Caesars Entertainment, Inc. (CZR) Q4 2012 Earnings Report, Transcript and Summary

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Caesars Entertainment Fourth Quarter 2012 Earnings Call. [Operator Instructions] Thank you. I will now turn the call over to Eric Hession. You may begin your conference.

Thank you, Mike. Good afternoon, and welcome to Caesars Entertainment Fourth Quarter Results Conference Call. Joining me today are Gary Loveman, our Chief Executive Officer; and Donald Colvin, our Chief Financial Officer. Following our prepared remarks, we will turn the call over to your questions. A copy of our press release, today's prepared remarks and a replay of this conference call will be available in the Investor Relations section of our website at caesars.com. Before I turn the call over to Gary, I would like to call your attention to the following information. The Safe Harbor disclaimer in our public documents covers this call and the simultaneous live webcast at caesars.com. The forward-looking statements made during this conference call reflect the opinion of management as of the date of this call. There are risks and uncertainties with such statements, which are detailed in our filings with the SEC. Please be advised that developments subsequent to this call are likely to cause these statements to become outdated with the passage of time. We do not intend, however, to update the information provided today prior to our next quarterly conference call. Further, today we are reporting on fourth quarter and full year 2012 results. These results are not necessarily indicative of results of future periods. Also, please note that prior to this call, we furnished a Form 8-K of this afternoon's press release to the SEC. Property EBITDA and adjusted EBITDA are non-GAAP financial measures. Reconciliations of net income and loss to property EBITDA and net income and loss to adjusted EBITDA can be found in the table of our press release. This call, the website and its replay are the properties of Caesars. It's not for rebroadcast or use by any other party without a prior written consent of Caesars. If you do not agree with these terms, please disconnect now. And by remaining on the line, you agree to be bound by these terms. I would now like to turn the call over to our CEO, Gary Loveman.

Thank you, Eric, and thanks to all of you for joining us on the call this afternoon. During 2012, we made significant progress on the implementation of our strategy to increase shareholder value and improve our financial flexibility. We executed this strategy against a backdrop of ongoing uncertainty in the macroeconomic picture in this country and consumer weakness in the U.S. economy that negatively affected discretionary consumer spending and, ultimately, our gaming results. We benefited from increased customer spending per trip, further growth in our social and mobile games businesses, the addition of management fee income for Horseshoe Cleveland and our continued leadership in nearly every domestic market in which we operate. These top new developments, however, were offset by particularly negative results in Atlantic City, driven by the impact of Hurricane Sandy, as well as lower visitation in several of our regional markets. Our advances in 2012 provide the foundation for future value creation as we transition to the realization phase of our growth strategy. In 2013, we plan to continue to advance our efforts to create value in 3 key areas: First, reinvigorating and expanding the core of our network; second, expanding distribution domestically in via our social and mobile games businesses; and finally, realizing our emerging opportunities including international expansion and real-money online gaming in the United States. Our efforts to revitalize and expand the core include the increased emphasis on the development of the diversity of hospitality assets, particularly in Vegas where we have more projects underway than any of our peers. We believe there is significant potential to further capitalize on our considerable presence at the 50-yard line in Las Vegas by continuing to enhance these assets. The LINQ is critical to these efforts that it helps our plans to revitalize the center strip area, where our properties are concentrated. The LINQ will not only drive revenue from the Missions to the High Roller observation wheel and leasing revenue, but also from the millions of visitors experience -- that this experience will draw to our neighboring property. We also plan to upgrade in Vegas, which we expect to result in increases in ADR. At the LINQ site nearly all of the field for the retail, dining, entertainment corner is in place and the High Roller is getting tall. More than 80% of the leasable space has been committed and were on track to open at the end of this year. The High Roller will open in the first half of this year. I refer you to the Investor Relations section of caesars.com for a series on photos on the current state of the LINQ construction, as well as our other projects. Earlier this month, the Nobu Tower and Restaurant opened outstanding feedback. We anticipate the global appeal the Nobu brand will draw both gaming and hospitality customers from around the world. The world's first Nobu Hotel represents the continuation and the enhancement of Caesars Palace that began last year with the opening of the Octavius Tower and other upgrades throughout the property. Additionally, on the 4th of February, we closed Bill's Gamblin' Hall & Saloon to begin its conversion to what will be a boutique lifestyle hotel, including a day club, a rooftop pool and a nightclub that will be managed by Richard Drake and his management group. We expect the property will reopen at the end of the year. Finally, we're making significant investments in improving our marketing, loyalty and analytics capabilities, all subjects near and dear to my heart. In late January, we launched the new caesars.com flight for our Vegas property. We've introduced new tiers and benefits to the Total Rewards program, and we're making exciting new investments in the collection and analysis of our data. We anticipate these efforts will help us provide better guest experiences and drive improved performance across our gaming and hospitality offerings. Our second key driver of value is our employee [ph] development pipeline. We entered 2013 with one of the most robust pipelines in the industry and in our history -- plus, a growing presence in the social and mobile games business. Since opening in May, Horseshoe Cleveland has attracted more than 3.6 million guests and 400,000 new total rewards members. We opened 2 new additional properties in Ohio early this year. Horseshoe Cincinnati is scheduled to open next week. And the VLT facility at Suffolk Downs racetrack is anticipated to open this spring. In Baltimore, we began work at the site of our planned Horseshoe property and expect to begin vertical construction in April. We plan to open in the middle of next year. Looking further out, we're pursuing a promising opportunity in Massachusetts. Each of these projects employ our capital-like development model, in which we engage partners with worldwide expertise in traveling [ph]. By partnering on these projects were able to produce outside returns on our capital investments and participate in important network-enhancing opportunities through a greater agreement we could or would on on our own. Our social and mobile games platform is also an important value driver within our employees' development pipeline. We're pursuing continued growth in this space as evidenced by our recent acquisition of Buffalo Studios and its leading Bingo Blitz game, which we finish at the end of this last year. With the addition of Bingo Blitz to our portfolio, we now offer 2 of the highest grossing casino themed games on the Facebook, IOS, Android platforms. Slotomania has been downloaded 85 million times. Our social and mobile games platform provides a vehicle for us to extend our brand into all the jurisdiction. Finally, the potential to expand our business internationally, as well as the availability of real-money online gaming in the United States present significant opportunities to increase earnings and create value for our shareholders. These pursuits are important priorities and we're encouraged by the progress recently on both fronts. Taking them in turn, we're excited to have submitted our application for pre-approval to development and integrated resort and the Incheon region of Korea. Your partnership with the Lippo group in Indonesia. We anticipated initial feedback on our applications from the government ministries there in the near term. In addition, we continue to monitor develop across Asia and are evaluating other opportunities in the region. Mobile online gaming in the U.S. presents a significant opportunity for us to create value and we're pursuing it's legalization at both the federal and state level. In New Jersey, state legalization received a blitz earlier this month with Gov. Christie expressed his support the legalization of online gaming in his state. We're optimistic that the legislature will adopt the government's recommendations and that he will sign the amended bill imminently. In Nevada, we received interacting -- an interactive gaming operator license from the NGC, a key conceptual lunching of real-money online poker in our state. We expect to begin offering online real-money poker in Nevada in the coming months. We believe successful implementation of Nevada will serve as a test case and enhance our competitive position in other states when NFA allows legislation to pass for online gaming. During 2012, with the help of Mr. Hession, we took many steps to improve our capital structure and financial flexibility. In December, we issued $750 million of senior secured notes, followed by an additional $1.5 billion earlier this month. Both of these proceeds will be used to refinance existing debt. So, Colvin, our new CFO will provide more details on these transactions in a moment. In concert, with $1.5 billion of senior notes we offered, we received consent from our lenders for an amendment for our credit facility, which we expect will give us added flexibility as we continue our efforts to drive equity value. In conjunction with the February debt offering, we disclosed that we have begun pursuing a transaction that would transfer certain assets not encumbered by CEO's credit and to a new entity called Caesars Growth Venture Partners. As we complete this transaction, we believe it will further improve our liquidity and credit profile, enhance our distribution network and provide additional support for potential new ventures. We expect that our sponsors, TPG and Apollo, will participate in this transaction and that other shareholders would have the opportunity to participate on the same terms. As a reminder, there are no commitments with respect to any such transactions. There have been no agreements on price or value and the transfer of assets would require the approval of regulators and other third parties. Therefore, I cannot assure you that any such transaction will be entered into or consummated. In a moment now, I'll turn the call over to Donald Colvin who joined us in November as CFO. For those of you who do not have the opportunity to speak with Donald, you're in for a treat in the next few minutes, as you attempt to understand him through his Scottish accent. references the side. I'm quite confident, you'll find him to be insightful, witty and on top of our company's financial services, Donald?

Thank you, Gary, for those kind words of introduction on future goals, we will range at simultaneous fluctuation. We reported fourth quarter net revenue of $2 billion, down 4.3% from the year-ago period. Adjusted EBITDA declined 9.8% to $420.1 million compared to $466 million in the year-earlier period. The company reported an operating loss of $343.6 million in the fourth quarter compared with income from operations of $198.8 million in the prior year period. We recorded a net loss of $469.7 million in the fourth quarter compared with a net loss of $220.6 million a year ago. Diluted loss per share for the quarter was $3.75. These results were impacted by tangible and intangible noncash impairment charges, which totaled $448.2 million. System-wide rated customer gaming trips in the fourth quarter were down 10.9% from the prior year. Our rated spend per trip was up 6.2%. Hotel occupancy declined 2.5% each point to 84% and cash ADR was down 6%. System-wide hotel revenues were down 4.5% compared with the prior year period, we're approximately $22.4 billion face value of net debt at year-end, including $1.8 billion of cash, not including restricted cash. This net debt figure includes the $750 million of debt issued during the quarter. However, since the funds were held in escrow until February, cash proceeds from the transaction were represented as restricted cash and are not included in this figure. CEOC and CMTS cash balances were $1.5 billion and $126.7 million, respectively, at year-end. Restricted cash was $1.2 billion, which included $750 million of escrow proceeds related to the December bond offering and approximately $350 million of these proceeds paid down B1 to B3 term loans in February. As Gary mentioned, we also weighted $1.5 billion of 2020 first-lien notes since early February. The proceeds of the issuance will be used to repay a portion of CEOC's existing term loans apart, then with a Term Loan B1, B2 and B3 process and a portion of term loan B5 and B6 process upon completion of the transaction. All of this, of course, is subject to regulatory approvals. This issuance provides us with greater financial flexibility including reducing our 2/3 in the 15 first-lien debt by approximately $675 million. Las Vegas. In Las Vegas net revenues decreased 3.2% for the quarter. A higher casino revenues driven by strength in international high-end segment but offset by lower other revenues and continued impact of Linq-related construction activity, which affected net revenues by an estimated $10 million to $15 million during the quarter. Property EBITDA declined by $7.7 million or 3.4% as a result of the decline in revenues and higher property operating expenses. Impact of wind construction activities reduced Property EBITDA by an estimated $5 million to $10 million during the quarter. We were encouraged by an 11.1% increase in spend per trip, which was offset by a 3% decline in trips. In the deep IP segment, we were pleased to see improvements in both trips and spend per trips. For the quarter, total hotel revenues were stable and cash ADR declined 4.5%. Atlantic City Region. Our results in Atlantic City was negatively impacted by Hurricane Sandy, which forced the closure of our properties in Atlantic City of 5 days and the closure of a property in Philadelphia for 2 days. Additionally, the region results were challenged by continued competitive pressure. Fourth quarter net revenue declined 19.2% year-over-year to $335.1 million with Hurricane Sandy having an estimated impact of approximately $40 million to $45 million to revenue. Fourth quarter Property EBITDA in Atlantic City was $28.8 million, a 24% decline from prior year period. We estimated that Hurricane Sandy reduced property EBITDA by $35 million to $40 million. The slow recovery from the storm resulted in significant declines in trips to the region during the quarter, larger weighted trips fell 23.4% with a 0.5% increase in spend per trip, while non-larger weighted trips were down 22% with relatively flat spend per trip year-over-year. In all other regions which encompass domestically wholly-owned properties outside of Las Vegas and Atlantic City, rated trips during the fourth quarter decreased 6.2%, partially offset by a 4.1% increase in spend per trip. Note that Harrah's St. Louis is classified as a discontinued operation due to its sale and its results are not included in these metrics. Louisiana Mississippi region. In the Louisiana Mississippi region, net revenues were relatively flat despite increased competitive pressure from new properties in Biloxi and Baton Rouge. Property EBITDA was up 15.2% primarily due to a decrease in property operating expenses. Ohio, Missouri region. In Ohio, Missouri region, net revenues decreased 4.6% as new competition in the region went to a decline in visitation, offset somewhat by an increased spend per trip. Property EBITDA increased 9.6% as our cost savings efforts more than offset the decline in revenues. Please keep in mind that these results do not include Harrah's St. Louis due into its sale. Illinois, Indiana region. In the Illinois/Indiana region, net revenues decreased 2.2%. This was mainly due to the benefits of business interruption insurance proceeds received in the comparable prior year period, which did not repeat this year. An increase compared to pressure in the region. Property EBITDA was relatively unchanged, as well as operating expenses offset the decline in revenues. Lower Nevada Properties. I would say that Las Vegas saw a net revenues increased 5.6% primarily due to higher casino revenue at the company's Lake Tahoe properties. Property EBITDA increased 119.8% due to higher revenues and decreased property operating expenses. Managed, international and other. Net revenue increased 9.3% driven by the management fees from Horseshoe Cleveland, which opened in May 2012, and continued solid performance in our online business. We expect additional revenue growth in this segment with the upcoming openings of Horseshoe Cincinnati and Thistle Down in the first half of this year. We expect capital expenditures in 2013 to be approximately $1.15 billion to $1.25 billion, which includes approximately $300 million of spend associated with project LINQ, the Bill's conversion, Horseshoe Baltimore and other development funded group project finances. I would like to close my remarks by reflecting on my first 3 months at Caesars. I spent my days and nights immersing myself in everything Caesars and I am impressed by the hard-working team, the very attractive concentration of our properties at the center of the Vegas strip in the well-developed capabilities within Caesars' Interactive Entertainment. These strengths should yield improved operating performance as a result of our investment in Vegas and eventual legalization of real-money gaming -- online gaming. In 2013, I will be focused on further improvements to our balance sheet that will give us the flexibility to continue to execute on the ambitious enhancement and expansion plans Gary had detailed. We will continue to seek to improve efficiency and decrease costs throughout the business. With that, I will hand it back to Gary for his final remarks.

Thank you, Donald, and certainly, for all of you. The melodic portion of our call is well concluded, you're back to me. Since the financial crisis, we've operated in an extremely challenging environment. The recovery for the entire economy and, particularly, the gaming industry has been protracted, slow and difficult. Despite these challenges, we've acted aggressively at Caesars' to improve our performance and position our business to operate in a range of circumstances. We move, first, to reorganize our company centralizing many key functions resulting in improved efficiency and better service with lower costs. More recently, we've taken steps to improve the core and reach of our distribution network through expansion into Asia and expansion of our brands online. Finally, I'd say now as a long time student of macro economics, over the last several years, I've been relativity on fear with respect to my forecast for U.S. economic growth. And while the gaming market certainly remains tempered early this year, I do see several meaningful, encouraging signs and more rapid growth ahead of this country in 2014, especially with respect to the improving U.S. housing markets. Whether and when these improvements turn into more prosperous gaming markets, of course, remain to be seen. But it's good to see some signals of a more robust recovery ahead of us. With that, ladies and gentlemen, we'll take your questions.

[Operator Instructions] Your first question comes from the line of Shaun Kelley from Bank of America.

I just want to start, Gary, probably by asking you to just give us your sense of kind of what's going on with Atlantic City in terms of the online gaming opportunity there? Obviously, I think it's a very substantial development that happened earlier this month. And what I'm really trying to get my arms around is, I think a lot of investors are asking us how do we start to market size that opportunity and how you think about kind of what that can mean for Caesars in terms of market share? So any color on that would be really helpful.

I'd be happy to, Shaun. Thanks for the question. A part of what I'm going to say is purely speculative. So take it for what it's worth. But with the World Series of Poker, the Caesars brand and the quality of the offerings we already have online around the world, I like our chances for market share and I would certainly be disappointed if they did not compare favorably to the market share that we hold in Atlantic City overall, recognizing that the existing offline licensees will be the ones permitted to participate in this market. The size of the market, as you know, will depend critically on what types of interstate relationships New Jersey is able to strike. For example, should Gov. Sandoval and Gov. Christie choose to collaborate. So the Nevadans and New Jersey-ans will be able to play in the same games, that will be a big step in the direction. And if Little Delaware would add itself to that list, that wouldn't be a bad thing either. So you can imagine that, logistically, our New Jersey would be playing in games offered only by those that are operating in New Jersey but there might be people sitting at the table of these games that come from other places like Nevada, potentially even internationally. So we can't frame the size of the market entirely yet, but I think looking at the normal parameters for the penetration rate of online gaming across all game categories, if I remember, not just poker, in New Jersey, you can see that it's quite a meaningful market for us and we think it would be quite profitable.

That's helpful. Could you just walk us through kind of what you think a timeline could look like in terms of, obviously, there's still -- there's going to be a decent amount of regulatory that has to be assigned here. You guys are going to have to build out servers, et cetera. So I mean, how long, kind of end-to-end, do you expect a legal challenge, I guess, I should ask? And then do you kind of how long, end-to-end, until this is actually up and running in New Jersey.

Well, again, let me give you the usual cowards preference that this is completely speculative on my part. I don't know any legal challenges, but it certainly wouldn't surprise me if there were some. I would hope that the New Jersey regulators will take a look at what Nevada has already done since a lot of great work has been done by the Nevada authorities to get ready for online gaming in Nevada. With a little luck, perhaps that takes a year, for the regulations to be in place and suitability to be established given that applicants would all be existing offline operators. And then one could imagine that you'd be up and running within several months of that. So I would say, at the more optimistic end of the range, maybe 18 months -- somewhere between 18 months and 2 years following the governor's filing of this piece of legislation.

That's very helpful. And then maybe switching gears, just in terms of the core business fundamentals, obviously -- and you guys gave some good color around the metrics that you're seeing across some of the regions but we saw a pretty big slowdown in the fourth quarter in terms of, I guess, gaming consumption trends, it felt like. Any color you can shine upon in terms of why the trip volume just started to fall off so significantly in the regional markets? I mean you guys analyze probably more data than just about anyone else. So any sense of just digging into that pretty good, I guess, it seems like it's trip more than spend. Why that trip volume has fallen off? And any signs of life you guys have seen on that, in the beginning of the year, would be really helpful?

Well, Shaun, you know as a listener to these calls for some time, I believe that gaming activity has a lot to do with people's individual access to liquidity, to a far greater degree than things like stock market index value and the like, and I think the circumstances that face the country, particularly after the first half of the year would be imposition of a higher payroll tax and the latter half of '12, continued pressure on fuel prices and the likely arrival of higher tax rates in '13 led people to shift a little bit out gaming trips. What we've observed, and you heard Donald spoke, is that trip counts are off in many market. Gaming win per trip are either generally stable or slightly improved. Across the gaming world, category VIPs are holding better than lower-level players. So that's broadly consistent with the view that people are seeing some pressure on their liquidity on a monthly basis have chosen to limit how much activity with us they're going to have at least as they adjust through this. I wish I have better formal evidence of that but that's anecdotal of what we see.

Your next question is from the line of David Farber from Crédit Suisse.

I just want to spend some more time on the online gaming piece. Getting a lot of questions and maybe you guys can walk us through what the economics potentially could be given the structure between all the entities. And may maybe more specifically, is it contemplated that the OpCo or PropCo would receive any compensation given the necessity of the land-based licenses? I think there's some obviously questions around that given the CIE and the views and I just want to hear your guys thoughts on how the economics might work between the different structures and then I have a couple of follow-ups.

We're really not in a position to be able to address that yet. You asked a very well conceived question, of course, but we're not in a position where we can take you through how there would be a flow of funds between the entities and who would be compensated for what in the New Jersey case, in particular, where access to the online license depends on the existing offline license. I'll give you a little bit of a shallow answer to that. The parent entity, of course, owns the largest share of each of these entities along the way. So the parent owned, the vast majority of CIE, from what you've read in the materials, you'll see that the parent will also own a significant portion of Caesars' growth venture partners or the Caesars' venture growth partners [indiscernible] So we certainly are not suggesting it's unimportant to know the specifics but there is a line back to the parent that's meaningful.

I think it's also fair to say that any transfer of assets to the venture partners side of entity will be independently evaluated and appraised by an independent investment bank and an independent committee overboard advised by independent legal counsel. So I think that will certainly cover the aspects that you hinted at there, access to property and to the licenses will all be considered for any evaluation transfer.

Okay, that's helpful. So essentially, to the extent that you required of a land-based casino, it's foreseeable that the entity would receive compensation for having that land-based casino. Is that a fair way of putting it?

I think that's something that would have to be considered. I think getting a transference of value from one entity to the other would have to be considered in the process.

Okay. I'll leave it that and come back another time. Can you just remind us what agreements you guys have in place with respect to 888 or any other guys you have working on the online platform? And then if you have any details around what, in fact, the structures and the economics from those agreements, that would be really helpful. And then I have a couple of others.

Well, I'll try to give you a little bit of a flavor of the software licenses for Poker. So we have 2 tracks underway at CIE on Poker platform. The first is the use of the 888 software with minor modification, and we have the right to use that software and introduce it, for example, in Nevada under what we consider to be quite reasonable terms. And I would expect that when we go live in Nevada, you'll see us on the 888 platform. We also, as you recall, acquired the right to use and customize the software platform of Barriere Digital all from France. We think that is a state-of-the-art perform. We have developers working on its modification to suit the World Series of Poker as we speak. So at some point when that modification is complete, we'd anticipate that we might migrate off of the 888 platform and onto the Barriere platform in due time.

Okay, and then 2 more and then I'll head back into the queue. Can you just provide, there's been a lot of transactions in the company over the last 6 months. Can you just provide maybe a pro forma cash balance at both entities or all 3, for that matter, including the parent? And then just maybe a pro forma gross debt balance at par through the first lien deals you guys did?

Mr. Hession is busy working on this. The most popular man on Wall Street will be back to you shortly.

Fair enough. And in the meantime, you guys have put a CapEx number and I had trouble understanding what the breakdown was, is that $1.2 billion, $1.25 billion, can you just repeat what that was?

Sure. I handled that one. So I will go to the scripts and read it again. I think we certainly gave a range for the year of $1.15 billion to $1.25 billion, which includes approximately $300 million of anticipated spend associated with project LINQ, the Bill's conversion, Horseshoe Baltimore and other developments funded through project financing. So I think we're showing here the different splits of the spend, some of which we have financed separately like the LINQ and the Horseshoe at Baltimore. So a range of $1.15 billion to $1.25 billion.

Yes, David. Just to add a little bit more color to it. The reason we provided the breakdown was so that you could understand the amount of capital we plan to spend this year directly from our balance sheet versus that has been ready funded from the project financings that we've put out in place. And so taking the range that Don has provided subtracting this $300 million would give you a range of how much we would spend directly off our balance sheet. And some of that would go to these projects where we put in our equity at the end or buy licenses and so forth. So to answer your other question regarding cash balance, at the end of the quarter, CECs cash balance was $1.757 billion. CEOC had $1.547 billion and CMBS was approximately $127 billion. And then your other question regarding the pro forma capitalization, was it specifically with respect to cash or was it specific tranche or...

Given time, I figured there's maybe gross debt and then tax would just be simple and I can always follow-through on the different tranches.

Sure. So pro forma, we would have $2.3 billion of cash and then the gross debt would be 23.968.

The next question is from the line of Susan Berliner from JPMorgan. Susan Berliner - JP Morgan Chase & Co, Research Division: First question, I just want a clarification on the CapEx. The Baltimore, I assume, is included in that. Is that the equity portion? It wouldn't it include, if you got project financing, in addition to that?

Yes. For that one to be included both -- there would be equity, as well as some debt financing that we spent on it. For the projects that we would anticipate that we'd consolidate, we included both, say, project spend and the equity. For those that we wouldn't anticipate to consolidate, we just included the equity portion. Susan Berliner - JP Morgan Chase & Co, Research Division: So, for example, if you're going to raise some project finance debt on Baltimore, would it be included in that range or not?

Yes. Susan Berliner - JP Morgan Chase & Co, Research Division: Okay. And then I just want to go back to Las Vegas. And I guess I was hoping for the disruption that you saw on Las Vegas because of the LINQ construction. What amount was -- was it more focused towards certain PropCo properties versus OpCo? If you could give any breakdown?

It's really experienced very largely by The Quad, formerly Imperial Palace, where because of the extensive amount of renovation that was drawn in the change to the flow of traffic around the building, it was a tough place for the last several months. Susan Berliner - JP Morgan Chase & Co, Research Division: Okay. And then my last question was, there was an article talking about you guys doing resort fees, which seems to be a change in charging. I was wondering if you could provide any information on that with regards to that would you would estimate would be EBITDA in addition?

Well, we did make a change of strategy with respect to resort fees. You recall prior versions of this call, you would hear me argue that we thought it was consistent with our position do not charge resort fees. We've observed the behavior of everyone else in the market now since they were implemented some time ago, and broadly in the hospitality world and through our analysis of the effect of these fees versus our performance in the absence of the fees came to the view that it was the appropriate time to begin to introduce them across our properties. I don't think we're in a position to give a forward-looking indicator of what we think they'll generate yet. You'll have to wait for another quarter or 2 and we can report back to what we think the impact has been.

I think it's certainly fair to say, [indiscernible] I've only been here for a few months but I see a lot of positive momentum as we go through this year. The opening of the LINQ, the properties next to the LINQ, which we will lease out, that beneficial impact on our cash flow of any resort fees, the end of the disruption, all these things should give us really good momentum as we go through the year.

Your next question this from the line of James Taylor from Bank of America Merrill Lynch.

I guess just to circle up on the CapEx question one more time. I mean, even backing out LINQ and Bill's, the budget seems significantly higher than in the last few years. I guess, can you give us some color on where you expect it to go? I know the rooms in Las Vegas are a big piece of that but just trying to get some of those components?

Yes. I'll provide you with a little bit more detail and then I'll let Eric and Donald jump in. So you're right to see aggregate amount of capital that we're going to spend next year is higher and we've indicated that for a period of time now. But what I think you'll also see is that the project-related spend for the activities that we've identified in the last, say, year or 2 years are starting to ramp-up and that's where you see a large increase in the amount of CapEx that we're spending. I called out the $300 million of capital that would be spent on those related projects from the debt perspective. Just to provide a little bit more insight, we'll spend approximately, again, just estimated at this point, about $250 million of equity capital on those particular projects. So in total, it'll be right around $550 million or so. So that would put the CapEx that we're spending from the core business, although higher than prior year, not quite as high as you probably were interpreting by subtracting $300 million from the number that was provided.

I got you. That is helpful to clarify. And then in terms of -- is a lot of that going -- or the remaining CapEx, I guess, what percentage or what portion of it do you expect to spend on the rooms in Las Vegas?

I think -- I don't think we brought out [indiscernible] specifically what we're going to spend, I know that we've got 1 project under way, which is renovation of the Bally's Tower. And we are examining our options on what we now call The Quad. And I think it's fair to say that [indiscernible] the rest is of a dispute, whether we're going to go for 1,000 rooms or 2,000 rooms and what we spend per room. But I think the idea is we are excited about the opportunity to what's the ADRs there and what's the F&B revenue the goes with these ADRs. And so with just figuring out what's the best way to address that opportunity while keeping our options as flexible as possible.

That's right. And don't forget that we're redoing Bill Hall together, so that's in the project money that Eric described, the complete renovation of Bill's projects.

And then we opened the Nobu Tower the last few weeks. We now have a few hundred rooms there, which will be included in the numbers too.

Okay, very good. I guess just one more on the capital side. So, Gary, I think in the opening comments, you mentioned that you expect the retail and other portions of LINQ to be opened by the end of the year and it sounds like the High Roller in the first half. If my memory is correct, it's a little later than originally anticipated, I think you guys want to open it all at once. Can you give us an update on the construction and is the budget for LINQ, overall, still the same?

Budget for LINQ overall is the same. The wheel has been slightly more in the RDE, slightly, the retail value entertainment section slightly less. The RDE is right on schedule. The wheel is a little slower than we had hoped due to some early challenges with such a unique piece of engineering. But we're now confident we'll have it up in the second of next year.

Okay, very good. And I guess the last question, not to belabor the point, but any idea when there might be sort of more clarity on CGBP, when we might have a better idea of how this structure looks like and all the various transactions play out.

Not specifically. You heard Donald describe the process that our board, our independent directors are pursuing. But I think stand by until at least when we get together in our next quarterly meeting, I'm sure we'll have -- I would suspect we'll have something more to say about the core.

Your next question is from the line of Chad Beynon from Macquarie.

First off, I wanted to talk about the international spend per visit you highlighted in Vegas. Is that coming mainly from long-time Asian customers that you've seen in the past or do you think there's any positive impact from the easing of visa policies that was put into place during the last 12 months? Any color there would be helpful. And also if you could provide any light on the sense of how the Chinese New Year was for you?

I don't have anything to tell you about Chinese New Year, which just welled down in the last few days but I will say that the effect of the liberalization of the visa process, the work the State Department did on this has been enormously helpful. Having our Chinese visitors both new ones and repeat visitors be able to gain these access in a much less cumbersome fashion has had a huge effect. I think it allowed Chinese tourists, Chinese visitors, to favor the United States over countries that had historically had more straightforward processes for gaming and business. It's been a big help.

Okay. So is this something that we should continue to see in your view, kind of throughout 2013, not only an increase in spend per visit for that International customer but maybe also be some increased visitors?

Well, we're not in the prediction business on all these calls, as you know, so all I can tell you is I think the benefits of people ease of travel to the United States will be sustained. I certainly don't see that going to backwards. So folks that have an interest to come in the United States will be able to do so with much less logistical pain. And I think we should benefit from that over the long haul.

Okay. And secondly, in your prepared remarks, you talked about kinda the pre-RFP timeline in Korea, and you mentioned that you expect feedback shortly. Could you give us a sense of where the new Korean President stands on gaming? And any important milestones or key dates we should out for in that market?

Good question. We submitted our proposal in the last week of January. According to the rules, the Korean government has 60 working days for consideration of our proposal followed by the unilateral right to a 30-day extension. That would carry the process into early May if the extension were to be taken. And I would anticipate that's the neighborhood that would be relevant to all of this. With respect to the President Park, who was just sworn in very recently, her government announced about 100-item list of priorities for her administration. And included in those parties were the stimulation of tourism in Korea and the need for economic growth, not surprisingly. And we have argued that both of these are supported by the investment we're proposing to make with Lippo to build a world-class resort in Inchon. So while I do not believe she has spoken specifically to the gaming sector, with respect to her agenda, we do believe that her agenda is consistent with what we're proposing.

Our next question is from the line of Rich Hightower from ISI Group.

Just a few quick questions on Las Vegas. First, spend per trip was up actually a pretty solid 11% I thought for the quarter, yet margins were flat. Was that just construction displacement driving that number or was there anything else going on in the numbers there?

Well, you saw that revenues were off as a result of declining business and increasing spend per visit. And I think our margins were flat-ish, Eric, over this period, is that reasonable? And that's despite the suffering we have at the LINQ as a result of construction disruption. So you saw that we reported Property EBITDA down 7.7 and we estimate the conflict of the disruption at the LINQ to be in that general neighborhood, $5 million to $10 million, so that was, I think, to some degree, a push.

Okay. So you wouldn't say that it was the construction displacement driving most of that number?

Certainly -- it's consistent with that, yes. I mean there are puts and takes around it, but the 2 numbers generally are consistent.

Okay, that makes sense. And then I think in the press release, you also referred to a sort of mix shift away from higher-rated groups in fourth quarter, which caused ADR to be somewhat soft. I'm just wondering if that was just a one time anomaly during the quarter or if you can comment on how groups have trended since then and maybe any indication in the outlook on '13 and into '14 on that front?

Yes, the group -- if you look at all of our results and our competitors' results in the commercial hotel business broadly, it has not been a great run in the group business since the return -- the fall of the crisis. So if you allow me to go back a minute, very poor group results in 2008 into 2009. And you saw a very rapid snapback of the group business in Las Vegas in '10 and '11. So we saw very substantial improvement over that period, much more so than the commercial hotelier's experience. 2012, flat out a bit and it was less than we all would have hoped, I suspect. And I think '13 is going to be largely the same. I think if you talk to the convention and meeting people in my company and the others in Las Vegas and they would tell you '14 was more encouraging than '13.

Yes, we've heard that from your competitors as well, so it makes sense. Okay, and then finally, have you guys quantified the revenue and EBITDA impact from closing down Bill's for the remainder of the year? I know it's minor but just for modeling purposes.

We have not. But you're right to say that it's modest. The 100 [indiscernible] 200 rooms is a modest-sized casino.

Your next question comes from the line of Peter Dalena from Citigroup.

I was hoping to get an update on 2 developments. First of all on Baltimore, when do you think you might be ground breaking on that new project. I understand there's some legal delays there. And then the other development I was looking for an update on is the Macau land. Any idea of how far along you are with that process and when that could possibly start to play out.

Let me take the second first. The Macau land we have listed for sale, we are in discussions with those who are interested in the land. You know if you stare at the plot for land in Macau, you know that it's the only large contiguous piece of the scale available in that market, so we're having a number of conversations, but I can't put a date for a sale or the receipt of proceeds from that sale before you, I don't know. With respect to Baltimore, we anticipate a groundbreaking there in the next 6 or 8 weeks. There has been a legal challenge raised by citizen group about some environmental issues that Challenge was raised directly with the city and government entities related to environment control not especially with us. I don't know yet whether that will cause us any meaningful delay but we're looking at a groundbreaking sometime in April, I think.

Okay. And then one question with respect back to the online business. Have you disclosed or will you disclose what your margins are on the caesars.com for money business in the U.K.?

No.

I was afraid of that. How about this, is there anything unique about the New Jersey opportunity that would suggest to you that margins would be any worse or better than U.K. away from the gaming taxes?

Yes. The reason there is that the level of competition in U.K. online gaming is costs. There's a lot of players. They're very good. There's international players that are not going to be able to play in New Jersey. So the margins are under tremendous pressure for online gaming in the United Kingdom. Whereas in New Jersey, as we've discussed, the governor's bill limits distance to those that hold offline license into the state. So generally such a structure would suggest we might be able to do a little better on margins.

Okay. And given that Caesars will have, to my understanding, a license for every property in Atlantic City, would it be of any interest to dispose their sell a license or really be holding onto all 4 of this?

I'm not sure how 4 would help us given that the brands that are -- I believe, the brands that will dominate that space are Caesars and World Series of Poker. So it's not clear to me, for example, that some of the other brands have great benefits for the online, but of course, we've held them for all these years for their offline benefit, not their online benefit. So we have to take the total package into consideration.

Your final question comes from the line of Kevin Coyne from Goldman Sachs.

If I could just follow up on the CapEx guidance. If we back off to 550, looks like we're left with the 700 of CapEx for the year. Can we break that down between OpCo and PropCo?

We certainly should be able to, whether we can do that real time is a good test for Mr. Hession.

Yes. It'll be about 75 to 100 for the CMBS properties. But the balance will be CEOC.

And then just related to the room renovations, can you give us a sense as to, let's say, what percentage of the Vegas rooms will be offline on average around any given time?

Well that's a good question. I think that we would like to keep no more than a few hundred offline at any point in time. So take the Bill's, the Bill's rooms are going to offline for the majority of 2013. We'll have rolling renovations at Bally's and as Donald say, potentially at the Quad, but we do not anticipate having rooms offline at Caesars, at Paris, at Planet, not many at Rio this year. So they would be limited to the lower-priced East Side property.

Remember, we have over 20,000 rooms in Vegas. So we're doing a few hundred rooms at a time. As Gary mentioned it, a small amount of product taken offline. But we can't say that -- what has been a bigger nuisance for us has been the destruction caused by the LINQ and then preparing for the conference, we are looking at that today, and certainly that's going to be a big positive if we get that area opened up towards the end of the year.

Okay. And then a few housekeeping. Are you expecting any federal tax refund in the first half of this year? And did you buy back any PropCo debt subsequent to the year-end?

We're not expecting any big federal tax refund in the first half of the year. And no, the purchase that we disclosed where we made, we bought $165 million of the CMBS was the last purchase.

Okay. And then just one final one going back to venture partners. I guess, just thinking about the process as it goes forward, I know you have over $2 billion of cash on hand today. I guess, why the need to monetize that business or interactive now? Like is it better to wait a little longer to get more states approving gaming and then monetize it or -- I was wondering if you could give some thoughts there.

I think the rationale of the following: You've observed over the last 5 years that a fairly heavily levered entity called Caesars has been growing at a time when many people thought we wouldn't, so we've been building Cleveland and Cincinnati and Thisle and Baltimore and hopefully Boston and we've been busy in online and buying things, and the question is our shareholders, when we have considered this, is there are different vehicle that could support growth more efficiently than having the cost of that growth come off Mr. Hession's and Mr. Colvin's balance sheet. And the arrival of the Caesars growth venture partner or venture growth close partner is an effort to do that. And as you've seen in the release, may involve an infusion of money from the sponsors. So I think if you think about that for a moment, you can imagine a new entity that is unencumbered, with respect to debt finance, that would be able to support the activities for the company's growth, could be very attractive feature. I think, operator, that concludes the call now. In the spirit of Donald's participation, I ask everyone to go home tonight and have the haggis and single malt scotch in honor of his arrival. We thank everyone for joining us.

This concludes today's conference call. You may now disconnect.