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Twin River Worldwide Holdings, Inc  (NYSE:TRWH)
Q4 2019 Earnings Call
Feb. 11, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Casey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Twin River Worldwide Holdings, Inc. Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

Craig Eaton, Executive Vice President and General Counsel, you may begin your conference.

Craig Eaton -- Executive Vice President and General Counsel

Good morning, everyone, and thank you for joining us on today's call.

By now you should have received a copy of our preliminary Q4 and full year 2019 earnings release issued yesterday afternoon. If you haven't, the preliminary earnings release and the presentation that accompanies this call are available in the Investor Relations section of our corporate website at www.twinriverwwholdings.com under the News and Events & Presentations tabs.

With me on today's call are George Papanier, our President and Chief Executive Officer; Steve Capp, our Chief Financial Officer; Marc Crisafulli, our Executive Vice President and President of Twin River Rhode Island; Jay Minas, our VP of Finance; and finally, Joe McGrail, our Chief Accounting Officer.

Before we begin, we'd like to remind everyone that comments made by management will contain forward-looking statements, including estimates for the Company's 2020 adjusted EBITDA. These forward-looking statements include plans, expectations, estimates and projections that involve significant risks and uncertainties. These risks are discussed in the Company's preliminary earnings release and SEC filings. Actual results may differ materially from the results discussed in these forward-looking statements.

Twin River's actual results of operations for the fourth quarter remain subject to the completion of its financial accounting closing process, which includes review by its management, Audit Committee and external auditors. During the financial closing process, Twin River may identify items that require the Company to make adjustments to the preliminary estimates discussed today. As a result, Twin River's actual operating results could be outside of the ranges set forth in the release, and such differences could be material.

Additionally, the estimates of Twin River's net revenue, net income and adjusted EBITDA are forward-looking statements based solely on information available to Twin River as of the date of this call and may differ materially from its actual operating results. Therefore, investors should not place undue reliance on these preliminary estimates.

During today's call, management will refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP financial measures, where the reconciliation can be produced without unreasonable effort, as is the case with forward-looking level of estimated adjusted EBITDA, are included in the schedules contained in our preliminary earnings release or the presentation that accompanies this call.

I will now turn the call over to George.

George Papanier -- President & Chief Executive Officer

Thank you, Craig. Good morning, everyone, and thank you for joining us on today's call on such short notice.

Given all the recent strategic announcements by the Company, we wanted to speak directly to investors and provide more details, and pre-releasing our Q4 results allows us to better achieve that. So appreciate you joining us.

After I give my opening comments, I will turn the call over to Marc, who will provide additional color around our recently announced partnership with IGT to jointly supply gaming machines to Rhode Island and our related investments aimed at enhancing the state gaming competitiveness [Indecipherable] the market. Steve will then provide more details about a number of recent developments in our corporate strategy and provide some initial thoughts on the outlook for 2020.

As we wrap up a very successful 2019, our first year as a public company, it's a good time to reflect briefly on all the steps we have taken to strategically and opportunistically grow and diversify the Company, all the while creating shareholder value and returning meaningful capital. With the completion of our acquisition of three casinos in Black Hawk, Colorado on January 23, we now own and operate seven casinos in four jurisdictions, with the two additional properties under contract in Kansas City and Vicksburg expected to close early in Q2 of this year, pending regulatory approval in Missouri. We've already received the required approvals in Mississippi.

Growing from a single casino operator as recently as 2014, the Company has embarked on a disciplined path of both organic and strategic and accretive M&A growth that has increased our revenues by almost 20% in just the last two years. We have no intention of slowing down either. Armed with one of, if not the strongest balance sheets in the industry, we believe that our overall plan remains well on track and see no change to the long-term value proposition we have laid out for our investors.

As Steve will cover in more detail later on the call, the last seven months saw the Company return nearly all of the $250 million allocated under the previously announced return of capital program, to shareholders. During 2019, the Company initiated a $0.10 quarterly dividend policy and bought back more than 20% of our shares outstanding since Q2, a tremendous return on capital.

I'm pleased with the Q4 preliminary earnings that we released yesterday afternoon. Using the midpoint of the preliminary range reported, the overall revenue and adjusted EBITDA for the quarter of approximately $130.4 million and $40.1 million represents increases of 17% and 8%, respectively over the same period last year. Of note, we are convinced that revenue at our Twin River Casino Hotel in Lincoln continues to stabilize from the impacts of new competition in the market, with the year-over-year decrease moderating in the quarter. Improved marketing efficiencies and reductions in our cost structure also favorably impacted the bottom line in Lincoln in Q4.

In addition, both our Tiverton and Dover properties continue to meet and exceed our already high expectations, and Biloxi turned in a solid quarter of growth on both the top and bottom line. The result was a quarter that we feel sets the stage for what we believe will be a robust 2020.

Diving into the quarterly results a bit more, starting in Lincoln. There, the story is one of revenue stabilization, cost containment and ongoing marketing initiatives to recapture market share. On the revenue front, and using publicly available Rhode Island lottery gaming numbers as an indicator, initial signs of recovery past, Labor Day we had noted on our Q3 call resulted in overall gaming volumes were only down approximately 13% compared to the same period last year -- compared with the 18% decrease we experienced in Q3 2019 compared to Q3 2018. We are encouraged that initial impacts are mostly behind us.

Digging in a bit deeper, within the gaming volume figures, slot volumes were down 12% in Q4 year-over-year compared to a 15% decrease in Q3 2019 versus the comparable period in 2018. Tables still remain a headwind, though the impact did moderate a bit, and the revenue on Q4 was down 31% compared to Q4 2018 versus the decrease in dropping experienced in Q3 of 34% compared to Q3 2018. Within the quarter, we did note that December was a tougher month in the New England market as revenues were softer year-over-year compared to the experiences we saw in the beginning of the quarter. It should be noted that December results were impacted somewhat by weather. [Indecipherable] impacted by five bad weather days, including one on a weekend in the month compared to none in 2018. There was also one less Saturday in December year-over-year. Despite the revenue impact in the month, our bottom line profit did improve every month within the quarter, as cost control measures began to take effect.

Looking forward a bit. Based on preliminary reporting, January volume indicators are expected to reflect a nice bounce back, particularly in slots, in line with trends we saw in early Q4. In January, we expect that overall gaming volumes in Lincoln will be down about 6% year-over-year, with slot volumes down only approximately 1%. Though we were encouraged by the overall revenue trends, we do note that the promotional activity in the market, particularly in Massachusetts, continues to be extremely aggressive and is still impacting the market. We once again saw little in the way of market expansion, which continues to be significantly less than most observers' expectations. Overall, the market has only grown approximately 10% since the start of the second half of 2019. We continue to believe that our competition's spend for market share experience since their opening will be difficult to sustain.

On the cost side, we continue to execute on our competitive response. After taking time in Q3 to fully understand the impact that the new competition was going to have on the market, we began a targeted, efficient marketing spend and reduced our cost structure, including realizing the full quarter impact of staffing to volume reductions to optimize our EBITDA. Our ongoing initiatives in Lincoln focus on recapturing market share are particularly focused on Asian play in our table games. There, we have hired a dedicated development team who launched several focused marketing efforts and hosted several Asian themed entertainment events. In addition, we have held several tournaments aimed at attracting table game players and introduced [Indecipherable] just this past weekend.

I'm also excited about the proposed renovation and expansion to Lincoln that we highlighted as part of our recent announcement with IGT, which would go into effect if approved by the legislature. The overall upgrades to the facility, expansion of the gaming floor, introduction of new restaurants and entertainment concepts and addition of a new spa at the hotel are all investments we believe will provide for a better customer experience with a wider range of amenities that customers expect, and therefore, we believe will drive a solid return and recapture market share for the Company. Marc will provide more details on these plans in a minute.

Continuing to help offset the competitive pressure in Lincoln is the performance of our Tiverton Casino Hotel. We are extremely pleased with the performance of the property, which continues to show marked resilience in the face of new competition. Overall, preliminary gaming volumes of Tiverton were up approximately 14% year-over-year in Q4, with slots [Phonetic] revenue driving that increase and underscoring [Technical Issues].

Before we move on to Rhode Island, I want to reiterate my message on last quarter. Regardless of what the competition is doing, we're doing just fine. We're executing on our marketing strategy, which is continuing to claw [Phonetic] back market share, and I am extremely encouraged by the returns on our efficiency initiatives. It should be noted that the current Massachusetts impact remains the only current significant competitive threat that our portfolio is facing. And aside from what we still believe to be a short-term competitive impact at Lincoln, we were quite pleased with the Company's results in the quarter and at our other properties.

I continue to be excited about Dover, where in the fourth quarter, using the midpoint of the preliminary range, we expect revenues of approximately $27.6 million and adjusted EBITDA of approximately $5.5 million in the quarter, continuing to exceed our high expectations. This continued early success through effective marketing changes, along with physical changes to the gaming floor, both of which will particularly focus on table games, and the reintroduction of table games to the market, in addition of in-demand amenities like new and improved restaurant offerings, which will include the Sugar Factory in 2020, also continue to have a positive impact on the performance of the property.

So, underscoring its early success, it should be noted that Dover increased its overall marketing share in the Delaware market in the fourth quarter. Looking at table drop numbers reported by the Delaware lottery, Dover increased in market share by 200 basis points, while in slots, where the Delaware market saw overall an increase in the market of 1%, this increase was all driven by Dover whose market share increase was 200 basis points in the quarter.

Turning to Biloxi. Q4 saw preliminary expected increases in both revenue and adjusted EBITDA, which were up 4.3% and 11% at the midpoint of the expected range, respectively. Compared to Q4 2018, these increases followed several quarters of steady performance and reflect what was a consistently strong quarter with year-over-year increases each month of the quarter.

At the corporate level, we did experience favorable expense reductions in Q4 as tight expense management was only partially offset by increases we have noted previously in 2019 as we continue to make the necessary investments to prepare for further expected growth.

Overall, I'm very pleased with the preliminary results of 2019 and look to remain very busy as we look ahead to 2020. Beyond our recently announced acquisitions, we expect to remain active with an M&A pipeline that remains strong. We're looking at many different assets and opportunities, and we will continue to be very disciplined in our approach, focused on acquiring assets that we believe fit our strategy and provide the best opportunity for delivering enhanced shareholder returns.

Other areas of focus for 2020 will be the integration of Black Hawk, and later in the year, the Kansas City and Vicksburg properties; continued operational improvements across the entire portfolio; and capital investments at the Kansas City property, which Steve will address in a moment.

I will now turn the call over to Marc to discuss more about Rhode Island and our recently announced partnerships. Marc?

Marc Crisafulli -- Executive Vice President, Government Relations & President, Rhode Island Operations

Thanks, George.

We are very excited to share more details of our recent announcement with IGT. From our perspective, the most significant aspect of this prospective agreement is the formation of a long-term three way partnership between the state, IGT and Twin River that we believe creates the necessary alignment and collaboration to maximize performance for everyone.

As George indicated, this proposed agreement requires the legislature to enact a public law, authorizing the state to enter into or amend several contracts. We are optimistic that this legislation will be addressed during the current session, which is expected to conclude by the end of June, but it is impossible to predict with certainty what will happen.

We believe this would be a great deal for all parties, the state, IGT and Twin River, and most importantly, would be a terrific outcome for the Rhode Island taxpayers. Given that this is an investor call, I will focus on the Twin River elements of the proposed agreement. For more information on the elements relating to other parties, I would encourage you to review the joint press release we issued on Thursday, January 30.

From the Twin River perspective, this proposed agreement yields a number of important benefits. First and foremost, it would position us to compete more effectively in the region. It would provide us with state of the art VLTs and a mechanism for ensuring we have a competitive slot floor well into the future. It would also give us the horizon we need to support additional investment in our facility and amenities, and would deliver a positive financial return for our shareholders even before taking into account any improved performance driven by our increased competitiveness.

To keep it simple, I will break the proposed agreement into two key elements for Twin River: VLTs and investments. The most important issue we sought to address in this very public process in Rhode Island was the quality and diversity of VLTs and the level of future investment. As a reminder, Rhode Island VLTs generate in the range of $475 million to $525 [Phonetic] million of net terminal income annually.

The state keeps approximately 60%, and 7% of the net terminal income goes to the VLT providers. This proposed agreement fundamentally changes the landscape regarding VLTs in a manner which addresses our concerns and would give us better content for our players almost immediately and well into the future.

This is a two step process to transform VLTs in Rhode Island. First, beginning July 1, 2020, Twin River would become licensed as a technology provider and would manage approximately 23% of the VLTs at our two Rhode Island facilities. So it was important for us to have improvements start immediately, even though IGT's current master contract does not expire for another three and a half years. Our proposed 23 [Phonetic] stake would allow us to provide new VLTs and to get credit for that investment in the second step, which I will discuss in a moment.

IGT also has an incentive to provide newer machines and to increase their investment. The net effect would be that well over one third of the VLTs in Lincoln would be replaced with new machines over a relatively short period of time, something that might have taken almost a decade under the prior approach. The economics for this first step if the agreement is consummated are expected to be accretive to Twin River for the 18-month period from July 1 of 2020 through the end of 2021. That takes us to the second step of the VLT transformation.

As of July 1, 2022, IGT and Twin River would form a new company and each of us would contribute the VLTs they manage into the joint venture. IGT would own 60% of the joint venture and would control and consolidate it. Twin River would own 40%. There will be important protections built into the company to ensure that our facilities perpetually have the necessary [Indecipherable] investment levels to compete. For example, IGT-manufactured machines would constitute 40% of the floor and multiple vendors would provide the other 60% with an improved efficiency process to ensure performance is rewarded.

The proposed legislation mandates a 6% annual replacement cycle, but the Company anticipates that it will target 8%. At least 5% of the floor would be [Technical Issues] games, an important improvement from the current configuration. We would also finally get bonusing at the terminal at Twin River Casino in Lincoln, the only facility in New England which does not currently have it. These changes would help us compete with the other facilities in the region and deliver better content for our players.

The economics for both steps of the VLTs are attractive. We expect to invest a total of over $25 million in purchasing VLTs directly, and we expect to receive a nice return on capital outlay both before and after the JV formation. Once formed, the JV would receive 7% of the net terminal income generated by all the VLTs and we have a 60-40 split of revenues and capex for replacement machines within the joint venture.

The net effect, after all required VLT investments, is to approximate a VLT tax rate reduction for Twin River of 200 to 225 basis points after the creation of the joint venture. This is a material improvement for us without the State of Rhode Island or the Rhode Island taxpayers having to reduce their share of the VLT proceeds. So I would like to reiterate that point once more. Twin River gets the benefit of an effective tax reduction without the state having to reduce the tax rate. In fact, the Rhode Island taxpayers would enjoy the benefits of a more competitive portfolio of VLTs.

The second key element of the proposed deal is Twin Rivers' investment. Under the proposed deal, we are committed to investing over $100 million over the term of our extended contract, including a 50,000 sq. ft. expansion and the addition of new amenities at Twin River Casino in Lincoln. It should be noted that our master contracts currently have two five year options, which would take us to 2030. Under this proposal, both contracts would be extended [Technical Issues] until June of 2043.

In Lincoln, as George mentioned, under this joint venture scenario, we would add new gaming space on the first floor to replace the second floor gaming area, add a 14,000 sq. ft. spa to the hotel with a separate entrance and upgrade and add new amenities. Importantly, this plan would significantly address the smoking, non-smoking preferences of our players by dividing the casino in a more meaningful manner.

The expansion would allow us to concentrate virtually all of our gaming on the first floor and would free up our second floor space so that we can add other attractive amenities like bowling or an in golfing product. These changes should position us to compete more effectively. However, we are not providing any guidance on improved financial results directly related to these improvements or our enhanced competitiveness at this time.

As I indicated, we still have to proceed with the legislative process and a series of contracts and amendments, so nothing is certain. But we are excited about this proposed agreement and how it can help transform our future in Rhode Island.

And now I'll turn it over to Steve.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Thank you, Marc.

I will provide an update on our balance sheet, capital return program and our M&A initiatives. Let me start with the capital return program.

We said last year that we had adopted a balanced capital allocation program to both support investment in the business and provide returns to shareholders over time. Since then, we've returned nearly $250 [Phonetic] million of capital to shareholders, including, as you'll remember, through a tender offer completed last summer; share repurchases in the open market; and a quarterly $0.10 cash dividend initiated in Q2 of last year. We repurchased 2.5 million shares during 2019's fourth quarter for approximately $60 million, which brought our shares outstanding to 32.1 million at year-end. We continued the repurchases in January, and at January 31 and currently, the Company has approximately 31.7 million shares outstanding.

When we went public last March, we had some shareholders who'd been in their investment a long time and desired liquidity. This, combined with the opening of new Boston competition last summer, created market conditions through which we felt we could act opportunistically, while at the same time building shareholder value. So today, we announced the reloading of the capital return program by $100 million, which is roughly 11% of our current equity market capitalization. We think that most, if not all of the pent-up selling has run its course, and we expect the new authorization to last quite some time. Having said that, we are positioned to be opportunistic should circumstances again prevail through which the returns from further buyback activity are accretive to our shareholders.

Turning to our balance sheet. As George mentioned, we maintain a balance sheet in excellent condition. At December 31, we had total cash of $182 million, an unfunded revolver of $250 million and total debt of approximately $700 million. Our net leverage ratio on that basis, calculated using the midpoint of the full year adjusted EBITDA range, was 3.1 times. We've said it before. We prefer moderate leverage and high liquidity so that we can both be nimble and fast-moving when accretive opportunities present themselves.

Since December 31, we completed the Black Hawk acquisition with cash on hand. We are now pursuing some attractive ways to finance our pending Eldorado purchases on a basis that we think will generate positive free cash flow and perhaps provide a template for the future. In addition to other such potential financing sources, we also have adequate cash on hand and revolver capacity with which to consummate that transaction.

Let me now comment on our M&A strategy. And let me reiterate that fundamentally, we seek opportunities through which our management team can add significant value in order to deliver accretive returns to our shareholders. Consistent with that philosophy, we don't pursue assets that don't provide significant upside, either in operational improvements or high revenue growth prospects or both. Let me briefly walk through our proven M&A model.

Hard Rock Biloxi. In 2014, we purchased Hard Rock Biloxi for $250 million. That property was producing approximately $25 million of adjusted EBITDA at that time. That's a 10x purchase multiple. Today's Biloxi adjusted EBITDA at the midpoint of the preliminary estimate is $37.3 million. As we've invested essentially zero additional expansion capex at the property, our investment basis remains near $250 million. So our current ownership multiple is less than 7 times. In that case, we saw an asset opportunity for operational improvement, particularly with marketing initiatives that could deliver value.

Turning to Tiverton. In 2016, we purchased the second Rhode Island gaming license based in Newport, Rhode Island. We undertook a complicated strategy to relocate that license to Tiverton, Rhode Island. That involved two voter initiatives, a $130 million greenfield development investment and successfully navigating a challenging development site that involved both significant wetlands and bedrock issues. Today, Tiverton's run rate adjusted EBITDA is approximately $20 million, which constitutes an ownership multiple of less than 7 times. In the case of Tiverton, we saw an opportunity for both operational improvement and significant revenue growth in a new market area.

Dover Downs. Last year, we purchased Dover for approximately $100 million, net of cash acquired and paid for predominantly with stock. Prior to the acquisition in 2018, Dover produced approximately $11 million of adjusted EBITDA. That's a 9 times purchase multiple. We've owned Dover for three quarters now, and its current adjusted EBITDA annualized run rate is approximately $23 million. That's certainly less than a 7 times ownership multiple.

Though some of that was driven by changes in Delaware legislation, the opportunity here was really a combination of relatively minor physical property changes such as the relocation of the table game pit area and refreshed marketing programs which were driving value for our shareholders. So that's our M&A model and that's the mindset and experience we bring to the M&A market.

On to Black Hawk. On January 24, we announced the closing of our acquisition of three casinos in Black Hawk, Colorado, for $51 million. Not unlike Biloxi -- at a purchase multiple in excess of 10 times based on recent adjusted EBITDA performance at the property. However, what we see in these assets is very similar to the opportunities in Biloxi and Dover. The distinct potential for operational improvements to enhance the customer experience, refreshed marketing programs for those customers and the resultant recapture of fair market share. As such, we expect to drive property-adjusted EBITDA at our Black Hawk casinos up to about the $7.5 million to $8 million level, resulting in an ownership multiple below 7 times. But that was our original plan, which did not include the three Colorado sports betting licenses also acquired.

Through our recently announced partnerships with DraftKings and FanDuel, we anticipate an incremental annual adjusted EBITDA of $2 million to $3 million. Perhaps more. That brings the estimated total property annual adjusted EBITDA up to $9.5 million to $10 million level, which is an excellent return on a $51 million initial investment with little capital investment required at this time.

And let me also mention that we consider it to be significant and strategic complement these Black Hawk casinos bring to our existing ownership of Arapahoe Park in Aurora, Colorado, just east of Denver and the 13 OTB licenses which we own throughout the state.

Kansas City. Regarding the pending acquisition of the Isle of Capri Kansas City, our current expectation is for regulatory approval in Missouri early in the second quarter. We're very bullish on the potential for this property as it fits our model for revenue upside given its best-in-market location and our plan for focused capex to dramatically improve the customer experience.

You'll recall that our purchase price for the combined Kansas City and Vicksburg assets is approximately $230 million, which represents a purchase multiple of approximately 8.5 times. That's actually a somewhat lower purchase multiple than we've achieved on our previous acquisitions. I'd like to point out that this Kansas City asset location is part of a city redevelopment zone that has experienced significant investment in recent years and is the site of new apartment complexes and loft conversions as well as new retail development. This is all occurring along the river adjacent to downtown Kansas City.

Our plan, as previously announced, is to invest approximately $40 million or so to transform the customer experience. We will do this, first, by placing a new outer skin on the existing boat. This new skin is a land-based translucent fabric secured by cables. It's relatively inexpensive and can take many forms. We intend that this new outer shell to the existing boat provide a pleasant arrival experience for our guest.

Second, we're going to build a 40,000 sq. ft. building adjacent to the boat, connecting the existing parking garage directly to the boat. That new square footage will enable us to locate most of the food and beverage off of the boat, freeing up space for a properly oriented table games pit and slot floor. The additional square footage will also accommodate additional retail outlets. We will reestablish this property in the table games market and drive revenue through efficient marketing initiatives and a vastly improved customer experience.

On to Vicksburg. At Vicksburg, similarly to Biloxi, Dover and Colorado, we will make minor modifications to the physical layout of the casino and food and beverage products. And our priority will be to drive higher revenue opportunity through an improved customer experience and implementation of efficient marketing programs. So, following the acquisition of both properties and $40 million capital investment into Kansas City, our total investment will be approximately $270 million. We expect to drive adjusted EBITDA at the two properties combined up to about the $42 million to $43 million level, resulting in an ultimate ownership multiple of, again less than 7 times.

On to 2020 earnings guidance. The year 2020 is going to be dynamic for Twin River. The addition of Black Hawk in January and the expected additions of Kansas City and Vicksburg in the second quarter will complement the annualization of financial results at Dover, and this will all be very helpful in more than offsetting the annualization of the competitive impact of Boston competition. In order to provide some clarity as to the summation of those various moving parts, we've decided to provide our financial outlook for the year ending December 31, 2020.

The Company estimates adjusted EBITDA for 2020 will be approximately $180 million, plus or minus, an increase of nearly 8% over the midpoint of the preliminary range for the same period in 2019 reported above. Further, we estimate that our 2020 exit rate, if you will, of annualized adjusted EBITDA coming out of 2020 will be right about $190 million, again, plus or minus.

Finally, we see the full potential run rate adjusted EBITDA of the entire portfolio being in excess of $200 million. That number includes about $20 million of corporate overhead. So, said another way, we believe this portfolio of assets has the potential to deliver at a property level in excess of $220 million of adjusted EBITDA.

Two further points. One, please bear in mind that the $180 million and $190 million expectations for 2020 and coming out of 2020 are subject to the timing of certain events during the year. That's why I said plus or minus in each case. For example, the closing date of Kansas City and Vicksburg transaction is a big deal from a timing standpoint. And secondly, the ramping of the sports betting market in Colorado is also very important to that earnings model.

Lastly, there is no impact in these expectations from the closing and implementation of the IGT-Rhode Island transactions. There are several return components to those arrangements, as discussed previously by Marc, but we have not quantified those into the above expectations.

And that concludes my commentary. Thanks for your attention this morning. I'll turn the mic back over to George.

George Papanier -- President & Chief Executive Officer

Well, thank you, Steve. So with that, I ask the operator to open it up to your questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question here comes from the line of Brad Boyer with Stifel. Please go ahead. Your line is now open.

Brad Boyer -- Stifel -- Analyst

Yeah. Thanks, guys. And appreciate you guys providing all the color. Very helpful. First question is just around the margins in Rhode Island. Obviously came in a little bit better than what I was looking for and I think some others are looking for. The question would be, I guess where do we go from here? I mean, do we kind of view the level achieved in the quarter as sort of a sustainable level going forward? Do you still believe that you have more -- on the cost mitigation side to maybe drive that margin slightly higher, irrespective of kind of what you see on the revenue side? Any color there would be helpful.

George Papanier -- President & Chief Executive Officer

Yeah, Brad. This is George. So I think Q4 is a good representation of kind of where we're at more from a base perspective. We still have opportunity on our cost containment efforts, and we're going to continue to do that throughout 2020. Just so you know, if you kind of rank the quarters, the fourth quarter is, performance-wise, historically, has been about the third best quarter. And the second quarter is typically the best quarter and the first quarter is typically the second-best quarter. And then we get into the summer months just because of the ability to travel better, typically we start to flatten out. But so from -- I think the fourth quarter is a really good base representation of where we're at but where we can grow from.

Brad Boyer -- Stifel -- Analyst

Okay. That's helpful. And then second question just for Marc. I appreciate the color around the pending Rhode Island situation. I guess could you point to any sort of milestones that we should potentially keep an eye on here as this thing sort of weaves its way through the legislature in Rhode Island?

Marc Crisafulli -- Executive Vice President, Government Relations & President, Rhode Island Operations

Yeah. So, thanks for the question, Brad. The basic process is if you break it down into its parts, the legislation needs to be introduced. There would then be committee hearings likely both in Senate and House [Indecipherable] like they did last year. And then you get to a vote, and after a vote, if it's approved, we'll turn to the administration to try and effectuate all of the contracts and amendments.

So, as I indicated, we're hopeful that this whole process is resolved by the end of June. We expect it to be moving in the current week, at least to hit some of those initial steps, and then we kind of just have to see where the process goes.

Brad Boyer -- Stifel -- Analyst

Okay. And could you just remind me for that initial 23%, is that contingent upon the state blessing this thing or can you guys execute that irrespective of the outcome of the broader legislation?

Marc Crisafulli -- Executive Vice President, Government Relations & President, Rhode Island Operations

No. So everything is contingent on this overall package being approved.

Brad Boyer -- Stifel -- Analyst

Okay, helpful. And then lastly, Steve, I'm not going to let you slide off the hook here. But just a question for you. I thought it was interesting in your prepared remarks -- you discussed some alternative or attractive financing arrangements around the pending Eldorado acquisition. Do you care to expand upon those comments at all? Just curious what you might be thinking there. Thanks.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Yeah. Thanks, Brad. Thanks for dialing in this morning, and the questions. Yeah, look, for very deliberate reasons, we're in a really flexible balance sheet and funding position. We have considerably more balance sheet leverage capacity. When you think about our leverage ratio with -- under the credit agreement or with the state, we have considerable distance still there for additional debt capacity.

Bear in mind, this portfolio of assets also generates up and right, about $100 million of free cash flow annually. That's post capex, post-cash taxes. And so that's a lot to work with. And then of course, the capital markets -- more to your point, capital markets, very, very strong right now. And that affords us a lot of opportunity in different directions. So I would just tell you that there is no unturned stone in the capital markets, as we think about the funding options for the Eldorado assets. That includes the full gamut.

The bond market is hot. The term loan B market is hot. We have the unfunded revolver. The REIT market is hot. And so we're looking at everything new again. It's been about a year, a little less than a year since our last kind of global financing -- last May. And this gives us a fresh look to think about the most efficient balance sheet strategy for maximizing shareholder value. So we're taking a hard look at the full gamut.

Brad Boyer -- Stifel -- Analyst

Thanks, guys. Very helpful.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Thank you, Brad.

Operator

Your next question comes from the line of John DeCree with Union Gaming. Please go ahead. Your line is now open.

John DeCree -- Union Gaming -- Analyst

Good morning, everyone. Thanks for taking my questions. I guess a guidance item, Steve, perhaps best for you. Could you give us a little insight on the capex budget for the year, maybe maintenance versus project capex? Kind of curious when the investment in Kansas City would begin. Obviously, the closing date is a moving target. But, is that something you'd start right away? Or could that potentially bleed into next year?

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Hey, Johny, thanks for being on this morning. Yeah, look, our kind of pro forma capex budget for the steady state assets is $20 million to $25 million. Look, they might be a little bit puffier than that with some ongoing changes at Dover and now in Vicksburg upfront -- although those are kind of one-time as we make some of those changes. Not big numbers, a couple million dollars here or there. But most of the capex above that's coming in, as you say, in Kansas City.

And we will get started right away when it -- look, we do have some work to do. We're working with the terrific team at Port Kansas City, about some changes to the real estate and the boat there. And so there are some permit issues we've got to work through. And so we can't control timing necessarily ourselves. We intend to get started right away. And that would load in about potentially $10 million or $15 million of that element of the capex into the back end of 2020, and the balance happening in 2021. And I think George can comment as well, that we're looking -- we're talking about a 12 month construction cycle there in all likelihood. So that's most of the capex for 2020.

The balance of it, which Marc talked about which would be related to the IGT Rhode Island transactions being approved into law are all contingent upon that, of course. But those would be begun later this year as well, but we have not really factored those into a budget, pending the outcome of the legislation later in the year. So, look, I think -- so normalized capex, call it, $20 million, $25 million. Probably another $15 million on top of that; maybe a couple of small projects. So this year, we're probably looking at $45 million to $50 million all-in as it's a little bit of a special year with the acquisitions and some of the related capex.

John DeCree -- Union Gaming -- Analyst

That's helpful, Steve. And I guess the other component is the large piece related to the deal with IGT and the reinvestment in Lincoln. What's your vision of timing, assuming the IGT and state legislature passes that new agreement and you look to reinvest into Lincoln? I don't know, I think maybe in the prepared remarks, you talked about the time horizon in which that $100 million would get reinvested into the property. Is that something that would span a couple of years? Or does that have to happen sooner than later?

Marc Crisafulli -- Executive Vice President, Government Relations & President, Rhode Island Operations

John, this is Marc. And I'll take that. We intend to move pretty aggressively and quickly. If it's all addressed by the end of June as we expect, we'd be looking to phase in that capital. The capital related to the VLTs would happen instantaneously. And we'd really try and spend all of that capital over the first 18 month period before January 1, 2022. Then all of the expansion that we discussed. We think it's probably an 18 month process from permitting, and we would try and move aggressively. The expectation would be that capital would be split over calendars '21 and '22, but we would want to push it as fast as we can.

John DeCree -- Union Gaming -- Analyst

That's helpful. Thanks, guys, for all the color today.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Thanks a lot, John.

Operator

Your next question comes from the line of David Farber with Credit Suisse. Please go ahead. Your line is now open.

David Farber -- Credit Suisse -- Analyst

Hi guys, good morning.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Good morning, David.

George Papanier -- President & Chief Executive Officer

Hi David.

David Farber -- Credit Suisse -- Analyst

Steve, we recently caught up on some of the IGT transactions. But I just wanted to touch base on some balance sheet items, if you don't mind. So, at the end of the quarter, you guys are reporting about $500 million plus, minus some net debt. And then there's, I think something like another, I don't know, $300 million of M&A between the Biloxi assets or just both assets with Eldorado, plus the capex, plus Colorado.

So maybe can you just help us bridge sort of what net debt looks like in your mind on a pro forma basis? Because I assume that the $180 million of midpoint EBITDA includes assets that effectively are not on the balance sheet that way. So I kind of wanted some bridge there. And that's it for me. Thanks.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Yeah, David, look, kind of sources, uses is, as you said, take net debt today of $500 million to $230 million of Eldorado acquisition and about $40 million of capex -- kind of $770 million of gross debt. The Rhode Island aspects kind of -- I don't pro forma in yet. We just don't know timing of legislation. So that's kind of a big number, as Marc just mentioned, will take some time to execute upon.

So when you think about these numbers, bear in mind that the capex I was just talking to John about that rolls out this year is all -- tied to our free cash flow profile, which as you know is, with this asset portfolio, is right about $100 million is the way we think about that. That's a continual stream of cash quarter-to-quarter that underpins this whole capital plan. So you got to factor that in as you think about the quarters ticking by and the capex going out the door, there's also free cash flow coming in that we use, obviously, actively on a real-time basis.

So, I mean, you take that $770 million and you -- you're talking about the time frame of execution on capex, minus the free cash flow that comes in, gets you to numbers that we continue to maintain are quite reasonable, even as cash flow in the aggregate Company is building through the acquisitions and the improvement, marketing, operational and overall customer experience.

So, you can do your own numbers. As I just mentioned to Brad, we're looking at the bond market. We're thinking about the B market. We've got the revolver. The REIT market is awfully hot. All that stuff is on the table. That all kind of adds up to more debt, obviously. But suffice it to say, with the increasing EBITDA, the capex that's throwing out over time and the incoming free cash flow, overall, kind of balance sheet leverage remains quite moderate, actually.

David Farber -- Credit Suisse -- Analyst

Right. Understood on the free cash flow and hear you on the sources. But in terms of just overall size, I think like north of $300 million of funding between Eldorado capex and Colorado, which effectively closed post the quarter, plus whatever stock buybacks that occurred, I mean, are those the right just big numbers to think about as we think about what 2020 looks like from just a balance sheet perspective and understanding, obviously, the Company does generate a healthy amount of free cash flow?

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Yeah. Those are all fair numbers, David. Eldorado, $230 million; capex is about $40 million. That's not all going to happen in 2020, obviously. There'll be a couple million dollars -- maybe a few million dollars at Vicksburg, and we continue to roll out a little bit more capex at Dover as well. But those are the numbers. And look, that's well tolerated within -- even if we wanted to bring everything on balance sheet, if you run your leverage numbers, that's well within reasonable and moderate leverage of guideposts and our current covenants. So I think you've got the numbers about right.

And look, there's always the possibility there -- if you kind of do a REIT financing and it essentially moves some of that leverage, if you want to think about it as leverage, you could think about REIT financing as equity since it's never technically due for repayment. That also remains a possibility. So yeah, you're -- that's the right ballpark.

David Farber -- Credit Suisse -- Analyst

Very good. Okay. That's helpful. That's it for me.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Thanks, David. Appreciate it.

Operator

Your next question comes from the line of Barry Jonas with SunTrust Bank. Please go ahead. Your line is now open.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Hey, good morning, guys. Let me start with Encore Boston. It seems that they have been tweaking their strategy and maybe focusing more on a lower denom [Phonetic] player. As you guys talk to your players, I guess what gives you comfort the worst has passed at Lincoln?

George Papanier -- President & Chief Executive Officer

Sure. This is George. So listen, we have a lot -- we shop them. We aggressively shop them so we understand kind of what they're doing from their perspective. They had a little change in leadership, so they're going a little bit different direction, more in line with what you just said, Barry. And one of the things that I always thought was a bad move was that they would aggressively pursue customers from our markets -- our existing markets or the kind of the more mature markets around Connecticut and Massachusetts and Rhode Island as opposed to really trying to penetrate an unpenetrated market, which is north of Boston. I think some of that is occurring now based on what we can tell.

We have customers that they aggressively pursued that I would call high end to us but probably mid level to them that are now coming back. We've seen that over the last quarter. So we still think we have some runway to continue to persuade customers that we're -- time sharing trips, that are now starting to dedicate trips with us. So we feel good about that. I feel that the level -- kind of this irrational spend in Arizona is really starting to diminish, and we're starting to see the effects of that certainly on the slot side. We just finished a quarter where consolidated, we did $40.1 million, of which a big part of that was really kind of the retrenching of our Twin River asset [Technical Issues] Tiverton is continuing to ramp and doing well against Boston. So that's giving us a lot of comfort from our perspective of us being able to maintain customers.

And Encore is starting to kind of retrench a little bit as it relates to the cost of hotel rooms and food and beverage and things along those lines. They're starting to offer some more free stuff, particularly by way of parking. But it's still very difficult to get there. And customers that are in kind of, I'll call it south of Boston, they've had a trial period and they're definitely on their way back to our facility.

So the only hiccup we had as we continue to kind of recapture market share from their opening in July was in December. And we kind of fought weather for the most part there because when you see the results from the Rhode Island lottery in January, we're going to see that we've made pretty significant gains from December.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Great. And then moving to Colorado. I guess what do you think about the impacts from the upcoming Monarch expansion? And with that, is there a potential for you guys to have any meaningful growth projects down the road in Colorado? Thanks.

George Papanier -- President & Chief Executive Officer

Yeah. So Monarch continues to delay their opening. The latest they've talked about is the first quarter, they'd open up the hotel product, the Tower. And in the second quarter, they'll follow that up with the casino and some of their other amenities. Now, we truly expect Monarch to expand the market, which we think we'll be well situated on to focus on kind of recapturing market share because Affinity really started to neglect the Colorado asset, and they're only doing 50% of their market share currently. So we see that as an opportunity.

We'll put a little project capex in there in 2020, really to provide what we feel would be the appropriate amenities to support that. But if Monarch does what we think it will do and really expand the market, our opportunity with the asset we acquired is the ability to do a little development by way of expansion -- there is a parking structure that we have, that we'll have the ability to build on top of it if it makes sense. And we also have adjacent land that we would be able to build on. So we're a little bit of a wait and see. We're going to do our thing, which is really focus on kind of marketing-driven initiatives, supported by some project capex.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Great. And then just last one for me. Look, I know you don't want to give specific guidance around the proposed Rhode Island agreement. But at a higher level, how should investors think about upside as you get more diversity on the slot floor? I think a question we often get is, are you growing revenues or just shifting market share? So I would love to get any color you guys might have on that topic.

George Papanier -- President & Chief Executive Officer

So we think that -- listen, we haven't done anything as it relates to this agreement because, as Marc says, it requires legislation. But from kind of all the sword rattling we had to do in order to get the attention of the state as well as the attention of IGT, they started to be a little bit more aggressive by way of adding new content to the gaming floor. [Technical Issues] then populate the gaming floor by taking out old product and putting in new. We think that's actually benefiting us as it relates to the opening of Encore.

So as customers are providing trial and then coming back, they're seeing new product on the gaming floor. We've always had a good library of product, but we've never had enough of them. And that's what IGT is effectively doing right now. So, once we get involved and we have a percentage of that floor, we'll be able to really kind of lead the way by way of product and content that we're adding. And we think that's going to encourage IGT to continue to act kind of more in a responsible manner by way of continuing to refreshing the floor. So we think that's all helpful.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks so much, guys.

George Papanier -- President & Chief Executive Officer

Thanks, Barry.

Operator

Your next question comes from the line of Chris Sinnott with Cowen. Please go ahead. Your line is now open.

Christopher Sinnott -- Cowen and Company -- Analyst

Good morning. Thanks for taking my question. Can you guys real quickly just clarify the $220 million total portfolio EBITDA comment that you made? I may have missed the first part of that sentence. If you could just put in context the $220 million figure that came at the end of your prepared comments, Steve.

And then just shifting over to the margin outperformance in Rhode Island. Is it fair to say that, a, that these cost cutting initiatives are fully reflected in the full 4Q figures? And that they are offsetting entirely the new marketing spend that you're implementing up there? Thanks.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Yeah. I'll take the first one, and maybe I'll pass the second to George. But the $220 million comment was -- the potential as we think about this portfolio of assets. And I'm talking about inclusion of Black Hawk and Kansas City and Vicksburg. I'm talking about kind of full run rate EBITDA with our capex projects completed, and what this portfolio is capable of as we look to the future and you need a kind of full run rate.

And the $220 million comment was kind of a parallel to the -- our opinion that this portfolio was worth about -- is worth in excess of $200 million of EBITDA production, all-in including corporate. And we continue to think about corporate as about a $20 million number per year, and so if you add that back, my comment was at about a property level sans corporate, this thing's got $220 million of property level EBITDA potential. That's the quick math on that front.

George, do you want to take Encore?

George Papanier -- President & Chief Executive Officer

Sure. So reacted relatively quickly to the opening of Encore as it related to the volumes of business that we had. So in the fourth quarter, we had kind of a full implementation of what we wanted to do. And then we took a step back and we continued to evaluate. So we actually have a second wave of what I'll call Encore mitigation by way of cost containment efforts that's occurring in the first quarter of this year. So that's under way by way of implementation. And so we're going to see some continued benefit as a result of that. It's more than offset anything that we're doing from a marketing perspective. So we're happy about that. We're going to -- we feel we're going to be continuing to ramp on the revenue side.

Christopher Sinnott -- Cowen and Company -- Analyst

That's helpful. Thank you. If I could just squeeze one more in here. It sounds like to me there's more openness to the idea of employing a REIT structure at some property level to finance an acquisition, whether it's Eldorado or something else that we haven't talked about in the future. And that sounds like a change in tone versus what I interpreted as an aversion to the REIT structure when you guys first merged up and into Dover Downs and held your first merger call -- your first earnings call earlier in 2019. Is that a fair characteristic of what's going on?

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Look, I'd tell you, we've never had an aversion to it. I think the reason that that's been interpreted like that is we've had no need for REIT financing. Our balance sheet has historically been so strong and everything is -- we've been 100% on balance sheet financed for years throughout our history, and up until now, really, when you think about bringing in Eldorado and that costing almost $250 million when you roll in the capex. Now you start to start thinking about what makes sense in the context of more balance sheet usage, being topped up and start thinking about the future, about how do you create more capacity going forward from a balance sheet cash flow leverage standpoint. Now is when the REIT starts to -- possibility starts to make potentially more sense for us. So I would say, we were never averse to it. We just had no need for it. And that might be changing now.

Look, we're economic animals, and we're all about shareholder value and so we're looking for the most accretive, efficient balance sheet structure that we can find. So I would tell you that our REIT idea is definitely not off the table. It's one of those components that we're looking hard at, like the others, as previously mentioned. But it's a good, fair question and we're glad we were able to clarify that.

Christopher Sinnott -- Cowen and Company -- Analyst

Great. Thank you.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Thanks a lot.

Operator

That your next question comes from the line of David Hargreaves with Stifel. Please go ahead. Your line is now open.

David Hargreaves -- Stifel, Nicolaus & Company -- Analyst

Hi. Thanks very much for hosting the call. I was hoping you could update us as to your restricted payment capacity currently.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Yeah. All-in, look, the restricted payments are in various baskets. I couldn't recite them for you right off the top, David. But all-in, we have about $150 million of RPs from a combination of the original date of -- May 2019 date of both the indenture and the credit agreement and some of the kind of builder basket activity that's happened since that time.

David Hargreaves -- Stifel, Nicolaus & Company -- Analyst

I see. And under the Rhode Island agreement that you're seeking to have modified, were there leverage restrictions in that agreement? I don't recall if it was there or with regulators. And are you seeking to have those changed as well?

Marc Crisafulli -- Executive Vice President, Government Relations & President, Rhode Island Operations

So that's a good question, David. Within our current regulatory agreement, there is a leverage ratio calculation that happens. And that is something that we are seeking to modify as part of this transaction to help support the additional investments we want to make.

David Hargreaves -- Stifel, Nicolaus & Company -- Analyst

Where does that stand currently?

Marc Crisafulli -- Executive Vice President, Government Relations & President, Rhode Island Operations

So, we're -- technically, we're in the range of 4.75 times, but there are other add backs and adjustments that actually get us to be a little bit north of 5 times EBITDA right now. And then we're targeting to simplify it and get it to match our credit agreement, which is 5.5 times.

David Hargreaves -- Stifel, Nicolaus & Company -- Analyst

Got it. And then in terms of the guidance you're giving, are you expecting by year-end that all of the properties will be in the bond credit or will there still be some pieces that are outside?

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Well, the only piece, David, that's outside now is Arapahoe which kind of operates on a breakeven cash flow basis. So other than the inherent real estate value, there's no cash flow value to that asset currently. And, as we've mentioned couple times, we haven't solidified the financing structure for the Eldorado assets, and we've been in touch with some of the REITs about those or other assets.

So I can't commit to you what our balance sheet structure is going to look like at year-end, depending on the financing mechanism. But look, obviously, per the indenture and the credit agreement, there are very strict structure as to asset sales or restricted payments, to your earlier question, and the like. So it will certainly be fair and appropriate as to the indenture and the credit agreement.

David Hargreaves -- Stifel, Nicolaus & Company -- Analyst

Okay. Thanks for the clarification, and thanks again for the call.

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Thank you, David. Appreciate it.

George Papanier -- President & Chief Executive Officer

Yeah, David.

Operator

And there are no further questions at this time. Mr. Papanier, I turn the call back over to you.

George Papanier -- President & Chief Executive Officer

Well, thank you, operator. I want to thank you all for joining our call today. Thank you.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Craig Eaton -- Executive Vice President and General Counsel

George Papanier -- President & Chief Executive Officer

Marc Crisafulli -- Executive Vice President, Government Relations & President, Rhode Island Operations

Stephen H. Capp -- Executive Vice President & Chief Financial Officer

Brad Boyer -- Stifel -- Analyst

John DeCree -- Union Gaming -- Analyst

David Farber -- Credit Suisse -- Analyst

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Christopher Sinnott -- Cowen and Company -- Analyst

David Hargreaves -- Stifel, Nicolaus & Company -- Analyst

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