosafety to develop a phased approach to reopening with a set of protocols that will help deliver a safe environment for everyone. We cannot emphasize enough how focused we are on the safety of our team members and our guests.

The plan is likely to include, among other things, screening of team members and guests upon entrance of the properties, potential use of thermal imaging cameras, enforcement of social distancing guidelines, including spacing between VLTs and limited or no table games to start, frequent cleaning and sanitizing protocols for all areas, mask protection and public awareness signage. Plan is also likely to roll out in several phases with the first phase designed to open with more significant restrictions and limitations, including limited hours, fewer gaming options and reduced amenities. Over time, as experience and broader environmental factors in the state improve, the expectation is that some of the restrictions and limitations will be relaxed and more options will be made available for our guests, again in a smart and measured fashion. We will continue to be driven by data, by science and by public health guidelines as we evaluate and evolve our operating practices and guest interactions. And we remain focused on prioritizing long term outcomes over short term considerations.

As for the timing of reopening, it will ultimately depend on decisions made by government officials consulting with public health authorities and industry and company representatives. We are preparing to open our properties in phases as soon as we are allowed to reopen. At this point, it would appear our Hard Rock Biloxi property is closest to reopening and we expect that to occur very soon, potentially as early as next week. We are optimistic that openings at our other properties will follow shortly with both Rhode Island and Delaware potentially opening within the next month. It also appears that Missouri may join Mississippi in opening next week.

As George mentioned about Kansas City, we are scheduled for our regulatory approval hearing later this month, potentially positioning us to close on the Kansas City and Vicksburg acquisitions in June. While it is impossible to predict and the situation remains somewhat fluid, we may have as many as six casinos open in Mississippi, Missouri, Rhode Island and Delaware by mid to late June, if not sooner. None of this is finally determined, and it is subject to change and dependent on a myriad of factors, including the health and safety of our team members and customers, which will remain of paramount importance. I also wanted to provide an update on the status of the IGT Twin River joint venture. As we discussed on our last quarterly call, the new contracts and amendments with the state require authorizing legislation.

That legislation was introduced by leadership of the House and Senate in February. On March, the Rhode Island House and Senate Finance Committees conducted hearings on the proposed legislation. Immediately after those hearings, Rhode Island suspended legislative activity due to the COVID-nineteen crisis. The Rhode Island legislature has resumed some level of activity while being careful about the health and safety of everyone involved. We remain hopeful that the legislature will address this legislation during this session, but we cannot make any prediction about whether that will occur.

In the event it does, we remain committed to proceeding with the expansion of Twin River in Lincoln as soon as we can complete the design and receive all necessary permits and approvals. Our expectation is that all material provisions are as previously described, although the date that Twin River is able to assume management of a portion of the VLTs on the floor may be delayed from July one of this year until on or before October 1 given the current circumstances. There should be no impact however on the timing of the joint venture with IGT, which we expect will remain as 01/01/2022. We will provide a further update on all of this as it develops. I'll now return it

Speaker 5

to you, George. Thank you.

Speaker 2

Well, thank you, Mark. So this concludes the prepared remarks section of the call. And I will now ask the operator to open it up to your questions.

Speaker 0

Thank you. Our first question today comes from Barry Jonas from SunTrust. Please go ahead.

Speaker 6

Hey, guys. Good morning. So just to start, we've seen some really encouraging anecdotes from the first few tribal reopening so far that really point to pent up demand. Is it too early to think that could be the case at your properties? And with that, how should we think about the potential reduced gaming supplies impact to revenues?

Speaker 2

Hey, Larry, this is George. So yes, we've been encouraged by the results of the first six tribal casinos that have opened. You know, certainly appears to be some pent up demand there. Now they've been operating at 50% capacity. Indications that we're getting from our regulators as it relates to Mississippi should be around 50%.

And from Rhode Island, although we have about 40% of our gaming positions that will be able to be utilized. Effectively equates to about 65% of the positions that are utilized at any peak period of time. So we feel comfortable about that. So we think there's going to be some pent up demand. We think the openings will be limited from an amenity perspective.

So you'll be getting more of a pure gamer that comes to the facility. I've been obviously reading up a lot on everything that's been occurring, and it appears like a gamer is a risk taker, and that bodes well for us and certainly makes sense. So it's to be seen what happens, but we're prepared for all scenarios. We can certainly go in any level of detail from our phasing perspective as it relates to that. But we're encouraged by the initial results and we feel because we're in a regional market, we'll have an upper hand as opposed to being in a resort or an area that requires any airlift transportation.

Speaker 6

Great. That's really helpful. And then, look, the Northeast saw somewhat aggressive promotional environment before coronavirus started. How do you think the environment will be upon reopening in the Northeast and I guess across all your properties from a promotional perspective?

Speaker 2

So listen, we instituted a communication plan immediately after closing that focused on all our customers with special attention to our top 20%. Effectively, they're responsible for about 80% of our business, depending on the property. So we've been continuing to communicate via email. We've placed updates on our websites regularly. Player development has been very active in contacting this 20% group for the most part and using all normal methods like phone, email, for example, certainly through text.

You know, we feel encouraged that, you know, they've been very responsive to our outreach communication and we feel that they're going to be kind of excited about returning and we've provided all levels of scenarios for communicating mail either traditionally or electronically. So we're going to be opening in phases in Rhode Island, Delaware initially. I talked about that on the last question. So we're cautious about the levels of staffing initially and we're going to be scheduling staffing the volumes as we experience whatever the reactions from the customers are going to be.

Speaker 6

Sorry, just I guess what I'm getting at is do you think we could somewhat see more aggressive promotional environment out of the gate here that could see an impact to margins? Or is everybody just going to be hyper focused on costs and try

Speaker 0

to avoid

Speaker 2

it's going to be a little bit of a wait and see. I don't think anybody is going come out of the gate aggressively. You know, as it relates to the regulatory bodies, they seem to be very cautious about going aggressively after high promotional activity. They're concerned about getting too much of a response where you're interrupting any of the physical distancing requirements that they have. So we're gonna open a little bit more cautious, which is in line with the fact that they're only allowing us to open at a percentage of capacity, and in some cases not even with restaurants, depending on the jurisdiction.

So we're not gonna be aggressive. We're certainly ready. We have all types of programs that are shelved and ready to go. So we have a variety of approaches and we're gonna react based on the initial responses. So it's a little bit more of a wait and see initially, not to put any additional burden or concern on the departments of health in each of the markets.

Speaker 6

Got it. And then last one for me. How are you thinking about capital allocation once the credit release period ends? Specifically, should we expect the dividend to recommence? Or is maybe the focus potentially more higher ROI, M and A?

Just any color there would be helpful.

Speaker 2

Steve, why don't you take that?

Speaker 3

Yes, sure. Hey, Barry. Good morning. Thanks for the questions this morning. Yes, listen, have endeavored to exercise a balanced approach to capital allocation from day one, particularly as a public company from last year.

We'll continue that going forward. So the split between CapEx and capital return, I. E, buybacks or dividends and M and A cash for that is a balancing act. But the unilateral, the singular concept that we look to move forward is accretive investment. And so if the stock price is X and the M and A opportunity is Y, the CapEx is a Z return, we look at X, Y and Z and make decisions according to accretive opportunity and strategic initiatives.

Not a question that I think we can answer specifically today other than we'll be guided by that kind of analytical exercise for sure.

Speaker 6

Great. Thanks so much guys.

Speaker 3

Thanks, Barry.

Speaker 0

Our next question comes from Brad Boyer from Stifel. Please go ahead.

Speaker 7

Hey guys, thanks for all the color thus far this morning. Very helpful. First question is just around the Bally's acquisition. I know it's a small number on face, but I know it's a market where a lot of folks on this call spend a lot of time over the years. So George, if you could just help provide some additional color around how you're thinking about that deal, not only in the near term, but sort of the longer term as to what that could become for you guys that would that'd be helpful.

Speaker 2

Sure, Brett. How are doing? So listen, as far as the rationale, pre COVID-nineteen, the market was a stabilized $3,000,000,000 market including iGaming. And this acquisition, which we're excited about, certainly allows us entry into what I consider to be a profitable New Jersey iGaming market as well as providing for sportsbook licenses. So the location center, the boardwalk seems very heavy summer traffic.

It's been well maintained. There's really no deferred CapEx. However, as we stated earlier, we'll be implementing a rooms refurbishment program to address some dated rooms over the next several years. But you know, another point about this agreement is about this agreement was that we were able to negotiate with Caesars that they would retain the unfunded liability under the existing multi employer pension plan, You know, with the unions there, Local fifty four has allowed us to enter into a new adjusted pension plan. There's a couple other facilities in the market that also are under this new adjusted pension plan, but that effectively has no historical unfunded balance, so that was a nice concession and that was a direct benefit to us.

So, we feel aside from recapturing lost market share, which was really, it was orchestrated over the last few years by Caesars, really purely to benefit its sister properties. So we feel we can capitalize on the recapture of that based on the way that we aggressively market and we're not afraid to compete. Also there's 80,000 square feet of convention and meeting space in that facility and that's effectively one of the largest in AC. So that allows us some future opportunity to get some food traffic or into the facility. So, it's historically, it's LTM is somewhere in the $12,000,000 EBITDA rate.

Well, we think that there's an opportunity to probably move that almost up to 100% gain over the next three years.

Speaker 7

That's helpful. And with respect to Montblu, it's obviously a smaller asset. I think there's some chatter in the market that potential expansion opportunities around that asset. I guess, can you provide us some additional color around your rationale to acquire that asset given its size and sort of how it fits into the portfolio and any thoughts around, again, sort of long term opportunities there?

Speaker 2

Sure, Brett. So this is a beautiful property. It recently went through a $25,000,000 renovation. We feel we can establish the property which would be beneficial to us as a destination property for a customer base, you know, who we can cross market to. And this provides considerable incentive for, you know, we consider to be our most loyal customers.

And, you know, other than Biloxi, we really didn't have an opportunity to do that. So we think that will be a direct benefit to our database. So we see opportunity again in capturing not only lost market share but local market share. Recently there was an announcement of one of the five facilities that's in Tahoe that closed and it effectively serviced the local market. I think we were the second marketer to the local market behind this facility.

So again, there's some potential upside there. That's not going to be open post COVID-nineteen. And we also feel we're a direct beneficiary of the recent city approved convention center that is literally built on the perimeter of our site. So, you know, we're gonna see if that comes to fruition. If it does, we think that there's some opportunities to do some project CapEx that would be complementary to that.

Speaker 7

Okay. And then lastly, just kind of a bigger picture question around sort of some of the fallout from COVID. Yourselves and others have talked about how the shutdown has allowed you to really hone in on the operation and find some inefficiencies within the business, potentially offset any incremental costs related directly to enhanced sanitation, what have you. Can you provide us any additional color or granularity around any of these efficiencies that you've uncovered thus far? I think that would be helpful.

Thanks.

Speaker 2

Yes. So anytime you have something like this that you take and time on your hands effectively from an operational perspective, you have an opportunity to kind of go back and look at how you ran things versus how you would have to run things in a crisis. So, there's really there's going to be some initial costs certainly more initial costs associated with sanitizing throughout the facility as well as other product that's going to be required, like for example, face masks and potentially gloves. There's some other physical barriers that need to be constructed. So you put those costs aside subsequent to the COVID nineteen crisis once they find whether it's a therapeutic or a vaccine.

Then we then you get into the of how you see you ran your operation, and a lot of that does evolve around levels of staffing that you're providing based on the volume. So there's certainly some opportunities there as you find out you can run a little bit more efficiently. I think in our case, we've always run a very efficient operation. So, a variable perspective, there will be some. I don't know if we could overstate the amount of that.

We'll certainly learn more as we go through the phasing process. But we do find from a fixed perspective, there is opportunity as well. So we think overall there's going be a benefit to margin as a result of this unfortunate exercise.

Speaker 7

Thanks guys. Very helpful.

Speaker 0

Our next question comes from John DeCree from Union Gaming. Please go ahead.

Speaker 8

Good morning, everybody. Thanks for taking my questions. Two for me, one on the acquisitions and then one housekeeping item for Steve on the liquidity. I guess first as it relates to Shreveport and Montblu, obviously the valuation you guys had was quite attractive given the environment, but these assets were for sale a couple months ago. Curious if you had a look at demand and then kind of what other than the kind of valuation, what different lens did you kind of see these buildings this time around relative to last time if you did take a look last time?

Speaker 2

Yeah. So we did take a look. Aside from the fact that the properties, in our opinion, each brought something unique to our portfolio, These were opportunities that were presented to us at different times in 2019, so we were familiar with them. We had an opportunity to do a fair amount of due diligence at the time. We did pass on them due to price at the time, more specifically, El Dorado and Shreveport.

So they were already on our radar. When the when the opportunity arose again, we negotiated a good price and and we felt comfortable with the the opportunity.

Speaker 8

Got it. Okay. And then maybe for Steve, just wanted to clarify your comments about liquidity and cash need from your prepared remarks. I think I heard the cash need would be about $3,000,000 a month. And I think that was if you had to take additional mitigation measures.

So clarify that. And then if so, what's if you could give us some color as to what the kind of cash need is before you take any additional mitigation measures?

Speaker 3

Yes, John. Know, harkening back to the original press release we made about liquidity in light of the COVID mandated shutdown of all of our properties, we had mentioned we had intended to adopt kind of a phase one, phase two approach. And phase one, which frankly, we're still in to we're we're we're still in today kind of a modified version of that, was focused on, on two things, maintaining a posture for reopening, quickly and efficiently in in in the event that that would happen in the near term. And that that's as as Mark as as Mark commented, that certainly seems to be the case. But if that were not to be the case, then phase two, we would we would flip to, which was a essentially, kind of a call call it lock lockdown or or or mothball type of of of mode where we would eliminate, I should say, furlough any any and all employees not otherwise necessary to maintain the properties or maintain our our corporate footprint and and and presence.

And so that would be a a very kind of draconian scenario. We'd we'd have, you know, maybe a maybe a a a handful of employees per property, including just just a couple of of of salaried staff and and facilities, security surveillance, just bare minimums per property. And in corporate, we'd we'd cut way, way back and would maintain, you know, our reporting requirements and overall kind of strategic initiative staff and the like. But it'd be the bare minimum strategy. And that's the basis that second phase, that Phase two is the basis on which we could pair our OpEx back to 3,000,000.

Bear in mind, John, that's that's OpEx. So that's that's property and corporate month on a on a monthly basis. But, you know, debt service cost and some of the lumpy stuff is in addition to that. So, you know, property tax payments, you know, and insurance payments are kinda lumpy and then and then separate from that. So there there are two buckets of cost, and the 3,000,000 is is the monthly OpEx.

But to your question, so we're running at circa 15,000,000 today on that OpEx number and we could take that down by more than half to $3,000,000 if we needed to. And that was the basis for my comments. When you take that number and if you were to average out the other lumpy cost debt service and then the others I mentioned that we have even in even in the context of of of funding for cash, five acquisitions over the next six to nine months, that we'd have in excess of eighteen months of liquidity in this environment in a Phase two lockdown type of mode.

Speaker 8

Great. That answers my question, Steve. Thanks for the additional clarity and good luck on a quick and safe reopening of the properties. Thanks, George.

Speaker 3

You, John. Thank you very much.

Speaker 0

Our next question comes from Lance Vitanza from Cowen. Please go ahead.

Speaker 5

Hi, guys. Thanks for taking the questions and congratulations on all of the announced M and A. I actually I guess I wanted to sort of ask two questions. The first is with respect to profitability levels and margins and so forth as the casinos begin to reopen. And then I had another question about the Valleys acquisition in particular.

But with respect to the first question, at 50% capacity, let's just say, can you turn an operating profit? Can you service your debt? Is there a sort of a breakeven percentage that you need to kind of have going through the casinos to either achieve operating profit or to be free cash flow positive? And just how more generally, how do you see this recovery playing out versus what you saw coming out of the Great Recession? I mean, gather it's going to be different, but in what ways do you think it will be better or worse for operators like Twin River?

Speaker 2

So I'll take a piece of this, Steve, if you want to add on to the first part of the question and then we can get into the second part of the question. In the first part of the question, we think somewhere in the 55% to 60% of historical revenues gets us to breakeven with all debt service included. This is pre pro form a of the new assets, but based on our existing operations and existing levels of debt. And to give you an example of, you asked a question about profitability, if we use Twin River for example, if we get to 50% of historical revenues, we'd be doing close to $3,000,000 in EBITDA as a result of that. Super helpful.

I think your second question was?

Speaker 5

Well, you see any major differences in terms of how this recovery plays out? As gamblers returned into casinos, does this I mean, is there any kind of thought as to who would come back first and what sort of impact that may have on your ability to get back to profitability?

Speaker 3

George, I'll take a swipe and then you can add in as well. You know you know, Lance, I think the fundamental difference is, you know, maybe. I I I don't wanna say this with too much pretend like there's there's too much definition to this, but the, you know, the the state of the state of the consumer is is probably the biggest difference that I think we see from the o eight financial crisis to today. But what I mean is, you know, back then in in the o eight, o nine context, the consumer was was, you know, the the consumer was really beat up. Unemployment was was was very high.

Discretionary income was was the reciprocal of of that, obviously. And we've come off a strong bull market, and we're in a serious trough that we all kind of could look around and knew was gonna take years to dig out of. This one we think could be very different from that. Not in the sense that we're just kind of gallantly declaring a V shaped recovery and everything is going be great, but rather that with the governmental support of small businesses and furloughed or unemployed workers, there's been a tremendous amount of liquidity provided to the system. And, you know, we're we're still in the context of a of a of pre COVID bull market.

It was it was raging pretty pretty well at that time. So we think a combination of the potential for kind of a U shaped recovery, the overall American spirit to kind of break out of our shelter in place shackles, if you will, and begin anew to get out and rebuild together with the massive amount of liquidity provided by the various federal agencies. We think this could be different. Some of the initial results that George touched on earlier about casino reopenings we think are perhaps evidence that that may be the case for us.

Speaker 5

Thank you. I

Speaker 2

could add one more point to that. Kind of echoes what Steve is saying. If you recall, the regional markets after the recession, they bounced back pretty quickly. Obviously, were declines in 02/2008 and 02/2009, but by 2010 they were at pre recession levels and and grew from there. We also we think that an encourage an encouraging point to us, which I think I mentioned earlier, is that our properties are in markets where the customer is a local market.

So we're really a regional operator at this point. So our customer comes within twenty or thirty minutes distance from a drive time perspective. Certainly no airlift required to get to our properties, and we don't rely on convention and meeting business as well. So we have an opportunity to really to attract more of the pure gamer.

Speaker 5

Thank you. And then just lastly for me, just on the Valleys acquisition and I appreciate the comment about none of these acquisitions having deferred CapEx needs. But I would think that Caesars never put a lot of money or recently hasn't put much money in that property. I would think there'd be an opportunity should you want to avail yourself of it to put some money into that property whether it's upgrading or updating rather or what have you. Do you but it doesn't sound like that's sort of on the agenda, at least on the near term.

Am I getting that right? I'm just wondering. And then more broadly, what are you seeing here that Caesars Eldorado didn't see? What makes you think you can run the property more effectively? Or was this just simply an opportunistic situation where those guys had to sell the property to get their deal closed?

Speaker 2

So I made the point that we have a

Speaker 4

lot

Speaker 2

of Atlantic City market gaming experience within the ranks of our company. Certainly was there. I ran resorts even though I'm dating myself in the early two thousands. So there certainly is potential there. The location was very appealing to us.

We're excited about that. But, you know, we also took into consideration the fact that we get a sports book license and we also have an opportunity to get into iGaming. It will be the first market our company is involved in outside of Delaware and Delaware is really not set up appropriately. So Atlantic City is a much better model for iGaming. So we're excited about that.

I had mentioned that we would be putting money into the refurbishment of 700 rooms. There's a little over 1,200 rooms there, 700 of them are a little dated. So we'll go back in and do a refurbishment on that over the next few years. We will absolutely be looking to introduce brands to that market. We've done that quite successfully in Hard Rock.

We're on our way to doing it in Delaware. So we've done that in other markets and we see opportunity and potential there. They have a great location in front of Valleys which is a summer summer bar, beach bar area. I think it's the most profitable in Atlantic City. We have an opportunity to capitalize on that.

One of the biggest areas is in the convention business where they have 80,000 square feet. It's one of the largest in Atlantic City. And also it's actually larger than Caesars. And what they've been doing over the last several years is moving a lot of the business to the sister properties which are primarily Caesars and Harris. So they've lost some market share that we feel we have the ability to recapture.

So there could be some CapEx going into the convention side of the business, but we'll need more time to evaluate that. The other thing that's interesting is, you know, Eldorado is a, they're not secretive about it. They are an operation that goes in and looks for efficiencies, do that quite well. But what they do is they do sacrifice market share as a result of that. So, you know, we're not afraid to compete in competitive markets.

We think that we're more aggressive in a more profitable way. We're targeted profitable way than other operators. So we think that's an opportunity that market share has been taken away because we do acquire this asset with the existing database. So that's very helpful that we'll be able to market to. So, we'll be looking to introduce brands which we think could be accretive to the property and also we'll be looking to reintroduce customers that haven't been there.

Speaker 5

Thanks guys.

Speaker 4

Thank you Lance.

Speaker 0

This concludes the Q and A portion of our call. And I would like to turn it back to George Kupanian for final comments.

Speaker 2

Well, I want to thank you, operator, and I want to thank you all for joining our call today. Thank you.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.