Penn National Gaming First Quarter Revenue Rises 8.4% to $798.2 Million and Adjusted EBITDA Increases 10% to $220.7 Million

  Penn National Gaming First Quarter Revenue Rises 8.4% to $798.2 Million and
  Adjusted EBITDA Increases 10% to $220.7 Million

- Establishes 2013 Second Quarter Guidance and Updates 2013 Full Year Guidance
                                      -

Business Wire

WYOMISSING, Penn. -- April 18, 2013

Penn National Gaming, Inc. (PENN: Nasdaq):

                    
Conference Call:     Today, April 18, 2013 at 11:00 a.m. ET
Dial-in number:          212/231-2930
Webcast:                 www.pngaming.com
                         
Replay information provided below


Penn National Gaming, Inc. (PENN: Nasdaq) today reported first quarter
operating results for the three months ended March 31, 2013, as summarized
below:

   Summary of First Quarter Results
                         
      (in millions,           Three Months Ended
      except per          March 31,
      share data)
                         2013 Actual    2013 Guidance    2012
                                                (2)                 Actual
      Net revenues        $  798.2      $  799.2        $ 736.1  
      Adjusted EBITDA       220.7        224.2         200.7  
      (1)
      Less: Impact of
      stock
      compensation,
      insurance
      recoveries
      and deductible
      charges,
      depreciation
      and                   (155.4 )      (155.9  )      (122.1 )
      amortization,
      gain/loss on
      disposal of
      assets,
      interest
      expense - net,
      income taxes,
      and other
      expenses
      Net income          $  65.3       $  68.3         $ 78.6   
                                                       
      Diluted
      earnings per        $  0.63       $  0.64         $ 0.74   
      common share
                                                         

        Adjusted EBITDA is income (loss) from operations, excluding the impact
        of stock compensation, insurance recoveries and deductible charges,
        depreciation and amortization, and gain or loss on disposal of assets,
(1)   and is inclusive of gain or loss from unconsolidated affiliates. A
        reconciliation of net income (loss) per accounting principles
        generally accepted in the United States of America (“GAAP”) to
        adjusted EBITDA, as well as income (loss) from operations per GAAP to
        adjusted EBITDA, is included in the accompanying financial schedules.
        
(2)     The figures in this column present the guidance Penn National provided
        on January 31, 2013 for the three months ended March 31, 2013.
        
        

Review of First Quarter 2013 Results vs. Guidance and First Quarter 2012
Results
                                                     
                        Three Months                      
                               Ended
                               March 31, 2013
                       Pre-tax        After-tax
                       (in thousands)
Income, per             $ 111,978     $  68,306  
guidance (1)
East/West                1,985         1,216   
segment variance
Southern Plains          1,944         1,191   
segment variance
Midwest and
Other segment            343           210     
variance
Spin-off
transaction              (2,335  )      (1,398  )
costs
Development              (1,916  )      (1,147  )
costs
Liability based
stock                    (3,436  )      (2,057  )
compensation
charges
Loss on                  (2,324  )      (2,324  )
disposals
Other (2)                1,799         1,090   
Tax rate
variance from            -             184     
guidance
                                     
Income, as              $ 108,038     $  65,271  
reported
                                             
                                                                     
                                                     
                               Three Months Ended
                               March 31,
                        2013        2013 Guidance     2012  
                                                 (1)
Diluted earnings        $ 0.63        $  0.64         $ 0.74  
per common share
Spin-off
transaction              0.01          -             -     
costs
Development              0.01          -             -     
costs
Liability based
stock                    0.02          -             -     
compensation
charges
Loss on                  0.02          -             -     
disposals
Other                    -             -             0.01  
Share count              -             0.02          -     
variance (3)
Gain on
Hollywood Casino         -             -             (0.02 )
Tunica flood
claim
                                                     
Diluted earnings
per common share
excluding items         $ 0.69        $  0.66         $ 0.73  
not included in
guidance
                                                                     

        The guidance figures in the tables above present the guidance Penn
(1)   National provided on January 31, 2013 for the three months ended March
        31, 2013.
        Includes a favorable variance of $0.9 million in stock based
(2)     compensation expense primarily due to a reduction in the amount of
        awards granted and a delayed grant date, as well as a $0.8 million
        favorable variance in depreciation expense.
        The Company’s guidance excluded any reduction to our fully diluted
        weighted average shares on our Preferred Stock resulting from Penn
(3)     National Gaming’s stock price exceeding $45. Since Penn National
        Gaming’s stock price was $54.43 at quarter-end, this caused a 4.5
        million reduction in the dilutive impact of our Preferred Stock.
        
        

Peter M. Carlino, Chairman and Chief Executive Officer of Penn National
Gaming, commented, “Our first quarter adjusted EBITDA results were
approximately $4 million below our guidance. Despite the first quarter
challenges, operating results at Penn National’s East/West and Southern Plains
segments exceeded the results contemplated in our guidance while the Midwest
segment results met our expectations.

“The overall adjusted EBITDA shortfall for the first quarter is primarily
attributable to the following higher expenses, specifically, $2.3 million of
REIT transaction costs, $1.9 million of development costs for potential
opportunities in Massachusetts, Philadelphia and Sioux City and higher
expenses of $3.4 million associated with our cash settled employee stock
appreciation rights and restricted stock units due to the increase in our
stock price.

“Penn National’s expanded scale and the continuous execution of strategies to
improve operating efficiencies, including rational marketing and promotional
activities, led to a consolidated first quarter 2013 EBITDA margin of 27.65%
which represents a 38 basis point year-over-year improvement.

“We entered 2013 focused on completing the separation of the Company’s
operating assets from our real property assets through the creation of a newly
formed, publicly traded real estate investment trust (“REIT”) while continuing
to strategically expand and diversify our gaming facility operating base.
Carried out in tandem, these strategies are expected to enhance shareholder
value as we create two well-capitalized companies, led by proven management
teams, with each positioned for near-term and long-term growth. We received a
Private Letter Ruling from the IRS related to the treatment of the separation
and the qualification of PropCo as a REIT, which is subject to certain
qualifications and based on certain representations and statements made by
Penn National Gaming, Inc.

“During the first quarter, we finalized necessary agreements with holders of
the Company’s Series B Redeemable Preferred Stock and repurchased 225
preferred shares ($22.5 million par value) at a slight discount to par. We
also made initial presentations and began submitting documentation to gaming
regulators in all the jurisdictions in which we operate. As such, we believe
we remain on schedule to complete the tax-free spin-off of the REIT to Penn
National shareholders later this year and to make the one-time taxable cash
and stock dividend to Penn National shareholders in January 2014, concurrent
with the REIT election.

“Our development pipeline remains active and we recently announced an
agreement with the Jamul Indian Village whereby we will jointly develop a
Hollywood Casino branded casino and resort on the Tribe’s land in trust, which
is located approximately 20 miles east of downtown San Diego, subject to
receipt of certain local and National Indian Gaming Commission approvals. The
proposed $360 million development will feature a 200,000 square foot
three-story gaming and entertainment facility with approximately 1,700 slot
machines, 50 live table games including poker, multiple restaurants, bars and
lounges and a partially enclosed parking structure with over 1,900 spaces.
Based on the pace of approvals and construction progress, the facility could
open by early 2016 and upon opening will generate management and licensing
fees for Penn National.

“Elsewhere, we remain on schedule and on budget with the re-branding and
facility upgrade of Hollywood Casino St. Louis, which is expected to be
completed later this year, as well as the commencement of construction of a
150 room hotel at Zia Park Casino which is expected to open in the second half
of 2014.

“In Ohio, we are in active dialog with the Ohio State Racing Commission
regarding seating capacity at the two VLT facilities planned for Mahoning
Valley and Dayton. As the nation’s leading operator of pari-mutuel racing
facilities, we share the commission’s deep commitment to supporting horse
racing, but believe our proposed seating plan more accurately reflects current
market demand. We are hopeful that a resolution to this matter can be reached
soon which will allow the facilities to open as planned in 2014 and thereby
generate the expected employment and taxes for the state and local
communities. We remain committed to achieving reasonable returns on invested
capital on these projects and do not currently expect to proceed if the Ohio
State Racing Commission requires extraneous expenditures on portions of the
facility that detract from this objective.

“In Springfield, the United Food and Commercial Workers Union Local 1459,
which is the largest union in Western Massachusetts, recently announced an
exclusive endorsement of our proposed $807 million, single-phase,
comprehensive economic development project in the City’s North End. This
endorsement of Hollywood Casino Springfield follows agreements with other
local labor entities, including the Pioneer Valley Building and Construction
Trades Council, Carpenters Local 108, and the Community Works Building Trades
Pre-Apprenticeship Program. Our proposed project will generate 2,100
construction jobs and 2,400 permanent casino-related jobs. We are currently
engaged in discussions with the City around the statutorily required Host
Community Agreement and expect those negotiations to conclude by early May.
Meanwhile, at the State level, we’re anticipating the Massachusetts Gaming
Commission will complete its suitability findings by mid- to late summer.

“In Iowa, we await today’s decision from the Iowa Racing & Gaming Commission,
related to our two proposed Hollywood branded gaming and entertainment
development projects in Woodbury County.

“In conclusion, the first quarter results highlight Penn National’s ability to
optimize results in challenging periods, our robust development pipeline
remains on track, and the Company’s planned REIT conversion is expected to
bring near- and long-term opportunities to efficiently return capital and
build new value for shareholders.”

Development and Expansion Projects

The table below summarizes Penn National Gaming’s current facility development
projects:

                                                     
                                                        Amount
                                                        Expended
                      New               Planned                          Expected
                                                        through
Project/Scope     Gaming        Total                    Opening
                                                        March
                      Positions         Budget          31,              Date

                                                        2013
                                  (in millions)                
                                                     
Hollywood
Casino St.
Louis (MO) -
Rebranding of
former
Harrah's
property to
our Hollywood                                                            Ongoing
Theme.                                                                   through
Integration                    $61         $23.4        Fourth
of new                                                                   Quarter
casino,                                                                  2013
hotel,
financial and
operating
systems and
upgrades of
slot machine
product.
                                                     
Mahoning
Valley Race
Track (OH) -
Full details
and design of
the
project at
Austintown’s
Centrepointe
Business Park
are in the
development                                                              TBD -
stage, with a                                                            Currently
new Hollywood     1,000         $265        $10.7        reviewing
themed                                  (1)                              scope and
facility                                                                 timing of
featuring a                                                              project
new racetrack
and up to
1,500 video
lottery
terminals, as
well as
various
restaurants,
bars and
other
amenities.
                                                     
Dayton
Raceway (OH)
- Full
details and
design of the
project at
the
site of an
abandoned
Delphi
Automotive
plant are in
the                                                                      TBD -
development                                                              Currently
stage, with                             $257                             reviewing
our new           1,500         (1)         $8.2         scope and
Hollywood                                                                timing of
themed                                                                   project
facility
featuring a
new
racetrack and
up to 1,800
video lottery
terminals, as
well as
various
restaurants,
bars and
other
amenities.
                                                     
                                                     
(1) Includes a $75 million relocation fee in addition to a $50 million VLT license
fee.
                                                            
                                                                         

Financial Guidance – Penn National Gaming, Inc.

The table below sets forth current guidance targets for financial results for
the 2013 second quarter and full year, based on the following assumptions:

  *Increase of approximately $11 million in full year corporate overhead
    primarily due to higher expenses associated with cash settled stock based
    compensation awards based on our closing stock price at March 31, 2013.
    Excludes additional adjustments attributable to future stock price
    fluctuations;
  *Excludes cash and non-cash charges associated with the proposed tax-free
    spin-off transaction (including tender costs, consulting fees,
    professional fees, debt issuance costs write-offs and impairments of
    goodwill and other intangible assets);
  *No disruptions to Penn National’s Argosy Casino Sioux City facility
    arising from the ongoing litigation or regulatory proceedings;
  *A full year of the Casino Rama management contract;
  *Depreciation and amortization charges in 2013 of $307.9 million, with
    $76.9 million projected to be incurred in the second quarter of 2013. The
    decrease from prior guidance is due to certain assets being fully
    depreciated and refined property estimates;
  *Estimated non-cash stock compensation expenses of $24.8 million for 2013,
    with $6.6 million of the cost incurred in the second quarter of 2013;
  *LIBOR is based on the forward curve;
  *A blended 2013 income tax rate of approximately 39.2%;
  *A diluted share count of approximately 102.9 million shares for the full
    year 2013 (consistent with our first quarter 2013 share count). This
    excludes the impact of any stock price changes from quarter-end on the
    diluted weighted average shares per the terms of the Preferred Stock or as
    a result of the exchange transaction with Fortress Investment Group and
    our anticipated repurchase of the remaining preferred shares; and,
  *There will be no material changes in applicable legislation, regulatory
    environment, world events, weather, recent consumer trends, economic
    conditions, or other circumstances beyond our control that may adversely
    affect the Company’s results of operations.

                                                
(in millions,         Three Months Ending June
except per        30,                             Full Year Ending December 31,
share data)
                                                           2013               2013
Penn National     2013          2012         Revised       Prior         2012
Gaming, Inc.          Guidance           Actual            Guidance           Guidance           Actual
                                                                              (2)
Net revenues      $ 793.2       $ 712.6      $             $             $
                                                           3,137.8            3,151.5            2,899.5
Adjusted          225.2         189.8        875.8         881.2         711.4
EBITDA (1)
Less: Impact
of stock
compensation,
insurance
recoveries
and
deductible
charges,
depreciation
and               (155.6)       (123.1)      (612.0)       (617.3)       (499.4)
amortization,
gain/loss on
disposal of
assets,
interest
expense -
net, income
taxes, and
other
expenses
Net income        $ 69.6        $ 66.7       $ 263.8       $ 263.9       $ 212.0
                                                                    
Diluted
earnings per      $ 0.68        $ 0.63       $ 2.56        $ 2.47        $ 2.04
common share
                                                                        

        Adjusted EBITDA is income (loss) from operations, excluding the impact
(1)   of stock compensation, insurance recoveries and deductible charges,
        depreciation and amortization, and gain or loss on disposal of assets,
        and is inclusive of gain or loss from unconsolidated affiliates.
(2)     These figures present the guidance Penn National provided on January
        31, 2013 for the full year ending December 31, 2013.
        
        

Pro Forma 2013 Financial Guidance for PropCo, Penn National’s Proposed REIT
Entity

Reflecting the assumptions below and the cash flow from the 2013 financial
guidance for Penn National Gaming, Inc. above, and if the spin-off were to
have occurred on January 1, 2013, PropCo would be expected to generate
adjusted EBITDA of $455.2 million and Adjusted Funds From Operations (“AFFO”)
of $284.4 million.

Significant changes in assumptions from the previous guidance issued on
January 31, 2013 are as follows:

  *A reduction in adjusted EBITDA resulting from lower projected rent
    payments due to slower than anticipated initial results at Hollywood
    Casino Columbus partially offset by higher taxable REIT subsidiary (TRS)
    adjusted EBITDA levels driven by the addition of table games at Hollywood
    Casino Perryville;
  *A decrease in AFFO due to an increase in the assumed employee option
    holder dividends that will be incurred by PropCo related to equity awards.
    This was partially offset by lower income taxes from lower TRS earnings
    due to a higher interest expense allocation;
  *We refined our allocation methodology for depreciation expense which
    resulted in a decline in depreciation expense to $118 million from $155
    million;
  *A reduction in the fully diluted share count from 93.4 million common
    shares to 92.7 million common shares outstanding for 2013 (which excludes
    the impact of the pro rata share distribution associated with the one-time
    dividend to shareholders of accumulated earnings and profits) due to the
    following:

       *Conversion of Peter M. Carlino’s stock options to PropCo to solve for
         the non pro-rata distribution for the Carlino Family;
       *A $37 million decrease in the Fortress Investment Group buy down to
         $412 million intended to decrease Fortress’ ownership in PNG to less
         than 10%;
       *A refinement in the calculation of the assumed proceeds amount under
         the treasury stock method in calculating the diluted share count
         impact of stock options;
       *Adjustments to the 2013 employee equity grants based on the amounts
         actually granted; and,
       *A net increase in the basic share count resulting from the exercise
         in the first quarter of 2013 of vested stock options.

  *The cash component of the E&P distribution (accumulated earnings and
    profits attributable to any pre-REIT years to comply with certain REIT
    qualification requirements) has remained relatively consistent at $438
    million or approximately $5.00 per current Penn National Gaming common
    share;
  *A decrease in the overall E&P dividend, from $1.4 billion to $1.1 billion
    due to finalization of anticipated Preferred stock buy backs, refined
    estimates of asset values and accumulated earnings and profits. This
    results in a decrease to the share component of the E&P distribution to
    0.29 additional PropCo shares, from the previously assumed 0.48, per Penn
    National Gaming common share;
  *The ordinary dividend amount is calculated as 80 percent of AFFO less the
    PNG option holder dividends. The proceeds from option exercises are
    modeled to pay down PropCo debt. Additionally, the share count utilized in
    the per share dividend calculation excludes the dilutive impact of
    employee stock options; and,
  *An increase in the annual dividend to $2.44 per Penn National Gaming, Inc.
    common share from $2.43 due to the factors described above.

PropCo, Penn National’s Proposed REIT Entity
                                    
(in millions, except per share       Full Year Ending December 31,
data)
PropCo, Penn National's              2013 Revised      2013 Prior
Proposed REIT Entity                       Guidance               Guidance (3)
Net revenues                         $  606.3         $  608.3   
Adjusted EBITDA (1)                    455.2           456.5   
Less: Interest expense and
maintenance CAPEX, employee
stock                                  (170.8  )        (166.9  )
option holder payments and
income tax payments
AFFO (2)                               284.4           289.6   
Less: Impact of stock
compensation, depreciation and         (122.8  )        (161.0  )
amortization
plus maintenance CAPEX
Net income                           $  161.6         $  128.6   
                                                     
Diluted earnings per common          $  1.74          $  1.38    
share
                                                     
Dividend per outstanding share       $  2.44          $  2.43    
                                                      

        Adjusted EBITDA is income (loss) from operations, excluding the impact
(1)   of stock compensation, insurance recoveries and deductible charges,
        depreciation and amortization, and gain or loss on disposal of assets,
        and is inclusive of gain or loss from unconsolidated affiliates.
        AFFO is net income, excluding gains or losses from sales of property,
(2)     adding back real estate depreciation and stock compensation expense
        and subtracting maintenance capital expenditures.
(3)     These figures present the guidance Penn National provided on January
        31, 2013 for the full year ending December 31, 2013.
        
        

Pro Forma 2013 Financial Guidance for Penn National Gaming (PNG, the Operating
Entity Post the Proposed Spin-off)

Reflecting the assumptions below and the 2013 financial guidance for PENN
above, and assuming the spin-off occurred on January 1, 2013, PNG would
generate approximately $406.7 million of adjusted EBITDA in 2013.

Significant changes in assumptions from the previous guidance issued on
January 31, 2013 are as follows:

  *An increase in the fully diluted share count from 83.8 million common
    shares to 87.3 million common shares outstanding for 2013 due to the
    following factors:

       *Conversion of Peter M. Carlino’s stock options to solve for the non
         pro-rata distribution for the Carlino Family which results in the
         Carlino Family retaining additional shares versus the previous
         guidance;
       *A $37 million decrease in the Fortress Investment Group buy down
         amount to $412 million intended to decrease Fortress’ ownership in
         PNG to less than 10%;
       *A refinement in the calculation of the assumed proceeds amount under
         the treasury stock method in calculating the diluted share count
         impact of stock options;
       *Adjustments to the 2013 employee equity grants based on the amounts
         actually granted; and,
       *A net increase in basic share count from the exercise of vested stock
         options.

  *Excludes charges associated with PropCo options held by Penn National
    Gaming employees which will be paid by PNG;
  *PNG’s rent expense is reduced by $5.1 million primarily due to a slower
    than anticipated revenue ramp at Hollywood Casino Columbus. The rent
    coverage ratio would be approximately 1.9x EBITDAR with actual total
    leverage (total debt to adjusted EBITDA) of approximately 3.0x and implied
    total adjusted debt leverage (inclusive of PNG’s obligation under the
    Master Lease) of 5.6x; and,
  *Increased depreciation expense of $31 million as a result of completing
    the first phase of our asset separation analysis between PropCo and Opco.

Penn National Gaming (PNG, the Operating Entity Post the Proposed Spin-off)
                                    
(in millions, except per share       Full Year Ending December 31,
data)
PNG, the Operating Entity Post       2013 Revised      2013 Prior
the Proposed Spin-Off                      Guidance               Guidance (3)
Net revenues                         $  2,967.9       $  2,984.7 
Adjusted EBITDAR (2)                   843.0           852.3   
Rent Expense                           (436.3  )        (441.5  )
Adjusted EBITDA (1)                    406.7           410.8   
Less: Impact of stock
compensation, insurance
recoveries and
deductible charges,
depreciation and amortization,         (324.2  )        (307.2  )
gain/loss on
disposal of assets, interest
expense - net, income taxes,
and other
expenses
Net income                           $  82.5          $  103.6   
                                                     
Diluted earnings per common          $  0.94          $  1.24    
share
                                                      

        Adjusted EBITDA is income (loss) from operations, excluding the impact
(1)   of stock compensation, insurance recoveries and deductible charges,
        depreciation and amortization, and gain or loss on disposal of assets,
        and is inclusive of gain or loss from unconsolidated affiliates.
(2)     Adjusted EBITDAR is adjusted EBITDA less rent.
(3)     These figures present the guidance Penn National provided on January
        31, 2013 for the full year ending December 31, 2013.
        
        

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Segment Information – Operations

(in thousands) (unaudited)
                                           
                    NET REVENUES                    ADJUSTED EBITDA
                    Three Months Ended March        Three Months Ended March 31,
                    31,
                    2013         2012            2013           2012
Midwest             $ 287,312       $ 205,110       $ 96,086          $ 63,037
(1)
East/West             317,048         370,629         92,537            106,012
(2)
Southern
Plains                184,684         149,720         58,692            53,886
(3)
Other (4)            9,202          10,600         (26,567 )        (22,195 )
Total               $ 798,246       $ 736,059       $ 220,748        $ 200,740 
                                                                      

        Our Midwest segment consists of the following properties: Hollywood
        Casino Lawrenceburg, Hollywood Casino Aurora, Hollywood Casino Joliet,
        Argosy Casino Alton, Hollywood Casino Toledo, which opened on May 29,
(1)   2012, and Hollywood Casino Columbus, which opened on October 8, 2012.
        It also includes our Casino Rama management service contract and the
        Mahoning Valley and Dayton Raceway projects which we anticipate
        completing in 2014. Results for the three months ended March 31, 2012
        included preopening charges of $4.7 million.
        
        Our East/West segment consists of the following properties: Hollywood
        Casino at Charles Town Races, Hollywood Casino Perryville, Hollywood
        Casino Bangor, Hollywood Casino at Penn National Race Course, Zia Park
(2)     Casino, and M Resort. Results for the three months ended March 31,
        2013 included preopening charges of $0.2 million, as compared to
        preopening charges of $0.3 million for the three months ended March
        31, 2012.
        
        Our Southern Plains segment consists of the following properties:
        Argosy Casino Riverside, Argosy Casino Sioux City, Hollywood Casino
        Baton Rouge, Hollywood Casino Tunica, Hollywood Casino Bay St. Louis,
        Boomtown Biloxi, Hollywood Casino St. Louis, which we acquired on
(3)     November 2, 2012, and our 50% joint venture interest in Kansas
        Entertainment, LLC (“Kansas Entertainment”), which owns Hollywood
        Casino at Kansas Speedway that opened February 3, 2012. Results for
        the three months ended March 31, 2012 included our share of the Kansas
        Entertainment joint venture’s preopening charges of $1.4 million.
        
        Our Other segment consists of our standalone racing operations, namely
        Beulah Park, Raceway Park, Rosecroft Raceway, Sanford Orlando Kennel
        Club, and our joint venture interests in Sam Houston Race Park, Valley
        Race Park and Freehold Raceway. If the Company is successful in
        obtaining gaming operations at these locations, they would be assigned
        to one of our regional executives and reported in their respective
        reportable segment. The Other segment also includes our Bullwhackers
(4)     property and our corporate overhead operations. Results for the three
        months ended March 31, 2013 included corporate overhead costs of $27.2
        million, as compared to corporate overhead costs of $22.1 million for
        the three months ended March 31, 2012. Corporate overhead costs for
        the first quarter of 2013 included higher liability based stock
        compensation charges of $3.1 million compared to the corresponding
        period in the prior year, as well as $2.5 million in development
        costs.
        
        

Reconciliation of Adjusted EBITDA to Net income (GAAP)
                                          
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

(in thousands) (unaudited)
                                                 
                                                 Three Months Ended
                                                 March 31,
                                                 2013           2012
Adjusted EBITDA                                  $ 220,748         $ 200,740
Gain from unconsolidated affiliates                (1,721  )         (1,685  )
Depreciation and amortization                      (77,071 )         (53,337 )
Charge for stock compensation                      (6,251  )         (7,911  )
Insurance recoveries, net of                       -                 3,863
deductible charges
(Loss) gain on disposal of assets                 (2,390  )        945     
Income from operations                           $ 133,315         $ 142,615
Interest expense                                   (27,924 )         (18,043 )
Interest income                                    262               219
Gain from unconsolidated affiliates                1,721             1,685
Other                                              664               (1,003  )
Taxes on income                                   (42,767 )        (46,854 )
Net income                                       $ 65,271         $ 78,619  
                                                                   
                                                                   

Reconciliation of Income (loss) from operations (GAAP) to Adjusted EBITDA

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Segment Information

(in thousands) (unaudited)
                                                                       
                                                                                         
Three Months Ended March 31, 2013
                                                                                         
                         Midwest     East/West    Southern    Other          Total
                                                        Plains
Income (loss)
from                     $ 63,796       $  69,107       $ 37,009       $ (36,597 )       $ 133,315
operations
Charge for
stock                      -               -              -              6,251             6,251
compensation
Depreciation
and                        32,257          20,833         19,888         4,093             77,071
amortization
Loss (gain) on
disposal of                33              2,597          58             (298    )         2,390
assets
Gain (loss)
from                      -           -          1,737      (16     )     1,721
unconsolidated
affiliates (1)
Adjusted                 $ 96,086    $  92,537    $ 58,692    $ (26,567 )    $ 220,748
EBITDA
                                                                                           
                                                                                           

Three Months Ended March 31, 2012
                                                                             
                         Midwest       East/West      Southern      Other          Total
                                                            Plains
Income (loss)
from                     $ 46,281         $ 83,891          $ 44,712         $ (32,269 )       $ 142,615
operations
Charge for
stock                      -                -                 -                7,911             7,911
compensation
Insurance
recoveries,
net of                     -                -                 (3,863 )         -                 (3,863  )
deductible
charges
Depreciation
and                        17,552           22,241            11,388           2,156             53,337
amortization
Gain on
disposal of                (796   )         (120    )         (29    )         -                 (945    )
assets
Gain from
unconsolidated            -           -            1,678       7            1,685   
affiliates (1)
Adjusted                 $ 63,037     $ 106,012     $ 53,886     $ (22,195 )    $ 200,740 
EBITDA
                                                                                                         

       On February 3, 2012, our joint venture in Kansas Entertainment
       commenced operations of Hollywood Casino at Kansas Speedway. We record
       50% of the joint venture’s earnings in our gain from unconsolidated
1)   affiliates line in the Southern Plains column which includes the impact
       of depreciation and amortization expense. Our 50% share of depreciation
       and amortization expense was $2.9 million and $1.7 million for the
       three months ended March 31, 2013 and 2012, respectively.
       
       

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(in thousands, except per share data) (unaudited)
                                             
                                                  Three Months Ended March 31,
                                                  2013            2012
                                                                   
Revenues
Gaming                                            $  717,925       $ 656,077
Food, beverage and other                             121,860         112,908
Management service fee                              3,047         3,443   
Revenues                                             842,832         772,428
Less promotional allowances                         (44,586  )     (36,369 )
Net revenues                                        798,246       736,059 
                                                                   
Operating expenses
Gaming                                               362,018         340,169
Food, beverage and other                             90,265          87,804
General and administrative                           135,577         115,997
Depreciation and amortization                        77,071          53,337
Insurance recoveries, net of deductible             -             (3,863  )
charges
Total operating expenses                            664,931       593,444 
Income from operations                              133,315       142,615 
                                                                   
Other income (expenses)
Interest expense                                     (27,924  )      (18,043 )
Interest income                                      262             219
Gain from unconsolidated affiliates                  1,721           1,685
Other                                               664           (1,003  )
Total other expenses                                (25,277  )     (17,142 )
                                                                   
Income from operations before income                 108,038         125,473
taxes
Taxes on income                                     42,767        46,854  
Net income                                        $  65,271       $ 78,619  
                                                                   
Earnings per common share:
Basic earnings per common share                   $  0.68          $ 0.83
Diluted earnings per common share                 $  0.63          $ 0.74
                                                                   
Weighted-average common shares
outstanding:
Basic                                                77,553          75,994
Diluted                                              102,887         105,632
                                                                             
                                                                             

Diluted Share Count Methodology

Penn National Gaming is required to adjust its diluted weighted average
outstanding share count for the purposes of calculating diluted earnings per
share for its Series B Redeemable Preferred Stock (“Preferred Stock”), which
had 12,050 shares outstanding as of March 31, 2013, as follows:

  *When the price of Penn National Gaming’s common stock at the end of
    reporting period is less than $45, the diluted weighted average
    outstanding share count is increased by 26,777,778 shares (regardless of
    how much the stock price is below $45);
  *When the price of Penn National Gaming’s common stock at the end of the
    reporting period is between $45 and $67, the diluted weighted average
    outstanding share count will be increased by an amount which can be
    calculated by dividing the $1.205 billion (face value) by the current
    price per share. This will result in an increase in the diluted weighted
    average outstanding share count of between 17,985,075 shares and
    26,777,778 shares depending on the current share price; and,
  *When the price of Penn National Gaming’s common stock at the end of the
    reporting period is above $67, the diluted weighted average outstanding
    share count will be increased by 17,985,075 shares (regardless of how much
    the stock price exceeds $67).

In connection with our proposed plan to separate our operating assets and real
property assets into two publicly traded companies through a tax-free spin-off
of our real estate assets to holders of our common stock, an affiliate of
Fortress Investment Group, owners of 9,750 shares of Preferred Stock, has
entered into an agreement to exchange their Preferred Stock for non-voting
common stock or equivalents at a price of $67 per share or 14.6 million
non-voting common shares or equivalents. The non-voting common shares or
equivalents would convert to Penn National Gaming’s voting common shares upon
sale to an unaffiliated third party. Fortress may exchange its Preferred Stock
for non-voting common shares or equivalents at any time, but if Fortress does
not fully exercise its exchange right prior to the spin-off, any remaining
Preferred Stock will automatically be converted into non-voting common shares
or equivalents. In addition, Fortress may either divest 6.1 million of its
14.6 million non-voting Penn National Gaming common shares or equivalents
prior to the spin-off, or, if it does not, Penn National Gaming has the right
to repurchase the undisposed shares for $67 per share.

In addition, the Company has signed an agreement with Centerbridge Capital
Partners, LP, pursuant to which the Company will repurchase their 2,300 shares
of Preferred Stock at par in advance of the spin-off.

Reconciliation of Non-GAAP Measures to GAAP

Adjusted EBITDA, or earnings before interest, taxes, stock compensation,
insurance recoveries and deductible charges, depreciation and amortization,
gain or loss on disposal of assets, and other income or expenses, and
inclusive of gain or loss from unconsolidated affiliates, is not a measure of
performance or liquidity calculated in accordance with GAAP. Adjusted EBITDA
information is presented as a supplemental disclosure, as management believes
that it is a widely used measure of performance in the gaming industry. In
addition, management uses adjusted EBITDA as the primary measure of the
operating performance of its segments, including the evaluation of operating
personnel. Adjusted EBITDA should not be construed as an alternative to
operating income, as an indicator of the Company's operating performance, as
an alternative to cash flows from operating activities, as a measure of
liquidity, or as any other measure of performance determined in accordance
with GAAP. The Company has significant uses of cash flows, including capital
expenditures, interest payments, taxes and debt principal repayments, which
are not reflected in adjusted EBITDA. It should also be noted that other
gaming companies that report adjusted EBITDA information may calculate
adjusted EBITDA in a different manner than the Company. Adjusted EBITDA is
presented as a supplemental disclosure, as management believes that it is a
principal basis for the valuation of gaming companies, as this measure is
considered by many to be a better indicator of the Company’s operating results
than diluted net income (loss) per GAAP. A reconciliation of the Company’s
adjusted EBITDA to net income (loss) per GAAP, as well as the Company’s
adjusted EBITDA to income (loss) from operations per GAAP, is included in the
accompanying financial schedules.

A reconciliation of each segment’s adjusted EBITDA to income (loss) from
operations is included in the financial schedules herein. On a segment level,
adjusted EBITDA is reconciled to income (loss) from operations per GAAP,
rather than net income (loss) per GAAP due to, among other things, the
impracticability of allocating interest expense, interest income, income taxes
and certain other items to the Company’s segments on a segment-by-segment
basis. Management believes that this presentation is more meaningful to
investors in evaluating the performance of the Company’s segments and is
consistent with the reporting of other gaming companies.

Adjusted EBITDAR is adjusted EBITDA less rent expense.

Funds From Operations (“FFO”), is defined by NAREIT (the National Association
of Real Estate Investment Trusts, the trade organization for REITs) as “the
most commonly accepted and reported measure of REIT operating performance.”
FFO is equal to net income, excluding gains or losses from sales of property
and, adding back real estate depreciation. Adjusted Funds From Operations
(“AFFO”) is defined as FFO plus stock based compensation reduced by
maintenance capital expenditures. A reconciliation of FFO and AFFO to net
income (loss) per GAAP is included in the accompanying financial schedules.

Notwithstanding the foregoing, PropCo’s and/or PNG’s measures of adjusted
EBITDA, adjusted EBITDAR, FFO and AFFO may not be comparable to similarly
titled measures used by other companies.

Conference Call, Webcast and Replay Details

Penn National Gaming is hosting a conference call and simultaneous webcast at
11:00 am ET today, both of which are open to the general public. The
conference call number is 212/231-2930; please call five minutes in advance to
ensure that you are connected prior to the presentation. Questions will be
reserved for call-in analysts and investors. Interested parties may also
access the live call on the Internet at www.pngaming.com; allow 15 minutes to
register and download and install any necessary software. A replay of the call
can be accessed for thirty days on the Internet at www.pngaming.com.

This press release, which includes financial information to be discussed by
management during the conference call and disclosure and reconciliation of
non-GAAP financial measures, is available on the Company’s web site,
www.pngaming.com in the “Investors” section (select link for “Press
Releases”).

About Penn National Gaming

Penn National Gaming owns, operates or has ownership interests in gaming and
racing facilities with a focus on slot machine entertainment. The Company
presently operates twenty-nine facilities in nineteen jurisdictions, including
Colorado, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine,
Maryland, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio,
Pennsylvania, Texas, West Virginia, and Ontario. In aggregate, Penn National's
operated facilities currently feature approximately 34,800 gaming machines,
approximately 850 table games, 2,900 hotel rooms and approximately 1.6 million
square feet of gaming floor space.

Forward-looking Statements

This press release contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Actual results may vary
materially from expectations. Although Penn National Gaming, Inc. and its
subsidiaries (collectively, the “Company” or “PENN”) believe that our
expectations are based on reasonable assumptions within the bounds of our
knowledge of our business and operations, there can be no assurance that
actual results will not differ materially from our expectations. Meaningful
factors that could cause actual results to differ from expectations include,
but are not limited to, risks related to the following: the proposed
separation of PropCo from PENN, including our ability to timely receive all
necessary consents and approvals, the anticipated timing of the proposed
separation, the expected tax treatment of the proposed transaction, the
ability of each of the post spin Company and PropCo to conduct and expand
their respective businesses following the proposed spin-off, and the diversion
of management’s attention from traditional business concerns; our ability to
raise the capital necessary to finance the spin-off, including the redemption
of our existing debt and preferred stock obligations, the anticipated cash
portion of our special E&P dividend and transaction costs; our ability to
obtain timely regulatory approvals required to own, develop and/or operate our
facilities, or other delays or impediments to completing our planned
acquisitions or projects, including favorable resolution of any related
litigation, including the appeal by the Ohio Roundtable addressing the
legality of video lottery terminals in Ohio; our ability to secure state and
local permits and approvals (including from the Ohio State Racing Commission)
necessary for construction; construction factors, including delays, unexpected
remediation costs, local opposition and increased cost of labor and materials;
our ability to successfully integrate Harrah’s St. Louis into our existing
business; our ability to reach agreements with the thoroughbred and harness
horseman in Ohio in connection with the proposed relocations and to otherwise
maintain agreements with our horseman, pari-mutuel clerks and other organized
labor groups; with respect to the proposed Jamul project, particular risks
associated with securing financing, local opposition, and building a complex
project on a relatively small parcel; the passage of state, federal or local
legislation (including referenda) that would expand, restrict, further tax,
prevent or negatively impact operations in or adjacent to the jurisdictions in
which we do or seek to do business (such as a smoking ban at any of our
facilities); the effects of local and national economic, credit, capital
market, housing, and energy conditions on the economy in general and on the
gaming and lodging industries in particular; the activities of our competitors
and the rapid emergence of new competitors (traditional, internet based and
sweepstakes based); increases in the effective rate of taxation at any of our
properties or at the corporate level; our ability to identify attractive
acquisition and development opportunities and to agree to terms with partners
for such transactions; the costs and risks involved in the pursuit of such
opportunities and our ability to complete the acquisition or development of,
and achieve the expected returns from, such opportunities; our expectations
for the continued availability and cost of capital; the outcome of pending
legal proceedings; changes in accounting standards; our dependence on key
personnel; the impact of terrorism and other international hostilities; the
impact of weather; and other factors as discussed in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2012, subsequent Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K as filed with the SEC.
The Company does not intend to update publicly any forward-looking statements
except as required by law.

Contact:

Penn National Gaming, Inc.
William J. Clifford, 610-373-2400
Chief Financial Officer
or
JCIR
Joseph N. Jaffoni / Richard Land, 212-835-8500
penn@jcir.com
 
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