Caesars Entertainment (CZR) Q4 2017 Earnings Conference Call Transcript

Caesars Entertainment (CZR)
Q4 2017 Earnings Conference Call
March 7, 2018 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello and welcome to today's webcast. My name is Jen, and I'll be your web event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today's webcast is being recorded.

We'll be taking questions over the phone during today's presentation, and you'll receive instructions on how to ask a question at the appropriate time. If you would like to view the presentation in a full-screen view, click the full-screen button in the lower right-hand corner of your screen. Press the Esc key on your keyboard to return to original view. And finally, should you need technical assistance, as a best practice, we suggest you first refresh your browser.

If that does not resolve the issue, please click on the support option in the upper right-hand corner of your screen for online troubleshooting. It is now my pleasure to turn today's program over to Joyce Arpin, vice president of finance and assistant treasurer. Joyce, the floor is yours.

Joyce Arpin -- Vice President, Finance, and Assistant Treasurer

Thank you. Good afternoon and welcome to the Caesars Entertainment's Fourth-Quarter and Full-Year 2017 Results Conference Call. Joining me today from Caesars Entertainment Corporation are Mark Frissora, president and CEO, and Eric Hession, CFO. A copy of our press release, earnings presentation slides, and a replay of this conference call are available in the investor relations section on our website at caesars.com.

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 file our 2017 Form 10-K later today. Before we get under way, I would like to remind you to reference slides 2 through 4, which include forward-looking statements, safe harbor disclaimers, and define certain non-GAAP measures. In addition, as you're likely aware, Caesars Entertainment Operating Company, or CEOC, emerged from bankruptcy on October 6, 2017, and Caesars Entertainment Corporation completed its merger with Caesars Acquisition Company, or CAC, on that date. We also de-consolidated the results of Horseshoe Baltimore last quarter and exited our management relationship with certain properties in Ohio in 2016.

Therefore, our U.S. GAAP results include CEOC only after October 6, 2017, and include CAC in all periods, same-store include CEOC during all periods but also exclude the Horseshoe Baltimore and Ohio Managed Properties, including the one-time termination fee received in December of 2016. You can find a reconciliation of GAAP and non-GAAP figures on slide 19 through 27. I will now turn the call over to Mark.

So please turn to Slide 6.

Mark Frissora -- President and Chief Executive Officer

Thank you, Joyce. Turning to Slide 6, I'm pleased to report that Caesars Entertainment delivered another year of solid operating performance, with growth across all segments versus 2016. Over the course of 2017, we successfully delivered against key parts of our strategy. We enhanced our loyalty program through new offerings in our mobile platforms.

We continued to invest in our room product, with more than 50% of our five-year renovation plan now finished. We also made further improvements to our efficient operating model and, following the completion of CEOC's restructuring, we announced three strategic transactions. For the full year, net revenues, operating income, and adjusted EBITDAR increased significantly year over year, since CEOC's results are not included in 2016 and started on October 6, 2017, for the 2017 period. From a same-store perspective, net revenues increased 1% year over year, to $8.1 billion, and an $84 million increase in gaming was driven by strong regional performance and steady Las Vegas slot-volume growth.

However, this was offset by an unfavorable hold for a second consecutive year, which impacted our same-store revenues and income from operations by $80 million and $65 million respectively. Non-gaming revenues increased to $59 million, driven by improved rates from additional renovated rooms and overall strength in hospitality management. Las Vegas RevPAR improved 3.9%, to $132 million, for the full year 2017 and that exceeded the Las Vegas Strip market RevPAR growth of approximately 2%. Same-store adjusted EBITDAR expanded 3% year over year, to $2.2 billion, surpassing the 2017 estimate that we discussed on our last quarterly call, and we achieved the highest full-year EBITDAR margins in over a decade, with an expansion of 60 basis points to 27.1%.

On a hold-adjusted basis, adjusted EBITDAR of $2.24 billion was up 6.2% year over year. These achievements reflect the ongoing success of our continuous improvement efforts, which supported significant increases in both gaming and non-gaming revenues and provided excellent flow-through due to our cost-control efforts.On Slide 7, our fourth-quarter results are summarized. For the fourth quarter, we delivered same-store net revenues of $1.96 billion and adjusted EBITDAR of $505 million, both in line with the prior-year quarter. Eric will provide some more detailed information on the fourth quarter, but I do want to point out a few items.

The tragedy that occurred in Las Vegas on October 1 impacted our EBITDAR by approximately $25 million in the quarter. Hold had an unfavorable effect on revenue and adjusted EBITDAR versus the prior-year quarter, which was primarily driven by VVIP [ph] baccarat play at Caesars Palace. Adjusted EBITDAR would have been up 11%, excluding the impact of the October 1 tragedy and the unfavorable hold. It's important to remember that our hold results can vary widely from quarter to quarter based on high-roller activity in the period, which has an outsized impact on gaming revenues.

VVIP [ph] players make up an important customer segment for us and drive significant profit in periods where we see favorable hold. So far in the first quarter, we are seeing a large volume of international play, however, to date hold continues to be unfavorable year over year. Turning to Slide 8, we wanted to point out some components driving net income and EPS. We also outlined a few key components that should help investors better understand our balance sheet and income statement.

In a failed sale-leaseback transaction where cash is exchanged, the operating company simply recognizes a liability on its balance sheet equal to the cash paid and the assets remain on the books at their historical net-book value. This is consistent with our treatment of our sale of the real-estate property of Harrah's Las Vegas. In the unique case of CEOC's emergence and purchase by CEC, the non-cash transfer of the real estate resulted in the finance obligation equating to the fair value of the assets as subscribed to them by VICI. The increase in the real estate value of $3.5 billion from a revaluation results in incremental depreciation and interest expense that exceeds the lease payments.

This quarter our net income was reduced by $145 million of non-cash interest and depreciation associated with the fair-value adjustment unique to these assets.On the next slide, I'd like to highlight our new cornerstone initiative for 2018. First, we remain focused on invigorating our hospitality and loyalty marketing programs to increase the number of Total Rewards members by 3.4% to a total of 55 million members, and we plan to drive further growth of our TR database and greater adoption of our TR app and TR Visa cards in 2018. Second, in 2019 we'll enhance our gaming offerings. We'll invest in new gaming products, e-sports tournaments, including events hosted at the new e-sports lounge we recently opened at the Rio, and upgrades and new features for the TR app that will create highly personalized game-of-5 [ph] experiences for members.

Items such as achievements to unlock status levels and other features and promotions are expected to be launched during the year and will update in real time to create a sense of competition and excitement both on and off our properties. More to come on progress with this initiative. As I mentioned, our continuous-improvement-focused operating model helped us achieve our highest full-year EBITDAR margins in over a decade. We established the office of continuous improvement to essentially oversee our various initiatives and scale the successful ones across the organization.

Our third cornerstone initiative for 2018 is focused on this continuous improvement and we expect to see benefits from these efforts as we execute hundreds of initiatives to improve efficiency and increase revenue across the organization. And we will continue to evaluate and upgrade our technology. In February, we rolled out Oracle's Human Capital Management System, which boosts our cloud-first strategy. Finally, we're shifting our focus toward driving the expansion of our distribution network beyond investment in our existing infrastructure.

I'll go into more detail on this cornerstone as we make progress with the recently announced acquisition of Centaur Gaming and our plan to expand our Las Vegas footprint with the development of a new conference center in the center of the Strip.On Slide 10, I'd like to highlight our strong performance in food and beverage and the ongoing expansion of our Celebrity Chef concepts. I'm proud to announce that the Bacchanal Buffet at Caesars Palace generated sales of $53 million in 2017, which I'd like to point out is higher than the top-grossing U.S. restaurant as ranked by Business Insider. In the first quarter, we opened the world's first Hell's Kitchen restaurant in partnership with Gordon Ramsay and we opened a new concept, Pronto, by Giada de Laurentiis in Las Vegas in the first quarter, which is also off to a great start.Turning to Slide 11, I'd like to highlight the acquisition of Centaur Gaming, including the Hoosier Park and Indiana Grand horse racing and gaming destinations in addition to three off-track betting locations in Indiana.

These properties are strategically located in areas with low gaming penetration and strong economic indicators and are complementary to existing Caesars portfolio and will directly support our Total Rewards distribution strategy. Both properties were recently built or renovated and include world-class horse racing operations in addition to 4,000 of the latest slots and electronic table games. We expect the deployment of Total Rewards, introduction of our brands, and the implementation of our efficient operating model to drive accelerated performance. In January, the FTC granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and we expect to receive full regulatory approval and close the acquisition during the second quarter of 2018.

As we stated earlier, we expect to use the proceeds from the sale of Harrah's Las Vegas and cash on hand plus debt to fund the purchase. This could include the issuance of new debt in the form of a revolver draw, incremental term loans, or new bonds.Turning to Slide 12, we also recently announced a transaction to sell and lease back the real-estate assets associated with Harrah's Las Vegas to VICI properties, and to acquire adjacent land from VICI to develop a new Caesars Forum convention center, which will have 300,000 square feet of flexible meeting space. This transaction allows us to unlock Harrah's real-estate value while keeping it in the Caesars network, financing the Centaur acquisition without increasing our balance sheet leverage, and invest in expanding our center-strip footprint with the addition of a new Caesars Forum convention center. Caesars Forum will be located near Harrah's and a Linq, which are two properties with the lowest ratio of meeting space to hotel rooms in our Las Vegas portfolio.

The facility will include flexible meeting space focused around business meetings and will feature the two largest, pillarless ballrooms in the world, with a unique, outdoor 100,000-square-foot event plaza, unlike anything currently offered in Las Vegas. We're investing approximately $375 million in the development of Caesars Forum and expect to generate substantial incremental revenue. We anticipate breaking ground in early Q2 2018, with a two-year construction period. As you know, we're also actively pursuing international development opportunities as part of our diversified growth strategy.

We broke ground on the site of our new resort in Incheon, Korea, last year and anticipate making more progress on this front in 2018. Our network-expansion plan is off to a great start with these strategic transactions, and we remain in a strong financial position, with solid cash flows to pursue other opportunities with attractive returns. I'll now turn it over to Eric to discuss the quarterly financial results in more detail.

Eric Hession -- Chief Financial Officer

Thank you, Mark. I'll start with our quarterly same-store segment results followed by a review of the company's liquidity position and debt structure. I'll then concluded with some notable items for Q1 2018 before turning it back to Mark for some comments.I'll now turn it over to Eric to discuss our quarterly financial results in more detail.Thank you, Mark. I'll start with our quarterly same-store segment results followed by a review of the company's liquidity position and debt structure.

I'll then conclude with some notable items for Q1 2018 before turning it back to Mark for some comments.Starting with Slide 14, please note that my commentary today will cover same-store results unless otherwise stated. Same-store includes CEOC results and excludes the Horseshoe Baltimore and the Ohio property impacts from all periods. Accordingly, same-store net revenues were essentially flat, at $1.96 billion for the quarter. Adjusted EBITDA results exceeded our expectations, supported by reductions in regional marketing and operating expenses as well as continuous improvement in regional gaming revenues that largely offset unfavorable hold in Las Vegas.

Hold had an unfavorable effect on operating income of about $10 million to $15 million in the quarter relative to our expected hold but between $30 million and 35 million when compared to the prior year. The hold volatility was isolated primarily in Baccarat play at Caesars Palace in both years. We're pleased that Las Vegas slot volumes continued the trends from prior-year periods and had a record fourth quarter, increasing 1.7% over the prior year on a citywide basis and 2.5% for the full year. Las Vegas RevPAR and occupancy were relatively unchanged for the quarter, as our renovated room product and continuous-improvement efforts nearly offset the slow booking pace experienced across the city, particularly in our FIT segment as a result of the tragic events on October 1, 2017.

Our flat RevPAR for the quarter exceeded the LVCVA reported Las Vegas Strip RevPAR, which was down 3% in the quarter. Our fourth-quarter group business and forward group-booking activity were not impacted and remained quite strong. Moving on to our other U.S. segment, revenue growth continued across most of our regions, adding $24 million over the fourth quarter in the prior year despite a $12 million reduction in marketing expense.

The Midwest markets generated high-single-digit adjusted EBITDAR growth and Atlantic City improved revenues by 2.7% while significantly reducing marketing expenses resulting in increased adjusted EBITDAR. I'd also like to point out that since this is the first time we're reporting with new regional segments, we've posted net revenue and EBITDAR by region quarterly from 2015 to 2017 on our investor relations website for your reference.Turning to Slide 15, I'd like to first walk you through our cash and liquidity positions. We ended the year with approximately $2.6 billion of cash enterprisewide. During the quarter, we used $300 million of the total $1.063 billion Harrah's sale proceeds to pay down our CRC revolver balance, leaving us with no borrowings outstanding on either revolver at year-end.

Our capital expenditures totaled $279 million in the quarter, excluding the $73 million purchase of the east side land. We ended the year within 2% of our full-year guidance of capital. Capital expenditures in the quarter were primarily driven by the investment in our Las Vegas room product. We also used about $260 million of cash for transaction fees and debt reduction associated with the CRC and CEOC refinancings which occurred in the fourth quarter.

With the completion of these transactions, we have significantly simplified our debt structure and now hold $7.9 billion of term loans and bonds, excluding the CEC convertible note of $1.1 billion. It's also important to highlight that this is the first quarter we commenced rent payments to VICI, which were $217 million in the quarter, including an extra payment for January of $57 million made in December.Turning now to Slide 16, I'll discuss our outlook for 2018. We believe the Las Vegas market will continue to generate positive results in the long term. We expect the Strip to continue trending toward becoming the top meeting and convention destination location in the country with the expansion of space at the Las Vegas convention center, at our properties, as Mark referenced, and in other properties along the Strip.

The continued strength in the group segment highlighted activity around professional sports and stable room supply environment on the Strip are all catalysts for the continued organic growth of our Las Vegas properties. In addition, high consumer confidence supported growth in many of our regions through the back half of 2017, and we expect the trend to continue provided that favorable macros persist. Recent tax reform should further support this trend. Business-process-improvement initiatives and the implementation of best practices across our diverse portfolio of properties is another catalyst that will enhance our margin profile and improve free cash flow.

However, we do expect to face some challenges in 2018. We believe the introduction of new competition in some of the regional markets, particularly in Atlantic City, will negatively impact our results in the second half of the year. And during the first quarter, we continue to feel the impact on our leisure business in Las Vegas from the October 1, 2017, shootings. In addition, we anticipate increased inflationary cost pressures as we've alluded to in previous quarters.

However, we have challenged our management teams to offset these negative impacts with continued focus on cost control. We expect capital expenditures to be between $500 million and $600 million for maintenance-related same-store projects and room renovations during the year. We also expect to spend approximately $175 million to $200 million in 2018 on growth capital, which includes construction costs related to the convention center and also some capital costs related to the integration of Centaur. Following CEOC's emergence from bankruptcy in Q4 2017, we have net operating losses of approximately $2.9 billion which are available to offset the company's future taxable income.

As a result, we do not anticipate being a cash taxpayer for the next three years. For more information on our taxes, including the impact of the recently passed U.S. tax reform, please refer to our 10-K filing to be posted later today. Looking to the first quarter specifically, recall that Horseshoe Baltimore generated about $65 million in revenue and $15 million in EBITDAR in Q1 of 2017 and is now de-consolidated from our results.

We anticipate Las Vegas RevPAR should be flat to down 1% on a year-over-year basis, primarily due to an all-time high group demand in Q1 2017 that will not be repeated in Q1 2018. Please note that this estimated percent change reflects a consistent revenue recognition and reporting methodology with the prior year. We also anticipate to have about 21,000 additional rooms off the market versus Q1 of 2017, caused primarily by ongoing revenues at Bally's and Flamingo. Through February, lower-than-expected hold percentages in our baccarat business drove an unfavorable impact on a year-over-year EBITDAR of approximately $10 million.

That could change, since the quarter is not completed yet and that business is inherently volatile. Regionally, we expect the impact of flooding and other unfavorable weather-related events to drive an incremental headwind of between $10 million and $15 million against the prior year in our other U.S. regions. Some of these weather-related losses are expected to be offset by insurance proceeds but they will be realized in subsequent reporting periods.With that, I'll turn it back to Mark for some closing comments.

Mark Frissora -- President and Chief Executive Officer

Thanks, Eric. Please, everyone, turn to Slide 18. To recap, despite some headwinds in the fourth quarter, we achieved record same-store adjusted EBITDAR margin for the full year supported by very strong domestic gaming growth and a significant reduction in operating expenses. We also made great progress on our growth and network-expansion efforts through the acquisition of Centaur Gaming and the center Strip location for our new Caesars Forum convention center.

At the macro level, we're seeing both positive trends in consumer sentiment and spending. Unemployment levels are at historic lows and incomes are rising while the effects of U.S. tax reform are expected to further strengthen discretionary consumer spending. Furthermore, many consumers are shifting spend toward travel and experiences at the same time that the airline industry dynamics continue to exhibit downward pressure on flight prices.

We believe we are well-positioned for success in this environment given our strong portfolio of properties and key destination markets. Business spending is also on the rise, which creates a positive outlook for our meetings and convention division. Looking ahead, we expect to maintain our positive momentum in 2018 through our revenue growth and efficiency initiatives, continued investments in our properties and room products, and the development of Caesars Forum and potential international projects and licensing opportunities.We will now open up the line for Q&A, operator.

Questions and Answers:

Operator

If you'd like to ask an audio question, simply press *1 on your telephone keypad. Again, that's *-1. Your first question comes from the line of Chad Beynon from Macquarie. Your line is open.

Chad Beynon -- Macquarie Research -- Senior Vice President

Hi, great. Good afternoon and thanks for taking my questions. Thanks for all the color there, particularly around the qualitative outlook for 2018, especially on the first quarter and you mentioned some of the negatives, the lower hold, the flooding in the regional markets, obviously the further impact from the shooting, but as we think about to 2Q through 4Q, is there any reason why we shouldn't expect for the revenues to kind of get back to what we were seeing before these abnormalities? And then from a margin perspective, is everything still on track with the 2H sales force initiatives? Thanks.

Mark Frissora -- President and Chief Executive Officer

Yeah, I think the answer primarily overall is yes. Things actually should start to improve second, third and fourth quarter and we hope also eventually luck turns our way, so when that happens, that'll be a great outcome as well. Obviously, all this [Inaudible] statistical meaning. So we're expecting that to happen sometime.

And I'll also say that the sales force initiatives is on track. We expect [Inaudible] to complete what we call the primary phase of that in June. Again, will start yielding benefits obviously June going forward. So the answer to both of those questions is yes.

Eric, do you want to add anything to that?

Eric Hession -- Chief Financial Officer

No, I think that's absolutely right. We feel both of the core underlying strength of the business is quite strong. In the regional markets you've seen general trends of having positive slot growth and general business growth and here in Las Vegas, that's certainly been the case with the exception of the impact on the hotel ADRs that we experienced in the fourth quarter that rolled a little bit into the first quarter.

Chad Beynon -- Macquarie Research -- Senior Vice President

Great, thanks. And then just kind of moving on to capital allocation, the acquisition that you made in the fourth quarter, at least on our numbers, had a very positive free cash flow accretion, mainly because of the cost basis of Harrah's Las Vegas and also just the assets that you were buying. Could you just kind of update us on, I guess, the NOLs or cash basis for some of those properties in Las Vegas and then, more importantly, if there are opportunities that would yield a similar type of free cash flow accretion? How do you think about capital allocation with respect to buybacks or debt pay-down? Thank you.

Eric Hession -- Chief Financial Officer

Sure, I'll take a shot at that. So, the, Harrah's Las Vegas had the lowest basis of our properties. As you'd expect, it's one of the oldest that we've had in the portfolio and as a result, it did have the lowest basis. The others have higher bases.

They're still somewhat below their sale values by there shouldn't be as much of variance between that which would result in a gain. In terms of the use of the free cash flow as we move forward, you're absolutely right, we have to balance the investment in the business, investment in other opportunities that we have from an acquisition perspective that could generate great returns, and then evaluate, if we have additional cash available, how to return that best to shareholders. We've shown models, and you can run your projections, that do show substantial cash balance being generated over time and as a result, we look in the future to returning some of that cash to shareholders.

Chad Beynon -- Macquarie Research -- Senior Vice President

Great. Thank you very much and thanks for the segment disclosure as well for our models.

Operator

Your next question comes from the line of John DeCree from Union Gaming. Your line is open.

John DeCree -- Union Gaming -- Analyst

Hey, everyone. Thanks for the questions. Two questions. I wanted to stick with Las Vegas first and kind of talk a little bit more about the relative RevPAR performance that you guys have reported and expect in 1Q.

You've said room renovation is a big driver of that but wanted to get some more color as to how much you think it's room renovations and some of the other initiatives you're doing on the hotel front that might be contributing to that strong performance.

Eric Hession -- Chief Financial Officer

I think it's a combination of things. We certainly believe that as we renovate rooms, we are continuing to achieve the increases in room rates consistent with what we've experienced before. We're a little over 50% complete from renovating our room products. And so that is definitely contributing to that.

We also have continued to deploy additional revenue management techniques and have further modified our website, which allow us to drive additional bookings to those higher-margin channels which flow through into higher ADRs.

Mark Frissora -- President and Chief Executive Officer

And just to add to that, there is obviously some displacement in convention business from quarter to quarter that will impact RevPAR in a negative way, as you know. And then there's the, some lingering effects as well from the tragedy in October. So, those are kind of the drivers, I would say, that the latter two that I mentioned, probably are some of the bigger drivers of what was our forecast, if you will, for the first quarter.

John DeCree -- Union Gaming -- Analyst

Got it. Thanks for the additional color there. And then high level, wanted to shift gears to the other U.S. markets.

We noticed you guys starting to gain some market share in some key markets in the back half of the year and 4Q at the same time that you're kind of reengineering the marketing program and pulling back on marketing and promotional expense. So you've been able to kind of pull back on that expense but also gain some market share. Seems like some things are really starting to work well. Wanted to get your thoughts or some additional color on that and if that's a trend that you hope or expect to continue through the rest of 2018, barring some of the issues with weather that you had cited and we've seen in some markets.

Mark Frissora -- President and Chief Executive Officer

Yeah. Of course, we were very encouraged by our market-share results regionally and the fact that we were pulling back on marketing expense at the same time. We're being very selective and strategic in the way we look at the expense cuts and we're just doing kind of customer-at-a-time segmentation that allows us to reprogram, if you will, what we do. As you might imagine, with as many offers as we make to our 36 properties [Inaudible] billion a year, those offers don't all go out one by one.

So we're just peeling back the onion and finding smarter ways of using the money. Engaging people through email, engaging them one on one has allowed us to actually get a bigger benefit from those people that are in fact good customers of ours. And then those that are not necessarily profitable, again, we're able to deselect those. So it's been encouraging because we're expecting to continue to see this progress throughout the year.

So, to answer your question on that, yes, we expect to continue to show, I would say, rather significant improvements in marketing efficiency throughout 2018.

John DeCree -- Union Gaming -- Analyst

And, Mark, a quick follow-up on that, if I could. When you kind of think about the size of the opportunity and where you are and kind of implementing that strategy, would you say it's still kind of early innings on your vision for getting all those things kind of working at the right level?

Mark Frissora -- President and Chief Executive Officer

Specifically, what are you asking? On marketing or other?

John DeCree -- Union Gaming -- Analyst

On marketing, exactly, in calibrating your marketing programs. You have a massive database, 36 properties. You still have a lot of run room in terms of what you can do in calibrating how you approach your database and your promotional program. Is it a lot more hit?

Mark Frissora -- President and Chief Executive Officer

As I mentioned to you, I feel in 2018 it's safe to forecast we will continue to show good efficiency. You might imagine, we're very cautious about making sure market share is not impacted. So we do a lot of tests and runs, and what I mean by that is we test, let's say, different offers and types of the offers, size of them, the frequency of them and then, as we learn, we become more efficient. So we have lots of experiments going on and depending on how those experiments go, we have ample opportunity ahead of us.

So that's the best I can answer it. It's kind of like, we know this year is going to be a good year. Beyond that, I'd hate to forecast anything for future efficiencies until we actually have the test-and-learn experiments back to us.

John DeCree -- Union Gaming -- Analyst

Fair enough. Appreciate the color, Mark. Thank you.

Operator

Your next question comes from the line of Shaun Kelley from Bank of America. Your line is open.

Shaun Kelley -- Bank of America Merrill Lynch -- Managing Director

Hi, everyone. Good afternoon. Just wanted to go through and ask a little bit about margins. You guys called out on the prepared remarks kind of a number of factors that were out there, the combination of competition, the increased inflationary cost pressures, and then obviously you're going to be starting in a little bit of a hole in Q1.

Just kind of curious, could you give us just your thoughts today at the high level of whether or not, given all that, but on the flipside what you guys are working on so diligently on the continuous-improvement side, I mean, what are the chances that we can see margin improvement in 2018? Is that a stretch goal or is that realistic probability?

Eric Hession -- Chief Financial Officer

Shaun, thanks for the question. This is Eric. I would say it's a very realistic possibility. As you heard Mark on the previous question, we're expending a lot of effort making sure that we are deploying our marketing spend in the most efficient way possible.

We're using a lot of new technology. We have a lot of systems coming online. And we're challenging our management to be creative with the way that we invest, and it seems to be working quite well. Our marketing expense is down 4% in the quarter and, as you saw, we largely maintained and possibly grew share in some markets.

So that's a great outcome and, as we go forward, we'll be able to continue to push that. On the corporate side, we continue to review the way that we operate and the way that we process our business, and we think there's a lot of opportunities there. And then finally, we now have green belts and black belts at all of our properties and a centralized control department for that that we're able to push through a large number of initiatives that can deploy best practices throughout the company. So from our standpoint, despite those headwinds and the fact that we do have pressures in certain areas, we would absolutely expect the margins of the organization to be higher next year versus 2017, which, as Mark mentioned, was a record in itself.

Mark Frissora -- President and Chief Executive Officer

And I would add to Eric's commentary in that we also have a large purchasing initiative, procurement initiative, centralizing more of our spend and doing it in an efficient way and we feel that that's going to yield significant results for us this year as well.

Shaun Kelley -- Bank of America Merrill Lynch -- Managing Director

Great, thanks for the clarity on that too. The second question will be on just Las Vegas. Overall you called out, I think you're expected to see, if I caught it right, it was something like 21,000 incremental room nights out of service in 1Q versus last year. Can you just give us a little bit of the cadence of how that's going to play out kind of across the year in thinking about disruption headwind versus tailwind?

Eric Hession -- Chief Financial Officer

Sure. That's in the first quarter, the 21,000. The headwind should be between $2 million to $4 million. So, it's not an extremely significant impact because of the way that the rooms balance themselves.

And then as we move through the rest of the year, we would expect it to be more neutral, at least in the second and third quarter and then in the fourth quarter, we'll have a little bit of a headwind again.

Shaun Kelley -- Bank of America Merrill Lynch -- Managing Director

OK, great. And last question, Eric, would be more of a modeling question. It's more on cash interest expense. Could you just walk us through what your expectations there are and then kind of what or if any potential refinancings or maturities you have in 2018 that can push that number lower?

Eric Hession -- Chief Financial Officer

Sure. We're projecting right now, if you look at the kind of expected LIBOR curve, to have an interest expense at around $410 million to $415 million a year. That could obviously change with LIBOR. At this point, I don't anticipate refinancings.

We completed the refinancing of both CRC and CEOC. In the prepared remarks Mark mentioned, from the Centaur acquisition, there may be an opportunity to issue some additional term loan or some bonds but I wouldn't anticipate refinancings at this time given the great interest rates that we have on the term loans. Of course, that could change the rates significantly.

Joyce Arpin -- Vice President, Finance, and Assistant Treasurer

And I would just add, Shaun, that the numbers Eric quoted were without Baltimore but do include cash interest expense on the convert [Inaudible].

Shaun Kelley -- Bank of America Merrill Lynch -- Managing Director

Great. OK, thank you very much, everyone.

Operator

Your next question comes from the line of Harry Curtis from Nomura Instinet. Your line is open.

Harry Curtis -- Nomura Instinet -- Analyst

Hi. Good afternoon, everyone. Just a quick follow-up on the RevPAR outlook in Vegas for 2018. MGM was out with the full-year guidance of RevPAR in 2% to 4% range.

Eric, you mentioned strong forward-group bookings. Yet what's interesting is that their first quarter is going to be tougher than yours. Do you think that you can meet or exceed the same range that they're up to based on what you've got on the books?

Eric Hession -- Chief Financial Officer

Yes. We see the weakness that we're experiencing in the first quarter, the flat to down 1%, not persisting throughout the remainder of the year. In fact, the group calendar for us is still strong this year, up kind of low single digits, and then the next two years it's actually improved and it's up in the high single digits. So we're pleased with that.

From a RevPAR perspective, we would expect to be somewhere in that mid-single digits for the year including the first quarter. So somewhere between 4% and 6%, we think, is reasonable.

Mark Frissora -- President and Chief Executive Officer

I would also mention to you that we've been able to demonstrate for the last two years that we typically double whatever the RevPAR is and it's due to the room renovation projects we're doing. Of course, we also have actually some learning projects that we have, advanced projects and revenue management, and our system changes this year actually going to be able to give us a lot more real-time information on pricing versus what we've had historically. So on the margin, we expect to be able to actually earn more, if you will, through our pricing as we do it here on the Strip than we have in the past because of enhanced capability. So I think we're pretty bullish on that.

Harry Curtis -- Nomura Instinet -- Analyst

That's great. And a follow-up question. You mentioned that your volumes in the first quarter, your baccarat volumes, are up. Can you give us a sense of how much they're up? And the reason I'm curious is, is there a noticeable trend in higher demand from your baccarat customers?

Mark Frissora -- President and Chief Executive Officer

I'd say that we have significantly more Asian business than we had in the first quarter of last year. The Chinese New Year for us was exceptionally strong. So, yeah, I mean it was a much higher than last year. So we felt good about that.

The health of the business is definitely there. [Crosstalk]And as you know, luck can change and even in this quarter, we're not positive at this point but we're hopeful that [Inaudible] get High Roller play that can change on a daily basis.

Harry Curtis -- Nomura Instinet -- Analyst

Very good. And my last question, when you look at your promotional allowances as a percentage of GGR, and just a follow-up question on your margin opportunity, you're at roughly 20% and that's 700 and 900 basis points higher than some of your competitors. To what degree is that related to just administrative costs of having Total Rewards in place? And then when you back that out, do you think that you're, over the next couple of years, likely to focus on increasing the efficiency, particularly with multiple offers out to single customers, multiple offers from casinos that are within your Vegas property? And where I'm going with this is, to what degree is there room within the Total Rewards system to cut administration and duplicate cost?

Mark Frissora -- President and Chief Executive Officer

I think that our administration cost of Total Rewards continues to go down as does [Inaudible] efficiency of our offers and it's driven, the sales force initiative we talked about is a big technology initiative that goes in place in June, and that's going to drive further efficiency. On campaigns that would typically take us four to five months lead time, we've reduced that to two to three weeks' lead time. So we're much more real-time in offers and smarter than we believe competition will be oftentimes because of the system investment that we've made. That is one driver that will continue to drive our efficiency.

I think that we're also low-cost, as you mentioned, in terms of our shared-services organization. We've had this in place for years and it's just gotten better and better, part of it driven through new technology, for example, the general ledger system that we just put in was costing us roughly $12 million a year to administrate. It now costs us $3 million a year to administrate. It's in the cloud, it's real-time, it's more secure.

So if you use that as an example and as a proxy for the other four platforms that are being implemented in the company, and two of those will be completed this year and the other two finished probably by the year 2020, I'll say. So we feel very comfortable that those system changes, that technology change, is going to not only enhance the customer experience but make us more efficient. And then when we do acquisitions, it'll be much easier to plug and play, if you will, those actual new acquisitions and casinos right into our system and we'll be very efficient and we'll get very good flow-through on obviously the synergies both at the revenue level and the cost level.

Harry Curtis -- Nomura Instinet -- Analyst

That's very helpful. Thanks very much, guys.

Operator

Your next question comes from the line of David Katz from Jefferies. Your line is open.

David Katz -- Jefferies -- Managing Director

Hi. Good afternoon, everyone. I wanted to ask about the Indiana acquisitions that are pending and I apologize if I missed it. Is there any update on when you expect those to close? I know we talked about the first half of this year.

And if you have sort of learned anything new about those opportunities or any surprises as you move down the road?

Eric Hession -- Chief Financial Officer

Yeah, we haven't addressed that specifically. At this point, we're anticipating a late-June closure. We'll continue to update as we get additional information. We need two regulatory approvals still but the team, from an integration perspective, is actively working to get ready.

Some of the long lead time items from an IT perspective we've started purchasing and are ready to roll out to integrate Total Rewards as quickly as possible. What I can say is that we're very optimistic in the amount of synergies that we're going to be able to capture. We've been working with the local teams, who are great operators and really can recognize the scale and the technology that we've been able to procure in our central organization that can be deployed to really help out the operations. On top of that, again, we think that there's a lot of excitement and a lot of opportunity on the revenue side that can be generated from Total Rewards.

And then the horse racing operations, of course, are excellent and their capital investment has been very high and they're extremely high-quality. So everything we're finding out about the properties has met or exceeded our expectations. So we're very optimistic about the success of the purchase.

David Katz -- Jefferies -- Managing Director

All right, OK. And just one more, if I may. I appreciate all of the disclosure and information and the guidance and all the topics discussed so far, but the topic of sports betting and its opportunity, should it become a legal and viable avenue for you all, what thoughts have you about that and how much time and effort you're putting into what that could be?

Mark Frissora -- President and Chief Executive Officer

A lot of time and effort. We think that the potential is big and we expect to be in a position, Day 1, to do something about it when the legislation passes. So we're hopeful it does but other than just making some general comments like that, difficult for us to give specifics but we do expect to be in a position to take advantage of it. We feel that given the number of locations we have, the strength of our gaming platforms, mobile, all the things we're investing in, we think we're in a very good position to take advantage of it.

Mike Pace -- J.P.Morgan -- Analyst

OK, thank you very much.

Operator

Your next question comes from the line Mike Pace from J.P.Morgan. Your line is open.

Mike Pace -- J.P.Morgan -- Analyst

Hi. Thank you. A couple of different topics here. The first one is for Eric.

So the new reporting makes it a little difficult for us credit folks. Any chance you can share revenue and EBITDA or better yet the growth rates at the bond group CRC and if not, when we expect financials for that division?

Eric Hession -- Chief Financial Officer

Yes, we're going to be reporting a full package of CRC financials and information in approximately a week to 10 days. So it will lag our companywide 10-K, but you'll have that visibility as well. And then for CEOC, that's posted specifically for the lenders.

Mike Pace -- J.P.Morgan -- Analyst

Maybe to ask it a little differently and push a little bit more. In the slides and in the press release you said that same-store Vegas revenues were down around 4% and EBITDA down 10%. I think Caesars Palace had a weaker than average to those numbers. Is it fair to assume then the rest of Vegas did, I guess, average better, which would largely be in the CRC?

Eric Hession -- Chief Financial Officer

Yes, that's a fair inference, particularly if you simply adjust for hold, which we indicated is almost exclusively at Caesars Palace. The rest of the Vegas market would be attributable to the other properties.

Mike Pace -- J.P.Morgan -- Analyst

And then maybe to have me avoid asking this again, I guess, any update on plans to merge CEOC and CRC? I think you talked about doing that maybe in the first half of this year but any thoughts there would be great.

Eric Hession -- Chief Financial Officer

We continue to evaluate it. Again, there are a lot of priorities within the company from a growth perspective and from a capital-structure perspective and that's definitely one that we'll continue to evaluate. I wouldn't want to put a timeline on it at this point, but it's certainly something that we have on our list as a potential opportunity.

Mike Pace -- J.P.Morgan -- Analyst

And then, I guess, two big-picture questions on leverage and for Mark or you, Eric. I guess the first one on potential M&A opportunities, how should we think about you using leverage for M&A? Would you lever up a little bit or would you prefer to structure it in kind of the leverage-neutral manner you did with Centaur? And then you also talked about returning capital to shareholders in [Inaudible] earlier down the road. Is there a specific leverage level that you would target before you would consider doing it? Thank you.

Eric Hession -- Chief Financial Officer

Yeah, I'll take the first pass. I think, generally speaking, we would prefer to make acquisitions when we do that are leverage-neutral or de-leveraging. However, I would say that each acquisition is specific and we'll have to evaluate the existing market conditions and the specific dynamics about the acquisition but, in general, our objective is to reduce leverage over time within the overall CEC entity. And so having an acquisition strategy that's consistent with that would make sense.

In terms of returning cash to shareholders, again, we do have an internal leverage target and returning cash to shareholders is certainly a component of that. I wouldn't anticipate us necessarily having to reach our ultimate leverage target before returning some cash to shareholders if that's what we elected to do. Because of the fact that we're able to project our relatively stable cash flows and the growth of those cash flows over time, we'll be able to balance the use of those in terms of investing in our core business, exploring acquisitions using that cash, and then returning the cash to shareholders and ultimately potentially de-leveraging through debt repurchases as well.

Mike Pace -- J.P.Morgan -- Analyst

OK, great. Thank you.

Operator

Your next question comes from the line of Dennis Farrell with WF. Your line is open.

Dennis Farrell -- Wells Fargo Securities -- Managing Director

Great. Thank you. Just wondering if you could elaborate a little bit early on the NOL balance. That came in a lot higher than we were expecting.

So, congrats on that. And I'm just wondering as you think about that NOL balance and this acquisition for Centaur, what is D&A going to look like pro forma for Centaur for the company and a full-year basis.

Eric Hession -- Chief Financial Officer

Yeah, I can talk about the NOLs to start. You're right, they came in on the higher end of our range that we gave last quarter at $2.9 billion. It's a sizable amount of value for the company and given some of the dynamics in the new tax code that was announced right at the end of the year, the applicability of some of those NOLs to more current periods was favorably determined in that legislation. And so, that'll allow us, as we noted, to basically fully offset any of our anticipated gains for the next three years.

It's definitely a positive for our cash flow, after-tax cash flow. And so, we would anticipate being able to deliver on that. In terms of our depreciation going forward, we haven't yet provided that for the Centaur transaction. And so, we'll have to wait until we complete the merger accounting

Dennis Farrell -- Wells Fargo Securities -- Managing Director

OK. And then can you just give us an update on the convert and potentially how long do you expect that to stay outstanding?

Eric Hession -- Chief Financial Officer

Yeah. So, the convert now is obviously well in the money. I believe it's trading at around 200, reflecting the stock price appreciation since the start price was determined. We are unable to call the convert until three years after emergence.

However, it may make sense for us to try to convert some of it early, through either buying it back or offering incentives to convert into shares ahead of time. We will look at that in the context of our overall capital strategy and what we do with our excess cash and what our capital structure ultimately looks like from a complexity standpoint.

Dennis Farrell -- Wells Fargo Securities -- Managing Director

OK. And then in regards to the previous question on sports betting, I mean, under the current legislation it seems like New Jersey is going to have a pretty decent size head start on everyone, and you're well-positioned in that market. I'm just wondering how will it look in regards to mobile versus, like, just doing sports betting and the sports book in your casinos in Atlantic City? And then also, I guess, the last part of the question would be if the Supreme Court does pass it in its current form, do you expect the other states, how long you think it'll take other states to kind of get up and running?

Eric Hession -- Chief Financial Officer

Yeah, it's tough to say. I'll jump in and then see if Mark as anything to add. New Jersey does appear to be in the lead with that. We would anticipate that much like the online gaming itself within the state, they would offer a product that can be used both in the casinos and remotely.

I would think it will benefit our casinos in New Jersey. We know, for example, that here in Las Vegas some of our top days are the Super Bowl and NCAA weekends and some other sporting event days and we think that that'll help Atlantic City, people who want to go to Atlantic City on the weekends to watch football and bet in our sportsbooks which will become potentially larger components of the property. Beyond that, there have been, I believe, four states that have passed legislation and there are another eight or 10 that have it pending. They vary significantly from states where it appears that you would have to sign up in the casino and can play in the casino to states, similarly like New Jersey what we'd anticipate, where you could sign in and play anywhere within the state.

So I think the pace of this will be over time for sure. with the various legislative cycles and as the states decide how they're going to regulate it and implement it. but it certainly seems like a very solid large growth opportunity for the industry. As Mark mentioned earlier, we think we're very well-positioned, being in a number of different states and having some very strong brands and also operating online businesses in Nevada and New Jersey right now.

Dennis Farrell -- Wells Fargo Securities -- Managing Director

And then just lastly, in terms of tax reform, how are you handling your CAPEX? Are you able to expense all that in the first year? And that's a big question we got from a lot of investors early on and I'm just wondering about that. And then also, in terms of making acquisitions, I mean, does the current tax changes really incentivize you to make domestic acquisitions versus international?

Mark Frissora -- President and Chief Executive Officer

I'm just gonna say, this is the last question. We've got other investors and analysts that have to get in line here, so but I'll let Eric go ahead and take a crack at it.

Eric Hession -- Chief Financial Officer

Yeah, just quickly, the rules are fairly clear that short-duration assets can be expensed and long assets would still have to be depreciated. So, for example, with our convention center, a portion of that would be certainly accelerated and then a portion would have to be amortized effectively over time. We will take advantage of the new tax rules and certainly for an item like a restaurant, most of that's going to be accelerated. In terms of M&A and acquisitions, from our standpoint, it really doesn't have a large impact.

We're mostly a domestic company at this point and we don't have a lot of the international [Inaudible] of others.

Dennis Farrell -- Wells Fargo Securities -- Managing Director

Thank you for your time.

Operator

We have time for one last question. Your next question comes from the line of Patrick Scholes with SunTrust. Your line is open.

C. Patrick Scholes -- SunTrust Robinson Humphrey -- Managing Director

Good afternoon. Just got a question here, I had read a news article that, or an industry rag, that you folks had [Inaudible] been down to Brazil. Wondering if you can give us a little bit of color on what may be going on, what's the probability of that happening, potential size and scope of your investment down there?

Mark Frissora -- President and Chief Executive Officer

First of all, we don't comment on activity regarding mergers and acquisitions or any kind of opportunity. So I think that whatever industry journals say doesn't necessarily have to be true but we certainly will be in a position if, for example, Brazil legalizes gambling and we always look for opportunity and we'll look at this one just as thoroughly as we do with any other opportunity developmentally in the world.

C. Patrick Scholes -- SunTrust Robinson Humphrey -- Managing Director

OK, that's it for me. Thank you.

Operator

There are no further questions at this time. I will now turn the call back over to Joyce Arpin.

Joyce Arpin -- Vice President, Finance, and Assistant Treasurer

Thank you, everyone, for joining, and we'll talk to you in a couple months.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 60 minutes

Call Participants:

Joyce Arpin -- Vice President, Finance, and Assistant Treasurer

Mark Frissora -- President and Chief Executive Officer

Eric Hession -- Chief Financial Officer

Chad Beynon -- Macquarie Research -- Senior Vice President

John DeCree -- Union Gaming -- Analyst

Shaun Kelley -- Bank of America Merrill Lynch -- Managing Director

Harry Curtis -- Nomura Instinet -- Analyst

David Katz -- Jefferies -- Managing Director

Mike Pace -- J.P.Morgan -- Analyst

Dennis Farrell -- Wells Fargo Securities -- Managing Director

C. Patrick Scholes -- SunTrust Robinson Humphrey -- Managing Director

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