Boyd Gaming Corp

NYSE:BYD

Earnings Call Transcript 2019-Q4

[Operator]

Good day, and welcome to the Boyd Gaming Fourth Quarter 2019 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask question. Please note this event is being recorded.

I would now like to turn the conference over to Josh Hirsberg, Executive Vice President and Chief Financial Officer. Please, go ahead.

[Josh Hirsberg]

Thank you, Sarah. Good afternoon, everyone, and welcome to our fourth quarter earnings conference call. Joining me on the call this afternoon is Keith Smith, our President and Chief Executive Officer.

Our comments today will include statements that are forward-looking statements within the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today's date, and we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC that may impact our results.

During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today and both of which are available in the Investors section of our web site at boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures, due to our inability to project special charges and certain expenses.

Finally, today's call is also being webcast live at boydgaming.com, and will be available for replay in the Investor Relations section of our web site shortly after the completion of this call.

I'd now like to turn the call over to Keith Smith. Keith?

[Keith Smith, President & Chief Executive Officer]

Thanks, Josh. Good afternoon, everyone. Overall, 2019 was a very successful year for our company. Our diversified nationwide portfolio delivered sustained growth in revenues and EBITDAR across the country. And we identified new ways to operate smarter and more efficiently, improving our company-wide operating margins by more than 100 basis points in 2019.

Our Ameristar, Belterra and Valley Forge properties performed extremely well during our first full year of ownership, achieving double-digit EBITDAR growth and margin improvement of nearly 240 basis points from their previous stand alone results. These properties have exceeded our first year expectations and we expect their strong level of performance to continue.

During 2019, we also expanded our partnership with FanDuel, the nation's most powerful sports betting brand. FanDuel sports books drive new customers to our properties across the Midwest and Northeast and we are well positioned for further growth, as new states prepare to legalize sports betting. And our strong operating performance is enhancing our free cash flow, allowing us to further strengthen our balance sheet. We finished the year with leverage of 4.7 times EBITDA, approaching our target range of 4 to 4.5 times.

In all, 2019 was a year of significant achievement for our company and the fourth quarter provided a strong conclusion to a great year. During the fourth quarter, we grew revenues by over 5% on a company-wide basis, increasing EBITDAR by more than 9% while enhancing our company-wide margin by almost 100 basis points.

Looking at segment results, the quarter was highlighted by our Midwest and South region, which delivered strong same-store growth in revenues EBITDAR and operating margin. In addition to strong same-store performance in our Midwest and South region we continued generating exceptional results in the newly acquired Ameristar and Belterra properties.

I will walk through our regional performance in more detail in a few minutes, but first let's review our Nevada operations. In Las Vegas, our locals segment continues to perform at near-record levels. Revenue growth in the quarter remained consistent with trends we saw throughout 2019 with our operating margin exceeding 32% for the quarter and the full year.

And while EBITDAR growth did slow during the quarter, we were able to maintain the strong gains we achieved in the fourth quarter of last year when EBITDAR grew 13% and margins improved more than 350 basis points. As we begin 2020, we are encouraged by the trends we have seen at our properties in January and remain optimistic for the full year.

The fundamentals of our locals business have not changed. And we expect EBITDAR growth from our local segment in 2020 will be slightly ahead of the rate we saw in 2019. As we look ahead, the strong Southern Nevada economy gives us great confidence in our ability to maintain long-term growth in our local segment.

Las Vegas metropolitan area recorded a 2.5% job growth rate in 2019, one of the 10 best performances in the country and well ahead of the national average. Unemployment is down to 3.5%, the lowest level in 20 years. Personal income and weekly wages continue to rise. And this income growth is driving long-term gains in consumer spending, with taxable sales rising 7% over the prior year.

From a visitation and tourism perspective, the upcoming event calendar is quite encouraging. In March, the CON/AGG Expo will return to Las Vegas for the first time since 2017, bringing well over 100,000 conventioneers to our city. One month later in April, Las Vegas will host the NFL draft for the first time. And starting in August, Las Vegas raiders will host the first of 10 home games at Allegion Stadium, bringing a new boost to visitation to Southern Nevada throughout the third and fourth quarter.

With a favorable event calendar, Las Vegas is set to keep building upon 2019's record convention attendance. Our company is well positioned to benefit from this continued growth in tourism and convention business, with more than 6,000 hotel rooms in the Southern Nevada market, including more than 2,500 rooms near the strip.

In addition projects like Allegiant Stadium, the expansion of the Las Vegas Convention center and the addition of more than 5,000 hotel rooms are all part of a local development pipeline that now exceeds $20 billion. As these projects come online, they will significantly expand and enhance Las Vegas event and convention capabilities over the next two years.

This ongoing expansion of our tourism infrastructure will lay the groundwork for continued visitation growth and economic growth across Southern Nevada for years to come. Given the ongoing strength of the Southern Nevada economy, we remain confident in the long-term direction of our local segment and in our ability to deliver continued growth in this business.

Next, Downtown Las Vegas posted its fifth straight quarter of record performance with strong growth in revenues, EBITDAR and margins across the segment. Our core Hawaiian business remains solid, with continued growth in business volumes. We also continue to see strong increases in unrated play, a clear indication that we are getting our fair share of the growing visitation throughout the downtown market.

Our talent and operating teams are not only doing a great job of growing profitable revenue, but also in mitigating the impact of disruption from construction projects throughout the area. As these projects are completed, the stage will be set for further growth throughout the market as Downtown Las Vegas continues to evolve and improve.

One of these projects was a sweep in modernization and upgrade of the three month street experience Video Canopy, which was completed late last year taking this popular Las Vegas attraction to an entirely new level. And just as importantly, more than 1,000 new hotel rooms are scheduled to open in Downtown Las Vegas over the next year. Nearly 500 rooms will be added at Downtown Grand this summer, followed by the debut of Circa later this year.

As one of Downtown's largest and most established operators, we have confidence in our ability to continue attracting new visitors to our three downtown properties, driving long-term growth throughout the segment.

Moving outside of Nevada, our regional property delivered a great performance. First, we continue to produce outstanding results at the Ameristar and Belterra properties we acquired in October 2018. On a combined basis, these properties achieved EBITDAR growth of 14% during the fourth quarter, and margin improvement of more than 350 basis points.

In the fourth quarter, Belterra Park's at an all-time record for quarterly EBITDAR. Ameristar Kansas City posted its strongest fourth quarter performance since 2011 and Ameristar St. Charles achieved its highest fourth quarter EBITDAR in a decade with an all-time record margin of 36%.

As we pass the one-year anniversary of the Ameristar and Belterra acquisitions, we have exceeded our initial expectations for our first year of ownership. And as we continue to identify best-practices and opportunities for additional synergies, we expect to realize further value from these acquisitions in the year ahead.

While our new properties continue to perform well, our existing regional portfolio has also produced strong results. Our Midwest and South segment grew same-store EBITDAR by nearly 6% during the quarter and improved margins by approximately 80 basis points after factoring out last year's favorable tax adjustment at Kansas Star.

Throughout this region, we saw excellent results. Kansas Star grew EBITDAR more than 8% on solid revenue gains. At our two Iowa properties, we produced strong revenue and EBITDAR growth.

In Indiana, Blue Chip delivered continued gains in revenue, EBITDAR, margin and market share as the property's leadership team successfully leverages its market-leading amenities.

In Pennsylvania, Valley Forge posted yet another record performance driven by investments in an expanded slot floor and synergies from the acquisition. And in Louisiana, the strong leadership team at Delta Downs was able to grow EBITDAR and outperform the Lake Charles market. And with the recent completion of disruptive road work on I-10 and Lake Charles, as well as the full reopening of the bridge east of Houston that was damaged in last fall's tropical storm, we expect business volumes to begin to recover in the Lake Charles market.

The strong underlying trends, we are seeing in our Midwest and South segment have been further strengthened by this year's introduction of sports betting at five of our regional properties. At Blue Chip, Belterra Resort, Diamond Jo Dubuque, Diamond Jo Worth and Valley Forge, FanDuel Sports books are attracting new faces and expanding our customer base.

Once they are on property, these new customers are doing more than placing the wager on the game. They are visiting our restaurants and our bars, and playing in our casinos. Nearly two years after the Supreme Court opened the door to the expansion of sports betting. We are extremely pleased with our progress.

As we saw during the fourth quarter, we are successfully using sports betting to drive incremental growth through our regional business, expanding and diversifying our nationwide customer base. As we begin 2020, we are evaluating opportunities to expand our sports betting footprint in our paradise property in Illinois. And with market access in 15 states across the country, representing more than 36% of the U.S. population. Boyd Gaming is well positioned as additional states consider legalizing the sports wagering.

Another long-term opportunity is our partnership with the Wilton Rancheria tribe in Northern California, located just south of Sacramento. The tribal site is one of the most favorable gaming locations in Northern California. Once developed, it will be the closest gaming resort not only to Sacramento but the entire South Bay area.

We plan to develop a first-class resort that takes full advantage of this attractive location. It allows the Wilton Tribe to realize the significant potential of this opportunity in the coming years. As our operations continue to expand across the country, we are making great progress strengthening our balance sheet.

Throughout the course of 2019, we continue to delever reducing our leverage ratio to 4.7 times EBITDAR at year-end. By mid-year, we anticipate we will be within our target leverage range of four to 4.5 times. Upon achieving our leverage target, we will continue to pursue a balanced capital allocation strategy including additional deleveraging, returning capital to shareholders and strategically reinvesting in our portfolio where we see opportunities to create value for our shareholders.

We are currently evaluating a modest expansion of the Fremont, which has been currently operating at maximum capacity several nights a week throughout the last year. Spanning this property will allow us to generate incremental growth from a business that has been performing at record levels for several years now.

In Louisiana, we are evaluating an opportunity to take advantage of recent changes to state law by moving Treasure Chest land, creating a more compelling and efficient operation for one of our strongest performing regional properties. Such investments would not require significant commitments of capital, allowing us to maintain our flexibility with respect to future capital allocation decisions.

If we do pursue these types of projects, we will be prudent in doing so, pursuing only those that offer compelling return on investment. As we look to the future, we remain confident in the long-term strength of our business. Our diversified nationwide portfolio is generating continued same-store growth.

We are delivering exceptional results from our recent acquisitions. Our expanding partnership with the nation's leading sports betting brand is driving new visitation and introducing new customers to our company. And thanks to our robust free cash flow as we continue to strengthen our balance sheet. As 2020 begins, our company is in an excellent position for the future and I remain confident in our continued ability to create long-term value for our shareholders. Thank you for your time. I'll now turn the call over to Josh. Josh?

[Josh Hirsberg]

Thanks, Keith. In 2019, our team made great progress executing on several strategic initiatives. We successfully integrated the Ameristar Belterra and Valley Forge properties into our portfolio. During the year, we achieved our stated goals for synergies from these transactions while at the same time creating incremental value by leveraging best practices across our entire portfolio.

As a result of the hard work and dedication of our operating teams, EBITDAR from these assets has exceeded our expectations, growing more than 10% while margins improved nearly 240 basis points from the stand-alone results in 2018. We also continue to build upon our relationship with FanDuel, positioning our company to be a significant participant in sports betting and mobile gaming.

Operationally, we continue to be focused on improving efficiencies throughout our business. With the integration of the acquisitions now behind us, we will reassert our focus on driving further efficiencies throughout our operations. And finally, we made great progress strengthening our balance sheet. We ended 2019 at 4.7 time traditional leverage, a 0.5 time lower than at the beginning of 2019. Our target is to achieve leverage below 4.5 times and we expect we will achieve this leverage around mid-year.

Lease adjusted leverage is approximately 0.5 turn higher than these levels. As we approach our leverage target we will – the operating and economic environment at that time to determine the appropriate balance between deleveraging, reinvesting in our business and returning capital to shareholders.

Assuming we are in an environment similar to that of today as Keith noted, we are evaluating opportunities to strategically reinvest in projects that offer a compelling return on investment. These projects would not be significant and would be spaced over time allowing us to maintain our flexibility with respect to how we deploy our free cash flow.

Transitioning to a few specifics on the quarter and then guidance. For the full year, we repurchased approximately 1.1 million shares at an average price of $25.81 finishing the year with 111.5 million shares outstanding. There were no shares repurchased during the fourth quarter. We have approximately $72.5 million remaining under our current share repurchased authorization. We paid nearly $30 million in dividends during the year.

During the fourth quarter we invested $41 million in capital expenditures resulting in full year capital investments of approximately $207 million. In terms of guidance, capital expenditures for 2020 are expected to be about $200 million. This figure includes several room remodels of properties like Ameristar, Kansas City, Belterra Resort and Paradise, as well as continued investments in our slot floors and technology capabilities.

We expect corporate expense to be about $86 million, which is included in our full year EBITDAR guidance for 2020. Depreciation expense is expected to be approximately $290 million. As a result of our deleveraging efforts and our recent refinancing, our interest expense will be about $35 million lower than last year. We expect interest expense will be approximately $200 million this year and cash interest expense will be about $10 million less than this amount.

Rent coverage for the assets governed by our master lease for the year ended 2019 was 1.94 times. We expect rent under our master lease to be approximately $104 million, assuming escalation for both base and percentage rent. Beginning in May, Belterra Park will be incorporated into the master lease currently governing the two Ameristar assets and Belterra Resort. This change accounts for $4.5 million of the increase in rent for 2020. We expect an effective tax rate for this year of approximately 26%. Remember, however that we are not currently a cash taxpayer for federal income tax purposes because of our NOL. Our NOL balance at year-end was approximately $450 million.

Finally as noted in our release, we expect full year 2020 adjusted EBITDAR to be in the range of $915 million to $935 million. We remain confident in the long-term direction of our company. And the underlying trends we see throughout our business. As we look to 2020, we believe we are well positioned to continue creating long-term value for our shareholders.

With that Sarah that concludes our remarks and we are now ready to take any questions from the participants.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Joe Greff with JPMorgan. Please go ahead.

[Joe Greff, JPMorgan]

Good afternoon, everybody. My question pertains to your 2020 guidance which at the midpoint is nicely ahead of where consensus is. So, we definitely want to make note of that. But when I think about the high end and the low end what are the scenarios driving that? Is that just a degree of same-store growth or does the high end includes some incremental benefit from sports betting, if you could help explain that? And then when you think about sort of the geographic mix of that. Can you talk about how you see the Midwest and south growth relative to the overall portfolio?

[Josh Hirsberg]

Yes, Joe those are really good questions. I think, in order to meet, our range really reflects kind of what we would expect to occur if on the one extreme if everything actually everything went well and everything fell into place whereas the low end reflects if none of that really occurred. So the high end of the range really reflects kind of an opportunity for growth to be at what we would expect and this is fairly obvious at the high end of the range of what we expect for each of the segments.

So, for instance the Las Vegas locals for our business at least grew just over 3% in 2019 and we would expect to kind of see that level or a little bit better growth in 2020. I think our Midwest and South segment while traditionally would have thought it was growing kind of 2% to 3% range. I think we would think in our guidance would be more like 2.5% to 3%. And largely because we don't expect to see some of the significant weather that we saw in 2019.

We do have some other potential headwinds in terms of construction here or there around roads or bridges or things like that that could affect our business. But I think the range kind of tries to incorporate all those potential factors, so that we will theoretically end in that range. I think in terms of sports betting those -- the kind of the levels of growth that I've laid out for you for certainly the bigger segments of our business already kind of contemplate their contributions.

[Joe Greff, JPMorgan]

Great. Thank you. And then you mentioned that CapEx this year will be in that $200 million range. How much of that contemplates things that might not be so from a three-month expansion, treasure chest in Louisiana. is sort of everything identified and spoken for, or is this sort of this general swag within that related to some of the things under consideration? And that’s all from me.

[Josh Hirsberg]

Yes. So, the way I would think about the $200 million is kind of just recurring level of capital that you would expect us to spend year in and year out absent any kind of change in the economy. I think to the extent that we ultimately complete our evaluation of those, projects decide that they based on that analysis generate the returns that we need and that would be incremental and that would be a use of our free cash flow over and above of just spending on maintenance capital.

[Joe Greff, JPMorgan]

Excellent. Thank you.

[Josh Hirsberg]

Thank you.

[Operator]

Our next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.

[Carlo Santarelli, Deutsche Bank]

Hey guys. Good afternoon. Keith in your prepared remarks you mentioned confidence in the Las Vegas locals market EBITDAR rate of growth accelerating. And Josh you just touched on it again referring to the 3% last year and something a little bit better this year. When you think about kind of the dynamic of 2019? And how kind of the market played out our net revenue which I believe purposely kind of lagged that throughout the year. The rate of market growth as you kind of refine marketing and drove healthier EBITDAR because of it. As you think ahead to 2020 do you think kind of top line is maybe more in line with the market with continued kind of refinements and cost saves driving the accelerating EBITDAR growth?

[Keith Smith, President & Chief Executive Officer]

Yeah good question. As we look at 2019, it was about continued focus on profitable revenue growth and rolling out tools and other technology to help us. As we think about 2020, we would expect to see stronger revenue growth. We've grown margins to 32% in the locals market over the last five quarters; margins in the locals market are up over 500 basis points in the last three years. And so we're pretty proud of that. It will continue to go up, although not at that same pace and we would expect once again to drive stronger revenue in 2020 than we saw in 2019.

[Carlo Santarelli, Deutsche Bank]

Great, thank you. And then if just kind of using the midpoint of your guidance and then obviously adjusting for some of the things you mentioned, Josh the rent expense, the maintenance CapEx and the cash interest. You're looking at about $430 million of discretionary free cash flow before dividends, when you think about the strategy to date with sports betting and with FanDuel. Is there any sense that maybe there is something more you guys could do there? Obviously you talked a lot on the call about the impact it had on your retail business maybe not so much kind of the partnerships from an online perspective et cetera. Is there anything in the mindset there that maybe there's incremental to do?

[Josh Hirsberg]

So Carlo just to clarify, are you asking if we would make incremental investments in sports betting. Is that basically your question?

[Carlo Santarelli, Deutsche Bank]

Whether it will be incremental expenditures in the business from an expense standpoint or from an acquisition standpoint?

[Keith Smith, President & Chief Executive Officer]

Carlo, I think when you think about sports betting once again we like the position we've carved out in terms of our partnership with FanDuel. They are the leading brand when you look at their business volumes, whether it's in New Jersey or Pennsylvania or in other states. And we actually are profitable when it comes to sports betting where a number of our peers are not. So we kind of like our position.

I think the only real investment we see in sports betting going forward is continuing to build out new states or new sites like in Illinois, if we launch it Paradise but those are very, very modest investments to add a sports book to a property like Paradise or some other properties. They're not large numbers. I don't see us making any significant investment to purchase anything or do anything different. It's got -- I'm pretty happy with the way it's played out with FanDuel they're a strong operator and a strong partner and a very strong brand.

[Carlo Santarelli, Deutsche Bank]

Great. And then just one last quick follow-up. As it pertains to the relationship with FanDuel, I believe the economics from the iGaming perspective are a lot different in terms of where the profit shares go. Can you talk a little bit about the situation in Pennsylvania on the iGaming side and where you see potential opportunities for that from a legislative perspective down the road?

[Keith Smith, President & Chief Executive Officer]

Well, sure. In Pennsylvania specifically as you say we have different economics when it comes to online sports betting versus the retail sports betting side just given the volumes and the dynamics of those two different businesses. When you think about online casino real money gaming, we would anticipate launching a product, FanDuel recently launched a product there. We look to launch a product this branded differently in the near future. And there is --- there are economics that come our way as a result of that. So we're not describing what those are. We haven't gone into detail but there is incremental profit related to that.

[Carlo Santarelli, Deutsche Bank]

Great. Thank you, Keith.

[Operator]

Our next question comes from Steve Wieczynski with Stifel. Please go ahead.

[Steve Wieczynski, Stifel]

Hey good afternoon guys. Keith, we understand the sports betting topic real quick and you talked about how you're seeing folks come in to your assets both to placed sports bet and they're doing other things like eating and playing slots or whatever. I know it's early, but is there any data you have that might show what those folks are spending across your property on average, or maybe what's the attachment rate, meaning how many sports betters are doing other things. I mean, not sure if that makes sense or not but do you have given data there would be helpful.

[Keith Smith, President & Chief Executive Officer]

Yeah. No I appreciate the question. We don't have any direct data these. Unfortunately these people don't necessarily walk around with a button on that says I came into bet sport. So it's hard to track. Some of them get cards and we can track them through that. But largely it's just the antidotal information and talking to our operating teams in terms of looking at volumes that were pre-imposed, observing new faces in the building, observing the completely different customer set in the building, whether it's volumes and restaurants or volumes and slots or volumes and tables in every case, in every operation we've seen an uplift, kind of in all those metrics, food and beverage, table game slots, a little different in each store, in each property but definitely an uplift. It's hard to quantify, once again because we don't know they're not always getting cards, so we don’t know their exact behavior. But it is very much a positive additional amenity for us.

[Steve Wieczynski, Stifel]

Okay, got you. And then Josh, I think at the end of your prepared remarks, you talked about once you get down to your leverage target there's an opportunity to -- I think you said, reinvest back into the business. I don't -- I think I heard you right there. Is there any way you can elaborate a little bit more on what some of those options might be?

[Josh Hirsberg]

Sure Steve. I think Keith mentioned two projects that were somewhat in the evaluation stage of one being Treasure Chest with the change in the law the ability to bring that home land. And then the other one that we're kind of evaluating and trying to decide upon is potentially expanding Fremont downtown just given the dynamics of the downtown market generally and then more specifically the record performing -- performances that our assets have executed on downtown.

Those are examples of types of things we would consider. I think that obviously once we hit our leverage levels, it really becomes what's the highest returning use of that free cash flow. And so is it to reinvest in those assets or those potential projects, it will depend on kind of once we complete our evaluation, the returns that we can expect versus paying a dividend or buying back shares. And so we want to be disciplined in that regard. And I think we also do not plan to use all of our free cash flow for reinvesting in our assets. We plan to have a portion kind of leftover just given the size of these investments and when we would expect them to potentially roll out to be used for capital returns to shareholders or continued deleveraging if we feel like the operating or economic environment warrants that.

[Steve Wieczynski, Stifel]

Okay. Got you. Then real quick Josh anything when you look at the locals market right now in Vegas, it would -- from a promotional standpoint that is concerning or not concerning?

[Josh Hirsberg]

Yeah. No, we would say the promotional environment in Las Vegas is normal or relative to historical levels pretty rational.

[Steve Wieczynski, Stifel]

Got you. Thanks guys. Appreciate it.

[Josh Hirsberg]

Yeah.

[Operator]

Our next question comes from Felicia Hendrix with Barclays. Please go ahead.

[Felicia Hendrix, Barclays]

Hi. Thank you. Keith, I just wanted to go back to your comments on the Las Vegas locals market and your expectation for growth there. In your prepared remarks you mentioned a lot of positive drivers to the market, next year one of which is CON/AGG. So just wondering as we think about the growth rate that you laid out for Las Vegas locals? How much of that is being bolstered by the rotation of CON/AGG into next year versus all the other stuff?

[Keith Smith, President & Chief Executive Officer]

Yeah. I don't think we've applied a specific factor to that one convention. I think when we look at the calendar generally and you think about a convention like that coming in time that has been in town for a while. You think about once again the Raiders and just more activity in town overall, it complements kind of an already strong locals environment. I mean, we run pretty high occupancies and pretty good room rates as it is. But obviously when the town is full, we're able to leverage it out even further. But it isn't just about that one event. That certainly is helpful. But it isn't driven just by that.

[Felicia Hendrix, Barclays]

Okay. That's clear. Thanks. And can we just -- I know it's one property of your many, but it just -- Belterra Resort has kind of stood out to us all year. And I'm just wondering if you could talk about what's happening there? And if there are any opportunities for improvement. It's underperformed all year even with the rest of the Southern Indiana market being weak. And I'm wondering is that mostly the competition from the historical racing machines in Louisville or is there something else going on?

[Keith Smith, President & Chief Executive Officer]

No. You qualified it just right or quantified just right it is the historic racing machines in Louisville. I mean, they've been under pressure all year long, we get a big chunk of business out of that market. We have a very full resort there with great amenities, golf course and wonderful hotel rooms and a spa and a wonderful casino and recently added sports book. But it's the convenience factor of that product in Louisville. And you've seen those numbers grow really dramatically over the last year and that's been the biggest impact we've seen there.

We've seen a little bit of an impact from the new land based properties in Southern Indiana, not a big one, but a little bit. And it's really been about cost savings at Belterra Resort and ensuring that we are managing our bottom line properly. The team there has done a great job managing through that. But clearly revenues are down quite a bit at that property.

[Josh Hirsberg]

Yeah. And just to add a perspective from the -- from what really matters is the EBITDA and Keith alluded to it, the guys at the property are doing a really good job of managing expenses. If you look at EBITDA, EBITDA is down less than 1% 2019 over 2018 stand alone results. So they've done a good job of managing to the competition the level of the new competition.

[Felicia Hendrix, Barclays]

That's helpful. And Josh just so I have you. And my final one is just regarding your leverage target of 4.5 and then just applying the 0.5 turn that you said the lease adjusted 4.5 to 5, I just want to make sure nothing's changed, because it used to say four to five. So just making sure you're being more granular now with the traditional leverage versus the lease adjusted leverage ratios?

[Josh Hirsberg]

Yeah, nothing has really changed. I think a quarter or two ago we wanted to move lower in the range of four to five that we had given before. So it's a consistent kind of metric that we're speaking of we're just saying we want to be lower in the range before we start really considering either reinvesting in our assets or more significant returns of capital to shareholders.

And it's more, it's less, it's not really a commentary on anything today in terms of the business or the economy, it's really where we think the business should be leveraged in terms of running it long term.

And at some point if there is some sort of pullback in the economy or whatever, we're in a position to weather that and continue to do what we want to do every day and not have to adjust to a change in the economy. And so, it's really where we think the business should be long term.

And I don't think that -- and I alluded this earlier to -- I think Steve's question which was we'll always continue to have a little bit of cash left over to just continue to de-leverage. It will just be at a slower pace even once we achieve those levels. So we got just perspective…

[Felicia Hendrix, Barclays]

Yes, helpful. Thank you.

[Operator]

Our next question comes from David Katz with Jefferies. Please go ahead.

[David Katz, Jefferies]

Hi, evening everyone. Nice quarter. I wanted to go back to one of the earlier questions. And we've all obviously tried very hard to put some math around sports betting and the opportunity for you and the structure of your partnership is very clear. What I wanted to ask about is, is there any detail you can share with us and whether that's foot traffic, or any sort of specific GGR impact or even F&B left maybe a bit more specific and even if it's incident? Thank you.

[Josh Hirsberg]

David, I think the reason we're a little bit hesitant to give information like that right now, it's because I think people will take that information and extrapolate over the next four quarters.

And in reality, we're coming off of what is a really robust period of time in terms of the football season, we'll have a great no doubt season with the final four and basketball which are kind of typically the peak periods and we have to see how the business performs and maybe the slower periods of time around baseball or some of those other sports.

Ultimately, we know from the European model that the better will mature over time and be willing to do more in-game betting with respect to those sports like; tennis and golf and things we just don't know to what extent that is going to play out in our business model just yet. And so, I think it's -- we're a little hesitant to kind of get ahead of that until we have a good handle on really what the business is going to be on a seasonally adjusted basis.

[Operator]

Our next question comes from Harry Curtis with Instinet. Please go ahead.

[Harry Curtis, Instinet]

Hey Josh, I appreciate that answer. Maybe I can squeeze something a little bit more out of you. We're – what is -- so when you think of the incremental revenue that you're getting at these five casinos that are now have sports betting facilities. What kind of flow through are you seeing? Because it is having an impact on your revenues.

[Keith Smith, President & Chief Executive Officer]

So I think when you think about sports betting we actually have 7 books outside of Nevada, the 2 we talked about and then two in Mississippi. And there's 2 pieces of it. There's the profit that we get out of running the book itself and then there is the incremental business we get whether it's through food and beverage or slots or tables. So there's kind of two different revenue and profit streams that we look at because Vanda's running the books and just given the variety of deals we have with them, it's -- our cut is profit.

So we're making money out of that. And then we get the profit out of the additional activities while they're on properties. So we haven't quantified that. It certainly is a growing number.

It's probably highest at this time of the year during football season, as Josh said running through the NCAA tournament and then it will probably shrink pretty dramatically as we've seen here in Las Vegas over the years. It gets pretty quite in the sports-betting world after basketball and through the baseball season.

[Harry Curtis, Instinet]

And I'd like to give Josh another opportunity to duck a question, if I should. So Josh you see over the course of the year many, many pitch books on deals. And just a question related to acquisition environment, you didn't mention it. And what are the valuation parameters what are they asking valuations kind of circling around and have they gone up to a point where it just doesn't make any sense for you to really get too excited about it?

[Josh Hirsberg]

Yes I think a pretty consistent theme of our conversations on these calls and in investor meetings away from these calls over 2019, and I think it will continue into 2020 is that, we really feel like we're not -- our predisposition is not to leverage up to do an acquisition at this point.

The valuations relative to the strategic value to avoid that kind of trade-off doesn't seem to work in today's environment. And it's further complicated by the risk that we believe you take by having to potentially do transactions in the OpCo/PropCo model that overall increase real operating and financial leverage associated with those assets.

I say all those things only to basically say I think the thresh -- it makes it harder the threshold is higher to do an acquisition. And for that reason I don't think it's likely.

However, you never say never, but I think it would have to be something very compelling strategically the valuation would have to be compelling. And away from that, I think we feel like we have a lot of opportunities in terms of running our business more effectively. We're moving in a direction of investing in our business more proactively and improving our own portfolio and we see higher returns from doing that. And quite honestly the potential of making acquisitions.

And so I think the reason you didn't hear it in our script and you don't hear us really talking about it is we just don't feel like it's very likely given the opportunities that we have internally both as I mentioned to improve our existing business and invest in our existing business. It's less risky for us and more value creation enhancing if you will.

[Harry Curtis, Instinet]

So, sticking to the knitting. I appreciate it. Thank you.

[Josh Hirsberg]

Thanks Harry.

[Operator]

Our next question comes from Shaun Kelley with Bank of America. Please go ahead.

[Shaun Kelley, Bank of America]

Hi, thanks. Good afternoon everyone. Josh maybe just to build a couple of questions here around the capital allocation piece. Could you just sort of remind us of the approach I think you've talked about M&A. You talked about growth CapEx a little bit, but can you remind us of the approach on sort of pure capital return, how you're thinking about buybacks and/or dividends and possibly just a little color on opportunistic and cycle timing versus something a little bit more programmatic as you move into probably a pretty stable state on the free cash flow side?

[Josh Hirsberg]

So, I think look I think to the extent that we -- I think it's important to understand that from our perspective, the first priority is achieving our leverage target, getting within our range. Once we achieve that leverage target, it's important to understand that we have to evaluate what's going on in the world in the business. And so it's not purely a instep than EPS. It's being prudent and pragmatic at each step of the way.

I think once we get to that level, we will evaluate kind of the opportunities to invest in our business. If they generate the kinds of returns that we need that are more than competitive and more than favorable than buying back our own stock or paying a dividend, then I think that's the route we will go to the extent that the projects don't generate those kinds of returns, then we won't pursue those projects.

I think in terms of how we execute return of capital, I think I would rather not commit to that at this point until I kind of see where we're at. And I think the company wants to see maintain that flexibility quite honestly. But I think a pretty good example of what we would likely do is just historically how we've repurchase shares.

You can go back and look over the last year or two and see what we've done and use that as one potential approach. But I think before we get to that we have to get to our leverage level. That's really important to us.

And I think secondly, we then have to evaluate buying back shares and returning capital relative to do we have good projects that warrant investment as well. I think that answers all your questions but if not let me know.

[Shaun Kelley, Bank of America]

No, that's it. Thank you. And then going all the way back to the guidance just kind of was curious if we walk through puts and takes on both segments and I think customer performance. But can you talk a little bit about just how you underwrite or how you're underwriting any kind of competitive supply impacts that are out there across the portfolio?

I think the main things are probably in kind of probably for blue chip? And then how you're thinking about circa as we move the latter stages of this year and probably much more of a 2021 impact?

[Keith Smith, President & Chief Executive Officer]

Sure Shaun. Look as we think about 2020 there really is very little competitive impact across the portfolio you called out blue chip. That project really becomes something into 2021. And so we have plenty of time to prepare for that so what's going as we look across the portfolio not really a lot of impact.

As you think about downtown where some additional rooms will be added at Downtown Grand, as I mentioned in my prepared remarks, and Derek Stephens' project is likely to open around the end of the year. Those while they're out of capacity, we see that actually is incrementally positive and all about bringing more people downtown.

And with three properties downtown and 45 years of history operating downtown we're very confident in our ability to bring those bring those people in our door -- or get those people in our door and compete for those customers. So, that actually we see it as a net positive 500 hotel rooms in the downtown Grand Citicore free month is very, very positive for us. So, we're very -- it's going to we're actually looking forward to those things coming downtown and helping to build that business.

[Shaun Kelley, Bank of America]

Thank you very much.

[Operator]

Our next question comes from Barry Jonas with SunTrust. Please go ahead.

[Jeff Stantial, SunTrust]

Hey guys. This is Jeff on for Barry. Thanks for taking our questions. First off just to stick with downtown. The market numbers and your results specifically continue to appear pretty healthy here. Just wondering if there's anything changing in the construction progress that might cause disruption to accelerate at some point in 2020.

[Keith Smith, President & Chief Executive Officer]

Yes. Look there's a lot going on down there. I think our team has done a great job trying to offset construction circa generally halfway more than halfway up the roads have been congested for a while. But I don't see that changing a lot. There are some additional projects going on. I don't see it getting any worse. I don't see it getting any better throughout 2020. But I certainly, don't see it getting any worse. So I think it's pretty much status quo.

[Jeff Stantial, SunTrust]

Okay great. And then just on the acquired Pinnacle assets, do you think there's any like incremental cost synergy opportunities there, or is it really more just blocking and tackling with the margin expansion opportunity more similar to your same-store portfolio?

[Keith Smith, President & Chief Executive Officer]

I think as we think about the Ameristars and the Belterras and even to some extent Valley Forge we've only owned them for a little over a year. And while we have I think achieved our synergy targets, there's always more work to do I think there's more we can extract out of those properties in terms of best practices and applying best practices and extracting more synergies. I think and again as you -- as we think about it moving forward, it's not so much about the -- one could declared synergies when we first purchased these properties as it is about best practices and refining the operating models and continuing to apply the void model to some of those properties and improved results. So I think there is more room to continue to grow those businesses.

[Jeff Stantial, SunTrust]

Okay, great. Thanks. Appreciate all the color.

[Operator]

Our next question comes from Chad Beynon with Macquarie. Please go ahead.

[Chad Beynon, Macquarie]

Hi, good afternoon. Thanks for taking my question. Guys, I know there's been some news with Wilton Rancheria the size and the scope and the timing of the project. Could you just bring us all up to speed on where that is? And then related I believe there's been some informational hearings on sports betting in California recently. Would your license allow you to offer sports betting once Wilton Rancheria is up and running? Thanks.

[Keith Smith, President & Chief Executive Officer]

Sure. So with respect to Wilton, I'm not sure exactly what you're hearing. There's some older information out there where the tribe talked about a certain size of a project. I would say that none of that information is relevant today. We're still in the process of kind of finalizing those plans and haven't formally announced kind of the size and the scope of that project. We're in the process of getting the refinancing. And I think one thing we know for certain -- or generally certain is that the project will open 18 months after we get the financing. We would expect to get the financing in middle of the year. But other than that we haven't, really haven't announced kind of the full scope and all the different elements of the project. So that is yet to come. With respect to sports betting, the answer is yes, best as we know at this point our license would allow us to operate sports betting through the Wilson through that specific casino.

[Chad Beynon, Macquarie]

Okay.

[Keith Smith, President & Chief Executive Officer]

But the law isn't passed yet. So a lot can change based on whatever ends up in the law.

[Chad Beynon, Macquarie]

All right. Thank you. And then separately, I believe at the beginning of the year you purchased a new slot system. Where are you guys just in terms of rolling out all the marketing and the bonusing? Do you think there's more opportunities to grow slot revenues just on the back of that CapEx purchase in 2019?

[Keith Smith, President & Chief Executive Officer]

Yes. So I think about it this way, the 2019 was about kind of installing the backbone and the infrastructure in 2020 will be more about leveraging up the marketing capabilities of that system.

[Chad Beynon, Macquarie]

Thank you very much.

[Operator]

We have time for one more question and that comes from Andrew Berg with Post Advisory Group. Please go ahead.

[Andrew Berg, Post Advisory Group]

Hey guys. Keith with respect to Fremont as well as Treasure Chest. If you guys were to move forward with those I think you said they would be terribly significant. But can you kind of frame out a little bit what the size might be in that for each one of those in terms of CapEx spend or maximum amount of CapEx you'd expect to spend.

[Keith Smith, President & Chief Executive Officer]

Well, I can talk about it, generally we don't have specific parameters at this point. But you'd be thinking about the casino. We've owned a piece of land kind of at the backside of three months for a while. We've looked at a number of different projects there. The casino is at capacity many nights a week. And what we really need there is additional casino space. So I'd be thinking about it as a very modest expansion of the casino not anything too much grander than just an expansion of the casino. I think as you think about treasure chest you've seen this happen at other point other places in kind of in the riverboat gaming market where people have gone from a riverboat to a land-based operation.

So look we have a 30-year-old three-story riverboat terribly inefficient if you're able to move it to land it becomes extremely efficient all in one story both for customers as well as for team members. You can look around the country and see a number of examples of people that have done that I think very, very modest prices. So we don't have anything to announce. We don't have any specific pricing. It's not flushed out I don't know if you had to talk about it in dollar-wise yet, but that's the thinking.

[Andrew Berg, Post Advisory Group]

Got it. Thanks a lot guys.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Josh Hirsberg for any closing remarks.

[Josh Hirsberg]

Thank you, Sarah and we appreciate everyone dialing in today and participating in the call. If you have any follow-up questions feel free to reach out to the company. Thanks again and have a good rest of your day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.