Macquarie Research Regional Gaming3 January 2019 2AnalysisPenn National (PENN, Outperform, $35 TP) Total PENN GGR was up 2% in November, while the legacy business (ex. PNK) was 1%. PENN’sNortheast segment was its best performing region (up 3%), South/West was -1%, while the Midwest was+2%. PENN’s top five GGR properties were positive in the month, with Charles Town, L’Auberge du Lac,Meadows, Hollywood at Penn National and River City +5/1/2/3/11%. We are maintaining our OP rating butlowering our TP to $35 (from $38), or a 9% 2020 FCF yield.In November, PENN announced the acquisition of operations of Greektown Casino-Hotel in Detroit for$300m. The acquisition implies a post synergy multiple of 6.3x EV/EBITDA. We estimate the acquisition willadd $23m (~$0.20ps) of FCF. The property will be financed/acquired by VICI properties, who will chargeannual rent of $55.6m per year, which implies a 1.8x rent coverage ratio after the first year of closing.According to public filings, on an LTM basis, Greektown generated $384m of GGR and $96.6m ofEBITDAM. After recently closing the PNK transaction (6.6x post-synergy), we estimate forward leverage of5-5.5x and believe PENN can fund most of the $300m deal with FCF earned before a mid-2019 closing.Pre-Greektown, we estimate PENN was generating $407m of 2019 FCF. PENN remains one of our top picks in Regional Gaming, given diversification, broad reach, and solidexecution by best-in-class management. In our view, the recent Greektown announcement is anotheropportunity for the company to showcase its ability to create value by using FCF to acquire businesses anddrive operational efficiencies. Fig 1 Penn National Gaming, listed in estimated order of GGR(US$m) Current MonthQuarterYear-to-Date Nov-18 Nov-17 yoy % chgQTD 2018 QTD 2017 yoy % chgYTD 2018 YTD 2017 yoy % chgHollywood Charles Town, WV* 27 26 5%55 53 4%306 305 1%L'Auberge du Lac, LA 27 27 1%50 51 (2%)295 285 4%The Meadows, PA 20 19 2%40 41 (2%)226 231 (2%)Hollywood at Penn National, PA 19 19 3%37 38 (2%)221 225 (2%)Hollywood St. Louis, MO 18 18 (4%)36 37 (2%)214 218 (2%)Hollywood Columbus, OH 18 18 5%37 35 3%207 202 2%River City, MO 20 18 11%36 35 2%206 206 (0%)Ameristar East Chicago, IN 17 16 8%34 31 8%199 185 8%Hollywood Toledo, OH 16 16 (2%)32 32 (1%)185 182 1%Plainridge, MA 13 13 (0%)26 26 (0%)157 152 4%Hollywood Lawrenceburg, IN 13 12 6%25 25 (2%)150 153 (1%)Argosy Riverside, MO 14 14 (3%)28 27 1%152 147 3%Ameristar Council Bluffs, IA 13 14 (4%)26 27 (5%)155 157 (1%)Baton Rouge, LA 12 12 (6%)24 26 (9%)141 161 (12%)H'Wood Casino Kansas Speedway, KS 12 12 (2%)24 24 (1%)137 134 2%Hollywood Joliet, IL 10 9 0%19 19 (2%)108 113 (5%)Boomtown New Orleans, LA 9 9 0%18 18 3%108 108 1%Hollywood Aurora, IL 9 9 4%19 19 (3%)106 111 (4%)Mahoning Valley, OH 9 9 4%19 18 4%111 103 8%Hollywood Dayton, OH 9 8 6%17 16 6%99 91 8%Boomtown Bossier City, LA 4 4 (6%)8 9 (4%)50 54 (7%)Hollywood Bangor, ME 4 4 (9%)8 8 (11%)44 47 (5%)Argosy Alton, IL 4 4 1%7 8 (5%)43 44 (4%)Tropicana Las Vegas -- -- 10%-- -- 11%-- -- 2%M Resort, NV -- -- (1%)-- -- (0%)-- -- 3%Ameristar Black Hawk, CO -- -- (4%)-- -- (4%)-- -- 0%Black Gold at Zia Park, NM -- -- ---- -- ---- -- --Hollywood Casino Gulf Coast, MS -- -- -- -- ---- -- --Boomtown Biloxi, MS -- -- ---- -- ---- -- --Hollywood Tunica, MS -- -- ---- -- ---- -- --Ameristar Vicksburg, MS -- -- ---- -- ---- -- --Cactus Petes, NV -- -- ---- -- ---- -- --Total Penn316 310 2%624 624 (0%)3,621 3,615 0%*Charles Town based on weekly data.Source: Company data, State Gaming Boards, Macquarie Capital (USA), January 2019Macquarie Research Regional Gaming3 January 2019 3Caesars (CZR, Outperform, $13 TP) Since the two new casinos coming online in the NJ market this summer, CZR’s AC properties appear to bebetter absorbing the impact of new competition in the market. Harrah’s AC, Caesars AC, and Bally’s ACwere down 11/11/6% in November, easing from the declines that were nearly double in the prior month.Overall, CZR’s regional properties were down 5% in the month and down 6% QTD. All of CZR’s LAproperties showed growth in the month, led by Harrah’s New Orleans, up 11% in November and +1% QTD.We highlight CZR as one of our favorite ideas for 2019 as our new $13 TP (9.4x EV SOTP; 9% 2020 FCFyield TP) implies 93% upside. CZR’s shares have been hit hard in the last several months on the back oflate-cycle concerns and high leverage (5.4x vs peers at ~4x). The stock was down ~46% in 2018 and istrading at just ~6.5x 2019E EBITDA, we believe this presents an attractive entry point as CZR has severalcatalysts lined up, which we believe should drive the stock higher in 2019. Looking to the year ahead, weexpect CZR’s multiple to expand as investors become more comfortable with the company’s growth strategyand technological upgrades. The Centaur integration, which is tracking ahead of schedule, is a primeexample of this approach and management remains focused on further M&A opportunities that will beneutral or deleveraging post-synergies. Meanwhile, we expect to see margin improvement throughout theyear as technology upgrades are implemented to cut down on marketing costs, particularly the Salesforceinitiative set to launch at the beginning of 2019. With a focus on disciplined growth balanced by an eyetowards deleveraging and buybacks, we continue to believe that 2019 will be a good year for CZR. Fig 2 Caesars Entertainment, listed in estimated order of GGR(US$m) Current MonthQuarterYear-to-Date Nov-18 Nov-17 yoy % chgQTD 2018 QTD 2017 yoy % chgYTD 2018 YTD 2017 yoy % chgHarrah’s Atlantic City, NJ 25 28 (11%)49 59 (16%)309 334 (8%)Horseshoe Hammond, IN 29 32 (11%)61 65 (7%)361 372 (3%)Caesars Atlantic City, NJ 22 23 (3%)43 49 (13%)260 301 (14%)Harrah’s New Orleans, LA 25 23 11%48 48 1%263 266 (1%)Horseshoe Baltimore 19 23 (14%)41 42 (4%)238 248 (4%)Harrah's Chester, PA 21 21 (0%)41 43 (4%)240 243 (1%)Indiana Grand, IN 19 20 (3%)35 38 (5%)212 212 0%Bally’s Atlantic City, NJ 15 16 (6%)29 32 (9%)178 195 (9%)Horseshoe Southern Indiana, IN 18 21 (15%)35 40 (13%)209 227 (8%)Horseshoe Bossier City, LA 16 15 2%29 29 0%170 170 (0%)Hoosier Park, IN 15 14 7%31 29 5%175 169 3%Harrah’s North Kansas City, MO 14 14 (2%)28 28 0%156 163 (4%)Horseshoe Council Bluffs, IA 13 15 (15%)27 29 (9%)158 160 (1%)Harrah’s Joliet, IL 14 15 (3%)29 30 (5%)162 167 (3%)Harrah’s Metropolis, IL 6 6 (4%)12 13 (3%)65 72 (10%)Harrah’s Council Bluffs, IA 5 6 (13%)12 12 (4%)66 67 (3%)Louisiana Downs, LA 3 3 6%7 7 0%40 41 (1%)Tunica, MS -- -- ---- -- ---- -- --Grand Casino Biloxi, MS -- -- ---- -- ---- -- --Total CZR ex LV Strip/Centaur 245 261 (6%)490 526 (7%)2,875 3,028 (5%)Total CZR ex Strip 279 295 (5%)556 593 (6%)3,262 3,408 (4%)Source: Company data, State Gaming Boards, Macquarie Capital (USA), January 2019Macquarie Research Regional Gaming3 January 2019 4Eldorado Resorts (ERI, Outperform, $56 TP) ERI’s top 5 properties (ex Reno) were up 1% in November and +3% QTD, while overall GGR was down 2%(ex Reno). This includes Trop AC, which was down 3% in the month and only down 1% in the quarter,outperforming the overall market. Midwest saw the largest decline (-6%), East was -1%, while West (+3%)and Central (+2%) were the only two regions that showed GGR growth. On the 3Q earnings call,management called out Reno EBITDA was trending at +30% through November 8th, which we believe wasreaffirmed with November’s Reno GGR number of +11%, or +4% QTD. That said, we believe ERI is set upfor a 4Q beat.ERI was up ~9% in 2018, the only positive regional gaming company in our coverage during the year(SP500: -6%). However, shares are down ~26% from 52-week highs (SP500: -16%), with leverage andintegration concerns pulling the stock down, but we believe this could be an attractive entry point as thecompany enters 2019 with a number of catalysts. We expect the greatest driver of upside for this stock in2019 should come from management’s ability to show progress on their 2020E target of 30% margins on acombined basis (Grand Vic and Tropicana). Management has proven to be smart buyers, with a strongtrack record of identifying deals that ultimately yield synergies/scale/FCF opportunities. We are modelling6% EBITDA growth in 2020 with 28% margins, thus leaving additional upside to shares should the companycapitalize on further cost cuts from these acquisitions. ERI remains active on the M&A front, but if there areno opportunities at an attractive price in the market, we believe FCF will be used to repurchase sharesunder its new program or deleverage the balance sheet. Longer term, we remain bullish on the William Hillpartnership and Pompano development. Fig 3 Eldorado Resorts, listed in estimated order of GGR(US$m) Current MonthQuarterYear-to-Date Nov-18 Nov-17 yoy % chgQTD 2018 QTD 2017 yoy % chgYTD 2018 YTD 2017 yoy % chgReno Tri Properties -- -- 11%-- -- 4%-- -- 5%Trop AC, NJ 26 26 (3%)51 51 (1%)313 322 (3%)Scioto Downs, OH 14 13 5%27 26 5%161 147 10%Grand Vic Elgin 13 12 2%26 25 2%148 156 (5%)Lumière Place, MO 13 12 7%26 23 12%154 136 13%Presque Isle, PA 10 10 (2%)20 20 0%120 117 2%Tropicana Evansville, IN 11 12 (9%)21 23 (6%)133 117 14%Eldorado Shreveport, LA 10 9 14%19 17 8%110 111 (0%)Isle Lake Charles, LA 8 9 (11%)15 18 (17%)95 106 (10%)Pompano Park, FL -- -- ---- -- ---- -- --Mountaineer, WV 8 8 2%17 17 1%98 102 (4%)Boonville, MO 6 6 (7%)12 12 (3%)73 74 (1%)Waterloo, IA 7 7 2%14 14 (2%)77 80 (4%)Bettendorf, IA 5 6 (6%)11 11 (4%)63 67 (6%)Kansas City, MO 5 6 (11%)10 12 (10%)62 68 (9%)Cape Girardeau, MO 5 5 (3%)10 10 (4%)58 60 (3%)Nemacolin, PA 2 3 (11%)5 5 (11%)30 32 (7%)Caruthersville, MO 3 3 0%6 6 (1%)34 34 1%Belle of Baton Rouge, LA 3 4 (30%)5 8 (32%)42 54 (22%)Black Hawk/Central Station, CO -- -- (4%)-- -- (4%)-- -- 0%Trop Casino Greenville, MS -- -- ---- -- ---- -- --Vicksburg, MS -- -- ---- -- ---- -- --Lula, MS -- -- ---- -- ---- -- --Total ERI (ex-Reno) 147 150 (2%)295 299 (1%)1,771 1,782 (1%)Total ERI (South) 33 34 (1%)65 67 (2%)400 406 (1%)Total ERI (Midwest) 42 44 (6%)83 87 (5%)500 500 0%Total ERI (East) 59 60 (1%)120 119 1%722 719 0%Total ERI (West) -- -- 3%-- -- 0%-- -- 2%Total ERI (Central) 13 12 2%26 25 2%148 156 (5%)Source: Company data, State Gaming Boards, Macquarie Capital (USA), January 2019。。。。。。