Hello. Thank you for standing by, and welcome to the Caesars Entertainment Inc. 2021 Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations.

Thank you, Josh, and good afternoon to everyone on the call. Welcome to our conference call to discuss our fourth quarter and year-end 2021 earnings. This afternoon, we issued a press release announcing our financial results for the period ended December 31, 2021. A copy of the press release is available on the Investor Relations section of our website at investor.caesars.com. Joining me on the call today are Tom Reeg, our Chief Executive Officer; Anthony Carano, our President and Chief Operating Officer; and Bret Yunker, our Chief Financial Officer. Before I turn the call over to Anthony, I would like to remind you that during today's conference call, we may make certain forward-looking statements about the Company's performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance on them. Forward-looking statements are also subject to the inherent risks and uncertainties and that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the Company's filings with the Securities and Exchange Commission. Caesars Entertainment undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today's call. Also, during today's call, the Company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the Company's website at investor.caesars.com by selecting the press release regarding the Company's 2021 fourth quarter financial results. I will now turn the call over to Anthony.

Thank you, Brian, and good afternoon to everyone on the call. We have delivered another strong quarter. Adjusted EBITDA in the quarter, excluding Caesars Digital was $886 million, up 30% versus Q4 of '19 on a same-store basis. Operating results reflect new fourth quarter records for adjusted EBITDA and adjusted EBITDA margin in both our Las Vegas and Regional segments. 31 of our 52 properties set a record for the highest fourth quarter EBITDA, while 35 set a record for the highest Q4 EBITDA margin. Starting with Las Vegas. Demand trends remained strong throughout the quarter, leading to an all-time fourth quarter record of $494 million in adjusted EBITDA, excluding real rent payments. EBITDA improved 33% versus the fourth quarter of 2019 and margins improved 1,000 basis points to 48%. Total occupancy for Q4 was 86% with weekend occupancy at 94% and midweek occupancy at 83%. Despite an increase in COVID-19 cases in late December and into January, we remain encouraged by booking trends into 2022 and beyond. While group attrition remains elevated, we began to see conventions return to Las Vegas in the back half of '21, and the segment represented approximately 10% of occupied room nights, a dramatic improvement versus the first half of '21. In Q4 '21, we booked a record $160 million of new business in the group segment company-wide. Turning to our Regional markets. Operating results remained strong, especially in markets not impacted by COVID restrictions, construction disruption or property closures. Adjusted EBITDA, excluding New Orleans, Caesars Atlantic City and Lake Charles increased 28% versus 2019, with margins improving by 750 bps to 34%. On a same-store sales basis, we achieved the highest fourth quarter EBITDA and EBITDA margin in the Regional segment in the history of the Company. In our Caesars Digital segment in…

Thanks, Anthony. Hello, everybody. I would echo Anthony's comments thanking our team members. I'm particularly heartened by the way that the team came together in a very difficult environment post closing the Caesars acquisition. This was our first full year owning Caesars, and we're excited to talk about what we accomplished. I'm going to give you some greater detail behind the larger numbers that Anthony went through on the brick-and-mortar side, and I'm going to talk about what we have said in the past and let you measure how we have performed relative to metrics that we've put out. So speaking about the quarter, we were on track for an all-time record in Vegas until the last two weeks of the quarter when Omicron spiked across the country and kind of knit us in the bud in the last two weeks of the year. Omicron continues to impact us in January. January occupancy was about 75% in Vegas. As Anthony said, we were 86% for the fourth quarter. February month-to-date has ticked up to 80%, and we expect March to be into the mid-80s. All of our forward demand indicators look very strong. In Vegas, Anthony talked about the group business, our measure of cancellations to new bookings, so that number peaked in early January and has been coming down quickly since. So we're set up for -- we've got a good setup in Vegas going forward. Regional, similar story, Omicron clipped the last couple of weeks. If you think about New Orleans and Caesars and Atlantic City that we call out, New Orleans and Caesars Atlantic City, both did a little less than half of the EBITDA that they did in the prior year quarter for different reasons. New Orleans because there's a City of New Orleans vaccine mandate…

Well, as discussed, 2021 was a very exciting year for us in terms of executing on our plan to significantly reduce debt alongside continued investment in our growing brick-and-mortar and digital businesses. We expect to continue to do more of the same in 2022 through announced and anticipated asset sales. Tom just mentioned one. The other includes the sale of William Hill International in the second quarter and generation of strong free cash flow. Our 2022 calendar year CapEx spend, excluding Atlantic City, which is funded through escrowed cash includes $300 million of maintenance CapEx, $100 million of Digital capital, and approximately $700 million related to high ROI project capital. We are modeling minimal cash taxes and approximately $800 million of cash interest expense for 2022, which we expect to reduce through debt repayment and opportunistic refinancing. Turn it back to Tom for the operator.

Operator, we'll open up to questions.

Thank you. [Operator Instructions] Our first question comes from Carlo Santarelli with Deutsche Bank. You may proceed with your question.

You spoke earlier about the $1.3 billion of spend and the expected 15% return. So that implies kind of just under $200 million of largely regional EBITDAR. Thinking about like kind of the timing, obviously, there's a lot of projects in there. They all come on at various times. Could you kind of lay out how you to start to see those returns kind of over the next one, two, three years? And when you believe you hit that steady-state $200 million quarterly run rate?

Yes. So you've got Horseshoe Indianapolis, which is the old Indian brand opened its expansion right around year-end. And so we expect to see the benefits of -- we are seeing the benefits of that in '22, the sister property at Hoosier Park, that expansion should be done by the end of this year. So we expect that benefit to start in '23. We're targeting early fourth quarter for the opening of Lake Charles, which should be -- that's about a $210 million project, something like that, where we expect well in excess of that 15% hurdle rate. And keep in mind that 15% hurdle rate is an extremely conservative estimate on that spend. We've got Atlantic City will -- the bulk of that will come online before this summer, so say, before 4th of July. All of those rooms, the bulk of the restaurant product. There's an entertainment piece with Spigo World that will lag, but the bulk of the Atlantic City spend should be online for this summer. So, we should be seeing that in third quarter and beyond. The Pompano parking garage and casino expansion should come online and begin generating those returns in '23. And then the New Orleans project should be online by '24 ahead of the Super Bowl in '25.

Great. And then just, Tom, I know you specifically said like you don't want to get in to property-level results and you did kind of give that $36 million quarterly run rate for New Orleans and mentioned that it was down more than 50%. So if we assume that, that was kind of a $20 million headwind. Could you kind of give a similar metric for Atlantic City to kind of quantify a similar down 50% off of what that 4Q base would have been year-over-year?

Caesars was about a $10 million swing.

That was about 10%. Okay. And then lastly, just as you think about kind of the interplay between slowing down the marketing spend. And obviously, the early push, it's understandable. As you move forward, though, how much do you worry about kind of the, I guess, the way to think about it is kind of the volume and GGR handle that's created from kind of marketing spend in the space on just an absolute basis and kind of relative to peers. If you were to start to more or less start to diminish the brand awareness from a public marketing perspective.

Yes. So keep in mind, Carlo, that what we're largely targeting to start is the traditional media. So you're talking about $0.25 billion worth of spend that we expected that we would have to spend to get to the market share levels that we're already at. The success-based promo spend, you should expect that, that will continue for new customers as you get -- as you convert new customers into, obviously, existing customers as time goes on, the offers become very different and the margin become very different. One thing I should have said on New York, I know there was a lot of focus on our $3,000 deposit match in New York and the thought that, gee, I could just put in $3,000, make a couple of easy bets and withdraw my money. Our average deposit in New York was about $450. So our results in New York were not driven by a lot of $3,000 deposits responding to our offer. It was hundreds of thousands of smaller customers that came to our site. And so you should expect that as you move out of this quarter where you had the biggest launch of all time, you're getting into a period of time where there's far fewer in the way of new launches, and more states should move down the -- dominated by existing customers versus brand-new customers. And the reason that you go after those brand-new customers as avidly, as all of us do is I can tell you within Caesars, when we look at our prior experience in this arena, both in Playtika that predates us, and in mobile states in sports betting. The customer that you find in the first quarter post launch is worth something in the neighborhood of 2x what you find afterward. So there is a method to the madness here in terms of the customers that you're targeting.

Thank you. Our next question comes from Joe Greff with JPMorgan. You may proceed with your question.

Tom, I know you indicated maybe at the end of your prepared comments about your target of a better than 50% annual EBITDA return at maturity. And then just to kind of clarify, does that -- has that time line changed at all or the time frame in which you look at maturity? Has that altered based on your experiences in these last two quarters?

No, none of that's changed, Joe. We -- our thesis was, as we discussed, Caesars Rewards was our advantage that this business would consolidate into -- share would consolidate into a handful of leaders. And what's happened is that's all happened quicker than we thought in terms of the share that we've generated. The handle volumes have been in the market generally have been higher than we anticipated. Our share has been higher than we anticipated, but nothing has changed in terms of the timing. And so what we said was if we do better than we're anticipating in share, there might be more investment than what we were talking about 90 days ago. But the reality is the accumulation of that share happens so quickly that we can adjust those traditional media dollars so that we end up in about the same place from a total investment standpoint with considerably more share than we anticipated, which should maturity increase our ultimate returns.

Excellent. And maybe it's too early on the iCasino side. I know you mentioned by the end of May, you'll have that large quantum of games, 350 games or so at that point. But what's your anticipation as you mark up more on the iCasino side, what that does to your bricks-and-mortar business? Does that enhance it? Or does it go the other way? And does it maybe dip into the land-based business?

So, we've had a double-digit market share in New Jersey for kind of since launch in New Jersey, and we've seen no impact on the brick-and-mortar business. And that's the state where we have the biggest brick-and-mortar presence where iGaming is allowed. We're not active in a physical property in West Virginia. We've got a relatively small property outside of Philadelphia and Pennsylvania and we don't have one in Michigan. So, we don't anticipate much in the way of impact on our brick-and-mortar business as we ramp up in iGaming.

Great. And then my final question, obviously, the fourth quarter so far in January, there's been noise from Omicron actually February, you've had some weather in some markets. But when you kind of think about the fourth quarter and the impact from Omicron on margins, excluding New Orleans and Atlantic City and Lake Charles. When you look at the regionals in the Las Vegas Strip in aggregate, was there much of a delta in property-level EBITDA margins, maybe excluding or trying to account for the impact of Omicron?

That's tough to parse, Joe, given the short time period and the time of the year that it happened. If you want to make a cut what I think. I think Omicron cost us somewhere between $25 million and $50 million in the fourth quarter.

Thank you. Our next question comes from Steve Wieczynski with Stifel. You may proceed with your question.

Tom, I want to ask about the demand for assets along the strip at this point? It seems based on your comments that demand for those assets remains pretty high. But I guess my question is going to be, if you did sell a moderately-sized strip asset, is there any way for you to help us think about what a sale would do for you guys from a yield perspective across the rest of your strip assets?

Well, we're 23,000 rooms today. You're taking out the Rio rooms and then you take out a property, depending on which property it is, let's say, 3,000 to 4,000 rooms. So you're going to be down to, call it, 16,000, 17,000 rooms in the market. That's about 1/4 of our existing capacity. So that's clearly going to have an impact in our ability to yield the remaining rooms. Part of it's where do those rooms come out of our system, and you should expect that's going to be a factor in terms of how we decided which one that we would divest. The less we need to rely on OTA business to fill our rooms, the better both from a customer quality perspective and an ultimate profitability perspective and removing the 5,000 or 6,000 rooms from our system while introducing all of those customers that came in through Eldorado should have an extremely positive effect on rates once we're -- once all the deals are closed.

Got you. Very helpful. And then second question, I thought it was interesting to hear the history of all the acquisitions that you guys have made. And as you look back, back at those acquisitions and look at the improvement in the EBITDA generation of these properties. I'm not sure we're going to be able to do this. But is there any way you can help us think about how much of those EBITDA improvements are directly the result of total rewards being incorporated versus just the assets were being poorly run before and that's no disrespect to some of your counterparts, but I hope that makes sense. Just trying to parse out how much total rewards drives that versus what you guys have done?

That's another one that's hard to answer, Steve. I'm glad you like those comments because it started to feel a little like a rant as I went on and on there. But the -- what I would say is the bulk of what is -- the bulk of what's been generated is removing the marketing to everyone and targeting your most profitable customers, and that sounds simple. But as you know, that was not a particular strength of our industry until relatively recently. And that's the biggest impact and that's another -- that's to get back on the Digital soapbox for it, that's the same problem that faces us in digital that we need to solve. Right now, we're marketing to the entire world that's going to stop, and we're going to start marketing to the most profitable customers. But if you think about food and beverage, Steve, which was where a lot of that marketing took place, right? It was comped, food and beverage. If you look at the Caesars Enterprise in 2019, the combined Caesars, so including the Eldorado side, lost on a cash basis over $200 million in food and beverage. In 2021, we were cash positive EBITDA in Food and Beverage, so about $0.25 billion swing just in that line.

Thank you. Our next question comes from Barry Jonas with Truist Securities. You may proceed with your question.

Tom, any interest in the New York land-based casino here, and I guess, with that, any other land-based markets you're exploring?

So in New York, how do I answer this politely, New York is a difficult regulatory state. I think it's going to be extremely expensive to build there. I think it's going to be an extremely expensive license fee. And I think there's a likelihood that you're going to have to solve some other problem of the city in addition to creating the jobs that you do in building a casino. So it's not going to be enough to pick a site, build a casino, create the jobs and generate a return. There's going to have to be other investment there as well. So I would say, on our balance sheet, it's extraordinarily unlikely that we make a material investment into New York land based. Now there are others that take a different view in terms of the investment opportunity there for a variety of reasons. If one of those developers wants to talk to a manager that brings 65 million reward members and powerful brands, we'd be very interested in having that discussion. Away from New York, we're doing the Columbus, Nebraska project, which is fairly small track in the middle of the state that helps us get into digital in that state as well. There are other states that are kicking around the possibility that might be interesting, but it's unlikely that greenfield new license activity becomes a huge driver of value or a huge suck of our time from Caesars standpoint.

I guess, just to close the loop, gaming, now legal apparently in the UAE. Any chance we could see gaming at your property in Dubai?

Well, that was the original thought when Caesars struck that deal in Dubai that maybe ultimately the UAE would have gaming that is a Caesars Palace in Dubai that we manage. So if there's an opportunity, you should expect that we would be active and our brand and building is already open.

Thank you. Our next question comes from Shaun Kelley with Bank of America. You may proceed with your question.

Tom, I just wanted to dig in a little bit more on New York on the digital side and maybe just get your take on sort of how did the market play out as you got into the cadence of sort of the opening period here? We saw -- I think the promotional environment, the offers that we saw are probably not that different than what we've seen in other markets. But obviously, seems like just the magnitude a number of customers was pretty dramatic. So, I just want to get your sense on how did that play relative to your expectation? And maybe does it require a substantially larger investment than you originally outlayed just given that market is deeper than perhaps you thought initially?

Yes. So Holland I characterize when I was a kid we used to drink out of the garden hose when we're off plan outside. It was as if you were get ready to drink from a garden hose in a title wave came and hit you. It was absolutely staggering the demand in New York. To give you an idea, we had 75,000 inquiries to our customer service portals in the first two days post launch in New York. As I said, it was 2x what we were expecting in terms of volume and our share was 2x of what we were expecting of that volume. In terms of the ultimate -- yes, we have more market share than we anticipated in New York. So the cost of that launch is more than we had originally modeled. But that's also part of the reason that we can start to cut back on traditional media immediately and end up in about the same place, except with much more share than we anticipate.

Great. And then maybe sort of the corollary to that, if you can help us think through the revenue side of how this may play out over the next couple of quarters. When I look at digital revenue in this reported quarter, I think it's actually down a little bit year-over-year and a lot of that probably has to do with promo timing. But just help us think about how revenues are going to come in, especially when you have a couple of these big market launches, New York in this quarter, Canada likely in next quarter before we start to maybe see some of that promo roll off, we actually start to see your success on the net revenue side?

Yes. This quarter, we'll look at the New York and Louisiana launches are both in there. New York, the way that they account for promos as they hit before the net -- between gross revenue and net revenue. So we'll take you through off-line in terms of how that flows through the financials. But you're going to see significant hits to net revenue from the New York launch in this quarter. It doesn't change the overall EBITDA number, but the way that it flows through the income statement is unique. But as you get out of this quarter, when we go into Pennsylvania and Illinois with Liberty, those will be much more modest launches in terms of costs and promo. Those are existing markets where we're going to have to call our share kind of 100 basis points at a time. So you're not going to see that dramatic day one impact that you saw in New York, Arizona, Louisiana. Same thing with Ontario iGaming, you won't see something that looks like those last three states I mentioned until Ohio and or Maryland come on, which sound like later this second half of the year is the tentative schedule there.

Thank you. Our next question comes from David Katz with Jefferies. You may proceed with your question.

I wanted to ask about the Las Vegas Strip. And I know it's not the most normal environs, but there's really yourselves and one other pretty large player that arguably are quite different, but still the biggest players on the same block. Can you help us think about the degree to which -- and I hesitate to use the word, share shifts, but your successes are necessarily their failures and vice versa? Or can you both succeed concurrently? Like how do we think about those puts and takes in this environment?

I like that question, David, because I wanted to talk about this in both digital and land. As the Vegas question, I want everybody to do well in Las Vegas. I don't view the way that we do well is MGM or when -- or Venetian doesn't do well. This market is -- everybody is going to have a good '22 and '23 as the group business comes back. And sure, we fight over customers, we fight over entertainers in terms of normal competitive atmosphere. But MGM as an example, I'm incredibly impressed with what Bill and his team have done at MGM. And it's great to see them get recognized for it in share price And I expect them to continue to succeed as I expect us to continue to succeed. And flipping that into Digital, our ability to succeed from here in my view, is dependent on our ability to do the blocking and tackling to target those valuable customers and service them and roll and melt that business into Caesars Rewards and into our larger brick-and-mortar business. Our business does not depend on somebody else failing or somebody else running out of money. There is enough room in this space for multiple success stories. I would say at least three or four, we intend to be one of them, but we don't need anybody else to fail in Vegas or outside Vegas for us to succeed.

Perfect. And if I can follow up quickly, when we last saw each other in person, which was G2E and we talked about the Strip asset sale, I recall the perspective that time has been your ally. Would you say that it's still been your ally since then to now? Pardon the question, we have to be anxious about something in this job. So how we're doing there?

I'd say no question. We're -- obviously, we had a first quarter last year in Vegas, that had significant restrictions on sensing masking. It was a difficult operating environment. And as we market this asset, we're going to be able to market off a 12-month period that while it was not without impact from COVID, it was a very different cash flow picture than the heavily COVID-impacted times. And then if you look at the last two trades that I've seen in the kind of the PropCo OpCo space was Craig's Trade in Boston and Bill's Trade Opco at Mirage, both of which are exceedingly good comps for anyone who wants to market a Center Strip asset. So we feel like waiting to pursue this now was the right decision, and we're excited about where we can get here. If you recall, we only paid $17 billion for Caesars. I told you the synergy number. So with those synergies, we bought Caesars for less than 6x EBITDA. And the Vegas asset sale is going to bring back 15% plus of those proceeds most likely back onto our balance sheet. So we couldn't be more pleased with the position we're in terms of selling the Strip asset.

Thank you. Our next question comes from Dan Politzer with Wells Fargo. You may proceed with your question.

I just wanted to touch on regionals really quickly. Can you just give us an update? Are you seeing any properties or regions of pockets part of promotions? And I guess outside of Rockford and Omaha, maybe one or two other markets. Can you just remind us where we should be thinking about new competition coming online? And then just one other along those lines, just any update on February trends to date.

Okay. In terms of the promotional environment, I'd say there's nothing to call out that would be material to our outlook as a company. In terms of competitive openings, Rockford is temporary. You'll have Omaha temporaries presumably at some point in '22. We're working through, obviously, the Monarch addition in Colorado, but I should have hit on that one when I was talking about property performance, we took that property over doing $35 million or so in EBITDA. It did over $60 million last year in the face of Monarch opening across the street. And Monarch property is beautiful. So competitive opening is not necessarily the impact that you might expect. You had Spectacle opened their property in Gary on the interstate last year. Hammonds has held in exceedingly well since we -- since that opened, actually flat to up in EBITDA. Anything else you can think of that's going to open?

No.

That's all I can take it in terms of February and February has been stronger than January. As I said, we were 75% occupied in Vegas in January, 80% month-to-date in February for looks strong as well. Super Bowl was really, really good and President's Day weekend was really, really good as well.

Got it. And then just one on the Strip. You talked about margins kind of in that 50-ish percent level and group and convention coming back maybe later in the year. I mean, how should we think about -- is that still fair to kind of think about it as kind of a normalized run rate going forward? Or are you kind of -- are you managing this to grow EBITDA in absolute levels like some of your peers?

Well, I think you're going to see both. This quarter, if you treat the real lease, like you treat all the other leases, we were 48% margin in a seasonal low quarter. So, I'd say high-40s to low-50s kind of straddling 50, is based on seasonality is a good expectation. And we just don't have -- the business that comes back for us with group business helps us in terms of rate compression. So hotel margin and also brings back a banquet business for us that's in excess of the overall Vegas margin. So we think it's accretive to EBITDA and margins as it comes back for us.

Thank you. Our next question comes from John DeCree with CBRE. You may proceed with your question.

Maybe a two-part question, Tom, and I appreciate the trip down memory lane that you took us earlier and all the success you've had in regional gaming M&A. So I wanted to ask if that strategy could be part of Caesars future. I realize there's a lot less white space today, but given the success. And I ask in the context of looking into 2023 when the CapEx that you have currently starts to wind down, EBITDA and Digital and flex, the balance sheet should be delivered, and as Bret talked about some opportunistic refinancing ahead, lots of free cash flow in our model. How do you think about deploying that middle of 2023, not that far away? And if regional gaming M&A could be a part of that strategy?

So I'd say it does seem to be a core competency of ours in terms of squeezing more cash flow out of assets that have been owned by others. So we recognize that. Obviously, it becomes tougher from an antitrust perspective, the larger that you get -- so that would certainly be a consideration. But I'd also say until we inflect to EBITDA positive in digital, I don't anticipate any material buy side M&A from us.

Fair enough. And would the same comment hold true for other uses of capital as we approach the fourth quarter of next year, given the free cash that your portfolio is generating?

It's hard to project that far in the future on that question. Obviously, it's going to depend on what does the valuation look like? If I'm still getting negative $15 a share for Digital, maybe I become a buyer of my stock, but I would expect that we'll have corrected that at that time. And we'll see how the stock behaves. We'll see how it performs as we delever. I think that's going to be multiple enhancing. But by the time frame that you're laying out, we'll know that answer and be better informed.

Thank you. Our next question comes from Chad Beynon with Macquarie. You may proceed with your question.

Two on Digital. One, as you continue to come through the data, Tom, you talked about inflection in Q4 '23. Wondering if the 30% to 35% long term EBITDA margin still holds up in your view? And then secondly, some of the other companies have expanded their digital offerings to marketplace and NFTs, and that seems like a pretty high-margin business to just offer your users. Is that something that you would consider exploring just as your DAUs and MAUs grow?

So Chad, on the second question, I would say absolutely not. I'll tell you what's a high flow-through business and high-margin business. It's the Casino business. And that's what we operate outside of Digital, and we think it's an extremely strong complement to the Digital business. The first quite is the first to two factors.

Yes. So I mean...

And I appreciate that question, Chad. Answer the short answer is no. And I think that's -- there is a -- I think there's a mistake that's made in the investor community that conflates a low hold business with a low margin business. We know of states in our portfolio where we've got strong market share in mobile, where we can operate mobile sports betting well in excess of 50% EBITDA margin. And that's going to mix with other states, which for either competitive or regulatory reasons, the margin is going to be different. But this is a 5%, 6%, 7% hold business. If you think about the Regional Gaming business, a lot of that business is video poker business and hold on video poker games is 3%, 4%, 5%. And we run margins in those properties of 40% to 45%, 50% with the full operating cost of a physical property. So we're extremely bullish on what we'll ultimately be able to do margin-wise in digital, but that will evidence itself as you get out of this launch period and your customers are dominated by existing customers versus brand-new customers.

Thank you. Our next question comes from David Bain with B. Riley. You may proceed with your question.

Great. Very helpful commentary and transparency. We agree the balance sheet activity is a near-term catalyst for valuation. And kind of just hoping maybe, Tom, you could big picture the balance sheet playbook that captures the William Hill proceeds, the forward strip asset sale, free cash flow from operations, interest savings. Is there a net leverage kind of target or expectation by the end of next year when you funnel those items in?

Yes. So we have the entire -- the bulk of the capital structure that we would want the debt structure, we want a target is available to us by the middle of this year. Our unsecured debt in the current environment trades, what, 5.25%, 5.5%? So that's our most expensive debt, the secured debt trades cheaper than that. Bret laid out what we're spending in interest expense. We think there's considerable opportunity to reduce our interest expense. We're at about $22 billion, $23 billion of gross lease adjusted leverage. We're generating as a cost in the neighborhood of $2 billion of brick-and-mortar free cash flow. You know what's coming in from the William Hill transaction, and you can make your own assumption on what Vegas assets Strip -- our Vegas Strip asset sale would bring and then we'll spend some in terms of investment into Digital. But you could see us certainly within the next 18 months or so kind of somewhere in the mid- to high teens in terms of outstanding lease-adjusted debt and our leverage would be somewhere in the 4s when we inflect to positive in Digital when it would start to come down considerably. So you could see leverage get to relatively low levels pretty quickly, certainly in the next 18 to 24 months.

Okay. Great. Understand. And then just lastly, when looking at news impacting the stock market, including today, and the overall patron economic setup this year with indirect stimulus versus direct last year. How should we view the kind of the macro setup overall, understanding there's specific catalysts that you mentioned like conventions coming and the older demographic coming back. But just if you could big picture that as well, that would be helpful.

Yes, I'd say our business, not just our business, then since reopening has been highly correlated to both the COVID case counts and the coverage of COVID in general. When the coverage leads to fear we see reduction in business. And when you get to where we appear to be getting to with Omicron, we tend to see pent-up demand. We see no reason that, that would be a different scenario this time. The household savings rate is still at extraordinarily high levels relative to history. The Fed obviously has a big job in front of them in terms of managing inflation as we move forward and what they do with rates. And that's obviously an exogenous effect that could impact wealth effect if they make a move that the markets don't like, but we feel generally very positive with where our consumer is. That 55-plus customer is still not back in anywhere near the levels of the younger crowd, and that historically has been a key driver of business both in destination markets and regional.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Tom Reeg for any further remarks.

Thanks, guys. That's all we got. We'll talk to you after first quarter.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.