Penn National Gaming Reports Record First Quarter Operating Income of $182.4 Million, Net Income of $41.0 Million, and Adjusted EBITDA, After Lease Payments of $183.5 Million

– Anticipated Cost Synergies Associated with Pinnacle Transaction
Increased to $115 Million –

WYOMISSING, Pa.–(BUSINESS WIRE)–Penn National Gaming, Inc. (PENN: Nasdaq) (“Penn National” or the
“Company”) today reported record financial results for the three months
ended March 31, 2019, initiated 2019 second quarter guidance, updated
full year 2019 guidance, and increased its expectations for cost
synergies associated with its October 2018 acquisition of Pinnacle
Entertainment, Inc.

Timothy J. Wilmott, Chief Executive Officer, commented: “Despite
weather-related impacts to several properties during the first quarter,
we’re pleased to have met our Adjusted EBITDAR guidance after a one-time
adjustment of $3.1 million for expenses related to a customer loyalty
point liability true-up related to prior periods. This accomplishment
highlights our property-level management team’s consistent ability to
maintain or increase margins, even in a challenging revenue environment.
In addition, we closed our accretive acquisition of Margaritaville in
Bossier City, Louisiana in early January, and we now expect to close our
accretive acquisition of Greektown Casino-Hotel (“Greektown”) in
Detroit, Michigan, by the end of May,” said Mr. Wilmott.

2019 First Quarter Financial Highlights:

• Revenues of $1.28 billion, an increase of $466.5 million
  year over year;
• Operating income of $182.4 million, an increase of $10.3
  million year over year, with net income of $41.0 million;
• Adjusted EBITDAR of $391.4 million, an increase of
  $148.9 million year over year;
• Adjusted EBITDAR margins of 30.5% marking an
  80-basis points year over year increase;
• Adjusted EBITDA, after Lease Payments of $183.5 million,
  an increase of $56.8 million year over year; and
• Traditional debt decreased by $38.3 million during the
  quarter. As of March 31, 2019, our GAAP traditional net debt ratio was
  2.60x and gross and net leverage on a lease-adjusted basis were 6.09x
  and 5.79x, respectively.

Pinnacle Synergies Update

“We continue to make great strides with the integration of the Pinnacle
properties, having achieved $40 million of run rate cost synergies as of
March 31, 2019, which contributed to our ability to meet Adjusted
EBITDAR guidance,” continued Mr. Wilmott. “As we continue to apply best
practices across the enterprise we now anticipate at least $115 million
of cost synergies, with a run rate of $55 million in 2019 and an
additional $60 million expected by the end of 2020,” said Mr. Wilmott.
“In addition, we remain highly focused on driving revenue synergies,
which will start with our combined player loyalty program, mychoice.
We expect to have all of our properties on the single platform by the
end of July and are well-positioned to achieve incremental Adjusted
EBITDAR associated with revenue synergies related to Pinnacle in the
range of $15-$20 million. The majority of these revenue synergies should
be realized in 2020 and 2021,” said Mr. Wilmott.

M&A and Development Update

“Our $300 million acquisition of the operations of Greektown provides us
entree into an industry-leading 19^th jurisdiction and adds
another stable regional gaming market to Penn National’s already diverse
property portfolio,” continued Mr. Wilmott. “Notably, Greektown will
have the largest single property database in our loyalty program. The
transaction will be funded with a combination of cash on hand and debt
and we expect to close the transaction before the end of this month.”

“Our development projects in Pennsylvania, including the $120 million
Hollywood Casino York and the $111 million Hollywood Casino Morgantown,
remain on track. The construction timetable for both facilities is
anticipated to be 12-18 months following all requisite approvals,
including final licensing by the Pennsylvania Gaming Control Board,”
said Mr. Wilmott.

Free Cash Flow Allocation

“Despite the weather challenges we faced this quarter, our strong
operating performance allowed us to reduce debt by approximately $40
million in the first quarter,” continued Mr. Wilmott. “We remain focused
on de-levering and following the closing of the Greektown transaction we
continue to expect a lease-adjusted net leverage level of 5.0x to 5.5x
by the end of 2020.”

Summary of First Quarter Results

Review of 2019 First Quarter Results vs. Guidance

Financial Guidance for the 2019 Second Quarter and Full Year 2019

The Company’s second quarter and full year guidance targets reflect the
anticipated impacts of several items, including ongoing bridge work in
Lake Charles, Louisiana and the hotel and casino expansion at Monarch
Casino in Black Hawk, Colorado. Also, full year 2019 guidance assumes
Resorts Casino Tunica closes on June 30, 2019. However, the table below
does not yet include the Greektown operations which are expected to
contribute to the Company’s results beginning later this month. In
addition to these factors, the guidance is based on the following
assumptions:

• Corporate overhead expenses, which is net of allocations to our
  properties, of $97.9 million, with $24.7 million to be incurred in the
  second quarter;
• Depreciation and amortization charges of $403.4 million, with $101.8
  million in the second quarter;
• Lease payments (which continue to be fully tax deductible) to our REIT
  landlords under our triple net leases of $835.9 million, with $209.1
  million in the second quarter. This includes projected escalator
  payments of $0.9 million under the Penn triple net master lease with
  GLPI, no escalator under the Pinnacle triple net master lease with
  GLPI, and no escalator under the Meadows lease;
• Maintenance capital expenditures of $188.4 million, with $70.1 million
  in the second quarter;
• Project capital expenditures for Hollywood York of $15.0 million, with
  $2.4 million in the second quarter;
• Project capital expenditures for Hollywood Morgantown of $21.5
  million, with $9.8 million in the second quarter;
• Cash interest on traditional debt of $123.2 million, with $23.3
  million in the second quarter;
• Interest expense of $534.3 million, with $133.7 million in the second
  quarter, inclusive of interest expense related to the finance lease
  components associated with our Master Leases;
• Rent expense associated with our triple net operating leases with our
  REIT landlords of $337.9 million, with $84.5 million in the second
  quarter ⁽¹⁾;
• Cash taxes of $16.8 million, with $10.1 million in the second quarter;
• Our share of non-operating items (such as depreciation and
  amortization expense) associated with our Kansas JV of $3.7 million,
  with $0.8 million to be incurred in the second quarter;
• Estimated non-cash stock compensation expense of $13.9 million, with
  $3.5 million in the second quarter;
• LIBOR is based on the forward yield curve;
• A diluted share count of approximately 119.0 million; and
• There will be no material changes in applicable legislation,
  regulatory environment, world events, weather, recent consumer trends,
  economic conditions, oil prices, competitive landscape (other than
  listed above) or other circumstances beyond our control that may
  adversely affect the Company’s results of operations.

The guidance table below includes comparative prior period actual
results.

________________________

⁽¹⁾ On January 1, 2019, the Company adopted Accounting
Standards Codification Topic 842 – Leases (the “new lease standard”). As
a result of the adoption of the new lease standard, the Company
concluded (i) certain land components contained within the Penn Master
lease and the Pinnacle Master lease, (ii) the Meadows lease; and (iii)
the Margaritaville lease to be operating leases.

The new lease standard requires operating leases to be recognized on the
balance sheet as an asset and liability based on the net present value
of future minimum lease payments. Subsequent to the recognition on the
balance sheet, the Company records rent expense on a straight-line basis
over the expected term of the lease, which is recorded as a reduction to
operating income within the unaudited Condensed Consolidated Statements
of Operations.

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
Segment
Information

During the fourth quarter 2018, the Company made revisions to its
reportable segments upon the consummation of the Pinnacle acquisition in
order to maintain alignment with its internal organizational structure.
Apart from the addition of the new properties, the most significant
change was dividing the South/West segment into two separate reportable
segments. The three months ended March 31, 2018 has been restated to
provide comparability, but does not reflect the pre-acquisition
operating results of Pinnacle.

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
Supplemental
Segment Information – Combined for
the Acquisitions of
Pinnacle and Margaritaville

Although Penn National did not own Pinnacle or Margaritaville during the
period presented below, the Company believes the following financial
information is useful to investors to assess the value these
transactions bring to the Company and its stakeholders.

The following financial information for the three months ended March 31,
2018, shows (i) the Company’s reported operating results, (ii) the
acquired Pinnacle properties and Margaritaville property for the
pre-acquisition period, and (iii) the combined Company operating results
for the pre-acquisition period as if the acquisitions of Pinnacle and
Margaritaville were completed on January 1, 2018. Combined Revenues and
Combined Adjusted EBITDAR are non-GAAP financial measures. Further, the
financial information below depicts the historical results of Penn
National, Pinnacle, and Margaritaville, and do not reflect any cost
savings or revenue synergies from potential operating efficiencies or
associated costs to achieve such savings or synergies that are expected
to result from these transactions. See the “Non-GAAP Financial Measures”
section below for more information as well as the definitions of
Combined Revenues and Combined Adjusted EBITDAR. Additionally, see below
for reconciliations of these Non-GAAP financial measures to their GAAP
equivalent financial measure.

Selected Financial Information

Balance Sheet Data

Contacts

William J. Fair
Chief Financial Officer
610/373-2400

Joseph N. Jaffoni, Richard Land
JCIR
212/835-8500 or [email protected]

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