II. Opportunity Overview. IV. Finance VI. Q&A

Transcription

1 Bulls & Bears Investment Committee Project tcasino

2 Agenda I. Executive Summary II. Opportunity Overview III. Critical Issues IV. Finance V. Further Clarification VI. Q&A VII. Appendix

3 Executive Summary Offer 40% of total equity ($47M) subject to the following terms: Alternative ownership structure Exit strategies Forced sealed bid auction Drag-along g rights Management promote Immediate vacant land disposition Non-recourse financing: 55% LTC, 15% Mezzanine financingi

4 Opportunity Overview 40% ownership stake in a currently underperforming hotel and casino asset Additional 16 acre entitled vacant land parcel Hotel 3,000 rooms Adjacent to the Orlando Convention Center Casino 100,000 square feet 48 gaming tables 1,427 slot machines Amenities 12 restaurants 1,600 seat showroom 300, square feet of meeting space 20 retail outlets Recently renovated pool and spa

5 Location Adjacent to second largest convention center in U.S. 2M Sq Ft facility 980,000 visitors in conventions and events in 2008 Located outside nightlife/gaming core

6 Market CASINO VISITOR GROWTH BY REGION

7 Critical Issues I. Operations of Hotel/Casino II. Exit Strategy III. Regulation IV. Vacant Land V. Brand

8 Critical Issues Operation of Hotel/Casino Strengths Risks Partner track record All partners have skin in the game High ihprofile flagship investment Access to off-market deals Lack of control until licensure Agency issues Fund dinvestor profile Mitigating g Factor - Convertible Preferred Ownership B&B lacks experience in casino industry Convertible preferred ownership is consistent with lack of voting and control Returns accumulate and increase potential equity stake with lapse of time Returns at 17%-23% annually Preferred ownership to act as penalty Right to cure default of partners and remove manager

9 Critical Issues Proposed Ownership Structure Lowest Priority of Returns SI (45%) 5 LP s (10%) Eric Douglas (5%) B&B (40%) Equity: Common (Pari Passu) Equity: Preferred Convertible SI (45%) B&B (40%) 5 LP s (10%) Eric Douglas (5%) Equity: Common (Pari Passu) Mezz Mezz Highest Bank Bank

10 Critical Issues I. Operations of Hotel/Casino II. Exit Strategy III. Vacant Land IV. Regulation V. Brand

11 Critical Issues Exit Strategy Strengths Risks Mitigating Factors SI willing to give B&B exit control (subject to ROFO) SI is opportunistic fund - similar holding period requirements and exit strategies Agency issues related to SI s ownership of Douglas, Inc. Holding periods may not coincide Need to exit earlier if no license obtained Management bonus to Douglas, Inc. Drag-Along rights in year five Sealed bid auction in year three

12 Critical Issues I. Operations of Hotel/Casino II. Exit Strategy III. Vacant Land IV. Regulation V. Brand

13 Critical Issues Vacant Land Valuation Value Total Value of Property $290M Casino/Hotel Value $253M ( 9% CAP, 9X EBITDA) Additional Vacant Land Parcel $37M

14 Critical Issues Vacant Land Position Strengths Risks Sale $80 MM upfront Opportunity cost of losing expansion opportunities Competition Joint Venture Develop Control of adjacent development plan Receipt of partial proceeds Synergy value from existing property Control of development RECOMMENDATION Immediate sale offering Dilution of investor base Willingness of SI to enter into a JV on the land Poor fit within Fund Partner differences regarding development options

15 Critical Issues I. Operations of Hotel/Casino II. Exit Strategy III. Vacant Land IV. Regulation V. Brand

16 Critical Issue Regulation Strengths Risks Mitigating Factors Oligopoly environment High barriers to entry Foot in the door Political connections Initial licensing risk Licensing forfeiture during operations Monitoring by gaming commission Regulatory changes (i.e. increased sin tax) Legality of gambling Dividend prohibition Isolate political risk through ownership structure Get house in order Partner and Manager know process and have connections

17 Critical Issues Regulation of Dividends 3-6 months from application to decision Potential for delay of all dividends until sale Could reduce IRR up to 600 bps for B&B base case Vacant land sale distributions still assumed RECOMMENDATION: If dividends are delayed, use restricted titddiid dividends d to pay down most expensive debt dbt/ capital itl

18 Critical Issues I. Operations of Hotel/Casino II. Exit Strategy III. Vacant Land IV. Regulation V. Brand

19 Critical Issues Brand Monroe stays Monroe replaced Support of SI Improved image Continuity with brand and reservation system Loss of customers loyal to Monroe Employee training and loss of continuity New brand in line with renovation strategy RECOMMENDATION: Replacement of Monroe with an affiliated Monroe family flag.

20 Financing - Overview v ew SOURCES % Option A % Option B1 % Option B2 Owner s Equity 30% $116,400,000 45% $174,600,000 30% $116,400,000 First Loan 55.5% $215,600, % $169,400, % $169,400,000 Renovation Draw 14.5% $56,000, % $44,000, % $44,000,000 on 1 st Loan Mezz Finance 0% $0 0% $0 15% $58,200,000 TOTAL 100% $388,000, % $388,000, % $388,000,000 USES % Amount Purchase Price 75% $290,000,000 Renovation 21% $80,000,000 Working Capital / Costs 4% $18,000,000 TOTAL 100% $388,000,000

21 Financial Analysis - Assumptions Category Equity 30% equity Debt Interest Rate Renovations Vacant Land Refinance Holding period Occupancy Assumptions Made 55% Loan (acquisition and renovation), 15% Mezzanine financing LIBOR bps (currently 4%), 11.5% on Mezzanine financing $80M total with $20/ft. to casino- draw on construction portion of first loan Immediate sale at $5M / acre with 55% of proceeds paid to bank, 45% to partnership In 2012 pay off Mezz and draw portion of 1 st loan based on 55% LTV on valuation 5 year holding period in-line with fund s normal investment criteria 85% during renovation and 90% thereafter Slots Add 373 slots bringing total to 1,800 ADR Grows from $102 to $120 (3.3% per year) Hotel EBITDA Grows from $22M to $40M in 5 years Casino EBITDA Grows from $1M to $20M in 5 years BASE CASE IRR: 50.3%

22 Financial Analysis Valuation (Current & 5 Year) Current Valuation Value (Multiple) CASINO EBITDA $ (millions) Current $ 1.0 $ 8.0 $ 8.5 $ 9.0 CAP HOTEL EBITDA 7.0% 7.5% 8.0% Current $ 21.0 $ 300 $ 280 $ 263 TOTAL VALUE Current $ 22.0 $ 308 $ 289 $ Year Base Values % $ 771 $ 784 $ % $ 733 $ 746 $ % $ 700 $ 713 $ Year Upside Values % $ 925 $ 943 $ % $ 883 $ 901 $ % $ 846 $ 865 $ 883 values in millions

23 Financial Analysis Sensitivity

24 Financial Analysis Recap PREMIUM DISCOUNT Lack of operational control Knowledge transfer in casino Variability of revenue associated with industry the convention center, hotel and Conservative leverage ratios casino Availability of non-recourse Uncertainty of dividend timing financing Regulation of gaming license Potential for future gaming opportunities

25 Further Clarification Partner exit strategy License violations Government interference Flexibility of hotel branding Supply risk SI development plan Fund investor appetite

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27 Appendix Conservative Case Category Equity Debt Interest Rate Renovations Land Refinance Holding Occupancy 80% Slots ADR Hotel EBITDA Casino EBITDA Assumptions Made 30% equity 55% Loan (purchase and renovation), 15% Mezzanine financing LIBOR bps (currently 4%), 11.5% on the Mezz $96M 20% over budget Sale in 2 $3.M / acre In 2012, Debt consolidation to pay off Mezz / LOC and 55% LTV on valuation 5 year hold in-line with fund s normal investment criteria 3% Win/Slot/Growth Growing from $102 to $120 (3.3% per year) Growth from $22M to $35M in 5 years Growth from $1M to $18M in 5 years Conservative Case IRR: 31.6% = Changes from base case

28 Appendix Proforma Cash Flows Year INITIAL Investment Period OPERATING CASH FLOWS Hotel Income Rent / Room / Night $102 $105 $109 $112 $116 $120 Occupancy 89% 85% 85% 85% 90% 90% Vacant Beds Gross Potential Hotel Income $99,404,100 $98,069,405 $101,305,695 $104,648,783 $114,461,145 $118,238,363 Operating Expense Ratio 77.87% 75.80% 73.25% 70.79% 68.44% 66.17% Less: Operating Expenses ($77,404,100) ($74,334,471) ($74,203,054) ($74,085,253) ($78,333,233) ($78,238,363) Hotel EBITDA $22,000,000 $23,734,933 $27,102,641 $30,563,530 $36,127,912 $40,000,000 Casino Income Number of Slots 1,427 1,551 1,676 1,800 1,800 1,800 Win / Slot / Day $86 $90 $95 $100 $110 $115 Gross Potential Hotel Income $44,793,530 $50,961,300 $58,103,742 $65,700,000 $72,270,000 $75,555,000 Operating Expense Ratio % 768% % 78.50% 76.00% 74.00% 73.53% Less: Operating Expenses ($43,793,530) ($44,502,320) ($45,613,880) ($49,932,000) ($53,479,800) ($55,555,000) Casino EBITDA $1,000,000 $6,458,980 $12,489,862 $15,768,000 $18,790,200 $20,000,000 Gross Potential Income $144,197,630 $149,030,705 $159,409,437 $170,348,783 $186,731,145 $193,793,363 Less: Operating Expenses ($121,197,630) ($118,836,791) ($119,816,934) ($124,017,253) ($131,813,033) ($133,793,363) $23,000,000 $30,193,914 $39,592,503 $46,331,530 $54,918,112 $60,000,000

29 Appendix LIBOR and Cap Rate Sensitivity LIBOR Option B2 Option B1 Option A Cap rate Option B2 Option B1 Option A 3.00% 51.21% 41.56% 51.08% 6.50% 55.91% 45.69% 55.55% 3.25% 51.00% 41.42% 50.81% 6.75% 54.88% 44.82% 54.52% 3.50% 50.78% 41.27% 50.54% 7.00% 53.90% 43.98% 53.54% 3.75% 50.56% 56% 41.13% 50.26% 7.25% 52.96% 43.19% 52.60% 4.00% 50.34% 40.98% 49.98% 4.25% 50.12% 40.83% 49.70% 4.50% 49.89% 40.68% 49.42% 4.75% 49.67% 40.53% 49.13% 5.00% 49.44% 40.37% 48.84% 5.25% 49.21% 40.22% 48.55% 5.50% 48.97% 40.06% 48.26% 575% 5.75% 48.74% 39.90% 90% 47.97% 6.00% 48.50% 39.74% 47.67% 7.50% 52.05% 42.42% 51.69% 7.75% 51.18% 41.69% 50.82% 8.00% 50.34% 40.98% 49.98% 8.25% 49.53% 40.30% 49.18% 8.50% 48.75% 39.65% 48.40% 8.75% 48.00% 39.02% 47.64% 9.00% 47.27% 38.41% 46.91% 9.25% 46.56% 37.82% 46.21% 9.50% 45.88% 37.25% 45.52% 9.75% 45.21% 36.70% 44.86% 10.00% 44.57% 36.17% 44.21%

30 Appendix LIBOR and Cap Rate Sensitivity LIBOR AP RATE C 50.09% 3.00% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 6.50% 56.49% 56.29% 56.08% 55.88% 55.67% 55.45% 55.24% 55.02% 54.80% 54.58% 6.75% 55.47% 55.27% 55.06% 54.85% 54.64% 54.42% 54.21% 53.99% 53.77% 53.55% 7.00% 54.49% 49% 54.29% 54.08% 53.87% 53.65% 53.44% 53.22% 53.00% 52.78% 52.55% 55% 7.25% 53.55% 53.35% 53.14% 52.92% 52.71% 52.49% 52.27% 52.05% 51.82% 51.60% 7.50% 52.65% 52.44% 52.23% 52.02% 51.80% 51.58% 51.36% 51.14% 50.91% 50.68% 7.75% 51.79% 51.57% 51.36% 51.15% 50.93% 50.71% 50.48% 50.26% 50.03% 49.80% 8.00% 50.95% 50.74% 50.52% 50.31% 50.09% 49.87% 49.64% 49.41% 49.19% 48.96% 8.25% 50.15% 49.93% 93% 49.72% 49.50% 49.28% 49.05% 48.83% 83% 48.60% 48.37% 48.14% 8.50% 49.37% 49.15% 48.94% 48.72% 48.49% 48.27% 48.04% 47.81% 47.58% 47.35% 8.75% 48.62% 48.40% 48.18% 47.96% 47.74% 47.51% 47.28% 47.05% 46.82% 46.58% 9.00% 47.89% 47.67% 47.45% 47.23% 47.01% 46.78% 46.55% 46.32% 46.08% 45.84% 9.25% 47.19% 46.97% 46.75% 46.52% 46.30% 46.07% 45.84% 45.60% 45.37% 45.13% 9.50% 46.51% 46.29% 46.06% 45.84% 45.61% 45.38% 45.15% 44.91% 44.67% 44.43% 43% 9.75% 45.84% 45.62% 45.40% 45.17% 44.94% 44.71% 44.48% 44.24% 44.00% 43.76% 10.00% 45.20% 44.98% 44.76% 44.53% 44.30% 44.06% 43.83% 43.59% 43.35% 43.11%