Caesars Entertainment Inc (CZR) — Q1 2017 Earnings Call Transcript

Thank you operator and good afternoon, and welcome to Caesars Entertainment first quarter 2017 results conference call. Joining me today from Caesars Entertainment Corporation are Mark Frissora, President and Chief Executive Officer and Eric Hession, Chief Financial Officer. A copy of our press release, certain earnings presentation slides and a replay of this conference call are available in the Investor Relations section on our website at caesars.com. The slides are available for download and will accompany Mark and Eric's prepared remarks for those of you on the phone that would like to follow along. Also, please note that prior to this call, we furnished a copy of this afternoon's press release to the SEC in a Form 8-K and will shortly file our most recent Quarterly Report on Form 10-Q for the first quarter 2017. Before we get underway, I would like to call your attention to certain statements and information on slides 2 through 4, which we incorporate by this reference. The forward-looking statement Safe Harbor disclaimers in our public documents cover this call and a simultaneous webcast at caesars.com. This call, the webcast, and its replay are the property of Caesars Entertainment Corporation. It's not for rebroadcast or use by any other party without the prior written consent of Caesars Entertainment Corporation. If you do not agree with these terms, please disconnect now. By remaining on the line, you agree to be bound by these terms. Today's call will include discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin, property EBITDA and certain supplemental financial information. Definitions of these non-GAAP measures, reconciliations to the nearest GAAP measures, and the reasons management believes these measures provide useful information for investors can be found on slide 3 and in the appendix to this presentation beginning on slide 26. These non-GAAP measures are not preferable to GAAP results provided elsewhere in the presentation or discussed on this conference call. As a reminder, Caesars Entertainment Corporation or CEC is a holding company with the following consolidated entities, Caesars Entertainment Resort Properties or CERP and Caesars Growth Partners or CGP. CEC also has a majority ownership of Caesars Entertainment Operating Company or CEOC, but CEC’s financial results do not include the results of CEOC and its subsidiaries following its Chapter 11 filing on January 15 of 2015. In addition to a review of CEC’s reported financial information on this call, we will also discuss certain supplemental financial information regarding CEOC, including certain remarks that combine CEOC’s results with those of CEC. The reasons representing such non-GAAP information and certain cautionary statements with respect thereto can be found on slides 3 to 4 and 32 of this presentation. As used during the call, the words, Company, Caesars, Caesars Entertainment, we, our, and us, refer to Caesars Entertainment Corporation and its consolidated entities unless otherwise stated or the context requires otherwise. As seen on today’s agenda on slide 6, we’ll begin the call today with some remarks by Mark whose comments will also generally relate to the entire Caesars Enterprise, including our deconsolidated subsidiary, CEOC. Eric will then review our financial results before Mark concludes with some closing comments, we will then open up the call for your questions. If you turn to slide 7, I’d like to turn the call over to Mark.

Okay. Thank you, Brian. And I’m pleased to report that Caesars Entertainment delivered another quarter of solid financial and operating performance driven by higher Las Vegas hotel cash revenue growth and an associated increase in cash ADR. The first quarter results reflect our continued focus on improving operating efficiency as well as the successful execution of our strategic initiatives. The positive impact of our ongoing investments in our properties, especially room product, is particularly evident in these results. At CEC, which excludes CEOC, first quarter net revenues increased 1.4% to $963 million, net loss was $546 million largely due to a $466 million accrual related to the restructuring of CEOC. The accrual amount is mainly driven by CEC’s stock price because a significant portion of the liability would be settled in CEC common stock. Consequently, the rise in CEC’s share price in the first quarter led to the higher accrual. Adjusted EBITDA increased 5% to $274 million, with the EBITDA margin rising 98 basis points year-over-year. On an enterprise-wide basis, which adds CEOC to CEC, first quarter net revenues decreased 1.4% to $2 billion and adjusted EBITDA grew 1.1% to $551 million. EBITDA margin increased 65 basis points to 26.9%. The decline in enterprise-wide revenues was driven by lower reimbursable management costs at CEOC related to the divestiture of the Ohio properties and impact of unfavorable hold at $15 million to $20 million over the year-ago period. However, Las Vegas hotel revenues and other hospitality verticals helped offset the decline. If we sort of the influence of the divestiture, enterprise-wide revenues were up year-over-year, we generated all-time record hotel cash revenues growing two out of the three months in the quarter, leading to a 9.4% year-over-year increase in this vertical. We achieved these monthly hotel cash revenue records even with over 90,000 room nights out of service for renovation. Our properties benefited from strong demand and increased rates as well as the positive impact of our hotel yield optimization processes. EBITDA further benefited from increased operating efficiency and lower operating expenses. These improvements were partially offset by unfavorable hold while gaming volume was flat year-over-year on an enterprise-wide basis. Regional markets as a whole underperformed Las Vegas, reflecting a generally weaker regional economic environment. The first quarter had one fewer day and one less weekend than the year-ago quarter, negatively impacting the year-over-year comparison. The effect was more evident in regional markets than it was in Las Vegas. The success of our room innovation projects starting to come online was clear in the first quarter with Las Vegas cash ADR at 11% Enterprise-wide. On slide 8, you will see the investments in our Las Vegas properties are not only driving cash ADR but when combined with our customer-focused hospitality initiatives, we are also increasing market share. On a net revenue basis, we gained 200 basis points of Las Vegas market share enterprise-wide over the last nine quarters, reflecting our success in differentiating our offerings. Over the same period, EBITDA surged 52% and EBITDA margin rose 850 basis points enterprise-wide. On slide 9, we highlight our enterprise-wide strength in Las Vegas for the first quarter. Specifically when looking at gaming volume market share, adjusted EBITDA margin and net revenue per marketing dollars, we maintained share while improving profitability compared to the prior year period. In addition to our continued financial execution, we also made great progress towards the resolution of the CEOC’s restructuring. Following core approval of the reorganization plan in early Q1, CEOC successfully priced a $1.4 billion senior secured credit facility at LIBOR plus 250 basis points. The Maryland Lottery and Gaming Control Commission approved the merger of Caesars Entertainment and Caesars Acquisition Company, and we are optimistic that CEOC will emerge from Chapter 11 during the second half of the third quarter. With the restructuring concluded, management will be able to turn its full attention towards strategic priorities and realize the full growth potential of the business. We are also working on reducing the cost of capital at CGPH and CERP. CGPH repriced its existing $1.14 billion term loan B and is subject to receive regulatory approvals to raise an additional $175 million to repay the entire loan at the Cromwell. We anticipate this action will reduce our annualized interest expense by roughly $38 million. We have also launched the repricing effort on the CERP credit facility and if successful, we could realize further annual interest savings of over $50 million. As I have mentioned on previous calls and can be seen on slide 10, our four pillars are showing initiatives that form the basis of our plan to expand margins and grow cash flows through revenue and efficiency initiatives while driving employee engagement and customer satisfaction. On slide 11, we look at the first of those four pillars with progress on enhancing our hospitality and loyalty programs. During the first quarter, we continued to focus on growing the number of members in the elite tiers of our total rewards program and enhancing member benefits. First quarter spending by total rewards members reflects our success with VIP members spending up 6.8%. During the quarter we launched total rewards dining, which allows members to earn reward credits by dining at any one of over 11,000 restaurants, bars, and clubs nationwide. Outside the U.S., we also extended our relationship with the Atlantis Resort in the Bahamas, with a significant number of guests taking advantage of the partnership. Guest earnings rewards towards the Atlantis partnership program have exhibited higher gaming and total spend in our properties. We continue to invest heavily in our Play By Total Rewards mobile app which was downloaded 1 million times last month, with the 1 millionth member winning a complimentary trip to a Caesars property here in Las Vegas. We remain focused on further enhancing total rewards with new features including an itinerary service, coordinated omni-channel communications, and location-based messaging capabilities. These efforts are directly linked to our goals of increasing customer engagement and satisfaction, and in turn, expanding spending at our properties. Turning to slide 12, investment in Caesars infrastructure in Las Vegas and regional properties continue to drive our financial performance and long-term value proposition. With the room and property renovation plan in place through 2020, these efforts are aimed at delighting our customers, further improving customer satisfaction scores, and continuing to drive cash ADR higher. We plan to refresh approximately 7,000 rooms across the enterprise during 2017 and by the end of the year, we will have upgraded more than half of our Las Vegas portfolio since 2014. In the first quarter, we began work on 1,100 Palace Tower rooms at Caesars Palace. As planned in Hollywood, we are nearly halfway through our renovations of over 2,000, a project we expect to complete by the end of the second quarter. Our Las Vegas investments continue to be an excellent use of capital representing low-risk and high-return opportunities. Moving to slide 13, we are investing nationwide with projects underway at several regional properties and here at Harrah’s Atlantic City, we are renovating 450 rooms in the Bayview Tower as well as making a number of other hospitality and food and beverage-related improvements. These projects helped to maximize the performance of the waterfront conference center, delivering a more competitive room product, boosting incremental cash ADR, as well as helping to drive banquet revenues. We also recently completed renovating approximately 500 rooms at Horseshoe Southern Indiana in the first quarter of 2017. In terms of post-renovation results, our room refresh at Harrah's Gulf Coast in Velocity, completed in May of 2016, has delivered excellent results with lodging revenues rising more than 20% year-over-year in the first quarter. Slide 14 details some continuous success of our entertainment strategy. Core to this strategy is making our Las Vegas venues the destination for headliner acts that appeal to a wide array of audiences. As part of this strategy, our Las Vegas venues, particularly the Colosseum and the Axis, have become known as the destination for a roster of headliners that appeal to a wide range of visitors who come to Las Vegas every day. Many of our entertainers are the primary reasons some visitors travel to Las Vegas. Key additions to our headliner lineup include The Backstreet Boys, the best-selling boy band of all time. They gave their Las Vegas show, Backstreet Boys: Larger Than Life, in March at the Axis. Their 26th show residency is one of the fastest selling shows in Las Vegas history. In the opening weeks of their residency, The Backstreet Boys set a new record twice for the largest residency audiences in Las Vegas history. The early success of these new shows is consistent with our other recent successes in entertainment. This summer, The Who, one of the rock's most legendary and defining bands, will launch a Las Vegas residency at The Colosseum. We will also welcome the return of Pitbull's Times of Our Lives residency at the Axis in late summer 2017. Overall, our headliner business continues to drive incremental hotel, gaming, and food and beverage traffic. Looking to slide 15, and our strategy aimed at enhancing the customer experience, we continue to invest in our offerings including breaking new ground in the gaming innovation space. In March, we announced Las Vegas' first-to-market interactive video gaming experience, Planet Hollywood, and our Harrah's Resorts in Southern California is now the first to deploy skill-based gambling tables in California. Planet Hollywood is initially featuring two new offerings, Gamblit Poker and Cannonbeard’s Treasure, both of which provide a completely new social competitive gaming experience that guests can enjoy together. The new games have received promising reviews thus far. Pending final regulatory approval, additional interactive skill-based games will be installed at our various properties throughout Nevada. We have also moved to support our gaming innovation leadership with the appointment of Christian Stuart as the Executive Vice President of Gaming and Interactive Entertainment. This newly created role exemplifies our commitment to being a leading gaming innovator in our industry. Our strategy here focuses on offerings that intertwine mobility, technology, and innovation with best-in-class gaming, hospitality, and entertainment. On slide 16, we provide an update on our business process improvement efforts, focusing on increasing the efficiency of our operating model. A good example is the latest update on our check-in and check-out kiosk program. Improving on first generation kiosk pilots, we are reducing customer check-in wait times and lowering costs, all while improving the customer experience. At Planet Hollywood, where we launched our latest generation kiosk hardware, utilization rates of the kiosks hit 26% of all guests within weeks of deployment. Overall, kiosks are reducing front desk check-in times by 40% while improving total service scores more than any other single initiative on record. Due to the success we have experienced in Las Vegas, we are expanding the kiosk product; Atlantic City is next on the list. We constantly look for ways to optimize our operations, marketing and technology programs to improve the customer experience, increase visitation and drive productivity to our key customer engagement channels. I will now ask Eric to provide a more detailed review of this quarter’s results.

Thank you, Mark. I’ll start with a review of CEC’s results, followed by a review of the Company’s reportable segments and supplemental information, which will include CEOC’s performance as well. Slide 18 summarizes CEC’s results, which do not include CEOC as it is not consolidated, nor CIE’s social and mobile games business as it was sold in September of 2016. For the first quarter of 2017, CEC’s net revenues increased 1.4% to $963 million, mainly driven by improved Las Vegas hotel performance. This was offset by lower gross gaming revenues due to unfavorable hold and lower gaming volume primarily at CGP. Net loss for CEC is $546 million in the quarter compared to a net loss of $308 million in the first quarter of 2016, which resulted in a net loss of $3.71 per share compared to the net loss of $2.12 per share in the year-ago period. Year-over-year declines in net income and earnings per share were driven primarily by $466 million related to the restructuring of CEOC. As Mark noted earlier, as CEC's stock price rises, we incur a higher accrual related to the restructuring of CEOC since the significant portion of the liability will be settled in CEC common stock. Accordingly, the rise in our share price during the first quarter led to the higher charge and negatively impacted net income. Due to this charge, we believe it's beneficial to provide adjusted EBITDA figures to provide visibility into our operational performance. Adjusted EBITDA increased 5% to $274 million with a margin increase of 98 basis points mainly due to higher hotel revenues and improved operating efficiencies, partially offset by lower gaming and food and beverage revenues. Hold was estimated to have an unfavorable effect on operating income of between $10 million and $15 million for the quarter relative to our expected hold and an unfavorable effect of between $15 million and $20 million when compared to the prior year period. Turning to slide 19, Caesars Entertainment Resort Properties delivered a strong first quarter performance. Net revenues were up 3% year-over-year to $546 million due to increased hotel cash revenues and higher gaming volume. Gross gaming revenues increased 3% year-over-year despite unfavorable hold during the quarter. Hotel performance improved with the completion of the rooms at Harrah’s Las Vegas and Paris as well as improved results from Flamingo, all of which helped drive a 10% year-over-year increase in hotel revenues and higher cash ADR. CERP's hotel performance benefited as room nights out of service in the first quarter of 2017 dropped to 19,000 compared to 47,000 out of service in the year-ago quarter. Going forward, we anticipate a reversal in this trend and expect a negative impact as rooms will be out of service undergoing renovation in Harrah’s Las Vegas, Flamingo and Laughlin during the second half of the year. CERP's net income increased $22 million year-over-year to a net income of $6 million compared to a loss in the year-ago period. Adjusted EBITDA increased 8.2% year-over-year to $171 million with adjusted EBITDA margins up 139 basis points to 31% mainly due to higher hotel and gaming revenues, partially offset by the negative impact of unfavorable year-over-year hold and room nights out of service due to a fire at the Rio in Las Vegas. Hold was estimated to have an unfavorable impact on operating income of between $0 million and $5 million in the quarter relative to our expected hold and an unfavorable effect of between $5 million and $10 million when compared to the prior year period. Slide 20 summarizes the performance of Caesars Growth Partners. Caesars Growth Partners' net revenues of $421 million in the first quarter declined 1% year-over-year primarily due to a decrease in gross gaming revenues related to unfavorable hold and a sizable amount of room nights out of service due to our renovation schedules, partially offset by strong cash ADR growth in Las Vegas. CGP growth gaming revenues declined due to unfavorable hold in New Orleans and Baltimore, as well as weaker gaming volumes in Baltimore related to an anticipated increase in competition and a short-term dealer shortage. We have taken steps to recruit new dealers at Horseshoe Baltimore and expect to have staffing ramped up towards the end of the current quarter. Hotel cash revenues were flat year-over-year, a strong ADR offset the impact of room outages. CGP's net income decreased $27 million year-over-year to $7 million, primarily attributable to lower net income from discontinued operations associated with the sale of our social and mobile games business at CIE and accelerated depreciation due to room renovations at Planet Hollywood, slightly offset by lower stock-based compensation of CIE. Adjusted EBITDA increased 1.9% year-over-year to $109 million, and adjusted EBITDA margins increased 77 basis points due to lower year-over-year operating expenses across marketing and labor, as well as reduced gaming taxes at Baltimore as a result of the slot tax reduction initiated in December of 2016. We estimate that hold had an unfavorable impact on our operating income of between $10 million to $15 million in the quarter relative to our expected hold and an unfavorable effect of between $5 million and $10 million when it compared to the prior year period. Slide 21 shows supplemental information on CEOC’s first quarter performance. Net revenues decreased by approximately 4% year-over-year to $1.1 billion. The decline in revenues was attributable to lower reimbursable management cost of approximately $32 million related to the divestiture of Ohio properties, lower gaming volume, and lower food and beverage revenues. It's important to note that while the lower reimbursable cost negatively impacted revenues, it did not have a similar effect on operating income as there is an offset of an equal reduction in expenses. Hotel revenues rose as a result of higher cash ADR at Caesars Palace, reflecting the newly renovated investments in the Augustus and Julius towers. Room nights out of service in the quarter totaled 32,000, down from 47,000 in the prior year period. At CEOC, adjusted EBITDA decreased 2.8 to $276 million, primarily driven by lower gaming revenues, partially offset by higher hotel revenues and cost efficiency improvements. EBITDA margins, however, increased 18 basis points from the prior year period due to lower operating expenses and the elimination of the pass-through revenue associated with the Ohio properties. We estimate that hold had a favorable effect on operating income of between $5 million and $10 million in the quarter relative to our expected hold, and an unfavorable effect of between $0 million and $5 million when compared to the prior year period. Now let’s take a look at slide 22 for additional supplemental information on the entire enterprise for the first quarter, which includes CEC and CEOC. Caesars enterprise-wide net revenues were down 1.4% to $2.0 billion; the decrease was primarily due to lower net revenues at CEOC I have described earlier, lower gaming revenues related to unfavorable hold and a 2% decline in food and beverage revenues. These factors were partially offset by the strength in hotel revenues, which were up 6.4% year-over-year. Adjusted EBITDA increased 1% year-over-year to $551 million and margins expanded 65 basis points primarily due to higher hotel cash revenues and low operating expenses, all partially offset by unfavorable year-over-year hold. Hold is estimated to have an unfavorable impact on operating income of between $5 million and $10 million in the quarter relative to our expected hold and an unfavorable effect of between $15 million and $20 million when compared to the prior year period. As we move to the second quarter of 2017, from an enterprise-wide perspective, we have faced headwinds of approximately $20 million due to unfavorable hold in the second quarter of 2016, as well as inflationary cost pressures including salary and benefits. We remain diligent in managing these pressures in the quarter and beyond through our business process improvement initiatives. We also expect the ongoing room renovations across our hotel portfolio will result in greater inventory disruptions this year, with an estimated 18,000 more room nights out of service enterprise-wide in the second quarter of 2017 versus the same period in 2016, which we will also attempt to mitigate. Additionally, we are monitoring the performance of Horseshoe Baltimore as it absorbs the presence of a new competitor. Slide 23 provides a summary of quarter liquidity and projected capital expenditures for the CEC consolidated entities. Our investments in high return, low risk areas, such as room renovations, coupled with our more efficient operating model, have resulted in improved cash flow profile. At CEC, we generated $125 million in cash from operating activities in the first quarter, roughly double the year-ago quarter. Cash flow was largely used to reinvest in our core business through property renovations, as well as the acquisition of additional real estate located behind our link hotel. We also leveraged operating cash flow to completely repay $40 million of revolver that was outstanding for CERC. We will continue to look for opportunities to optimize our cash flow through efficiencies and profitable growth investments to drive value to our stakeholders. I’ll now turn it back to Mark for closing comments.

Thanks, Eric. Please turn to slide 25. In summary, the company’s first quarter performance reflected the continued successful execution of our strategic objectives including the positive impact of several of our newly completed renovation projects coming online. The 9% year-over-year increase in enterprise-wide cash ADR is clear evidence of the value we are creating by investing in our properties and ultimately our ability to deliver an improved customer experience. Our strict focus on continuous improvement for enhanced operating efficiencies with net revenue per employee rising 7% over the last nine quarters. As we continue to execute on our cornerstone initiatives, improving an aggressive capital investment plan in place through 2020 to refresh our properties, we are laying the groundwork for further improvements in our operating performance, margin expansion, and long-term profitability. On an enterprise-wide level, recent capital markets activities have reduced interest rate expense and improved future cash flows. As we seek to complete CEOC’s restructuring, we are laying the foundation for new growth opportunities to expand our network and increase shareholder value. We will now open the line for Q&A, and we would ask that you keep the questions focused on business performance please.

Hi, great. Thanks for taking my question. First off, I wanted to start with margin expansion, Mark you ended with that. And more importantly just focusing on the Las Vegas property margin opportunities. You mentioned some of the efficiencies that you have initiated here and we can see the result in the margin. Can you just help us think about either flow through maybe margin upside sustainability in terms of what you’re able to produce this quarter, to just kind of give us some better goal post in terms of what some medium-term goals could be for Las Vegas margins? Thanks.

Yes, I mean I think because we have got so many rooms that will be under refurbishment for the next several years. I think the cash ADR, which is a number that flows quite readily all the way through to the bottom line, will continue to be significant. We haven't gotten involved in kind of predicting what it is, but we feel good about the fact that we continue to have quite a few number of rooms yet to finish, if you will. And then in addition to that on kind of reengineering efforts or continuous improvement efforts, our continuous improvement program really got started last year and it's gaining momentum. We are getting more and more high-quality projects where we increase the number of Black Belts that we have in the company and we will continue to increase that over the next two years frankly. And so that will gain momentum we believe because these projects again, the requirement is they have to hold neutral to improve customer satisfaction, as well as improve employee engagement. So we are doing this in a very positive way and we are implementing sophisticated technology improvements in some cases that give us continuous improvement and productivity, and other things like the kiosk, but even just reengineering the planning that we do at the front desk or at a buffet and making sure that we turn seats faster. So just a lot of what I would call using math and science to improve customer satisfaction through continuous improvement efforts, that’s going to continue as we are building that into the culture. I would say that we are not even halfway through that journey yet.

Okay, thank you. And then turning to CEOC’s first quarter performance, you noted that the result was affected by lower casino revenues. We have seen from a lot of the regional gaming operators that things did turn more positive as we got further along in the quarter. Can you confirm that this happened with you guys and maybe just kind of an overall outlook in terms of how you are viewing the general regional business at this time given that January and February months had some difficult weather and difficult calendar and it appears to turn more positive way? Thank you.

Sure Chad, this is Eric. Yes, it was a very interesting quarter from a calendar perspective. New Year had an odd effect on January and then, you know, in February due to leap year there was a day less. There is also the tax return phenomenon and as a result, when you look at the gaming revenues published by the states and the commentary of our competitors, we would echo the same results here. January and February were fairly challenging months and then March was quite robust. I would say at this point due to all of the different factors affecting the first quarter, it's very difficult for us to tell whether there has really been a change in any of the trends that we saw last year. We will hopefully have the results in March continue, but I think it's too early to predict anything along those lines. Broadly speaking, we continue to see weakness in the Louisiana Mississippi region and again we have talked about some in past calls where we believe that is primarily driven by the local economy being focused on the oil and gas industry given the change in pricing and lapping some of the reductions in the oil pricing. Hopefully that will subside. And then the rest of the regional markets, as I mentioned, were fairly volatile month-to-month, and so I hate to call it a trend at this point in time considering that volatility caused by the calendar shifts and tax returns.

And I'll just add to Eric's comments. I think that obviously we have our own internal plan and never stretched plan, I mean we pretty much, I would say, predicted what the gaming demand has been as well as the hospitality demand. We feel like we have been exceeding our plans so there has been those surprises to the downside. But March was a positive month, we saw some nice continuation of those trends in the first couple of weeks of April. So again we are hopeful, but it's too soon as Eric said to predict exactly what this is going to mean for the rest of the year. But overall we feel pretty good about where we are from our plan standpoint and that we have been exceeding our plan.

Great, thanks. I'll jump back in the queue. Thank you.

I had just three questions. I wanted to first just on the operations side, there continues to be a significant amount of investment in Las Vegas from you and your competitors in both the hotel product and some large non-gaming projects. I was curious given some of the underutilized land you have in the deck and you've talked about in the past if you are at all considering incremental investment in Vegas away from the hotel rooms as you build cash, and what types of projects might you consider in Las Vegas or if not, maybe otherwise in other states or jurisdictions and then I had some follow-ups. Thank you.

Eric and I will both answer this, but I certainly believe this is one of the biggest investment theses for us going forward post-merger. We have a lot of great land available that is obviously underdeveloped right now center strip, and we might imagine we have talked a lot about that internally and we have a lot of plans. As those plans are well defined and we think they are very great projects that have significant returns to them, it's an effort that is near and dear to our heart and so we feel positively about the future and our development of Las Vegas. Eric, do you want to add to that on regions as well as anything else in Vegas?

Yes, the thing I would add David, is that we do continue to be very bullish on Las Vegas as a market. When you think about those supply and demand dynamics in this market, it's positive for the existing operators. The supply from both Southern California as well as the air traffic continues to show that there is strong demand, as well as the group business keeps holding up. And then from the demand perspective and then from the supply perspective, there doesn’t seem to be much expansion on the horizon at least in the next two to three years. And so from that dynamic, when you get high hotel occupancy rates as we have seen, your ADRs can really rise, and that's what we are experiencing here in Las Vegas. So from that standpoint, we continue to believe our investment in the room products is a very good one. As we have seen this year, we are planning to renovate around 7,000 hotel rooms which will be a very large effort on our part; significant amount of capital much higher than what we would expect to invest in future years and we do expect to get solid returns from those. As Mark mentioned, we have sizeable land holdings on the east side of approximately 80 to 90 acres, and then we own about seven acres of undeveloped land in front of Caesars towers, which would all be prime for potential development from additional convention space to retail to other offerings that our customers would desire.

Okay, very good. Just on CEOC for a minute, there has obviously been some very strong results over the past year especially in the margin side. You spoke to us a little bit in the Q&A, but I guess my question is given the magnitude of the improvement and then this first quarter’s results, curious if you think we may get a peak perhaps in EBITDA, absent new revenue, or how do you guys think about CEOC's EBITDA and margin profile going forward given that improvement over the last year plus? And then I had one quick question on the cash structure. Thanks.

I guess, you know my comment would be that we feel like there is still plenty of runway for improvement. We have again, I mean very methodical about how we govern the rate of improvement because we don’t want to overly stress the organization on the plans that we have. We have a lot of plans yet for improvement to go forward with. And I think that this quarter, I think you heard us talk about what I would call bad hold if you will year-over-year, and as well as having 90,000 room nights out. So there are a lot of moving pieces, but as you kind of neutralize those pieces and normalize, again for us a solid quarter and within our plan and I think that we have tried to make sure that the fast-forward has not only a lot of growth in it, but saw growth initiatives that some of those were starting to really kick-in now. We worked really hard on our application on total rewards; we have worked really hard on mobile booking in our websites and those initiatives are really paying off for us.

Okay. Thanks for that. And just quickly, you have been in the loan market recently, I was curious to hear if there are any updated thoughts on what CEOC’s emergence could look like. You talked about the second half of the third quarter and I guess my question specifically is, is there any updated thoughts on potential refinancing for the high-yield portion of either CERC or growth venture partners? Thanks and that’s it.

Sure David, as you know we have been fairly active in the loan market with respect to securing the CEOC exit financing. We also repriced our CGPH facility and upsized to take advantage of rates with respect to retiring the Cromwell debt pending regulatory approval. And then we are in the market to CERP term loan. It’s not lost on us that there is an additional potential opportunity with respect to the bonds. The bonds do come with associated call premium and also they would be refinanced with other bonds; then there would be additional if we were to eventually refinance the entire structure and to complete the merger of the two facilities. We are certainly active in discussions in and outs as trying to figure out the best way to optimize our cost of capital. So rest assured we are looking at all the possibilities and we will take advantage of the market conditions when they present themselves, but right now we are primarily focused on the CERP term loan with pricing and making sure that we are able to exit the restructuring as soon as possible.

Very good. Thanks for taking all the questions.

Hi, thank you. Actually just a follow-up on the last one, Eric just relative to emergence, are you able to consider merging CGP and CERP prior to that, or do we need to wait for that? And then as it relates to potentially considering refinancing bonds, is that also something that needs to wait for those two events to happen? And do your current credit facilities that are new allow an easy path to that? Thank you.

Yes, so unfortunately, I don’t have a clear answer for you because we do evaluate all the options based on how the market conditions are and all the information that we have at the time as I mentioned to try to come up with a ultimate capital structure that has the lowest cost of capital for the company. In this particular case, merging the two facilities is particularly challenging given that they are currently owned by two different public companies. And so that likely we have to wait until after the emergence simply from a practical nature of the collateral being held by two different entities. The term loans that we are currently repricing should not have any impact or negative cost associated with any of our future actions; they both will consist of a tougher repricing of six months but otherwise they can be retired at par. So the actions that we are taking with respect to CGPH and CERP should have no negative effects long-term with respect to our capital decisions. And from a positive side it allows us to take advantage of the current market conditions and lock in some of the strong interest savings that we can anticipate to realize in the future.

Thanks. And then Eric, you also talked about a $20 million hold headwind in the second quarter of this year and then there was something else you mentioned with salaries, I’m sorry I missed that; so some clarity there? And then that the hold headwind was that enterprise-wide and if it was, is there any rough numbers you can give on the three silos?

Sure, so the enterprise-wide hold impact was about $20 million plus. We didn’t provide guidance broken up by the various silos, but just wanted to highlight. And to your second question with respect to the salaries and wages as we go through various contracts with our employees as well as increases in salaries and benefits, there is general inflation that comes through with respect to those categories. Our expectations are where that we challenge our management team to offset those increases with productivity actions; however, we do like to call out the fact that we are experiencing increases from an inflationary perspective in those categories.

Thanks and then just one last one, where do you expect to be at year-end 2017 in terms of percentage of property renovations and then just looking forward how much more do you have to do in the years following 2017? Thank you.

Yes, as you know we were very active; we have got slightly over 35% of our rooms completed now and we would anticipate at the end of 2017 to be at around 56% completed. That will be completed since 2014, so these will be very fresh room nights. As I have mentioned previously, we anticipate this year being our peak CapEx year and going forward we would expect to continue at a slowly elevated pace, but our long-term capital requirements would need. But we will be able to do fewer and fewer rooms in 2018, 2019, and 2020 before getting down in 2021 to a flat run rate over the long-term expected amount of capital that we would be spending.

Great. Thank you guys.

Hey everyone, thanks for the questions. If I could just build on the last question, Eric, given how high the ROI has been on the room renovations and this year being up of the peak CapEx year. Is there any thought or opportunity to pull some of the room renovations from 2019 or 2020 forward a little bit to begin renting that up, or is it just maybe too much inventory disruption?

Yes, it's a good observation and I'll make a couple of comments on that. One is our current plan does really do what you're describing, which is that we have accelerated along with many of the room renovations into this year because we felt that the returns were so strong. Because of our performance over the past two years, it supported us the ability to have the cash side in the various credits to be able to perform those activities. As you have seen and as we highlighted, we do have construction disruption that we have to then offset through various means, so it's somewhat disruptive. Going forward, however, once we have this year done, we believe that we will have a core group of rooms, and with the 56% that will be sufficient quantities at all of our properties to handle the group business as well as the casino business. Thus, the urgent need to upgrade the product isn’t as necessary, and therefore we are able to back off and slow it down a little bit. The other thing I would comment is that although we are experiencing strong improvements in ADR from these renovated rooms, and thus high returns on that capital we are investing at some point that's going to diminish. Once we get a certain percentage of the room nights complete, the marginal room that's renovated doesn’t provide the same return that the earlier rooms provided. And when that happens, we don’t know; at this point we are still experiencing good returns on these projects, but at some point in the future that will flip and just become more of maintenance related projects as opposed to driving growth.

Got it, that's really helpful. Thanks. And then maybe a higher-level question, Mark, I think you guys have both discussed a little bit about potential development opportunities in Las Vegas. I was wondering as the rework of CEOC kind of comes to a conclusion hopefully at the end of Q3, how you guys think about some other strategic priorities, whether it be M&A or potentially development outside of Las Vegas. Any high-level comments on how you are kind of thinking about that going forward?

I think it's fair to say that we have had a lot of time to plan and look at projects outside of Las Vegas and we have got a pretty good list of what I would call targets, I guess. Eric and the team have done a really good job identifying what those are, what we think the expected returns would be, and we're fairly bullish that we will be able to generate some good inorganic growth through M&A activity as well as activity as well as licensing opportunities. We have a cadre of about five different categories of growth that once we emerge, we will be able to start executing again. So we are pretty prepared for that and excited to be able to start talking about it once we emerge.

Great. Thank you, everyone.

Thanks for taking my follow-up. Just a maintenance question. Eric regarding the classification of the property, is this now excluded or was this excluded from the quarterly consolidated EBITDA and kind of your LTM rolling historical EBITDA number?

Yes, that’s correct. The deconsolidation of the property from 2016, Q1 perspective, if you recall our prior reporting said $304 million of EBITDA, and now we are showing $284 million, and that’s to reflect the removal of the property. It’s also reflected in the current period. The one thing I would also note for those building a model is that it was also excluded from any of the information that we included in our S4. So those projections are also excluded.

Okay, very helpful. Thank you very much. That’s all from me.

Thank you.

Thank you.

Alright. With that, on behalf of the company, I would like to thank everyone for joining us on today’s call, and we look forward to checking back with you in a few months for our second quarter results. Have a great day.