INTRODUCTION Key Issues Value sought is usually Market Value Asset is real property Rights usually fee simple Applicable Approaches to Value All three approaches are potentially applicable

INDUSTRY BACKGROUND National gross gaming revenues for 2014 reached their highest level in history. However, per IBIS World, Non-Hotel Casinos are likely to struggle over the next 5 years, as a growing number of casino operators compete for a share of a stagnant gambling market. Industry revenue for these properties is anticipated to grow only 0.6% per year to 2020.

INDUSTRY BACKGROUND

INDUSTRY BACKGROUND The outlook for Casino Hotels is slightly better. IBIS forecasts revenue will increase at an average annual rate of 3.4% over the five years to 2018. Casino Hotels Non-Casino Hotels

INDUSTRY GROWTH BY LOCATION Northeast has seen largest growth at 58% revenue increase since 2001 South gained the least at 18% revenue growth. West saw a 22% growth in revenue since 2001;however, the growth has not been consistent state-to-state with some experiencing revenue declines.

CASINO LOCATIONS BY CATEGORY

INDUSTRY BACKGROUND Electronic gaming machines are favorite casino game by more than 60%. More than one third of Americans visited a casino in the past 12 months, while 32% say they gambled at a casino in past 12 months. Young adults (age 21-35) had highest rate of casino visitation.

INDUSTRY BACKGROUND

INDUSTRY BACKGROUND Primary Challenges to Commercial Gaming Segment Increased competition Aging entertainment offering. Increased competition highlighted by closing of four casinos Atlantic City. Technological advances causing slot machines to quickly become aging form of entertainment.

INDUSTRY BACKGROUND Non-gaming Activities Important Part of Casino Experience Fine dining most popular amenity for general population of visitors. Young adult visitors more likely to take advantage of non-gaming amenities such as shopping, live entertainment, and recreational facilities.

INDUSTRY BACKGROUND Popular non-gaming activities:

INDUSTRY BACKGROUND U.S. Consumer Spending on Commercial Gaming Total spending reached 37.94 billion in 2014, which is just slightly higher than 2007 pre-recession figures. During 2014, consumers spent more at commercial casinos than they did on movies and craft beer combined. Spending, however, significantly less than that on nights out at full service restaurants, or on consumer electronics.

INDUSTRY BACKGROUND

THREE APPROACHES TO VALUE As with all appraisals of market value, appraiser must first identify correct highest and best use. Can’t get the value right if you get the highest and best use wrong: you would be valuing wrong thing. Conclusion must be reached in context of right appraisal question, which means absent the management contract or gaming license.

COST APPROACH Biggest difficulties to overcome are site value and depreciation. Market evidence suggests casino/gaming facilities can suffer from acute functional and external obsolescence, absent their management (gaming license) agreement. Kansas experience revealed operators were required to spend a certain amount on the facilities in order to be a candidate for license. If buyer does not have a license in hand, the land is usually optioned rather than purchased outright, then option is voided at a minimal loss if license is not secured. Cost new numbers possible from several sources: actual construction costs, cost comparables, or MVS. First two, however, likely reflect management/gaming license.

SALES COMPARISON Ample number of casino going concern sales but very few pure real estate transactions. A going concern sale will only show how much the subject real property could not possibly be worth, unless the appraiser is able to reliably remove/adjust for the gaming license. Kinnard study (albeit quite dated) indicated 80% of casino revenues attributable to “business.”

INCOME APPROACH Shares same obstacles as cost and sales comparison Income approach still most compelling approach as long as the appraiser can isolate income to real property. A modified approach beginning with market value of total assets of the business seems to work quite well.

MODIFIED APPROACH Extract EBITDA multiplier from sales of casino going concerns. Apply multiplier to estimate of subject income (market revenue estimate). Apply a market extracted allocation percentage to quantify the contribution of the real property. Kinnard study Similar property type allocations 10-K allocations of casino property

Industry Costs

CASINO SALES BY SF, GAMING UNITS, & EBITDA EBITA MULTIPLIERS CASINO SALES BY SF, GAMING UNITS, & EBITDA   Sale Date Sale Price SF Sale Price/ SF Gaming Units Sale Price Per Gaming Unit EBITDA EBITDA Multiplier Lumiere Place April 2014 (U/A August 2013) $261,300,000 N/A - $34,000,000 7.69 Oxford Casino July 2013 $168,600,000 25,000 $6,744 882 $191,156 $22,480,000 7.50 Ameristar December 2012 (Announced) $2,790,000,000 519,500 $5,371 14,512 $192,255 $365,000,000 7.64 Peninsula Portfolio November 2012 $1,477,137,000 $206,200,000 7.16 Isle Casino Biloxi $45,000,000 1,435 $31,359 $5,100,000 8.82 Caesars St Louis $610,000,000 120,000 $5,083 2,660 $229,323 $78,700,000 7.75 Fitzgeralds Black Hawk May 2012 $28,000,000 756 $37,037 $3,400,000 8.24 IP Biloxi October 2011 $288,000,000 975,239 $295 2,292 $125,654 $40,000,000 7.20 Riviera Black Hawk September 2011 $76,000,000 76,951 $988 921 $82,519 $8,900,000 8.54 M Resort October 2010 $230,500,000 616,643 $374 2,231 $103,317 $30,010,828 7.68 Conclusion

SALES PRICE ALLOCATIONS

EBITDA RECONSTRUCTION AND ALLOCATION

SUMMARY AND CONCLUSIONS Valuation of casino real property involves all three approaches; however, each has obstacles that must be overcome if the appraiser is to end up answering right question correctly. Large discrepancies between assessed value and market value can usually be traced to improper handling of depreciation in cost approach and improper allocation of the total asset value in sales comparison and income capitalization.