Caesars Entertainment, Inc. (CZR) Q1 2013 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to today's Caesars Entertainment First Quarter 2013 Earnings Conference Call. My name is Justin and I will be facilitating the audio portion of today's interactive broadcast. [Operator Instructions] I will now turn today's call over the Eric Hession. He's the Senior Vice President of Finance and Treasurer. You may now begin your conference.

Thank you, Justin. Good afternoon and welcome to the Caesars Entertainment First Quarter 2013 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 for 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 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 Please be advised that developments subsequent to this call are likely to cause these statements to become outdated with the passage of time.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 first quarter 2013 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 tables of our press release. This call, the website and its replay are the properties of Caesars. It's not for broadcast or use by any other party without the prior written consent of Caesars. If you do not agree with these terms, please disconnect now. 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, everyone, for joining us today's call. As you've seen, we've been busy recently and I'd like to begin my remarks today with a few comments on the strategic transaction that our board approved and we announced just this past week. The formation of Caesars Growth Partners will benefit the company in many ways, including the creation of a more flexible vehicle to fund growth projects, a cash infusion to Caesars Entertainment Operating Company, Inc. and participation in the future upside of assets transferred to growth partners and future investments through a majority stake Caesars hold in the LLC. The transaction is an important step in our ongoing efforts to strengthen our balance sheet and it positions the company to continue making strategic investments to support our future growth. While I won't take this time to review all the details of the transaction, I'd like to reiterate some of the highlights that we announced last week. Two new entities will be formed as part of the transaction: Caesars Growth Partners, LLC and Caesars Acquisition Company or CAC. Caesars Growth Partners will hold operating assets contributed or sold by Caesars and CAC will be the entity in which the sponsor and other stockholders invest and which will hold the voting interests Growth Partners. Caesars will distribute subscription rights to stockholders on a pro rata basis. I am pleased that our financial sponsors, TPG and Apollo, have indicated their willingness, subject to definitive agreements, to each invest $250 million in Caesars Acquisition Corp. If all subscription rights were exercised in full, CAC would receive approximately $1.2 billion in newly invested cash. Caesars will contribute to Growth Partners its shares and Caesars Interactive Entertainment, approximately $1.1 billion face value of senior notes previously issued by CEOC, in exchange for nonvoting interest in Growth Partners. Growth Partners intends to use proceeds received from CAC to purchase from Caesars the Planet Hollywood Resort & Casino here in Las Vegas, our joint venture interest in Horseshoe Baltimore and a financial stake in the management fee stream associated with both properties. Subsidiaries of Caesars Entertainment Operating Company will continue to manage these properties and the properties, of course, will remain part of the Total Rewards network. After the completion of these transactions, Caesars is expected to own between 57% and 77% of the economic interest of Growth Partners depending on the amount of cash proceeds received by Caesars Acquisitions Corp. Finally, I'd like to note that we will not be answering any questions on this transaction beyond what I have previously disclosed. I'm optimistic that the transaction will further strengthen our ability to fuel growth and create value. We worked hard to establish a solid foundation for value creation in the business and are now transitioning into the realization phase, for many of the projects in our pipeline, with several others on the horizon. These efforts span 3 key areas: first, the reinvigoration and expansion of our core; second, the expansion of our operating network through our in-place domestic development pipeline; and third, the pursuit of longer-term growth opportunities including real-money online gaming, social gaming and international expansion. Our efforts to reinvigorate our core markets, particularly here in Las Vegas, began several years ago and focused heavily on revitalizing our flagship property, Caesars Palace. Significant investments in this property include the expansion of our convention center, the opening of the Octavius Tower and Villas, recently the Nobu Tower and Restaurant and upgrading of fine-dining offerings and other amenities throughout the property. These investments are beginning to yield tangible results. The Nobu Tower and Restaurant, which opened in February, has performed well today with strong ADR and occupancy rates increasing. We expect demand to gain momentum and ADR to improve as awareness develops across our international and domestic customer base. The Bacchanal Buffet, which opened last September, is outpacing our expectations for popularity and performance. The buffet is on pace to generate $40 million of revenue in 2013, nearly 3x as much as the previous buffet. I'm also proud to note that Forbes Travel Guide recognized our Laurel Collection, comprised of the Octavius and Augustus Towers, with its four-star rating. And Restaurant Guy Savoy at Caesars Palace was one of the 28 restaurants in the U.S. to receive the highly acclaimed Forbes five-star restaurant award. Also in line with our efforts to enhance our hospitality offerings, we announced a partnership with Gansevoort Group to re-brand Bill's Gamblin' Hall and Saloon to Gansevoort Las Vegas, when the construction is complete next year, perhaps one of the most striking renamings one can imagine. We are excited to bring this luxury lifestyle brand to Las Vegas. And together we'll create an unparalleled boutique experience at the heart of the strip. Gansevoort Las Vegas will feature Drai's Beach Club and Nightclub, a 65,000 square-foot indoor, outdoor nightclub and rooftop pool experience. With these investments underway, or complete, we have turned our focus to further enhancing our more modest offerings in Las Vegas. These efforts are particularly evident at the Linq and the properties that surround it. The Linq is our single most important development project in Vegas located at the 50-yard line of the strip and the center of our campus of properties. We expect the unique experiences offered by the Linq will attract millions of new visitors and that our surrounding properties would be significant beneficiaries. At the Linq site, construction of the retail and dining corridor as well as the High Roller wheel are progressing well with the supporting arm of the wheel getting taller every week. We expect tenants will begin taking possession of their respective spaces this summer. The High Roller is expected to open in the first half of 2014. We've also made significant progress in renovating the casino and entrance to the Quad and intend to compete that effort by the end of this year. Our recent investments to upgrade and refresh our marketing and analytics capabilities, I'm very excited about, are yielding results across the enterprise and we're really just at the beginning. The early results of the new caesars.com are quite encouraging. The site, which has been rolled out for most of our properties, has helped generate double-digit revenue increases in key metrics, including direct bookings and cross-promotion. We launched the new Total Rewards credit card partnership with Alliance Data. This partnership provides Total Rewards members with another opportunity to earn reward credits, engendering further loyalty and functionality for the program and our guests. This card program has generated far more interest than past credit card offerings, resulting in the issuance of 15,000 cards in just the first 2 weeks of availability. We're also seeing results from our investments to create a next generation analytics infrastructure. The Big Data capabilities that we've added are helping us to become more efficient, strategic and insightful in our marketing efforts, resulting in significantly enhanced customer segmentation and a higher a degree of intimacy and relevance in our offers to our guests. Now let me turn to the second strategic area I mentioned: our efforts to expand distribution domestically. Even after the opening of 3 new properties in the last year, our development pipeline remains among the most robust and promising in the industry. Additionally, our growing presence in the social and mobile games business is an important driver of value creation. In the last 3 months, we opened 2 new properties in Ohio with our partners from Rock Gaming. We celebrated the opening of Horseshoe Cincinnati, the latest demonstration of our successful urban casino concept, ahead of schedule. The efforts from our design and construction group enable us to be up and running for opening day at Great American Ball Park, which attracted tens of thousands of Reds fans to our downtown Cincinnati facility. On April 9, we opened the Thistledown Casino outside Cleveland with a grand opening celebration that included performances by American Idol winner and our Las Vegas headliner, Taylor Hicks. The early traffic to the property has been very encouraging and we're optimistic that it will complement the rest of our Ohio presence quite well. In Maryland, we've begun to pursue the project financing for Horseshoe Baltimore. Mr. Hession's been busy. Site preparation for construction of the casino began in the second quarter with the grand opening expected in the third quarter of '14. Upon opening, the property will have VLT machines, table games and poker tables along with various dining and entertainment options. Caesars owns the largest equity stake among our 5 joint venture partners and we'll manage the property once it opens. In Boston, the center of the universe, we believe strongly that our proposal to develop a Caesars-branded resort with our partners at Suffolk Downs is the superior bid to win the Commonwealth's Region A license. We're confident that our proposed location in East Boston, our partnership with Suffolk Downs and our experience in developing casinos that integrate with their host urban communities will prove advantageous as the selection process continues through the remainder of this year. Our social and mobile games business performed well in the quarter with Bingo Blitz, which we acquired at the end of last year, helping to drive the business' performance. Finally, we're pursuing emerging opportunities, including real-money online gaming in the United States and international expansion. With regard to online gaming in the U.S., we are encouraged by the progress in Nevada and New Jersey. In Nevada, we're prepared to launch real-money online poker under the World Series of Poker brand by the end of this year subject to regulatory approvals. In New Jersey, I'm pleased to report that we have submitted our application for an online gaming license. The successful launch of real-money online gaming in Nevada and New Jersey could be a model for other states considering the legalization of online gaming. In Korea, South Korea, we hope to hear from government ministries about our consortium's application for pre-approval to develop an integrated resort on Incheon Island, just outside of Seoul. The Ontario Lottery & Gaming Corporation's modernization strategy represents a sizable opportunity for Caesars, particularly with the potential to develop a casino in downtown Toronto. The city would be an excellent location for our city-integrated urban casino model and we're encouraged by the direction of this process. Before I turn the call over to Donald Colvin to review the quarter in detail, I want to make a few comments about our performance in the operating environment we experienced in the first quarter. Despite some positive signals in the U.S. economy, including a strengthening housing market and some improvements in the labor market, consumer spending has remained somewhat tepid. Economic environment has continued to impact domestic gaming results. And during the first quarter, we saw a decline in overall visitation to our properties. I would note that first quarter of 2012, which may seem like a very long time ago, was particularly strong, making the year-over-year comparisons difficult. Lower revenues were driven by casino revenue declines in all of our U.S. regions, with the largest decline coming in, not surprisingly, Atlantic City. Our Managed International and Other segment demonstrated solid performance, in part due to Caesars Interactive Entertainment, with the Buffalo Studios acquisition performing quite well. With that, I'll hand it over to Donald Colvin for more commentary on our financial performance and the state of our balance sheet. Donald?

Thank you, Gary. As Gary mentioned, our financial results in the first quarter were challenged by difficult conditions in the gaming industry, combined with a strong first quarter a year ago. We reported first quarter net revenue of $2.1 billion, down 2.9% from a year ago. On a sequential basis, we saw a slight uptick in revenue growth. Income from operations totaled $141.8 million in the quarter compared with $61.3 million in the prior year period. The increase was primarily driven by $174 million of tangible impairment charges in the first quarter of 2012 compared to a $20 million intangible asset impairment charge in the first quarter of 2013. Adjusted EBITDA declined 9.8% to $469.7 million and property EBITDA declined 12.4% to $487.4 million compared with the year-earlier period. The decline was essentially driven by the income impact of lower revenues, as well as the fact that the first quarter 2012 adjusted EBITDA included $23.6 million of EBITDA from Harrah's St. Louis. Our cost-saving programs produced approximately $66 million in incremental cost savings during the quarter. On a sequential basis, we saw good EBITDA growth driven by improved fundamentals and continued attention to cost control. Hotel occupancy declined 2.9 percentage points and cash ADR was essentially flat, driving a 4.2% decline in systemwide hotel revenues compared with the prior year period. Note that these results include a partial period benefit from resort fees, which went into effect on March 1. Taking a look at our performance in Las Vegas. First quarter net revenues decreased 2.6% or approximately $20 million due to lower casino and room revenues, partially offset by an increase in food and beverage revenues. Revenues were reduced by approximately $10 million to $15 million due to the impact of Linq-related construction activities. Property EBITDA in Las Vegas declined 6.3%, or approximately $13 million, primarily from the income impact of a lower revenues. The impact of Linq-related construction activities reduced property EBITDA by an estimated $6 million to $8 million during the quarter. Hotel occupancy in Las Vegas was down 1.4 percentage points and cash ADR declined 1% impacted by both our group business and our renovation activities. Hotel revenues were down 3.4% compared to the year-ago period. Looking forward as we exit 2013 and enter 2014, we expect to benefit from the investments we've made in Las Vegas, particularly as the Linq and some of our room upgrades come online, helping to increase market share and drive increases in ADR and resort fees. Turning to Atlantic City. Net revenues declined by 15.5% year-over-year or approximately $67 million as the aftermath of Hurricane Sandy continued to cause decreased visitation to the market. Performance in the first quarter improved slightly from the fourth quarter, but we are still well below pre-Sandy levels with gaming volumes still down significantly. Atlantic City's property EBITDA during the quarter was $51.2 million, a 26.8% or a $19 million year-over-year decline. The decrease was driven by the impact of the revenue declines and the benefit of a $17 million property tax settlement in 2012, of which $10 million did not recur in 2013. We benefited from our strong focus on cost-saving initiatives in Atlantic City. We expect results in the Atlantic City region to remain challenging, as our guests from surrounding communities recover from the storm and excess capacity exists in the market. We continue to focus on cost savings in this market. In our other domestic regions, which encompass domestic wholly-owned properties outside of Las Vegas and Atlantic City, revenues declined primarily due to the lower gaming revenue. A year ago, our Midwest and Eastern properties benefited from unusually mild weather. We believe that the results also reflect the impact from the higher federal payroll taxes. Louisiana/Mississippi region, net revenues and property EBITDA were down 8.1% and 13%, respectively. While we did see some benefit from the Super Bowl at Harrah's New Orleans, the declines are primarily attributable to lower gaming revenues across the region. A year ago, we also benefited from $7 million of recovered business interruption proceeds from the 2011 flooding in Tunica. In our Iowa/Missouri and Illinois/Indiana regions, we saw net revenues down 6.9% and 4.6%, respectively, driven primarily by a decline in casino revenues and the regional and macroeconomic factors that I mentioned earlier. Property EBITDA increased in both regions, 4.9% and 5.2%, respectively. Revenue declines were offset by lower property operating expenses as a result of the lower revenues. We also benefited from our cost savings programs in both regions. At our Nevada properties outside of Las Vegas, net revenues declined 1.3% and property EBITDA was down 19%, driven by higher operating costs including marketing costs. Moving to managed international and other. Net revenues increased 34.4% compared to the prior year period, driven by higher reimbursable revenues from Horseshoe Cleveland, Horseshoe Cincinnati and Caesars Windsor, increased management fees from the addition of the 2 Horseshoe Ohio properties and an increase in CIE's revenues. Looking ahead, we expect the recent openings of Horseshoe Cincinnati and Thistledown to drive additional revenue growth in management fees. Now let's take a look at our balance sheet and liquidity. With the Growth Partners transaction at the forefront, we remain focused on further improvements to our balance sheet that will give us flexibility to capitalize on growth opportunities. Total face value of debt was $23.9 billion at quarter end. This figure included the $1.5 billion of 2020 first lien notes issued in early February, which came out of escrow towards the end of March. Debt, net of $2.1 billion of cash, was $21.8 billion, not including restricted cash. CEOC and CMBS cash balances were $1.8 billion and $105.7 million, respectively, at March 31, 2013. Restricted cash was $366.5 million and included project funds that have been raised but not spent -- the Linq and Bill's, as well as reserve funds for the CMBS properties and Planet Hollywood. The intercompany loan from CEC to CEOC was $485.4 million versus $516.4 million at the end of December. Caesars had $2.1 billion in liquidity at quarter end, which included the $2.1 billion of cash, $140.5 million of revolver capacity, less $86.8 million of the revolver capacity committed to letters of credit. Not included in the $140.5 million of capacity was the $75 million of extended revolver as part of the February amendment to a senior secured credit facility, which closed in April. During the quarter, the joint venture between Rock Gaming and Caesars raised $570 million to refinance its existing $460 million credit facility and fund the $79 million acquisition of the building, where Horseshoe Cleveland is located. The financing is allocated and waiting for final Ohio regulatory approval. Given our 20% ownership, the debt is not consolidated on our balance sheet. However, the improvement in interest rates will result in higher profitability for the joint venture. Capital expenditures during the first quarter were $148 million. We spent $134 million in CEOC, primarily on the Linq and Caesars Palace, and $30 million in CMBS, primarily on Linq-related upgrade at the Flamingo. Our planned capital expenditures for full year 2013 are expected to be $1 million to $1.2 billion -- sorry, $1 billion to $1.2 billion. To help you better understand how we are allocating our capital expenditures, we wanted to provide our 2013 spend expectations broken out in a number of ways. We expect approximately $300 million to be financed and approximately $800 million to be spent directly from the balance sheet; approximately $550 million to be allocated to project related CapEx and approximately $550 million to maintenance CapEx. Included in the $550 million of project-related CapEx is approximately $300 million of Project Finance associated with the Linq, Bill's renovation, Baltimore and other development projects that we have previously financed off of which we expect to obtain financing, plus approximately $250 million of our equity. Included in the $550 million of maintenance CapEx is spending on room upgrades and facilities, especially in Las Vegas. We expect approximately $950 million to be spent in CEOC and approximately $85 million to be spent in CMBS. To sum it up, we knew going into the quarter that we had a tough comparable. Looking forward, my focus for 2013 continues to be further improving our balance sheet to give us financial flexibility and identifying new ways to drive efficiency and decrease costs throughout the business. With that, I will hand it back to Gary for his final remarks.

Well, I'm sure you can gather that no matter what Donald may think about his new job, he's certainly not bored. Thank you, Donald, for that recap. Despite a slow recovery in the gaming business, we're making progress executing our strategy to create value and beginning to see results in our investments. We're committed to investing in our core markets, our best brands and capabilities, expanding the reach of our network domestically and through the social and mobile games businesses and pursuing real-money online gaming and international growth opportunities. The execution of the strategic transaction we discussed today is representative of our commitment to improve our capital structure and position the company to pursue strategic growth going forward. Operator, we're now happy to take questions.

[Operator Instructions] And our first question comes from the line of Susan Berliner from JPMorgan. Susan Berliner - JP Morgan Chase & Co, Research Division: Just wanted to start with I guess just a bigger-picture question with regards to any improvement you're seeing in March, as well as April, a couple of your peers have mentioned that.

Susan, I know they have. I've read their remarks. I think we're not in the habit of talking about current quarter's operating performance, so I think I'll leave it to them to describe what they've seen thus far. Susan Berliner - JP Morgan Chase & Co, Research Division: Could you talk about the trends in the quarter, if you saw any improvement throughout the quarter?

I think we saw a little bit of improvement as the quarter matured. Certainly, January and February were not especially appealing months and March was the best of the 3. Susan Berliner - JP Morgan Chase & Co, Research Division: Okay. And I was wondering if you could break out -- I know you said there was an impact in Vegas from the construction. Can you break it out for us at opco versus propco?

We gave you the split and -- what are the...

It's a little tough to say, Susan. This is Eric. Susan, we've estimated also the impact of some of the construction on the general area. But as you know, The Quad is the primary property where you've seen the impact, so that would be namely in the outcome. Susan Berliner - JP Morgan Chase & Co, Research Division: Okay. Great. And then with regards to your CapEx guidance, it just seemed like maintenance CapEx went down a little bit. Was there a specific project or anything to highlight there?

No, I think we're being -- it's kind of management of liquidity and cash flow, Susan, would be making sure that all projects are necessary and have a good return on investment. And so we're going to a higher bar and we are establishing strict controls on what we approve. And so [indiscernible] for the approval process has eliminated some weaker projects and has resulted in some savings in maintenance capital. Susan Berliner - JP Morgan Chase & Co, Research Division: Great. And my last question, just -- I know you've talked about this in prior calls. I was wondering if you could update us at all on potential AC Convention Center or any potential asset sales like you had talked about Macau, the golf course?

I think we've indicated that we have been pursuing a process for sale of the Macau golf course. We don't have anything to report on that now, but we'll do so, of course, when such time as something materializes that meets the standard for reporting. And on AC Convention Center, we're committed to initiating construction on and completing the AC Convention Center. We continue to believe that the generation of new segments of demand in that market is the only way to offset the secular decline in other traditional areas of the market. So that remains a project we're committed to doing and we've enjoyed support from the Governor and his staff and we intend to get this project underway.

Our next question comes from the line of David Farber from Credit Suisse.

2 questions. First, I guess without getting into the specifics of the Caesars Growth Venture Partners transaction, I was just curious if you guys can maybe just help us out with how you see the time line, specifically will there be additional disclosures? How this will play out throughout the year? Any thoughts around when it might close? Just big picture in terms of quarters would be helpful.

David, I recognize people's interest in being able to anticipate that, but we just can't make any speculative or forward-looking comments on the process for Caesars Growth Partners.

Okay. Worth a try, I guess. Away from that, I guess I just wanted to hear, maybe Donald or Eric, you could help out here, and it was helpful with the CapEx guidance that you outlined. Given the cash needs related to the roughly $800 million and interest, I was just curious how you guys think about managing liquidity given the intercompany you have due next year. And then the $1.2 billion of bonds that are moving that are no longer owned 100% by CZR. So just maybe help us think about how you think about the liquidity picture into the next year or so. If there are any thoughts, that would be helpful to hear.

Yes, David, this is Eric. You got Donald to, of course, jump in. But we made an effort to, as you know over the years, continually make sure that we have plenty of liquidity, manage our durations and make sure that we retain flexibility in terms of the cash position that we have, so that we can pursue various opportunities when they occur, whether those be investing in the core business, developing new properties in different markets and retiring our debt. At this point, you saw from our report that our cash balance is quite considerable at this point. We've done a good job raising cash. We made a number of transactions for the capital structure earlier in the year that, again, put cash on the balance sheet and also pushed out the maturity profile. And so I think in general, our strategy really hasn't changed. We felt the need that there be good returns from investing in the business. And thus, we increased our projection on maintenance capital. As Donald mentioned earlier, as we progress through the first quarter, we tightened that up a little bit, but we still expect to spend and reinvest in the business as we go forward. And we'll manage that through the cash from the operations, the financings and then the considerable cash that we have on the balance sheet right now.

Okay. That's helpful. And then just lastly, is asset sales away from Macau still something that you guys are in the process of considering? Or is that more in the rearview mirror?

Well, I think it's -- as Eric said, we continue to be -- to manage our liquidity and try to maximize that. And obviously, I think Macau is, by far, the biggest opportunity that I've seen to realize cash from asset sales. But there are other opportunities and we continue to look into these as well and working capital initiatives also. So I'm encouraged by these opportunities and we'll make the necessary disclosures when we have something more specific to reveal. But yet, we do have others, not quite at the same level, but can be incrementally positive to our cash.

Our next question comes from the line of Kevin Coyne from Goldman Sachs.

Just to start up on the room renovations on the strip. Can you mention how many rooms perhaps have been redone to date through the end of the first quarter? And maybe give us, on a percentage basis, how many room nights you were down during the quarter?

Yes, in terms of room nights down during the first quarter, it's been relatively immaterial and only for sporadic renovations. We had the Nobu Tower, as you know, come up this quarter and that was in transition and opened at the beginning. But moving forward, we're going to be starting on the Bally's South Tower shortly. And then, also, we've talked about doing a fairly large number of rooms at The Quad. And that would also start later in the year.

We've had some rooms out at the Rio recently. And of course, Bill's is closed, so that put that modest room count closed. But it's not an overwhelming number, by any means.

Specifically what we have there is what's called The Quad. And there's about 1,500 rooms that we are considering renovating and we'll make a definitive decision on the Rio and that project in the near-term. And that we will launch [indiscernible] completed roughly at the end of the year. So that's a major room renovation that fits in to what Gary said about capitalizing on the Linq area. And that's the one that will have the biggest impact.

Great. And, Donald, while I have you, it seems like, I guess, you've been at the company about 9 months now. And I was just wondering, obviously, you're getting your hands around the operating fundamentals and the cost structure. Can you give us a sense as to how you feel about the operating expense levels? I'm sure you've seen some opportunities to make cuts, what you've highlighted in the public domain in the past. But do you think it's going to be a more nip-and-tuck situation, where you cut sporadically, or do you think there's the ability to do something more transformative?

I've only been here for like 5 months, but maybe it does seem like 9. Obviously, when you've got a weak top line or a tough macro there, unfortunately, cost cuts come in. And there's been a lot of progress being made here. Our efficiency, I think, is good. There's always additional things that can be done, but I'm not really going to start revealing specific programs. But I think that our combination of revenue growth investment and some of the properties here, room renovation, take advantage of our central strip location, complemented by some cost optimization, these are all the factors that will drive through the performance going forward. So the allocation of that improved performance to cost hasn't been determined, but I'd still think through creativity and imagination, we can still make some further improvements.

Great. And if I could just squeeze one last one in for Eric. The 11.25 first lien notes are callable in 30 days. Just wondering, is that something that you would want to address sooner than later just because it seems you may be able to reduce that double-digit coupon, or does the Growth Partners process keep you on the sidelines for doing other, let's say, debt transactions? And before I -- the last one I'll squeak in is just on the disclosure around the Coty regarding the Reinvestment Act that you put in the 10-K. I know you've always expected that any liability would be offset by NOLs. Is that still the case, that we should expect no cash flow impact from Coty?

Well, yes, I'll answer your second question first about the Coty. I don't think we've explicitly said that we expect it all to be offset. The way the Act works is that the gains from the loss would be spread over a five-year period. And due to the NOLs and the OIG associated with the second lien issuance that we did in the exchange offer, the majority of that would be offset in the first years. And it's really a question of at what point would we then start realizing those Coty gains that would then not be offset by other losses. And that's the function of our operation, is the function of other transactions we might pursue and it's a number of things like that. But we have said that we don't anticipate having a cash tax liability of any significance associated with that for at least the first few years when that starts to become realized. With respect to your other question, yes, the 11.25s do come callable. We constantly look at the balance sheet and take advantage of opportunities as they present themselves. I can't tell you right now whether we ready to move forward with that or not, but it's certainly on our radar that that's a higher coupon than where we've been issuing recently.

[Operator Instructions] Our next question comes from the line of Rich Hightower from ISI Group.

Just one question on Las Vegas as a few of my others have been answered. But maybe this is hard to -- it might be difficult to quantify. But in light of the room renovations and the CapEx that's been spent there to date, you did say in the prepared remarks that you're seeing tangible progress, I guess in terms of revenues despite the year-over-year decline in the first quarter. Is that -- can you characterize that in terms of market share or fair share or some alternative than simply year-over-year percentage increase or decrease in revenues? And obviously, the renovation displacement is going to play a role in that, but just a little more clarification on that would be great.

You posed quite a complicated question. So most of the capital that you described, or that I mentioned in my remarks, are non-gaining capital additions: room renovation, room inventories and the like. And we've seen positive revenue consequences from these things, including, for example, the Octavius Tower. So I think, one, if there was to be a market share test for non-gaming revenue, I suspect we would hold up relatively well. Of course, all you get is published data on gaming revenue which in the last several months have been very substantially affected by varying levels of back-ride activity in hold. And I think on a hold-adjusted basis, we're very proud of our market share results in those categories, that those are not necessarily indicative of the capital returns. It more has to do with the effort to screen these players forward and care for them properly.

Okay. And there's another comment in the press release about the mix of the group business negatively impacting the first quarter. I mean, I know you're not -- you generally don't make forward-looking comments on these calls, but can you describe how the progression maybe of the group mix could change over the balance of '13 and then into '14, which I think you and most of your competitors are saying is going to be a much better year?

Yes, I think it's been broadly suggested that, that trend that you just described is accurate. Let me just say a word or two about a potential explanation for that. Following the crisis that the group business, the [indiscernible] business in Vegas was very adversely affected. And when that business began to rebound, I think Vegas, due to the other large meeting competing cities, like Orlando or Chicago or New Orleans or San Antonio, Las Vegas rebounded rather quickly. And we picked up a disproportionate share of the improved reactions to the cessation of the most acute part of the crisis. And as a result, people have cycled through Vegas now once, maybe twice, since the crisis. And our sales people tell us that some of these groups naturally have strayed off to these other cities as part of their journey that normally occurs across geographies. But I think we're going to see a lot of that coming back in our favor. So partly because of this typical migration here, but also because the value proposition is fantastic. Room rates are lower than we would like them to be. That's very appealing to the groups. And the cost of holdings their events here is lower and the experience for the participants is higher than elsewhere. So I share my competitor's enthusiasm, that this end of our market is improving. And we will see a better year in 2014.

Our next question comes from the line of Dennis Farrell from Wells Fargo.

I was wondering if you could maybe just talk about the resort fees a little bit. You said that you implemented them in March. I'm just wondering how much of a premium that would be over your ADR and how many occupied room nights you might estimate for 2013 and the potential impact from the resort fee?

Well, I'm going to let either Eric or Donald answer that, but I'm going to answer the question you didn't ask, but I thought you were going to ask, which is why did we decide to do this now? So you can imagine the debate that's existed in the company while many of our competitors instituted resort fees. And you can imagine the parallel exercise that the airlines have been through with most of the traditional carriers holding back fees and Southwest not holding back fees. And we put an awful lot of mathematics against this issue and we're of the view for a period of time that being the competitor in the market that did not charge a resort fee, but rather charged a la carte prices for specific resort services was a superior all-in economic proposition to the alternative. We watched the dynamics in the market mature as our competitors that had resort fees for some period of time and, as you see, recently began to accrete them. And we became persuaded that the time had come to institute those fees ourselves bearing them, of course, across properties with respect to the value that resort services provided to the guests in each of these properties. And I think what you see in the result that Donald described is that the early adoption or resistivity of the guest has been good. And we think it provides -- it will, of course, provide a significant premium on ADR assuming that we don't suffer with respect to occupancy or pre-resort fee ADR. So, Donald, you want to speak to that?

Sure. And then also what's been encouraging for me besides some positive feedbacks from customers who actually do appreciate the access to the gym and free internet, et cetera, that goes with the resort fees. So we'll be presently surprised by that. Obviously, the resort fees vary across our properties. Let's say in the teens, obviously a lot more of the premium properties like Caesars Palace as some of the other ones, but it's in the teens. The rollout has been slow because we had a lot of rooms booked and we're rolling out throughout all our property. We kind of expect by the end of the summer to have a rollout more or less complete and it's probably going to be applying to 70-ish% of the rooms. And the reason why it's not 100% is because we have VVIP customers and also groups that we're not applying that to. And we have approximately 20,000 rooms available in Vegas and you have to apply the occupancy factor there as well. So certainly, that has been a factor that has been encouraging for me, new on the job, to see how we can generate, improve financial performance from our existing base. And we are very pleased by the acceptance of that from our customers. But that has been applied throughout -- by our competition throughout the whole Vegas market previous to us.

I was just wondering, 2 questions on online. One, just I think you might -- you talked about it briefly in your last call. But I was just wondering the mechanics of the online. Let's just say in Atlantic City, the license holder, the casino license holders in Atlantic City will have the right to operate online gaming. I'm just wondering what the relationship will be there between -- from a P&L perspective between the property and CIE? And then my second question is in regards to just the kind of proliferation of online gaming throughout the United States. I mean, there's a gaming legislation surfacing in Pennsylvania, Massachusetts, Illinois. And I'm just wondering, to get your thoughts on how fast this could potentially take off?

This is Gary. I'll try to take those. Every company is going to approach this issue within their own reporting systems differently. In our case, the benefit of online gaming in New Jersey will fall for CIE and will not be reflected in the operating results of the off-line businesses in New Jersey. So you'll see that ultimately in the reporting from CGL down the road, once CGL -- assuming CGL gets through all of its processes and its reporting. Then with respect to proliferation, of course, that's very welcome news for us. We hope that every one of these states proceeds to implement online gaming. And I think in many of the states you described, it's hard to imagine they won't. In this instance, at state level, we seem to have a lot of support from people that have historically been our adversaries, including the lotteries and a bipartisan group of people in the Governor's mansion as well as in the legislatures. So every time we can get particularly a populous state, like some of the ones you mentioned, to advance this cause and then get agreements to share customers, to share liquidity across states, then that's a tremendous help. You can imagine we're advocates of that. Thank you. Operator, I think that concludes our question-and-answer period. We thank you and all of those who joined us for the call this afternoon.

Thank you very much, ladies and gentlemen, this concludes today's conference call. You may now disconnect.