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Penn National Gaming Inc  (NASDAQ:PENN)
Q4 2018 Earnings Conference Call
Feb. 07, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen thank you for standing by and welcome to the Penn National Gaming Fourth Quarter Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead, sir.

Joseph Jaffoni -- Founder & President

Thank you, Paulina. Good morning everyone and thank you for joining Penn National Gaming's 2018 Fourth Quarter Conference Call. We'll get to management's presentation and comments momentarily, as well as your questions and answers. But first, I'll read the safe harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties.

These statements can be identified by the use of forward-looking terminologies, such as expects, believes, estimates, projects, intends, plans, seeks may, will, should, or anticipates or the negative or other variations of these or similar words or by discussions of future events, strategies or risks and uncertainties, including future plans, strategies, performance, developments, acquisitions, capital expenditures and operating results.

Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and Form 10-Q.

Penn National Gaming assumes no obligation to publicly update or revise any forward-looking statements.Today's call and webcast will also include non-GAAP financial measures, within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in today's press release, as well as on the company's website.

With that, it's now my pleasure to turn the call over to the company's CEO, Tim Wilmott. Tim?

Timothy Wilmott -- Chief Executive Officer

Thank you, Joe, and good morning everyone to Penn National's fourth quarter 2018 conference call. After I give my introductory comments, I'm going to turn it over to Jay Snowden to give a little bit more detail about our operational results and then over to B.J. Fair to talk a little bit about 2019 guidance and some financial statistics as well.

But as I reflect back on the fourth quarter of 2018, I clearly believe its transformational for the shareholders of Penn, our team members and our customers. If you look back on what happened, with the closing of the Pinnacle transaction and us assuming ownership of 12 new gaming properties in over 10,000 new team members, and then that was followed by the announcement that we intend to acquire the operating assets, Greektown in Detroit. And we also received Louisiana, an FTC approval to acquire the operations of Margaritaville in Bossier City.

Certainly as we think, about the end of 2019 from where we are today, our company is going to be radically and positively different than it is before we started the fourth quarter of 2018. I do want to touch on the operating results for the fourth quarter, Jay will go into more detail on it, and it includes approximately 75 days of the Pinnacle properties and the full quarter for Penn, we delivered adjusted EBITDAR of about $324 million, which was a -- beats the guidance of about $5.5 million and the Penn legacy properties, realized the year-over-year EBITDA growth of just under 6%.

I have to commend our operations for just terrific flow through. Our adjusted EBITDAR margins were up over 200 basis points. If you look at the same store Penn legacy properties, our margins were up a 150 basis points and 17 out of 23 casinos for the Penn legacy properties improved year-over-year margins. We provided again an update on the Pinnacle integration and we're still very, very confident on the $100 million of cost synergies and again to reiterate, we see $50 million run rate being realized in 2019, and the other $50 million in 2020. We have announced that we have quantified the revenue synergies, which Jay is going to provide a little bit more color on -- of a range of $15 million to $20 million in EBITDA. Starting late in 2019, but mostly being realized in 2020 and 2021, and in the fourth quarter, due to the Pinnacle transaction, we had about $78 million of transaction costs. Closing that deal, and we expect that number to diminish, as we progress through the quarters of 2019.

Turning over to development. I mentioned that the outset -- that we received all the regulatory approvals that we needed and right at the beginning of 2019, we closed on the Margaritaville property in Bossier City, Louisiana. Our purchase price for those operating assets was a $115 million. We welcome approximately 1,000 new team members to the Penn team. If you look at that performance of that business, the purchase multiple for a trailing 12 months was about 5 times and we expect with synergies realized, operating that business under the Penn banner that the purchase multiple will go below 4.5 times.

And this is the first property that we have in partnership with VICI properties, as our landlord with a triple net lease arrangement. And then as I mentioned in November, we announced our intent to purchase the operating assets of Greektown in Detroit for $300 million. We really like the Detroit market, it's very stable. We've been very, very impressed with the Renaissance of what's going on in Downtown Detroit and how the area has improved dramatically over the last 10 years.

I'm pleased to report that we've cleared FTC review of that transaction and we're working closely now with the Michigan regulators and we anticipate a second quarter 2019 close and this will be our second deal with VICI properties as our landlord and as we announced in November, we expect the purchase multiple post synergies to be about 6.3 times, again post-synergies. I also want to highlight the development in Pennsylvania with our Category 4 licenses; the two new Hollywood Casino that are under development. We still are securing the necessary permits to begin construction. To remind everyone, we have inclusive of the license fees, $120 million development in York, Pennsylvania and $111 million development in Morgantown.

We expect to begin construction on both those, sometime later this year and we expect the opening of York to occur sometime in the first-half of 2020 and in Morgantown, more like the mid-year 2020. Again all subject to getting the necessary approvals that we're working on today. I also want to highlight in the fourth quarter, our use of free cash flow, we did announce in our release today that we repurchased about $50 million of Penn shares, at an average price of $21.74. We did previously announced that our Board approved a new share repurchase program up to $200 million that runs to year-end 2020. We ended the year gross leverage inclusive of rent of 6.1 times, which we will -- over the next four, five, six quarters continue to delever with our -- use of our free cash flow this year and next, but I think, the quarter itself showed our flexibility and now our ability to generate a lot of free cash flow. If we see, it's the right opportunity to return capital to shareholders, we've done so. We will continue to delever and we have -- if we have the right opportunistic, accretive acquisitions like we did with the Greektown deal in Detroit, we have that flexibility as well.

With that, I'd now like to turn it over to Jay Snowden to give a little bit more detail on what we saw in operations in the fourth quarter.

Jay Snowden -- President and Chief Operating Officer

Thanks, Tim. Good morning to everyone on the call. We're obviously really pleased with our fourth quarter operating results, as a new-combined company, as we exceeded guidance in both revenues and EBITDA, as Tim mentioned.

Same-store sales growth of over 2% of the legacy Penn properties, was on top of 2% same-store sales growth for those same properties in Q4 of 2017, marking our best quarterly two-year stack in over five years. Same-store EBITDA growth of 5.9%, at the Penn legacy properties was realized due to nearly 100%, flow-through at the property level on incremental revenues, thanks to our margin improvement initiatives.

Looking more broadly at the total portfolio, we had stellar year-over-year results in Ohio, Massachusetts, Missouri, Charles Town, and the entire West region, including the legacy Pinnacle properties in Nevada and Colorado. Those year-over-year results were somewhat offset by the smoking ban impact in Baton Rouge, I-10 roadwork that negatively impacted L'auberge Lake Charles, in December and some continued elevated promotional noise in parts of Mississippi.

That said, the heightened promotional activity from the competition in Illinois was short-lived in Q3 and the environment in Q4 was much more rational and typical for that marketplace. Now turning to the database. We posted some of our best results both in terms of visitation and spend per visit with our VIP and unrated segments that we have experienced in years.

We also saw improved results year-over-year with the mid-and low-work segments in Q4, versus what we experienced in the third quarter. It's worth noting that the database trends I just detailed, they're not exactly the same or directionally similar at both legacy Penn and Pinnacle properties in the fourth quarter. Transitioning to integration and synergy activities, as mentioned on previous calls, we are targeting $50 million in run rate cost synergies in '19 and another $50 million in 2020.

We are encouraged by the progress that has been made over the last four months and the energy and enthusiasm with which our leaders at Penn, are approaching each and every opportunity. Most of the corporate initiatives are either in place or soon to be in place at this point and the primary focus for the remainder of the year is executing our cost synergy plans at the property level.

We are well on-track to deliver on the $50 million of run rate synergies in '19 and will provide regular updates throughout the year. As you read in the release this morning, we also for the first time provided a range of incremental EBITDA via revenue synergy opportunities. And to be clear, these revenue synergies are not built into our '19 guidance, as we anticipate as Tim mentioned, that mostly being realized in '20 and early '21.

The reason behind the timing is largely due to the fact that we will be completely merging our databases and loyalty programs mid-year. Once combined, we will commence a number of initiatives to optimize best practices, drive cross-property visitation and leverage the company's size, scale and distribution.

Moving to 2019, as is typical in the first quarter, for our gaming company is geographically diverse as Penn. Results year-to-date have been a mixed bag. The Midwest region and much of the Northeast region has been plagued with snowfall and record cold weather. As an example, we had 15 snow impacted days in Chicagoland in January of this year versus only four in 2018. The Illinois numbers came-out this morning and the market was down 10%.

So, the early results have obviously been challenging there. Conversely, the south and west regions have been largely unaffected by weather today, and the results have been better than we anticipated, which is encouraging. And we think, speaks to the financial health of the consumer. Macro-economic indicators, remained strong and based on the visibility we have today, we are optimistic these trends will carry throughout 2019.

With that, I'll turn it over to B.J. to walk you through 2019 guidance.

William Fair -- Executive Vice President and Chief Financial Officer

Thanks, Jay, and good morning everyone. I'd like to start by presenting our '19 guidance, as a couple of reminders, our guidance does not include any provision or assumptions for the projected Greektown closing.

We've also not included any provision in 2019 for the projected revenue synergies that were discussed by Jay and Tim earlier. In addition, we are modeling the non-recurring impacts of the bridge construction of Lake Charles and the Monarch expansion opening in Black Hawk. The 2019 guidance and underlying assumptions are found on pages five and six of the press release, we've provided detailed line-item guidance for both the full year and the first quarter in the release. So I will not reiterate all of the detail here.

But on a high level, our revenue guidance for the full-year is $5.208 billion. Our adjusted EBITDAR is $1.541 billion and our adjusted EBITDA after all lease payments is $702 million. The lease payments, including the Penn Master Lease, the amended Pinnacle lease, the Meadows Lease and the Margaritaville Lease, are all forecasted to be $839 million.

We do expect to incur full-escalation for each of the leases at the anniversary of their respective lease years. Free cash flow generation for the year is estimated at $371 million and net free cash flow, after mandatory debt payments and other obligations is expected to be $302 million. Cash taxes and cash interest are identified in the release, and for clarification, our $188 million of maintenance CapEx guidance, includes $20 million of Pinnacle integration capital, which we've discussed earlier.

Over $10 million of carryover capital from prior-year projects and includes the Margaritaville Capital. Cash on hand as of 12/31/18 was $480 million and I want to point-out that this cash balance includes $100 million of funds drawn on our revolver on December 31, 2018 for the Margaritaville transaction, which closed on January 2, 2019.

So after accounting for our Margaritaville transaction, our lease adjusted gross and net leverage ratios as of 12/31/18 were 6.12 times and 5.87 times respectively. This level is consistent with our projections and we are on pace to return to our target leverage ratios of 5.0 times to 5.5 times, EBITDA -- times EBITDA within 12 months to 18 months.

And as always, all of our debt covenants are comfortably met. So just a few other items. On pages 13 to 16 of the press release, we provided historical quarterly operating results for our operating segments that include the results of the acquired Pinnacle properties for the quarters ending December31, 2017 and forward. A number of assumptions were made, regarding corporate expenses allocated to the divested properties as well. While on a historical basis, there are some differences between the property allocation policies between Penn and Pinnacle.

The numbers included in the release, reflect a consistent treatment of the historical results to the current accounting treatment and most importantly to our guidance. So finally, I want to touch on our share repurchases for the quarter. As Tim mentioned, during the quarter, we repurchased 2.3 million shares at an average price of $21.74 for a total of approximately $50 million. Our previous $100 million repurchase authorization has expired. We repurchased a total of 3.6 million shares total under that authorization, and our Board has authorized a new two-year $200 million repurchase authorization that will be in effect until 2020.

And with that I will turn it over to Tim.

Timothy Wilmott -- Chief Executive Officer

Thank you, B.J. Operator now we're ready to take questions on this call.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Felicia Hendrix of Barclays. Please go ahead with your question.

Felicia Hendrix -- Barclays -- Analyst

Hi, good morning everybody. Thanks for all the detail on the release, super, helpful. I just wanted to talk for a moment about your guidance for the full-year. And I was just wondering, if you could help us understand how you're thinking about the cadence of the quarters?

So, if we take your guidance for the first quarter and the full-year, the rest of the year on a quarterly basis, if you even it out would be lower than the first quarter and I'm assuming that represents the acceleration of the bridge construction and the Monarch expansion, which is going to open in the second quarter. So it make sense, for the rest of the year, but can you just help us understand the cadence for example like, would fourth quarter would be higher than the second quarter and third quarter that sort of color would be helpful.

Timothy Wilmott -- Chief Executive Officer

Felicia, we typically provide guidance by quarter, as we go through the year. There's a lot of moving parts, as you can imagine. We feel like we have a good handle on Q1 based on what we're seeing in the business today, but to give you much detail beyond that for the out-quarters is difficult at this stage. I'd rather just stick the conversation around full-year guidance Q1. Happy to answer any question about timing of when things happen. But to layout exactly what our guidance is going to be at this stage, I think, it's premature.

Felicia Hendrix -- Barclays -- Analyst

Well, I'm not really -- sorry, I'm just not really --.

Timothy Wilmott -- Chief Executive Officer

Let me try to give you a little bit more color, Felicia.

Felicia Hendrix -- Barclays -- Analyst

Okay, sure.

Timothy Wilmott -- Chief Executive Officer

Typically, now we've got factors like the bridge in Lake Charles, and the expansion up in Colorado. But, it typically there's not a lot of seasonality in our business. I mean, that -- you can say the first quarter and third quarter are little bit slightly better than Q2 and Q4. But -- there's not a lot of seasonality in our business.

I think, the more important thing for us is the things that we know will impact the flow of customer traffic in our businesses and the changes either to the infrastructure of ingress or egress or the introduction of new supply. But it's a very stable business, quarter-to-quarter typically, not a lot of variability, like you seen in certain markets like Atlantic City, which is -- or Lake Tahoe which is driven by mostly in the third quarter.

Felicia Hendrix -- Barclays -- Analyst

Okay. And I'm probably going to bat zero for two now. But is there any way that you can call-out the impact from the two-items in the year? I guess, what I'm trying to get at is, would've your guidance been better than consensus expectations, if it weren't for those headwinds?

Timothy Wilmott -- Chief Executive Officer

I would venture to say, Felicia that we're probably taken a little bit more of a conservative approach on those two, one-time impacts, because we just don't know, what the impact is going to be and we spent a lot of time with the property teams, trying to assess and quite frankly, we've underestimated impacts from competition and overestimated over the years. And we're taking our best guess and educated guess, but it might be a bit more conservative than maybe what your model rather under promise over-deliver if we can.

Felicia Hendrix -- Barclays -- Analyst

Okay, great. And just finally, just as I'm thinking about your margin improvement program for the legacy properties, and I know, things have changed. But just wondering, when you look at that and you think about that how much is left in the cost savings program. And maybe how -- if you could talk a little bit about how that plan has changed, since you first announced it? And then, can you also help us understand some of the learnings you've had so far from Pinnacle that could benefit the Penn properties and vice-versa?

Timothy Wilmott -- Chief Executive Officer

Yeah. I'll tackle the second one, first because we're living it every day. There have been so many learnings over the last several months. We had a good idea pre-close as to what the opportunities would be, but the number of ideas and initiatives that we are now pursuing in earnest has expanded, probably two-fold from what it was pre-close. So most things that Pinnacle legacy properties I think, have done better than the Penn properties have done is a real focus on the high-end table game customers, get a much better job at moving their customers around the network.

Obviously, they didn't have a Vegas location, but they've got some real destination properties in Colorado, Louisiana and the like. And so there's a lot of opportunity I think on the revenue synergy side, it's a best practices from those Pinnacle legacy properties and apply them to the Penn properties. And then I think, on the other side, the Penn properties certainly have, if you look at the property level margins, operated more efficiently. And so there's a lot of sharing of best practices at the property level. And those are things, that we're continuing to bake into our plan throughout the year.

We're bringing the teams together and sharing a lot of ideas. So those are at a high level, I would say, are probably the biggest findings early on and ideas that are moving in both directions.

William Fair -- Executive Vice President and Chief Financial Officer

And I think, from a margin improvement plan, I think, we -- for our legacy Penn properties, we continue to be on the same plan, really nothing has changed with respect to what that program was and how we are implementing that out, at the individual property level. So I think, that's consistent with on those individual legacy properties with what we originally laid-out.

Timothy Wilmott -- Chief Executive Officer

If you look Felicia, even more specifically, and I agree with all B.J.'s points there. If you look at what we have laid-out at the end of '17, in terms of what the margin improvement opportunities would be and you looked out into 2019, we thought we could get our Penn legacy margins to that sort of 29.5% range. And given the quarter we just had and the flow through the experience of the Penn legacy properties. And what we still have in-store for the Penn legacy properties and margin improvement initiatives, I think, we probably would be touching closer to 30% -- but again there's a lot of moving parts because we're now at the point where we're sharing margin improvement ideas between Pinnacle legacy properties and Penn legacy properties.

Synergies impact, not just the Pinnacle legacy properties, but also the Penn legacy properties. So there's a lot of moving parts, but I think, you'll see that based on the guidance we're providing for '19, margins are moving in the right direction quickly. And we think, that will carry forward into '20 and '21 as well.

Felicia Hendrix -- Barclays -- Analyst

Great, thank you so much.

Operator

Thank you. Our next question comes from the line of Harry Curtis of Instinet. Please go ahead with your question.

Harry Curtis -- Nomura Instinet -- Analyst

Good morning. My first question touches on the expansion in Pennsylvania. There is some concern that the spending is defensive, but it sounds to me like you're thinking more positively about the accretion potential for these casinos. Can you just give us a sense of why they are really additive and ROIC positive, after you back-out any cannibalization?

Timothy Wilmott -- Chief Executive Officer

Yeah, Harry, this is Tim. I mentioned, I think -- on the last call that as we look at the developments in New York and in Morgantown, especially Morgantown, which we think, will be even more offensive. And look at the $230 million of capital, we're going to spend their inclusive of all the license fees. We expect inclusive of any cannibalization of Penn National, that we're going to deliver North of 15% cash-on-cash return on those investments, when they come online in 2020.

So we feel very comfortable that these are going to be good solid investments for us. And obviously, are mindful of the effect is going to have on Penn National, outside of Hershey Harrisburg. But we are absolutely confident, it's going to be accretive to our shareholders.

Harry Curtis -- Nomura Instinet -- Analyst

And while, we're on the topic. You made some significant acquisitions over the past 12 months. Can you talk about the M&A environment today? And whether or not there are regions that you really would like exposure in that you don't have at the moment? And then lastly, what -- whether or not the sellers are rational?

Timothy Wilmott -- Chief Executive Officer

Well, sellers are never rational from a buyer standpoint Harry. See, there is obviously, a couple of markets where we don't have a presence and they're getting fewer and fewer. I would say, and I was going to cover this in my concluding remarks that we've got a lot on our plate now to digest with the 14 properties that we have acquired or will acquire.

So our focus right now at Penn over the next couple of quarters is to integrate these businesses and realize the synergies we've committed to our shareholders to deliver. There obviously, are other things out there that we're going to look at, but I would characterize right now. Our focus is more internal than external and these things change quickly and there is always opportunities to take advantage of. But I wouldn't say that we're actively looking at things right now.

But I think, we need to let a little bit more time go on before we start to determine what's next. But that said, you never know, how these things, how these opportunities present themselves, and you always have to be prepared to take a look at opportunities to grow your company.

Harry Curtis -- Nomura Instinet -- Analyst

Very good. Thanks everybody.

Timothy Wilmott -- Chief Executive Officer

Thanks, Harry.

Operator

Thank you. Our next question comes from the line of Joe Greff of JPMorgan. Please go ahead with your question.

Joseph Greff -- JP Morgan -- Analyst

Good morning, everybody.

Timothy Wilmott -- Chief Executive Officer

Hi, Joe.

Joseph Greff -- JP Morgan -- Analyst

I have two questions with respect to 2019 outlook and maybe some of the broader underlying assumptions therein. Obviously, you highlighted Lake Charles and Black Hawk, as having issues at some point during this year and Mississippi is still sort of elevated in terms of promotions. So if you exclude those three properties, can you talk about how you're thinking about the rest of the portfolio, same-store revenue and same-store EBITDA growth?

Jay Snowden -- President and Chief Operating Officer

Sure thing, Joe. We're anticipating when you exclude the one-time impacts in Lake Charles, and Black Hawk and again the noise in Mississippi, though still present, is not as significant -- was not as significant in the fourth quarter as what we saw in the third quarter.

So it's move in the right direction. We've built into our modeling from a same-store sales perspective, low single-digit, less than we saw in Q4 and we want to make sure that we've got goals out there that take into account the number of different markets that we operate in. Obviously, much higher than that for the Ohio of the world but -- lower than that in some of the other markets that are more challenged like Illinois. But it shakes-out to be a low-single digit number and you can take from there what our assumption is on EBITDA growth, obviously higher than the revenue growth percentage, as we continue to drive margins throughout 2019.

Joseph Greff -- JP Morgan -- Analyst

Great. And then if we exclude those three properties. How do you think Penn legacy versus the newly acquired properties -- which would have higher growth ?

Timothy Wilmott -- Chief Executive Officer

So, I'm say about that, Joe. I would say the newer properties would have higher growth by virtue of continuing to improve margins at the property level, as we've articulated on previous calls, when you look at the tax adjusted margins and really comes through when you exclude Nevada, which is really a different business model altogether at Tropicana and even at M Resort much more non-gaming focus.

So if you exclude Nevada properties, there is a property level margin differential of 400 plus basis points. And so we're going to continue to close that gap, which is why you will see more improvement coming from the Pinnacle legacy than you will the Penn legacy properties.

Jay Snowden -- President and Chief Operating Officer

And that's reflected in our synergy assumption.

Joseph Greff -- JP Morgan -- Analyst

Excellent. And then maybe one final question is, a little bit backward looking, but when you look back at all the regional markets in December, I mean, and characterize -- how ever you want to characterize most of the regional markets, but they were pretty strong. When you parse through the -- I don't know, the daily or the weekly numbers, how much of it was customer behavior acting differently versus calendar and year-to-date?

Jay Snowden -- President and Chief Operating Officer

Here's how I would answer that one, Joe, because we've spent a lot of time looking at the same dynamic, I mean December was a really, really strong month and it was really focused on strength the last 10 days. Just tremendous pent-up demand, partly because of weather earlier in the month was not good. And then the calendar orientation was very favorable in terms of where Christmas landed and where New Year's Day and New Year's Eve landed.

But I think you have to take a look as you go into 2019, is why we laid it out in my prepared comments where weather has not been an issue. We have enough properties now that we can take a look at weather impacted versus non-weather impacted. And the properties we have in the South and the West, which have not been impacted by bad weather in Q1. The trends have been really good, very much a continuation of what we saw in December and some of the other better months in 2018.

So hard to say, what that all means, because there's a lot of noise in our numbers in the Midwest and Northeast properties due to weather, south and west, there has been no weather issues maybe -- versus maybe a little bit last year. But we're encouraged by what we're seeing in terms of not just spend per visit but also visitation so far this year in those two regions that have been unaffected.

So -- I think that's the best way to look at it. Again, we'll have more information as the year tracks on.

Joseph Greff -- JP Morgan -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Shaun Kelley of Bank of America. Please go ahead with your questions.

Shaun Kelley -- Bank of America -- Analyst

Hi guys, good morning. Just two fairly small ones. Thanks for all the breakouts on the kind of cash and free cash flow bridge in detail. Just, do you want to clarify two things; one, you guys given -- at least in the guidance for cash interest expense on traditional debt of about $126 million. You said $38.5 million in the first quarter. So just trying to reconcile those two numbers given. Is there, timing of a bond payment or something that would drive that not being a little bit more stable as we move through the year ?

William Fair -- Executive Vice President and Chief Financial Officer

No, we do have a mandatory redemption period -- redemption times that we have. And so -- you look in the first quarter and the third quarter, you'll probably see a little bit higher, but rather than that -- it's pretty consistent with our prior.

Shaun Kelley -- Bank of America -- Analyst

Okay, thanks for that B.J. And then, the other question I have was just -- you also give a little color on cash taxes, which is helpful, given all the moving pieces below the line. Any thoughts on sort of either how that would look in 2020 or how it make cash tax, how may look on a more-stabilized basis, as we move through integration costs and remaining acquisitions and the like?

William Fair -- Executive Vice President and Chief Financial Officer

We did have some benefit as a result of the Pinnacle transaction. But in 2020, we'll probably be a little bit higher, and I think, that we've kind of talked previously about what that stabilized level would be. So I think, that we are not providing anything on 2020 right now.

But the previous level that we had provided guidance for this last year, I think, was probably the right level to be looking at from a cash tax perspective.

Shaun Kelley -- Bank of America -- Analyst

Thank you very much.

Operator

Thank you. Our next question comes from the line of Carlo Santarelli of Deutsche Bank. Please go ahead with your question.

Carlo Santarelli -- Deutsche Bank -- Analyst

Hey guys, thanks and good morning. On the third quarter call, I think, you guys mentioned that you expected to be kind of at a $30 million run rate for Pinnacle synergies at year-end. Could you kind of give us a little bit of an update as to maybe where you are or where you finished at year-end or where you are kind of now in terms of the annual synergy run rate ?

Jay Snowden -- President and Chief Operating Officer

Sure thing, Carlo. So yeah, we mentioned that on the -- as you detail on the third quarter call, the $30 million, is most of that was pretty immediate. You're eliminating the redundancies between corporate legacy Pinnacle and corporate legacy Penn. The other $70 million takes a little bit longer to get out, obviously. So we kind of entered the new year, with $30 million in the bank, in terms of run rate. And that $30 million will grow to $50 million between now and the end of the year and we hope that that's conservative, but that's sort of how we're thinking about it now,

There is quite a bit that takes place in the first quarter, as we round out most of our corporate initiatives. And then at the property level, there is a number of things we're working on that. Just take a little bit of time, we want to make sure we're thoughtful around changes that we're making before we fully implement. So we're testing a number of things right now, across the organization. So, you'll see more of those property level cost synergies. They'll be realized more mid-year and toward the latter half of the year.

Timothy Wilmott -- Chief Executive Officer

But we did hit the $30 million mark that we had previously communicated and probably maybe beat it by a little bit.

Carlo Santarelli -- Deutsche Bank -- Analyst

Got it, Great. And then, Jay, you kind of alluded to this earlier, I think, it was in response to another question. But you talked a little bit about, I think, that the gaming tax adjusted margins, where you guys kind of legacy Penn relative to legacy Pinnacle, you guys were roughly 400 basis points north of kind of their gaming tax adjusted margins.

Structurally, is there much in the way of the Pinnacle assets and/or the gaming floor mix that makes kind of the complete bridge of that gap, difficult or more challenging or frankly maybe it's not necessarily possible if the properties continue to be ran in a similar fashion to what they were, how they're being run before?

Jay Snowden -- President and Chief Operating Officer

It's a great question. Carlo. We spent a lot of time, looking at that and sitting here today, I don't know the answer completely. I will tell you that what we have assume in our $100 million of cost synergies and the percentage of the asset or the portion of the asset, comes from the properties. We assume that we would be able to close that gap by 50%.

So we feel as though that's doable. As we sit here today, I'd like to believe that we can do better than that, but yes, there are some -- not, everywhere, but some of the properties, there are some structural issues, more of a resort property, more hotel rooms that would impact the margins between Penn legacy and Pinnacle legacy. But I think, we played a pretty conservatively in terms of what we believe, we can get at, just building into the $100 million of cost synergies. And obviously we'll have more updates for you guys, as the year tracks on.

I hope we can do better, but that's where we are today.

Carlo Santarelli -- Deutsche Bank -- Analyst

Great. And Jay just as kind of a little follow-up to that. In terms of -- obviously we could look at Pinnacle's filings historically and kind of establish where they were on a gaming tax adjusted basis with the legacy portfolio but acknowledging that four (ph) of those assets, obviously are not with you guys. I'm assuming that the remaining portfolio is kind of a similar SKU and you're referencing, kind of the piece of the business that you ultimately bought is still kind of right in that same companywide differentials that exist previously ?

Jay Snowden -- President and Chief Operating Officer

That's right, Carlo. What -- I'm quoting just the properties that we acquired, not the divested assets.

Carlo Santarelli -- Deutsche Bank -- Analyst

Got it. Great, thank you very much.

Operator

Thank you. Our next question comes from the line of Barry Jonas of Sun Trust Bank. Please go ahead.

Barry Jonas -- SunTrust Bank -- Analyst

Hey guys, just curious on sports betting, how that's trending so far. And then also how maybe you're thinking about potential JVs or partnerships? Thanks.

Timothy Wilmott -- Chief Executive Officer

Hi, Barry. This is Tim. We just announced earlier this week, that Chris Sheffield, as planned, was leaving Penn, heading back home to the UK and we've hired Jon Kaplowitz, previously from Comcast, to lead Penn Interactive Ventures. And we continue to take a look and evaluate the different opportunities we have regarding sports betting and iGaming. And obviously, the new interpretation from the Department of Justice on the Wire Act has caused us and also states to pause to understand that new direction. So we're continuing to talk to media partners, potential scheme partners. We don't have anything firm to announce yet. But as you can imagine, now that we -- when we finished the transaction with Greektown and having presence in '19 different jurisdictions. We are still engaged with a lot of potential partners that could really make a national impact on the sports betting, iGaming opportunity. But still a lot more to come before, we make a final decision. And we're thinking about it, a final long-term decision and how we want to take advantage of this.

We have opened up our retail sports operations in Mississippi, Pennsylvania, and in West Virginia and specifically in West Virginia with a very appropriate tax rate. We saw very solid results in the fourth quarter during football season. So that's all good and we anticipate that there's going to be a lot of legislative activity in the state capitals this spring, as states look at taking advantage of this opportunity in many of the states where we operate businesses. And so I think, you're going to see a lot of political activity, legislative activity, around sports betting. And I think, we're well-positioned to take advantage of that and again, we'd want to make sure, when we make our decision, we're thinking about how it's going to impact us, three, four, five years out.

Barry Jonas -- SunTrust Bank -- Analyst

Great, great. That's really helpful. And then just a quick clarification for the maintenance CapEx guidance. B.J. are you saying, if you remove the $30 million for Pinnacle (ph) integration and some carryover then 158 (ph) sort of the right run rate on a recurring annual basis to think about it?

William Fair -- Executive Vice President and Chief Financial Officer

Yeah. I think, we've publicly said before that between the two companies, when we take-out the four (ph) divested properties, the 150 basis points to 160 basis points area was what we really looking at, as a going-forward rate.

Barry Jonas -- SunTrust Bank -- Analyst

Great, thanks so much guys.

Operator

Thank you. Our next question comes from the line of Thomas Allen of Morgan Stanley. Please go ahead with your question.

Thomas Allen -- Morgan Stanley -- Analyst

Hey, good morning. So just thinking about a couple properties, you called out this issues in Lake Charles and Black Hawk. but just two other properties Plainridge on core average, was opened in June, how you thinking about the impact now. And then there was a GM plant closure in Ohio at Youngstown, how you think about that impacting your property? Thanks.

Jay Snowden -- President and Chief Operating Officer

Sure, things, Thomas. And the only reason why we didn't reference Plainridge and Youngstown is because we're really focusing on the sort of one-time impacts, which are specific to Lake Charles and Black Hawk with the Monarch opening. Look, Plainridge Park Casino, we've said before, obviously there's going to be some impact to the property there.The good news for us is that the vast majority of our business comes from within a 30-minute drive. And almost all of our business comes from Boston or South, not a lot of business from north of Boston. We believe that based on where the customers are coming from and how difficult it is. I live in Boston, I can tell you that it's very difficult to travel through Boston on weekdays and even on weekends.

We're comfortable we're going be able to retain most of our business that is South of Boston. Obviously anything in Boston, would be exposed, but it's a small percentage of our business overall. We don't know, exactly what the impact will be, but we've taken our best guess, and that's built into our guidance for 2019. And then with regards to Youngstown, we really have not seen any impact with the plant closure or the news of the plant closure, time will tell. We did assume, some impact in our budget for 2019 for that property. But very little, we actually anticipate that property continuing to show strong growth through the year.

Thomas Allen -- Morgan Stanley -- Analyst

Helpful. And then just tax season started a week ago and most people haven't received refund yet, but some have -- have you seen any change in behavior or tax refund checks being cashed to cages? And are they higher, lower, anything to read into it so far?

Jay Snowden -- President and Chief Operating Officer

Yeah, I wish we had more to share on that. Thomas really we haven't seen much activity with the government shutdown and the delay in refunds. We're probably going to have a lot more information obviously over the coming weeks, but not today.

Thomas Allen -- Morgan Stanley -- Analyst

Okay. Thank you.

Operator

Thank you (Operator Instructions) And our next question comes from the line of Chad Beynon of Macquarie. Please go ahead with your question.

Chad Beynon -- Macquarie -- Analyst

Hi, good morning. Thanks for taking my questions. In Vegas at Tropicana, can you provide a little bit of color in terms of what you've seen in terms of that rated play increasing and kind of using your database and finding customers there? And any outlook for 2019 and how you can yield manage your rooms better, given the more positive outlook for '19, from a lot of the operators. Thanks.

Jay Snowden -- President and Chief Operating Officer

Sure, thing, Chad. We had just starting with sort of closing out the fourth quarter, we had a strong quarter in Las Vegas, as you saw from our West region results, driven by both Tropicana and M Resort showing RevPAR growth in the mid-to-high single digits year-over-year obviously benefited from the tragedy at Mandalay Bay in the fourth quarter of 2017.

As we look at 2019, obviously there's a big opportunity for us within the database to continue to cross market Tropicana to the Pinnacle database of customers. We have started to test a few things, obviously it won't completely come together until we merge our databases and the loyalty card programs, in the middle of the year. But Las Vegas on its own is also set up to have a pretty strong year, at least from what we can see the first half of the year from a group convention business perspective.

We're in a much better position than we were in 2018. So we anticipate, having another year of growth at Tropicana, another year of growth at M Resort, on the non-gaming side. And I think, the gaming is sort of -- we haven't built a lot into our modeling because we want to make sure we get the offers right and do this in a phased approach. But we think, there is upside to take the percentage of hotels that we allocate to gaming customers from the high teens, low '20s to maybe the mid '20s to high '20s over time.

Chad Beynon -- Macquarie -- Analyst

Great. Thanks, Jay. And then back on the guidance, you walked us through a couple of times, how you guided to revenues and flow through and flow-through was obviously very strong in the fourth quarter. And if revenue is below a certain level, obviously that flow through won't be as strong.

We've seen 19 minimum wage increases for January 1. Does that change how we should think about flow through if revenues are above the same-store guidance that you've guided to or is that just such a small piece of the overall algorithm that you should be able to offset that?

Timothy Wilmott -- Chief Executive Officer

I would say more the latter, Chad, we have a pretty good handle on minimum wage increases, market-to-market across the portfolio and we've built that into our assumptions whether revenues are up 1 or 2 or down 1 or 2. We have a good sense as to how to manage the labor with some of the increases that have been mandated or built into law at the state level.

Chad Beynon -- Macquarie -- Analyst

Okay, thank you very much.

Operator

Thank you. Our next question comes from the line of David Katz of Jefferies. Please go ahead with your question.

Eric Lockenvitz -- Jefferies -- Analyst

Hi, good morning guys. It's Eric Lockenvitz (ph) on for David. Just wanted to touch real quickly on the revenue synergies, you outlined. So could you just talk a little bit about the $15 million and $20 million and how you got that number and how we can think about it being derived (ph)?

William Fair -- Executive Vice President and Chief Financial Officer

Yes, sure. There are many variable as you can imagine, I shared some of the ideas to Felicia's question earlier on the call, in terms of sharing of best practices and some VIP and table games specific initiatives that the Pinnacle properties have been successful at deploying over the last five years, that we're going to be doing at the Penn properties.

We also obviously, once we bring the two databases together and we merge the Marquee Reward player loyalty program from Penn, with my choice -- from Pinnacle, and we have a single what we believe to be best-in-class loyalty card program. There's a number of changes we believe positive changes that will be communicated at the time of launch mid-year that we believe are going to spur accretive revenue growth throughout the organization and really enhance the cross property visitation once we have one card that is -- then points are bankable and portable across the country.

So there's a lot of opportunities there and then there some best practices on the Penn side that we're sharing with the Pinnacle properties, similar to what I mentioned earlier. But there is literally 11 or 12 different initiatives that build into the revenue synergy target that we laid out. We're comfortable with the target and the range, but we just don't want to rush those decisions for the reasons, I've laid out. And that's why we said most will occur in 2020 and some will leak into 2021 as well.

Timothy Wilmott -- Chief Executive Officer

We're also taking advantage of our social products and marketing the social gaming products to the Pinnacle customers as well, which is inclusive of the $15 million to $20 million revenue synergies that Jay outlined.

Eric Lockenvitz -- Jefferies -- Analyst

Great, thanks. Congrats again (ph) the quarter.

Timothy Wilmott -- Chief Executive Officer

Thanks, Eric.

Operator

And at this present time, we do not have any additional questions, please continue with your presentation or closing remarks.

Timothy Wilmott -- Chief Executive Officer

I'll give, operator, closing remarks. Thanks, everyone for your attention to our call this morning. As I mentioned during the Q&A, within Penn, we're really focused on realizing the synergies coming from the new properties from the Pinnacle transaction, the Margaritaville deal, which we closed earlier this year and the upcoming close of the Greektown Casino in Detroit. So everyone at Penn is really focused on delivering the synergies, we've committed to our shareholders on and we're going to continue to update you on the progress each quarter as we produce these results and give you as much transparency, as we possibly can toward a story of -- that we'll deliver a lot of free cash flow to our shareholders that I think, we've outlined, how we're going to use that over the next four to five quarters to take advantage of.

So with all that. Thanks and we'll be back in touch during the spring of 2019. Take care.

Operator

Thank you, ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

Duration: 49 minutes

Call participants:

Joseph Jaffoni -- Founder & President

Timothy Wilmott -- Chief Executive Officer

Jay Snowden -- President and Chief Operating Officer

William Fair -- Executive Vice President and Chief Financial Officer

Felicia Hendrix -- Barclays -- Analyst

Harry Curtis -- Nomura Instinet -- Analyst

Joseph Greff -- JP Morgan -- Analyst

Shaun Kelley -- Bank of America -- Analyst

Carlo Santarelli -- Deutsche Bank -- Analyst

Barry Jonas -- SunTrust Bank -- Analyst

Thomas Allen -- Morgan Stanley -- Analyst

Chad Beynon -- Macquarie -- Analyst

Eric Lockenvitz -- Jefferies -- Analyst

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