Penn National Gaming : Reports Fourth Quarter Revenue of $651.4 Million and Adjusted EBITDA of $64.0 Million, Inclusive of $107.8 Million of Rent Expense

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

Penn National Gaming, Inc. (PENN: Nasdaq) (“Penn National Gaming,” “Penn National,” “Penn,” or the “Company”) today reported operating results for the three and twelve months ended December 31, 2014, as summarized below.

Timothy J. Wilmott, President and Chief Executive Officer of Penn National Gaming, commented, “Penn National’s strong fourth quarter financial results mark the successful conclusion of the Company’s first full year of operations since the separation of its real estate assets from its operating assets in November 2013. We are proud to have assembled outstanding corporate and operating management teams, achieved ongoing progress in delivering strong consolidated adjusted EBITDAR margins and to have prudently managed our balance sheet while executing against our new property development pipeline, which includes the successful opening of two new facilities in Ohio and the commencement of construction on significant near- and longer-term growth opportunities in Massachusetts and California. The continued progress we made throughout 2014 in managing our business for the current environment, combined with the growth initiatives in place, provide us with a solid platform to begin fiscal 2015.

“Fourth quarter consolidated net revenue, adjusted EBITDAR and adjusted EBITDA all exceeded guidance on the strength of our property operating results, which was broad based throughout our portfolio. Despite the still choppy consumer spending environment, our property portfolio performed well in the fourth quarter. Operating results benefited from the first full quarter of contributions from Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course, both of which are performing well and consistent with our return-focused expectations. These factors, , coupled with our ongoing focus on enhancing operating efficiencies, maintaining a disciplined approach to marketing and promotional activities and the favorable weather compared to a year ago, resulted in Penn continuing to deliver strong consolidated adjusted EBITDAR margins.

“Overall, fourth quarter adjusted EBITDA exceeded guidance by $8.3 million, inclusive of a $10.5 million positive operating segment variance and a $4.0 million benefit related to cash-settled stock based awards. These factors more than offset those items excluded from guidance, which include lobbying costs of $4.3 million related to the November Massachusetts referendum and a $1.2 million unfavorable rent variance. The rent variance reflects both the partial quarter impact related to the $3.2 million annual rent escalation under the master lease and outperformance at Hollywood Casino Columbus which has monthly variable rent tied to revenue results. Reflecting the strong leverage in our operating model, the 4.9% revenue outperformance relative to guidance drove a 14.9% increase in adjusted EBITDA relative to guidance. In addition, fourth quarter and 2014 full year bottom line results benefited from ongoing corporate expense management initiatives. On a year-over-year basis, fourth quarter corporate overhead (inclusive of Massachusetts lobbying expense as well as the benefit from cash settled stock awards) declined 14.0% to $19.6 million after excluding $14.1 million of spin-off transaction costs incurred in the 2013 fourth quarter. In addition, we successfully lowered full year 2014 corporate overhead expense by approximately 22% (after excluding $25 million of spin-off transaction costs incurred in 2013).

“During the fourth quarter we generated adjusted EBITDAR margin improvements in our Southern Plains and West operating segments. These results offset a slight margin decline in our East/Midwest segment, which was primarily attributable to pre-opening costs, including the current racing operations at Plainridge Racecourse. Overall, Penn National’s ongoing execution of strategies to improve operating efficiencies drove consolidated fourth quarter 2014 adjusted EBITDAR margin growth of approximately 262 basis points on a year-over-year basis to 26.4%.

“We expect our 2015 operating results to benefit from: our ongoing disciplined management of our existing properties; a full year of operations of Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course; continued growth and efficiencies being achieved at other recently opened and acquired properties; and, the planned mid-year opening of Plainridge Park Casino, located 20 miles southwest of the Boston beltway, just off interstate 95 in Plainville, Massachusetts.

“The referendum in Massachusetts to repeal gaming was unsuccessful and construction progress on our $225 million Plainridge Park Casino remains on time and on budget. The facility is expected to open with 1,250 gaming devices in June 2015 and the project is expected to generate 1,000 construction jobs. It is also expected to create 500 new permanent jobs while protecting the jobs of the many employees and businesses in the racing industry. In addition, we are proud of the success we’ve achieved with our construction and vendor diversity goals. To date, approximately 34% of the awarded construction contracts have gone to minority-, women- and veteran-owned businesses. We remain committed to delivering substantial economic and employment benefits to the Commonwealth, which in turn will create new value for Penn National shareholders when the property commences operations.

“Finally, construction remains on budget and on schedule on the $360 million Hollywood Casino-branded gaming facility on the Jamul Indian Village’s land in trust, which is located approximately seven miles east of the San Diego beltway, directly off State Route 94. Hollywood Casino Jamul-San Diego is expected to open in mid-2016 as the closest casino to downtown San Diego. When complete, the property will include a three-story gaming and entertainment facility of approximately 200,000 square feet, including more than 1,700 slot machines, 43 live table games, multiple restaurants, bars and lounges and more than 1,800 parking spaces. The facility will enable the Jamul Indian Village to become economically self-sufficient and ultimately generate high quality education, healthcare, and sufficient housing for Jamul’s tribal members. Penn National Gaming expects to participate in the success of the project through management and branding fees, as well as interest payments on funds advanced to develop the project.

“Penn National’s solid 2014 results and future prospects highlight the value of our efforts to pair our disciplined operating approach with new facility openings to deliver property-level adjusted EBITDAR growth to support our goal of enhancing long-term shareholder value.”

Financial Guidance

Reflecting the current operating and competitive environment, the table below sets forth 2015 first quarter and full year guidance targets for financial results, based on the following assumptions:

• Horseshoe Baltimore opened in August 2014 and will impact Hollywood Casino at Charles Town Races;
• Plainridge Park Casino is anticipated to open in June 2015;
• A full year contribution from the Company’s management contract for Casino Rama;
• Full year corporate overhead expenses of $76.6 million, with $18.3 million to be incurred in the first quarter of 2015;
• Full year 2015 pre-opening expenses of $3.7 million, with $1.6 million to be incurred in the first quarter of 2015;
• Full year 2015 rent expense of $434.1 million, with $109.2 million to be incurred in the first quarter of 2015, excluding any additional rent escalation at the conclusion of year two of the Master Lease;
• Depreciation and amortization charges in 2015 of $177.2 million, with $44.3 million in the first quarter of 2015;
• Our share of non-operating items (such as depreciation and amortization expense) associated with our joint venture in Kansas Entertainment total $10.5 million for 2015, with $2.8 million to be incurred in the first quarter of 2015;
• Estimated non-cash stock compensation expenses of $8.6 million for 2015, with $2.3 million to be incurred in the first quarter of 2015;
• Interest expense in 2015 of $57.2 million, with $11.6 million in the first quarter of 2015;
• LIBOR is based on the forward yield curve;
• Full year 2015 non-cash accrued interest income on loan to Jamul Tribe of $15.9 million, with $1.9 million in the first quarter of 2015;
• A diluted share count of approximately 90 million shares for the full year 2015; 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.

During the second quarter of 2014, Penn refined its definition of adjusted EBITDA and adjusted EBITDAR to add back our share of the impact of non-operating items (such as depreciation and amortization) at our joint ventures which have gaming operations. At this time, Kansas Entertainment, the operator of Hollywood Casino at Kansas Speedway, is Penn’s only joint venture that meets this definition. Kansas Entertainment does not currently have, nor has it ever had, any indebtedness. Attached below is a quarterly summary of the Company’s historical and revised adjusted EBITDA that Penn reported over the past five quarters. We have also presented the cash flow distributions we have received from this investment for the three and twelve months ended December 31, 2014 and 2013.

Diluted Share Count Methodology

In connection with the spin-off, Penn National Gaming completed its exchange and repurchase transaction with an affiliate of Fortress Investment Group, LLC (“Fortress”) on October 11, 2013, which resulted in the repurchase of $627 million of its Series B Preferred Stock and the issuance of 8,624 shares of Series C Preferred Stock, which is equivalent to 8,624,000 common shares upon sale by Fortress to a third party.

Reconciliation of GAAP to Non-GAAP Measures

Adjusted EBITDA and adjusted EBITDAR are used by management as the primary measure of the Company’s operating performance. We define adjusted EBITDA as earnings before interest, taxes, stock compensation, debt extinguishment charges, impairment charges, insurance recoveries and deductible charges, depreciation and amortization, gain or loss on disposal of assets, and other income or expenses. Adjusted EBITDA is also inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as depreciation and amortization) added back for our joint venture in Kansas Entertainment. Adjusted EBITDAR is adjusted EBITDA excluding rent expense associated with our Master Lease agreement with GLPI. Adjusted EBITDA and adjusted EBITDAR have economic substance because they are used by management as a performance measure to analyze the performance of our business, and are especially relevant in evaluating large, long-lived casino projects because they provide a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. We also present adjusted EBITDA and adjusted EBITDAR because they are used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. In addition, gaming companies have historically reported adjusted EBITDA as a supplement to financial measures in accordance with GAAP. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their adjusted EBITDA calculations certain corporate expenses that do not relate to the management of specific casino properties. However, adjusted EBITDA and adjusted EBITDAR are not a measure of performance or liquidity calculated in accordance with GAAP. Adjusted EBITDA and adjusted EBITDAR information is presented as a supplemental disclosure, as management believes that it is a widely used measure of performance in the gaming industry, is the principal basis for the valuation of gaming companies, and that it is considered by many to be a better indicator of the Company’s operating results than net income (loss) per GAAP. Management uses adjusted EBITDA and adjusted EBITDAR as the primary measures of the operating performance of its segments, including the evaluation of operating personnel. Adjusted EBITDA and adjusted EBITDAR should not be construed as alternatives to operating income, as indicators of the Company’s operating performance, as alternatives to cash flows from operating activities, as measures of liquidity, or as any other measures 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 and adjusted EBITDAR. 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 and therefore, comparability may be limited.

A reconciliation of the Company’s net income (loss) per GAAP to adjusted EBITDA and adjusted EBITDAR, as well as the Company’s income (loss) from operations per GAAP to adjusted EBITDA and adjusted EBITDAR, is included above. Additionally, a reconciliation of each segment’s income (loss) from operations to adjusted EBITDA and adjusted EBITDAR is also included above. On a segment level, income (loss) from operations per GAAP, rather than net income (loss) per GAAP is reconciled to adjusted EBITDA and adjusted EBITDAR 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.

Conference Call, Webcast and Replay Details

Penn National Gaming is hosting a conference call and simultaneous webcast at 10:00 am ET today, both of which are open to the general public. The conference call number is 212/231-2904. 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. Please 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. At December 31, 2014, the Company operated twenty-six facilities in seventeen jurisdictions, including Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Maryland, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario. At December 31, 2014, in aggregate, Penn National Gaming’s operated facilities featured approximately 31,000 gaming machines, 760 table games and 3,100 hotel rooms.

Forward-looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “seeks,” “may,” “will,” “should” or “anticipates” or the negative or other variations of these or similar words, or by discussions of future events, strategies or risks and uncertainties, including future plans, strategies, performance, developments, acquisitions, capital expenditures, and operating results. Actual results may vary materially from expectations. Although the Company believes that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business, 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: 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 ongoing appeal by the Ohio Roundtable addressing the legality of video lottery terminals in Ohio; our ability to secure federal, state and local permits and approvals necessary for our construction projects; construction factors, including delays, unexpected remediation costs, local opposition, organized labor, and increased cost of labor and materials; our ability to maintain agreements with our horsemen, pari-mutuel clerks and other organized labor groups; with respect to the proposed Jamul project near San Diego, California, particular risks associated with financing a project of this type, sovereign immunity, local opposition (including several pending lawsuits), 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); with respect to our Massachusetts project, the ultimate location of the other gaming facilities in the state; 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 and sweepstakes based and taverns); 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/municipalities 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, 2013, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, each as filed with the United States Securities and Exchange Commission. The Company does not intend to update publicly any forward-looking statements except as required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this press release may not occur.