Caesars Entertainment, Inc. (CZR) Q3 2013 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Caesars Entertainment Third Quarter 2013 Earnings Call. My name is Jay, and I will be facilitating the audio portion of today's interactive broadcast. [Operator Instructions] At this time, I would like to turn the call over to Mr. Eric Hession, Senior Vice President of Finance and Treasurer. Please go ahead, sir.

Hi. Thanks, everybody, for joining, and we apologize for the delay. We were working through some technical issues with the Internet connection, but it should be working now. So I'd like to welcome everybody to the Caesars Entertainment Third 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'll 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'd 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 Please be advised that developments subsequent to this call are likely to cause these statements to become outdated with the passage of time.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 on third quarter 2013 results. These results are not necessarily indicative of results in 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 in our press release. This call, the website and its replay are the property of Caesars. It's not for rebroadcast 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'd now like to turn the call over to our CEO, Gary Loveman.

Thank you, Eric, and welcome, everyone. Since we were together 3 months ago, there has certainly been no shortage of developments here at Caesars. Most of these have involved positive news, involving the execution of our strategy and our efforts to address the company's capital structure. Before I update you on these events, I'd like to spend a moment talking about 2 recent pieces of news that you have no doubt read about by now. Ten days ago, we announced the withdrawal of our application as a qualifier in Massachusetts. After we received a report from the Gaming Commission staff that said we had not demonstrated Caesars' suitability, our parents in the project -- our parents, that's some deep psychological issue, I suppose -- our partners in the project asked us to withdraw, and we agreed. The staff report raised certain issues, particularly with regard to our trademark licensing agreement with the Gansevoort Hotel Group and an ill-defined association between one of that company's passive minority investors and an international crime group, speculated on in the popular press. On top of the fact that this individual has never been charged or convicted of anything, our arrangement with Gansevoort was limited to the use of the company's brand on the former Bill's Gamblin' Hall & Saloon in Las Vegas. The hotel and casino were always going to be operated solely by Caesars. This relationship was scrutinized by our time-tested investigative and compliance process and approved by our independent Compliance Committee, which consists of experienced, accomplished executives and former gaming regulators. Let me be clear: we've always supported high standards for operators in our business, and we believe that setting and maintaining these standards is good for the company and the industry. Indeed, we've prospered under those circumstances for more than 75 years. With that said, standards that place unreasonable emphasis on speculative issues despite convincingly thorough, time-tested and independent review and investigation are troubling, and I don't believe they act in the long-term best interests of the industry or any particular jurisdiction. Indeed, unlike the practice elsewhere, the Massachusetts process provided no opportunity to address the Gansevoort issue and provide an acceptable resolution. I am deeply disappointed and frankly, angry about this outcome, as it's inconsistent with our experience in every jurisdiction in which we've operated for the past 76 years. We're prepared to clearly and convincingly establish our suitability before the Commission. Following discussions with our partners at Suffolk Downs, who are facing a referendum on the 5th of November, we agreed to withdraw our application as a qualifier at their request. I do want to reiterate that the Commission itself took no action with regard to Caesars' suitability. While it is too early to determine the resolution regarding our investment in this project, the cash investment is approximately $100 million. We have reached out to the regulators in other jurisdictions to discuss Massachusetts' report and are encouraged by the tenor of those discussions. We will continue to interact with them to address any questions they may have. Separately, last week, we disclosed that earlier this month, we received a letter from FinCEN informing us that it has begun an investigation of Caesars Palace for alleged violations of the Bank Secrecy Act. At the same time, we became aware of an IRS investigation into our anti-money laundering practices. Governmental authorities have been increasingly focused on anti-money laundering in recent years, particularly as it relates to the gaming industry. We are fully cooperating with the authorities in their investigations. Now with that, let's move on to discuss the quarter and our progress against our strategic initiatives that we shared with you in prior calls. September and October have been extraordinarily active in this regard. During this period, we began offering real money online poker in Nevada; we completed the rim of the High Roller at the Linq; we went vertical in our construction of Horseshoe Baltimore; we announced Britney Spears' Las Vegas residency and the renovation of the Planet Hollywood theater; we completed the largest gaming reinvestment in 10 years and began driving beams into the ground for the construction of our meetings facility in Atlantic City; and last, but certainly not least, we completed and advanced several important capital market transactions as part of our plan to further improve the company's capital structure and position Caesars for long-term success. We did all of this against the backdrop of industry conditions that were similar to the first half of the year. In the third quarter, visitation and casino revenues declined across much of our network compared to the year-ago period. However, we're encouraged by positive underlying trends in Vegas, particularly around the increases we've seen in hotel and food and beverage revenue, which are related directly to our recent hospitality investments in the city. We're also encouraged by forward-booking activity in the group's business. The first half of 2014 looks to be in excellent shape, with the first quarter shaping up to be the best quarter for this business [ph] since the peak in the first quarter of 2008. Several key events, including the return of CONEXPO-CON/AGG show in March, are supporting this growth. We estimate that the business will grow by high-single digits in 2014. Prior to discussing the business, I'd like to take a moment to review the transactions we completed since our last call. In October, we completed the refinancing of the outstanding CMBS and Octavius/Linq debt, raising approximately $4.65 billion. These actions address our largest near-term maturity, providing runway for new growth opportunities to generate returns for the recovery of the core business. We also completed a public equity offering of more than 10 million shares at the end of September, raising approximately $200 million in proceeds and providing additional liquidity. We also actively worked toward the completion of strategic asset sales during the quarter, which Donald will detail in his financial review. We are also nearing the completion of our Caesars Acquisition Company rights offering. Apollo and TPG recently funded their investment of approximately $460 million, and Growth Partners used $360 million of it to purchase Planet Hollywood, its share of Horseshoe Baltimore, and 50 percent of the management fee for both properties. The rights were distributed on October 21, and holders of Caesars as of the record date have until November 2 to elect to exercise their right to acquire shares in Caesars Acquisition Company. The rights offering is anticipated to close on November 18, and we have applied to list those shares on NASDAQ. The transaction benefits Caesars in many ways, including: the creation of a more flexible vehicle to fund growth; a cash infusion to Caesars Entertainment; and continued participation in the future upside of assets transferred to Growth Partners and future growth investments through a majority economic stake in Growth Partners. In addition to our non-voting stake, Caesars will have the opportunity to exercise a call option to repurchase Growth Partners after 3 years. In sum, all of these activities demonstrate the considerable efforts underway to enhance our capital structure, and combined with investments in the business, create equity value. Now let me turn to specific developments in the execution of our strategy to: reinvigorate and expand our core markets, particularly Vegas, with a focus on hospitality; expand our distribution network through our in-place domestic development pipeline and social and mobile games; and pursue real money online gaming. With respect to enhancing our hospitality assets in Vegas, we are investing significantly to bring new experiences to the city and enhance our footprint. These efforts are anchored by The Linq, where we will begin opening the retail, dining and entertainment offerings in phases beginning in December, with the opening of the High Roller being in the last stage -- being the last stage of the development in second quarter of 2014. If you've been in town recently, you'll no doubt observe that the rim of the High Roller has been completely assembled and taken its place on the skyline of the Strip. We'll begin attaching the cabins to the wheel next month and plan to begin operating the High Roller in the second quarter of next year. We also anticipate our properties surrounding the Linq, many of which are currently being updated or renovated, to benefit significantly from incremental visitation, enhanced ADRs and higher casino foot traffic. We also made a major enhancement to our entertainment offerings with the announcement that Britney Spears will start a 2-year residency at Planet Hollywood. Our artist in residence program is very successful and associates us with some of the biggest names in entertainment, including Celine, Elton John and Shania Twain. I would also note that the Planet Hollywood venue will be one of the first venues to combine a typical theater with a nightlife experience. At Bill's, construction is moving along well, and the building is beginning to show its final exterior finishes. As I mentioned earlier, we terminated our licensing agreement with the Gansevoort Group and are evaluating alternatives for a new name for Bill's. Plans for the development are otherwise unchanged. Interior framing is nearing completion and drywall installation begins soon. We expect to open the hotel and casino, as well as Drai's day club and Nightclub and pool in the first half of next year. We anticipate this property will generate significantly higher ADRs than it did as Bill's. At the Nobu Hotel, our other boutique offering here in Vegas, ADRs have increased by more than 65% from when it operated as the Centurion Tower. At Bally's, the renovation of the 756-room South Tower, which we've rebranded as the Jubilee Tower, is nearly complete. Approximately 95% of the tower has been refreshed, and the remaining rooms will be completed in November. The response and feedback from guests has been positive, as evidenced by the strong service scores we received thus far. We are already seeing a $45 ADR cash premium on these rooms relative to other Bally's rooms, which is worth about $10 million on an annualized basis. At The Quad, we completely refurbished the casino floor, which reopened in September, excluding the sports book, which will open in mid-November and the lobby bar, which we are currently redesigning. The Quad now benefits from a much-improved arrival experience, new gaming floors with upgraded surroundings and expanded guest check-in facilities that will reduce wait times. With access to the casino floor from both the Strip and the Linq, we believe the Quad will benefit significantly from pedestrian traffic. As I have described previously, the construction related to these investments has created significant disruption within the core of our Vegas footprint for more than a year. We expect some of the disruption to continue during the near team, but we're optimistic it will abate by the middle of next year. In addition to our hospitality investments, we completed a major investment in our gaming assets with the purchase of 7,000 video poker terminals from IGT. This is the largest gaming re-investment Caesars has made in 10 years. Upgrading our gaming assets aligns with our objective to deliver superior guest experiences at our properties across the country by providing modern and state-of-the-art gaming units. Turning now to domestic expansion. Construction is underway at Baltimore, where we are out of the ground, on track to open in the third quarter of next year. We're excited about this opportunity to open another urban casino in a prime location with a strong regional Total Rewards membership. In Atlantic City, construction of what will be the largest meeting and conference center in the Northeast is well underway. We believe this facility will attract new segments of visitation to the market, particularly mid-week where it's especially needed, and absorb excess hotel room and restaurant capacity. We see this as an opportunity to capture a share of the $16 billion convention and meeting market in the Northeast and anticipate that our meetings facility will open in 2015. We've already booked a couple of large groups for the facility and look forward to further leveraging our nationwide sales organization. Customer feedback has been positive around having a viable conference center alternative in the Northeast. Real money online gaming is another important component of our plans to expand our distribution network. We launched real money online poker in Nevada on September 19. Although we are only about 6 weeks along, we have received positive feedback from players on worldseriesofpoker.com, or I should say, wsop.com, about how sophisticated, user-friendly and dynamic the game play is. We commenced our marketing efforts at the end of September, utilizing a combination of promotions and advertisements that complement our land-based strategy. For example, earlier this year, we awarded prizes into our land-based World Series of Poker Europe tournament in Paris, where one lucky Nevadan was offered a chance to win a package to play in France. Because of the popularity of the World Series of Poker franchise and our physical footprint, Caesars and CIE are uniquely positioned to tie in offline and online opportunities to broaden our reach. In New Jersey, we expect to launch online gaming by November 26, with soft play starting on November 21, subject to regulatory approvals. We believe a successful launch of real money online gaming in these states could serve as a model and potentially stimulate other states considering online gaming legalization. In social and mobile games, we maintained our position as the world's leading provider of social casino games. Our social/mobile platform is a key differentiator for our company and a meaningful revenue driver. During the quarter, Playtika released Caesars Slots on iOS and Google Play stores. We are constantly improving upon and investing in our marketing, loyalty and analytic capabilities and programs. These are at the core of our company and are critical to optimizing the impact of our integrated network. Our recent investments in big data have enhanced our understanding of the non-gaming behavior of our guests and how much amenities, such as hotel, food and beverage and entertainment, drive engagement. We are already benefiting from these insights, and over time, believe they will further enrich our loyalty program by enabling us to more effectively market to our customers and stimulate non-gaming behavior. This year, we have also emphasized promotions and generated excitement at our properties to encourage visitation. The Millionaire Maker promotion offers players innovative and entertaining ways to become the next instant millionaire. We have created around 40 millionaires this year and 745 to date. We have been very pleased with the results associated with the new Caesars.com, which include an increase in direct bookings and cross promotion. We also launched our new mobile platform at the end of September, which enables us to better engage guests before, during and after their visits. We have optimized the entire booking floor -- booking flow for mobile devices, including upselling, cross-selling, packaging, amenity sales and promotions. As a result of these efforts, we have been recognized by third parties for our innovative, industry-leading marketing and loyalty programs. We ranked #11 in InformationWeek's annual list of the nation's Top 500 most innovative users of technology, up from about #230 last year. The primary reason for our impressive positioning this year was the redesign of Caesars.com. We were also recognized with the COLLOQUY Master of Enterprise Loyalty Award for the second consecutive year, the only company to achieve this distinction twice. This recognition is attributed to the improved connection between our loyalty and VIP programs, our ability to activate the experience through our hosts and our use of digital means to create new loyalty program fuel touch points with our members. The last few weeks have certainly been eventful, but for the most part, the news has been positive, as we work to improve our capital structure and add exciting new offerings to our network. With that overview, let me now turn you over to Donald for additional commentary on our financial performance and the state of our balance sheet. Donald?

Thank you, Gary. As Gary mentioned, we made significant progress over the last several months towards our goal of improving our balance sheet and overall capital structure. Through a combination of debt refinancings, an equity issuance and a strategic asset sale, the company is better equipped financially to execute on the strategy that Gary outlined and which we are actively pursuing. Breaking down the transactions in greater detail. On October 11, we completed the $4.65 billion Caesars Entertainment Resort Properties, or CERP, refinancing transaction, comprised of $2.5 billion credit facility, $1 billion of first lien notes and $1.15 billion of second lien notes. We also have an undrawn revolver totaling $269.5 million. The proceeds fully repaid the outstanding Caesars CMBS facility and also refinanced the Octavius/Linq Senior Secured Loan. As a result of the refinancing effort, we captured approximately $100 million in discounted repurchases and reduced total borrowings by approximately $200 million. Given that the transaction closed after quarter end, the results reported today do not reflect the impact of this refinancing. In today's earnings release, we did provide some CERP financial information as if the transaction had been completed on September 30 rather than October 11. As a result, Octavius/Linq is accounted for in both CEOC and CERP financials this quarter. On September 25, we raised approximately $200 million in cash via a public equity offering. We issued 10.34 million shares, including the over-allotment at a net price of $19.4 per share to Caesars. The shares were issued via the $500 million shelf registration statement that has been in place since shortly after the IPO in February of 2012. This recent issuance is in addition to the approximately $15 million we had issued via the company's at-the-market program from the start of the program through Q3. The offering closed October 1, 2013. In August of Q3, we entered into a share purchase agreement with Pearl Dynasty for our Macau golf course and are on track to close in Q4 '13. Net proceeds from the sale are expected to be around $420 million, which we plan to fund CEOC capital expenditures or to repurchase CEOC debt. Also, during the third quarter, we completed the financing of the Horseshoe Baltimore property, which includes a $225 million senior secured term facility, 2 delayed draws of $37.5 million and $30 million FF&E facility and a $10 million revolver. And lastly, as Gary mentioned, we completed the creation of Caesars Growth Partners and Caesars Acquisition Company. Going forward, we will consolidate Caesars Growth Partners as part of Caesars Entertainment financial statements. In addition, Caesars Acquisition Company will submit its quarterly and annual filings as required by the SEC. In sum, it has been a very successful several months from a transaction perspective. Turning now to our third-quarter results. Performance was driven by similar factors as the first half of the year, including continued softness in the domestic gaming market and competition. We reported third quarter net revenue of $2.2 billion, relatively flat from the year-earlier period. A 7.1% decline in casino revenue was largely offset by increases in room revenue from the implementation of resort fees, higher reimbursable costs from our managed properties, as well as lower promotional allowances. Gaming revenues reflect continued slot volume weakness in virtually all domestic markets, while table volumes were relatively strong. Cash average daily room rates increased from $89 in the third quarter 2012 to $101 in the current quarter, primarily attributable to resort fees in Vegas and other Nevada properties. We report cash ADRs as total ADR, subject to transfer price assumptions between the casino and the hotel, and we believe it to be a less effective metric for reporting hotel performance. Loss from operations for the third quarter 2013 was $737.5 million (sic) [$637.5 million] compared to $216.8 million in the prior year quarter, primarily due to higher non-cash intangible and tangible asset impairment charges. Similar to net revenue, property EBITDA was also relatively flat from the year-ago period. The income impact from lower gaming revenue was almost completely offset by lower operating expenses, driven in part by effective cost reduction programs, as well as the benefit from resort fees and favorable hold. The year-ago Property EBITDA also benefited from approximately $5 million of EBITDA from Harrah's St. Louis, which was sold in Q4 of 2012. Conrad Punta del Este, which was also sold in May 2013, generated an approximate negative $3 million in Property EBITDA in Q3 2012. Adjusted EBITDA increased 4.9% to $508 million. Overall, the company's EBITDA benefited from $15 million of favorable Q3 year-over year hold, primarily at Caesars Palace. $30 million of favorable hold in Vegas was partially offset by $10 million of unfavorable hold in Atlantic City and $5 million of unfavorable hold in other U.S. regions. Now let's take a look at our balance sheet and liquidity. Caesars had $1.8 billion in liquidity at quarter end. This included $1.7 billion of cash not including restricted cash, $215 million of revolver capacity, less $100 million of the revolver capacity committed to letters of credit. Debt, net of cash, was $22.1 billion, excluding restricted cash. The $23.8 billion total face value of debt at quarter end included $225 million of Horseshoe Baltimore Term Loan B that closed on the 2nd of July 2013. Total debt number does not include the $4.65 billion of debt associated with the CERP refinancing which closed in the fourth quarter. Total face value of debt repurchased during the quarter was around $71 million, and we repurchased $50 million of CMBS and $18 million of CEOC 5 3/8 unsecured notes due in 2013. Post Q3, we reduced total borrowings by approximately $200 million as a result of the CERP refinancing. Total cash was $1.7 billion, not including restricted cash. Included in our cash balance is $50 million received to date in cash proceeds from the sale of the Conrad Punta del Este and $66 million of the anticipated $420 million in cash proceeds from the sale of the Macau golf course. We expect to receive the remaining $30 million in cash from Punta del Este and $354 million in cash proceeds from the sale of the golf course in Q4 2013. Also included in the third quarter cash balance are the $200 million of proceeds from the equity offering that we closed in October, as well as proceeds from CGP -- I should have said not included. CEOC and legacy CMBS cash balances were $1.3 billion and $117 million, respectively, at September 30, 2013. Cash at the parent was $223 million, and CERP cash balance was $127 million for Q3. Restricted cash was $527 million, and includes project funds that have been raised but not spent on The Linq and the renovation of Bill's, as well as reserve funds for the legacy CMBS properties and Planet Hollywood. The September 30th restricted cash balance was $193 million higher compared to the $334 million balance at the end of June 30, driven in large part by $219 million of Baltimore proceeds which are in restricted cash, offset by spending on The Linq and Bill's. The intercompany loan from CEC to CEOC was $285.4 million, no change to the balance at the end of June. Capital expenditures during the third quarter were around $150 million. We spent around $140 million in CEOC, primarily on The Linq, Baltimore and Bill's, and around $10 million in our legacy CMBS properties, mainly on Linq-related upgrades at the Flamingo. Total CapEx spent during the quarter on the Linq and Octavius was around $40 million. We are lowering our capital expenditure expectations for 2013, primarily due to timing shifts on projects. Our expectations for planned capital expenditures for the full year 2013 are $650 million to $750 million. We anticipate approximately $390 million to be allocated to project-related CapEx and approximately $330 million to maintenance CapEx. Included in the $390 million of project-related CapEx is approximately $150 million of project financing associated with The Linq, Bill's, Baltimore and other development projects that we have previously financed, plus approximately $240 million of our equity. Included in the $330 million of maintenance CapEx is spending on room upgrades, facilities, especially in Vegas. We plan to spend approximately $420 million in CEOC and approximately $290 million in CERP, with the remainder to be spent primarily in CEC due to the Atlantic City Meeting Facility. The $420 million of CEOC CapEx does not include 12 months of anticipated Linq/Octavius CapEx, but does include Horseshoe Baltimore and Planet Hollywood CapEx. The $290 million of CERP CapEx includes 12 months of estimated CapEx spend on Linq/Octavius and legacy CMBS. Going forward, we remain focused on driving efficiency, tightening cost control and further improving our balance sheet. We are actively pursuing improvements to our working capital and cash flow via a series of initiatives which span the entire organization. The initiatives include improving our inventory, receivables and optimizing our cash balances. They also include pursuing additional cost optimization initiatives, including more efficient workplace scheduling and incrementing -- incremental selling opportunities. These initiatives are driving improved financial performance as we exit 2013 and create a more financially disciplined company for 2014 and beyond, with any sustained economic recovery to provide an additional tailwind. With that, I hand back to Gary for his final remarks.

Thank you, Donald. 2014 promises to be a very exciting year for Caesars as we introduce new developments here in Las Vegas, in Baltimore and online. Our new entities and our steady attention to the capital structure improvement creates the foundation for further growth and enhancements to our network. With that, we're happy to take your questions.

[Operator Instructions] The first question comes from the line of James Taylor with Bank of America.

I guess just one housekeeping item on the bad debt expense that you mentioned in the press release. Can you just, I guess, quantify that and maybe just give a little more detail? Was it a matter of a collection in the quarter? Are you -- or you're reducing your assumptions going forward?

I think with this bad debt that's on [ph] here -- I mean, it's obviously -- we've got a model, and we just update every quarter based on different recoveries. So there's no -- there's nothing fundamental there. It's a model that we have agreed with our independent accountants, and it's just updated based on the latest estimates of recoveries.

Okay. I guess moving on to CapEx. Obviously, from the last quarter guidance, the CapEx budget's come down quite a bit. Can you just maybe -- I mean, you gave a good sort of detailed explanation. But generally, is that just some of the capital projects being pushed into '14 and the sort of maintenance CapEx is staying the same? Is that -- am I thinking about that correctly?

Yes. Mainly the former.

I think there's a couple of variables there. We instituted [indiscernible] greater level of discipline in the CapEx that would qualify to our spend. And you've asked for more justifications in some areas, especially for [indiscernible] maintenance investments. And so that has resulted in a saving. And I think that is a saving we're happy to take to the bank. Other projects have just been delayed as Gary mentioned. And when we do a plan, our capital investments this year are very, very high compared to previous years, and our ability to spend it was always focused on the back end, and some of that has just slipped into next year. So nothing to read into that. It's just a little bit slow on spend compared to original projections.

Okay. And I guess just finally, not to get in too sensitive a subject, but I guess in Massachusetts, obviously, we were surprised as everyone I'm sure -- not as surprised as you guys -- by the recent news. I guess the biggest thing that comes to my mind is given the sort of limited nature of the relationship, I guess I don't understand why you didn't have the option to drop the Gansevoort, what you decided to do subsequently anyway, and just remedy the situation? Is that -- I don't know if you can answer that question or if that was a conversation you had with the regulators. And then I guess [indiscernible]...

Yes, I can answer it. I don't know why we couldn't either. Typically, in gaming jurisdictions, if there's an issue that causes concern to the regulator, you have a reasonable opportunity to cure the problem. In this instance, as your question has as its premise, this was a very distant relationship between ourselves and in -- minority path and equity owner of an entity from whom we were simply licensing a trademark. And we offered a variety of cures to this problem, and the Gaming Commission was unwilling to take any of them as a remedy, which was, in my view, quite extraordinary.

Understood. I guess just the last follow-on is, do you have any update on what you plan to do with the brand at this point? Or is that in the works?

With the Caesars brand in Baltimore [indiscernible]?

I'm sorry, sorry, sorry. For the brand of the Bill's remodel.

[indiscernible] with Bill's. No, we're working on what we want to do as a brand for that hotel. Most of the materials to reconstruct it have been ordered, so we know what the building is going to look like, what the -- how the hotel rooms are designed. And we'll sort out, with the help of our Chief Marketing Officer, how we want to brand it.

The next question comes from Susan Berliner with JPMorgan. Susan Berliner - JP Morgan Chase & Co, Research Division: I was wondering if I could start first with -- I'm just trying to make sure I'm comparing apples-to-apples with regard to the OpCo Vegas. I'm assuming that it included the Octavius/Linq lease? And also, just wondering if OpCo got the compensation for the Linq in the third quarter?

So yes, it did include the lease, and it did not get the compensation in the third quarter. Susan Berliner - JP Morgan Chase & Co, Research Division: So, Eric, can you just follow-up, I guess, with the compensation for the Linq? Is that still going to be the -- I think it was $69 million of bonds. Or is there any change there with regards to the compensation?

No. There was no change. It was, as you referred to, the combination of the bonds and the cash. Susan Berliner - JP Morgan Chase & Co, Research Division: Okay, right. Okay. And then I guess just the news that just hit with regards to selling the Claridge hotel tower. If you can give any color on that, as well as any other topics with regards to potential asset sales, how you're viewing the market now?

Yes, sure. I'll talk about it briefly and then Gary can jump in on other potential sales. But the Claridge, it was a good opportunity for both us and the buyer. We've had that property next to Bally's for a while. The buyer had a vision and wanted to come in and redo a number of the rooms, redo the lobby and invest capital in the property and remove the gaming, as we'd done about a year ago. So from our standpoint, it's good for the city, it's good for our properties because they'll drive customers to the hotel. And we thought it was a good transaction to undertake. The Claridge has never been an integral part of our Atlantic City strategy, so we thought it was an opportune time to divest the property to somebody who wanted to modify and invest more capital in it.

So I don't think our posture on divestitures has changed. There are a few properties that we've been willing to entertain interest in. In some cases, it's worked out like the sale to Penn of the St. Louis property or in this instance, the hotel. In general, the interest is higher in markets where we have multiple properties, but I don't think our posture on that has changed much. We remain receptive to inquiries. Susan Berliner - JP Morgan Chase & Co, Research Division: Great. My last question was just on, I guess, online gaming. If you can provide any additional commentary, either on Nevada, what you see going forward in New Jersey? And is this -- if there's any chatter out there on California?

Well, we're very pleased with the performance of the business in Nevada. Thus far, it's early on, it's a small market. But you can check a variety of sources and get indications of how our business is fairing against the incumbents, and I think you'll agree that it's off to a good start. We anticipate that New Jersey is ready to go on the 26th of November, as we suggested in our remarks, and so we're ready to go at that time. As far as California is concerned, I think tribal leadership across the major tribes in California has called us around a view that this is something they want to support. So I'm generally optimistic that they'll find their way there. I think the governor is very supportive, so it's always been a question of -- and of course, he has a lot of influence over both houses of the legislature. So I think in the event we get the tribal leadership to the right place, we'll see something favorable in California.

Your next question comes from David Farber with Credit Suisse.

Gary, I had a -- just a couple follow ups on Boston, I just like to get your thoughts. Given the recent Commission decisions, how do you think other gaming commissions or authorities might look at Caesars licenses away from Boston? Is there any takeaway there or anything to think about on a go-forward basis, especially given Growth Venture Partners? Any thoughts there? And then a couple of follow-ups.

No. Look, Caesars is under regulatory scrutiny every minute by jurisdictions all the time. So we're being relicensed and reevaluated. Our executives are being found suitable again constantly. And I really believe the lesson in the Massachusetts decision will be that this standard is not a productive one. I don't believe that -- the way in which that decision was considered or reasoned, will be something that a lot of other jurisdictions will decide makes sense for them. So I -- while I believe we have a responsibility to carefully and responsibly take our regulators through our own thinking on this and our own process, as well as whatever the Massachusetts investigators considered, I don't believe that it bodes poorly for anything that either we or CGP will do. I mean, our partners choose us for this because we had a pristine regulatory reputation, and I don't believe that this experience will act as a mark on that.

Okay, that's helpful. I appreciate your thoughts there. Just a housekeeping item, just giving you guys [indiscernible] hold in the quarter in your prepared remarks. Any way you can sort of help us normalize between CEOC and CERP, just given the entities? Do you have that offhand potentially?

Yes. Las Vegas is mostly CEOC at Caesars Palace. Atlantic City is mainly at Harrah's.

That was the voice of Jacqueline Beato.

I recognize that voice.

Often confused with Donald Colvin. Not at this instance.

And just lastly -- actually to the -- after the close, there was, I guess, just a press release describing the over-allotment from the sponsors. I just wanted to understand it, is the takeaway that Caesars will just own a slightly lesser percentage than they did before, given the sponsors are ponying up another -- what looks like $50 million each?

Well, they're just seeking the ability to take any position that other subscription rivals has failed to execute. The total number of shares available to people other than Caesars is constrained if you own [ph] more than 43% of the total. So at a minimum, CZR will own 57% of Caesars' acquisition. It's just a matter of who owns the other 43%.

Yes. This is just like any other shareholder indicating their interest to own stock. It's just they're such a large shareholder and they indicated that to us that we thought we'd disclose it.

Great, okay. Then lastly, either for Gary or whoever wants to answer, just -- obviously seeing some nice improvements in Las Vegas. The regional trends, I guess, are telling a slightly different story. I was just -- given at this point what's 9 months to the year, curious what to hear -- how you guys think about what's driving performance in some of the regional markets because they seem to continue to be softer. And I'm just curious what you think is driving that. And then that's it for me.

Well, I'll offer a thought, and my colleagues may modify it. Remember, in Vegas, a lot of the benefit we're experiencing is outside the casino. And of course, Vegas has dramatically more to offer outside the casino than do most of the regional markets. So that's a big advantage here. In the regional markets, you notice our trip counts are off, and our spend per trip is either steady or improving. I think, generally, in retail experiences across the country, people are not as active as they've been in prior years, and that's a troubling trend for lots of retail operations, including destination entertainment such as ours. I think until the economy improves and people feel a higher degree of confidence in their circumstances, we may see less-than-robust trends on visitation and perhaps continuing improvement in spend. What Tariq, my CMO colleague, and I are working very hard on is providing enough value for the experience as a -- that we solicit our guests to consider that they make more trips, that they find more unique and particularly inviting things to do in our places, and that stimulates better trip growth.

I think it's also fair to add that we are not expecting any sharp return from there, but we'll welcome it. And as we manage our business, we are driving improved performance through a series of initiatives that I mentioned and also privileging investments in the hospitality area here, particularly in Vegas. And a lot of the benefits from these you will see in the first half of next year, as Gary mentioned. We have suffered a lot from the disruption of construction, and that headwind will become a tailwind. So despite the weak regional gaming markets, we're still very excited about our opportunities to improve our financial performance on a go-forward basis.

The next question comes from Shaun Kelley with Bank of America Merrill Lynch.

Maybe just to stick with the operating environment question for a moment, Gary, I think in the prepared remarks you mentioned that Vegas was looking like up high single digit, at least on the hotel side for next year? But could you drill down on that comment a little bit, just in terms of -- is that -- are you talking bookings or kind of revenue/RevPAR? Is that cash or total? And is that for the full year or just for first quarter? And I can repeat that if you can't remember it all.

No. I think you just tried to dimensionalize the algebra of the question, but thank you. We're talking about the group business. Our forward-looking statement was about the group business. We do see a robust 2014. Our specific statement about comparables was limited to the first quarter, where we said it was the best specific quarter for that business we've seen since the financial crisis, and that is reflected both in occupancy and rate. Now as you know, we build the booking structure on top of the group peaks. So with stronger group occupancy and rate comes stronger FIT rate, less dependence on low-level casino guests. And the whole structure works favorably from that basis.

Great. And then my second question would just be switching gears back to CGP and CIE. Just curious, there weren't any kind of additional or subsequent metrics as it relates to CIE in this release. But just curious, will that be provided to us at a future date or, I guess, with an update on the filing in terms of how that business is performing through 9/30? Obviously, I think we can back into -- try and back into a piece of it through your other -- sort of your other line item? But if you could just give us a little color on that.

Yes, Shaun. This is Eric. Since we're in registration, we're limited on exactly what we can discuss, so there's not a lot of additional information provided here. We will be providing financial statements in the future about that entity in particular once the transaction is complete.

Great. And then maybe just one more on the overall structure but -- for the -- one of the few non-debt guys on the call. If you could just give us -- give me a sense of where -- the $360 million that's going to come in or going to be paid out of CGP back to the company, is that going to come into the parent? Or does that go straight into CEOC? And just what's the general thought or intention behind the use of that cash?

Yes. The cash comes into the subsidiaries of CEOC where it -- where the assets were held, so it would be the Planet Hollywood unrestricted subsidiary and Baltimore. We haven't determined the use of those particular proceeds yet.

Great. And last one would just be, and I don't know if it's possible to give, but just a general sense on a pro forma cash interest expense number after the -- all the transactions that take place on a kind of a quarterly or an annual run-rate basis, after -- particularly after the CMBS refi would be helpful.

Yes. We're not able to provide that on the call today, Shaun, because of the question of the use of the cash and a few other items that haven't been necessarily disclosed in the statements. But once we got all the statements out for the 3 entities, then we'll be able to provide that to you.

The next question comes from Anthony Powell with Barclays.

Given some of the weak trends we've seen in the regional markets, what are you envisioning for the use of proceeds at CGP after these [indiscernible] Baltimore being one of the new launches. Are you planning on pursuing more growth opportunities in the U.S.? Or are you looking abroad?

Well, I think we'll look at both. I hate to give a sort of trivial answer, but the money will go where we think the perceived returns are highest. So to the degree there are international markets, remember that CIE's growth has included some acquisitive activity, and I'm sure that people would be excited about supporting that effort, although the amounts are generally rather small. But it can go to helping activities here in Las Vegas. And if we found new major urban markets like we did in Baltimore that were opening up, those would be attractive uses as well.

Just want to follow-up on the... I'm sorry...

[indiscernible] that will be the decision of the CAC board, which is -- upon which I do not serve and we do not have but a small amount of overlap between the CZR board and the CAC board.

Understood. And one follow-up on the bad debt charge reversal in Las Vegas. How should we think about that next year? Was there kind of a better collection, the trend that kind of drilled a formula? Or was there something else that we shouldn't repeat as we look at the model for '14 and beyond?

No. Just that we'll redo an aging of the debt. And based upon a risk assessment of the aging in the collections, then we adjust the accrual appropriately. So I think you shouldn't see that as being in any way indicative of a new pattern. So I think just business as usual, bad debt depends on the help of some of our major customers. And it goes up and it goes down.

The next question comes from Kelly Knybel with Deutsche Bank.

I was just wondering, I know you guys talked a little bit about 2014 in Vegas, and kind of what you guys are kind of expecting as far as organic growth, growth in the market versus how much your growth projects are going to add to the top line next year? And if you could kind of share your views on that?

I think -- I'd say it is a -- we are confident that we are not waiting for the economy to bail us out, and we are driving our own destiny. And I think if you were to parse it with the different things, we still anticipate that the regional gaming market next year will be challenged. We see the Vegas gaming market kind of flat-ish, I'd say, and the hospitality in Vegas are strong positive. And then you add on to that all the investments and the return we'll get from these investments being a big strong positive. So we see certainly our business improving next year as a result of the positive operating improvements we get from harvesting our investments, particularly in the Vegas market. But we don't believe there is going to be a snapback in the challenged regional markets next year.

The next question comes from Rich Hightower with ISI Group.

Just one follow-up on the Las Vegas group question that has been asked a couple of times. But just a point of clarification, is the high-single digit growth number, does that apply to the first quarter, the first half or the full year? I didn't quite catch that.

Full year.

Full year. Okay. So I think the same -- roughly the same comment was made last quarter, mentioning high single digit growth. Just curious as to what incremental change has occurred since then in terms of bookings?

I don't know that anything all that substantially has changed other than that the realization of bookings has continued to be at the pace we anticipated as the window [indiscernible] a bit.

Okay. And then my second question is also related to Vegas, but it concerns the second half of the infamous 8-K filed a couple of weeks ago. But just on the topic of anti-money laundering investigations and everything that's been announced, I mean, what do you guys think the government is looking for in terms of enhanced screening and background checks and verification of sources of funds and so on? Sorry, I don't know if you guys caught that.

Well, we don't really know. The government comes in and asks for very specific things. We cooperate fully, but they don't give us a very elaborate description of what it is that's motivating their interests. So until we know more, it's very hard to say. You know that one of our competitors settled a civil issue on this matter a few weeks ago, and whether or not this inquiry is related to that or not, none of us know.

The last question comes from Dennis Farrell with Wells Fargo.

I was wondering if you could just break out the pro forma EBITDA for CEOC post the spin out of CGP? And then also maybe address the desire to potentially participate in a sale-leaseback transaction with any gaming REITs out there.

So when you asked that question, my friend, Jacqueline Beato, was shaking her head aggressively negatively. So I think that means we're not going to break out pro forma use on the way you proposed. Although perhaps if you called my colleagues, you might be able to persuade them differently. At least at the moment, I don't think we're in a position to break that out for you. In terms of sale-leaseback to REITs, yes, we would. That is something we would contemplate if the circumstances were appropriate, recognizing the complexity of our capital structure as it is. You have to remember that those are not trivial undertakings for us. But if we found the right conditions that would support such a decision, we'd certainly consider it.

And just one thing, Dennis. If you look at the adjusted EBITDA calculation in the back for the debt covenant, it already backs out Planet Hollywood and Baltimore as an unrestricted portion. So when you look at the covenant EBITDA, it's not in there anyway.

I just was wondering if you could follow-up on Korea? I saw that there was a potential chance that you might try to rebid for that?

Yes. We're taking a look at whether it makes sense for us to take another swing at our proposal in Incheon. I don't know yet how we'll -- what call we'll make on that, but we are giving it some thought. And just returning to your earlier question, these decisions about financing and management are separable, and one is always looking for the lowest cost of capital to finance either a new or an ongoing project. And certainly, we are generally not the providers of low-cost capital despite Mr. Hession's efforts. So REITs typically are low-cost providers. And so where there are instances where you can arbitrage that, give someone a stable rent stream and they can capitalize it very successfully and we can operate it successfully, that's a happy marriage. So we'll look for opportunities like that if ones come along that fit our set of obligations. Operator, we're going to thank everyone for their participation on our call today, and that will conclude our third quarter earnings call. Thank you.