Hello. Thank you for standing by, and welcome to the Caesars Entertainment Inc. 2021 Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Brian Agnew, Senior Vice President of Corporate Finance, Treasury and Investor Relations.

Thank you, Josh, and good afternoon to everyone on the call. Welcome to our conference call to discuss our fourth quarter and year-end 2021 earnings. This afternoon, we issued a press release announcing our financial results for the period ended December 31, 2021. A copy of the press release is available on the Investor Relations section of our website at investor.caesars.com. Joining me on the call today are Tom Reeg, our Chief Executive Officer; Anthony Carano, our President and Chief Operating Officer; and Bret Yunker, our Chief Financial Officer. Before I turn the call over to Anthony, I would like to remind you that during today's conference call, we may make certain forward-looking statements about the Company's performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance on them. Forward-looking statements are also subject to the inherent risks and uncertainties and that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the Company's filings with the Securities and Exchange Commission. Caesars Entertainment undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today's call. Also, during today's call, the Company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the Company's website at investor.caesars.com by selecting the press release regarding the Company's 2021 fourth quarter financial results. I will now turn the call over to Anthony.

Thank you, Brian, and good afternoon to everyone on the call. We have delivered another strong quarter. Adjusted EBITDA in the quarter, excluding Caesars Digital, was $886 million, up 30% versus Q4 of 2019 on a same-store basis. Operating results reflect new fourth quarter records for adjusted EBITDA and adjusted EBITDA margin in both our Las Vegas and Regional segments. 31 of our 52 properties set a record for the highest fourth quarter EBITDA, while 35 set a record for the highest Q4 EBITDA margin. Starting with Las Vegas. Demand trends remained strong throughout the quarter, leading to an all-time fourth quarter record of $494 million in adjusted EBITDA, excluding real rent payments. EBITDA improved 33% versus the fourth quarter of 2019 and margins improved 1,000 basis points to 48%. Total occupancy for Q4 was 86% with weekend occupancy at 94% and midweek occupancy at 83%. Despite an increase in COVID-19 cases in late December and into January, we remain encouraged by booking trends into 2022 and beyond. While group attrition remains elevated, we began to see conventions return to Las Vegas in the back half of 2021, and the segment represented approximately 10% of occupied room nights, a dramatic improvement versus the first half of 2021. In Q4 2021, we booked a record $160 million of new business in the group segment company-wide. Turning to our Regional markets, operating results remained strong, especially in markets not impacted by COVID restrictions, construction disruption, or property closures. Adjusted EBITDA, excluding New Orleans, Caesars Atlantic City, and Lake Charles, increased 28% versus 2019, with margins improving by 750 bps to 34%. On a same-store sales basis, we achieved the highest fourth quarter EBITDA and EBITDA margin in the Regional segment in the history of the Company. In our Caesars Digital segment in Q4, we generated $116 million of net revenue and an adjusted EBITDA loss of $305 million. Sports betting and iCasino volume was split roughly 65% and 35%. Approximately 90% of our handle was from mobile sports betting and iCasino. We remain focused on scaling our Digital business through customer acquisition during our first fall sports seasons post-launch of our Caesars branded apps in 11 states. Similar to Q3, while customer acquisition and handle exceeded our internal expectations, net revenues were negatively impacted by promotional investment in odds and profit boost competitive pricing strategies and lower than historical hold in certain markets. Following the launch of mobile sports betting in Louisiana on January 28 and retail sports betting in Washington State on February 10, we now offer sports betting in 22 domestic states and jurisdictions, 16 of which offer mobile wagering. During the fourth quarter and into early 2022, we have rolled out enhanced iCasino offerings, including significant increases in new game content. Customer response to our new game portfolio has been encouraging. We look forward to additional improvements in our offering throughout 2022. On the capital front, we have several new projects underway that will add to our growth profile over the next few years. Construction of our land-based project in Lake Charles is making great progress and remains on schedule for a Q4 opening this year. In New Orleans, construction work continues on our new hotel tower and property upgrades. In Las Vegas, we are excited to announce that we have reopened the dramatically upgraded arrival experience at Caesars Palace. In Pompano, work has started on the new parking garage and casino expansion, which should be complete by year-end. In Indiana, the expansion of our recently rebranded Horseshoe Indianapolis property is now complete, and we expect additional gaming and food and beverage amenities by the middle of the year. We also anticipate breaking ground on our expansion plans for Harris Hoosier Park in the second quarter of this year. Construction is slated to begin on our Columbus, Nebraska project later this year. And finally, in Atlantic City, our $400 million capital plan is actively moving forward with remodeling room towers and setting the stage for exciting new food and beverage and entertainment options in 2022. The growth projects that I just described total cumulative $1.3 billion of capital investment, a portion of which will be spent this year, and we expect to generate at least a 15% return on this aggregate capital spend. We have already escrowed the $400 million Atlantic City spend into restricted cash, and we have received insurance proceeds for Lake Charles. As we look to the full year 2022, we continue to see strong tailwinds for our business, and we remain optimistic about further visitation gains as consumers return to our properties once COVID-19 fears have fully subsided. We remain confident in the eventual return of the convention customer to Las Vegas and our destination markets as well. Lastly, we are excited to be rebranding several additional properties in 2022 using flagship brands like Horseshoe and Harris from the Caesars portfolio to even further elevate the customer experience. I want to thank all of our team members for their hard work in 2021. I am extremely proud of our operating teams, their execution, and their exceptional guest service. With that, I will now turn the call over to Tom for some additional insights on the quarter.

Thank you, Anthony. Hello, everyone. I want to echo Anthony's gratitude towards our team members. I'm especially encouraged by how the team united during a challenging period following the Caesars acquisition. This marks our first full year of ownership of Caesars, and we’re eager to share our achievements. I will provide more detail on the brick-and-mortar aspects that Anthony discussed and give insights into our past statements for you to evaluate our performance against the metrics we set. Regarding the quarter, we were on track for a record year in Vegas until the last two weeks of the quarter when Omicron surged nationally, impacting us at the year's end. Omicron is still affecting us in January, with occupancy in Vegas at about 75%. As Anthony mentioned, we reached 86% in the fourth quarter. February has seen an increase to 80%, and we anticipate March to be in the mid-80s. All of our forward demand indicators appear strong. Anthony addressed the group business in Vegas; our cancellation rates to new bookings peaked in early January but have been declining rapidly since. We feel confident about our future setup in Vegas. In the regions, we faced similar Omicron-related challenges in the final weeks. For instance, New Orleans and Caesars Atlantic City each earned less than half of the EBITDA compared to the same quarter last year for various reasons. New Orleans was hindered by local vaccine mandates and mask requirements, while nearby competitors faced fewer restrictions, making it tough for our margins due to a minimum tax setup. We're working through this and remain hopeful that restrictions will ease after Mardi Gras, as indicated by the mayor. Before the mandates, we consistently generated $12 million monthly in EBITDA, so we expect a strong recovery once those are lifted. Caesars Atlantic City experienced a significant reduction in available rooms this quarter due to ongoing construction, which will finish by summer, allowing for new amenities in time for the peak season, though this will affect our results in the short term. I also want to review what we've shared in past transactions and provide an update. While we don’t disclose property-level EBITDA anymore, it is important to highlight our commitments and performance, especially as we transition to the Digital segment. Reflecting back to our initial public transaction with MTR Gaming, the only remaining property from that acquisition is Scioto Downs. We discovered inefficiencies in marketing within the regional market, specifically at Scioto. Following our acquisition of Caesars, we anticipated that integrating the Caesars Rewards program would have a major positive impact. For example, when we acquired Scioto, it generated $45 million in EBITDA at a margin just over 30%. In 2021, Scioto's EBITDA was nearly $115 million at a 46% margin, even with a 42% tax rate in place. Moving to Reno, when we acquired MGM’s interests, those three assets generated $60 million in EBITDA. After renovating all rooms at Circus Circus and Silver Legacy, we projected EBITDA to rise to about $90 million to $100 million with the addition of Caesars Rewards. By 2021, we reached nearly $130 million in EBITDA in Reno, exceeding the previous high by 50%. Next, we acquired Isle of Capri in Ohio in 2017, identifying it as having potential for $200 million in EBITDA, with a target of sourcing $30 million in synergies. Despite skepticism from investors, we executed a strategy that led those remaining Isle properties to surpass $260 million in EBITDA within our network after selling four properties for just over $60 million in EBITDA. We anticipated $35 million in synergies would require $175 million in EBITDA from the remaining Isle properties. When we bought Elgin, we expected to enhance its $36 million EBITDA, envisioning a reduction in acquisition multiple. By 2021, Elgin achieved $62 million in EBITDA, lowering that multiple effectively. These outcomes were achieved even with challenges, including COVID-related restrictions. I also want to touch on the Tropicana acquisition, where we projected $40 million in synergies. Specifically, Lumière in St. Louis generated $33 million in EBITDA before our acquisition, but by 2021, it reached $72 million, covering the expected synergies. With Caesars, we faced skepticism about achieving $500 million in synergies during our acquisition discussions. However, we have exceeded a billion dollars in synergy benefits in our first year. The Las Vegas assets recorded their best EBITDA year, despite minimal group business and ongoing distancing requirements. In regional markets like Horseshoe Bossier City, we saw EBITDA rise from $37 million at takeover to $72 million in 2021. Similarly, Tunica's EBITDA increased from $65 million to over $100 million last year. I want you to appreciate the significant numbers contributing to our success. We set targets confidently, with a proven track record supporting our promises. Now, on to Digital, where the market faces challenges. We acknowledge the doubts investors may have regarding profitability. Initially, we anticipated substantial customer growth and saw a significant opportunity in this space through our Caesars Rewards database of 65 million users. We projected a cumulative EBITDA loss of over $1 billion before achieving profitability by Q4 2023, coinciding with the football season. We have made significant strides since acquiring William Hill, ultimately becoming a key player in the market. In the latest reports, our market share has climbed to 21% nationally. This includes significant markets like Pennsylvania and Illinois, where we’re still rolling out our brand. Our market share figures have surpassed our initial expectations. Moving forward, we anticipate turning a profit and will be reducing traditional media spending immediately, having reached our customer acquisition goals quicker than expected. You'll notice fewer commercials from us shortly. However, some advertising in states approaching March Madness remains unavoidable. The New York launch offered impressive results; our volumes doubled expectations, and we brought in around 0.5 million new customers, making New York nearly as large as our entire Digital business combined. However, as we navigate this launch period, you should expect this quarter to represent our peak EBITDA loss. Despite this, we will keep progressing towards profitability, adjusting both our media strategy and customer offerings. We've also seen promising results from Caesars Rewards. Since our launch, these customers account for about 28% of new Caesars Digital users but generate nearly half of our digital business volume. Our goal has been to convert valuable gamblers into our Digital sector, which we're achieving. We've noted that our Digital efforts are positively impacting our brick-and-mortar revenue as well. Digital customers, whether new or returning, are projected to generate over $150 million annually in gaming revenue for our physical locations, mostly flowing through our destination properties. This figure may rise beyond $200 million with non-gaming revenue included. While we still need to enhance our iCasino segment, we're gradually increasing our national market share and anticipate having over 350 games available on our platform by May. We're planning to launch Liberty in Pennsylvania and Illinois, approaching these markets differently than launches in areas where the customer base is more accessible. We are excited about our position in Digital and are eager to escalate our profitability alongside our projected cumulative EBITDA losses of over $1 billion and a return on investment of 50% or more by 2024 and thereafter. I have similar confidence in these projections as I do with those from our earlier transactions. Lastly, I want to mention our plans to sell a Vegas Strip asset, with progress made in that process starting early this year. This remains on track; we will keep you updated on developments. Ultimately, we can invest in Digital, advance upcoming projects, and significantly reduce our leverage this year. We are determined to achieve all this while maintaining our momentum moving into 2022. Now, I will turn it over to Bret.

Well, as discussed, 2021 was a very exciting year for us in terms of executing on our plan to significantly reduce debt alongside continued investment in our growing brick-and-mortar and digital businesses. We expect to continue to do more of the same in 2022 through announced and anticipated asset sales. Tom just mentioned one. The other includes the sale of William Hill International in the second quarter and generation of strong free cash flow. Our 2022 calendar year CapEx spend, excluding Atlantic City, which is funded through escrowed cash, includes $300 million of maintenance CapEx, $100 million of Digital capital, and approximately $700 million related to high ROI project capital. We are modeling minimal cash taxes and approximately $800 million of cash interest expense for 2022, which we expect to reduce through debt repayment and opportunistic refinancing. Turn it back to Tom for the operator.

Operator, we'll open up to questions.

Thank you. Our first question comes from Carlo Santarelli with Deutsche Bank. You may proceed with your question.

You spoke earlier about the $1.3 billion of spend and the expected 15% return. So that implies kind of just under $200 million of largely regional EBITDAR. Thinking about the timing, obviously, there's a lot of projects in there. They all come on at various times. Could you kind of lay out how you to start to see those returns kind of over the next one, two, three years? And when you believe you hit that steady-state $200 million quarterly run rate?

Yes. Horseshoe Indianapolis, which is the previous Indian brand, opened its expansion near the end of last year, and we are already seeing the benefits in 2022. The expansion at Hoosier Park should be completed by the end of this year, with benefits expected to begin in 2023. We are aiming for an early fourth quarter opening of Lake Charles, which is projected to be around a $210 million project, and we anticipate exceeding the 15% return threshold. It's important to note that the 15% hurdle rate is a very conservative estimate for this investment. The majority of our Atlantic City projects should be operational before this summer, ideally before the Fourth of July, including most of the hotel rooms and restaurant offerings. There will be a slight delay for the entertainment aspect with Spigo World, but the main Atlantic City investments should be generating returns starting in the third quarter and onward. The Pompano parking garage and casino expansion is expected to come online and start producing returns in 2023, while the New Orleans project is projected to be operational by 2024, ahead of the Super Bowl in 2025.

Great. And then just, Tom, I know you specifically said like you don't want to get into property-level results and you did kind of give that $36 million quarterly run rate for New Orleans and mentioned that it was down more than 50%. So if we assume that, that was kind of a $20 million headwind. Could you kind of give a similar metric for Atlantic City to kind of quantify a similar down 50% off of what that 4Q base would have been year-over-year?

Caesars was about a $10 million swing.

That was about 10%. Okay. And then lastly, just as you think about kind of the interplay between slowing down the marketing spend. And obviously, the early push, it's understandable. As you move forward, though, how much do you worry about kind of the, I guess, the way to think about it is kind of the volume and GGR handle that's created from kind of marketing spend in the space on just an absolute basis and kind of relative to peers. If you were to start to more or less start to diminish the brand awareness from a public marketing perspective.

Yes. So keep in mind, Carlo, that we're primarily focusing on traditional media. We're looking at a $250 million expenditure to achieve our current market share levels. You can expect that our success-based promotional spending will continue as we convert new customers into existing ones over time, as the offers and margins will vary. Regarding New York, there was considerable attention on our $3,000 deposit match offer, but our average deposit there was about $450. Our results were driven primarily by hundreds of thousands of smaller customers visiting our site. As we move beyond this quarter, which saw the largest launch in our history, we will enter a period with fewer new launches, and the customer base will shift more towards existing customers rather than new ones. The reason we pursue new customers so aggressively is based on our past experiences; we've found that customers acquired in the first quarter after a launch tend to be worth roughly double those acquired afterward. So there is a strategy behind our targeted customer acquisition.

Thank you. Our next question comes from Joe Greff with JPMorgan. You may proceed with your question.

Tom, I know you mentioned at the end of your prepared comments your target of achieving more than a 50% annual EBITDA return at maturity. Can you clarify whether that timeline or the timeframe for maturity has changed based on your experiences in the last two quarters?

No, none of that has changed, Joe. Our thesis was that Caesars Rewards would give us an advantage, and we anticipated that this business would see market share consolidate into a few leading companies. What has occurred is that this has happened faster than we expected regarding the market share we have gained. The overall handle volumes in the market have exceeded our expectations, and our share has also been higher than we projected. However, the timing remains unchanged. We mentioned that if our share performance improves beyond our expectations, there may be additional investment compared to what we discussed 90 days ago. The reality is that the rapid accumulation of that share allows us to adjust our traditional media spending, so we end up investing about the same amount in total while achieving significantly more share than we originally forecasted, which should ultimately enhance our returns at maturity.

Excellent. And maybe it's too early on the iCasino side. I know you mentioned by the end of May, you'll have that large quantum of games, 350 games or so at that point. But what's your anticipation as you mark up more on the iCasino side, what that does to your bricks-and-mortar business? Does that enhance it? Or does it go the other way? And does it maybe dip into the land-based business?

So, we've had a double-digit market share in New Jersey for kind of since launch in New Jersey, and we've seen no impact on the brick-and-mortar business. And that's the state where we have the biggest brick-and-mortar presence where iGaming is allowed. We're not active in a physical property in West Virginia. We've got a relatively small property outside of Philadelphia and Pennsylvania, and we don't have one in Michigan. So, we don't anticipate much in the way of impact on our brick-and-mortar business as we ramp up in iGaming.

Great. And then my final question, obviously, the fourth quarter so far in January, there's been noise from Omicron; actually February, you've had some weather in some markets. But when you kind of think about the fourth quarter and the impact from Omicron on margins, excluding New Orleans and Atlantic City and Lake Charles. When you look at the regionals in the Las Vegas Strip in aggregate, was there much of a delta in property-level EBITDA margins, maybe excluding or trying to account for the impact of Omicron?

That's tough to parse, Joe, given the short time period and the time of the year that it happened. If you want to make a cut what I think. I think Omicron cost us somewhere between $25 million and $50 million in the fourth quarter.

Thank you. Our next question comes from Steve Wieczynski with Stifel. You may proceed with your question.

Tom, I want to ask about the demand for assets along the Strip at this point? It seems based on your comments that demand for those assets remains pretty high. But I guess my question is going to be, if you did sell a moderately-sized strip asset, is there any way for you to help us think about what a sale would do for you guys from a yield perspective across the rest of your strip assets?

We currently have 23,000 rooms. If we remove the Rio rooms and another property, which could be around 3,000 to 4,000 rooms, we would be left with approximately 16,000 to 17,000 rooms in the market. This represents about a quarter of our existing capacity, and it will certainly affect our ability to maximize the yield on the remaining rooms. The choice of which rooms to remove from our system will be an important factor in our decision-making process regarding divestitures. The less we depend on online travel agencies to fill our rooms, the better it will be for both customer quality and overall profitability. Removing 5,000 or 6,000 rooms from our system while welcoming customers from Eldorado should have a very positive impact on our rates once all transactions are finalized.

Got you. Very helpful. And then second question, I thought it was interesting to hear the history of all the acquisitions that you guys have made. And as you look back at those acquisitions and look at the improvement in the EBITDA generation of these properties. I'm not sure we're going to be able to do this. But is there any way you can help us think about how much of those EBITDA improvements are directly the result of total rewards being incorporated versus just the assets were being poorly run before and that's no disrespect to some of your counterparts, but I hope that makes sense. Just trying to parse out how much total rewards drives that versus what you guys have done?

That's a tough question to answer, Steve. I'm pleased you appreciated those comments, as I felt like I was going on a bit. What I can say is that the majority of our progress has come from shifting our marketing focus away from a broad audience to our most profitable customers. While that may seem straightforward, it has not been a strong focus in our industry until recently. This change is significant, and it's the same issue we face in digital marketing. Currently, we are marketing to everyone, but that will change as we concentrate on our most profitable customers. When we consider food and beverage, much of that marketing has historically been comped. For example, in 2019, the combined Caesars operations, including Eldorado, recorded a cash loss of over $200 million in food and beverage. By 2021, we became cash positive in EBITDA for that segment, marking a $250 million turnaround.

Thank you. Our next question comes from Barry Jonas with Truist Securities. You may proceed with your question.

Tom, any interest in the New York land-based casino here, and I guess, with that, any other land-based markets you're exploring?

So in New York, how do I answer this politely, New York is a difficult regulatory state. I think it's going to be extremely expensive to build there. I think it's going to be an extremely expensive license fee. And I think there's a likelihood that you're going to have to solve some other problem of the city in addition to creating the jobs that you do in building a casino. So it's not going to be enough to pick a site, build a casino, create the jobs, and generate a return. There's going to have to be other investment there as well. So I would say, on our balance sheet, it's extraordinarily unlikely that we make a material investment into New York land-based. Now there are others that take a different view in terms of the investment opportunity there for a variety of reasons. If one of those developers wants to talk to a manager that brings 65 million reward members and powerful brands, we'd be very interested in having that discussion. Away from New York, we're doing the Columbus, Nebraska project, which is fairly small track in the middle of the state that helps us get into digital in that state as well. There are other states that are kicking around the possibility that might be interesting, but it's unlikely that greenfield new license activity becomes a huge driver of value or a huge suck of our time from Caesars standpoint.

I guess, just to close the loop, gaming, now legal apparently in the UAE. Any chance we could see gaming at your property in Dubai?

Well, that was the original thought when Caesars struck that deal in Dubai that maybe ultimately the UAE would have gaming that is a Caesars Palace in Dubai that we manage. So if there's an opportunity, you should expect that we would be active and our brand and building is already open.

Thank you. Our next question comes from Shaun Kelley with Bank of America. You may proceed with your question.

Tom, I wanted to explore the digital landscape in New York a bit further and get your perspective on how the market evolved during the initial opening phase. It seems that the promotional offers we observed were fairly similar to those in other markets, but the increase in the number of customers was quite significant. I would like to hear your thoughts on how this compared to your expectations and whether it might necessitate a considerably larger investment than you initially planned, considering the market appears to be more robust than you anticipated.

I would describe it like this: when I was a kid, we would drink from the garden hose while playing outside. It felt similar to preparing to drink from the hose when a tidal wave hit us. The demand in New York was truly overwhelming. We received 75,000 inquiries to our customer service portals within the first two days after launching in New York. This was double what we expected in terms of volume, and our market share was also double what we anticipated. In terms of our market presence, we gained more share than we had predicted in New York. Consequently, the costs associated with that launch were greater than we initially forecasted. However, this is also why we can reduce our traditional media spending right away and still end up in a similar position, but with significantly more market share than we anticipated.

Great. And then maybe sort of the corollary to that, if you can help us think through the revenue side of how this may play out over the next couple of quarters. When I look at digital revenue in this reported quarter, I think it's actually down a little bit year-over-year, and a lot of that probably has to do with promo timing. But just help us think about how revenues are going to come in, especially when you have a couple of these big market launches, New York in this quarter, Canada likely in next quarter before we start to maybe see some of that promo roll off, we actually start to see your success on the net revenue side?

Yes. This quarter, we will focus on the launches in New York and Louisiana. In New York, the way they account for promotions affects the difference between gross revenue and net revenue. We will explain offline how this impacts the financials. You will see significant reductions in net revenue from the New York launch this quarter. This does not alter the overall EBITDA number, but the way it appears in the income statement is distinctive. As we move beyond this quarter and enter Pennsylvania and Illinois with Liberty, those launches will incur much lower costs and promotions because they are existing markets where we will increase our share gradually. Therefore, you will not experience the same immediate impact that was seen with the launches in New York, Arizona, and Louisiana. The same applies to Ontario iGaming; you won’t see a situation similar to those last three states until Ohio or Maryland launch, which are tentatively scheduled for later in the second half of the year.

Thank you. Our next question comes from David Katz with Jefferies. You may proceed with your question.

I wanted to ask about the Las Vegas Strip. I know it's not the most typical environment, but there are really just you and one other significant competitor in that area. Can you help us understand how your successes impact their performance and vice versa? Is it possible for both of you to succeed at the same time? How should we consider these dynamics in the current environment?

I appreciate that question because I wanted to address this in both digital and land-based contexts. Regarding Las Vegas, I want to emphasize that I hope for everyone to thrive there. My perspective is that our success is not dependent on MGM or Venetian not doing well. The market has room for everyone to have a successful 2022 and 2023 as group business returns. Sure, we compete for customers and entertainers in a typical competitive environment. However, I am genuinely impressed with what Bill and his team have accomplished at MGM, and it's rewarding to see them recognized through their share price. I expect both them and us to continue succeeding. Transitioning to the digital space, I believe our ability to thrive depends on our efforts to target and service valuable customers while integrating that business into Caesars Rewards and our broader brick-and-mortar operations. Our success does not rely on others’ failures or financial struggles. There is ample opportunity in this space for multiple success stories. At least three or four can succeed, and we aim to be one of them without needing anyone else to falter in Vegas or elsewhere for our success.

Perfect. And if I can follow up quickly, when we last saw each other in person, which was G2E and we talked about the Strip asset sale, I recall the perspective that time has been your ally. Would you say that it's still been your ally since then to now? Pardon the question; we have to be anxious about something in this job. So how we're doing there?

I would say there is no doubt that last year's first quarter in Vegas faced significant restrictions due to mask mandates, creating a challenging operating environment. As we promote this asset, we'll be leveraging a 12-month period that, while still affected by COVID, presents a much improved cash flow situation compared to the heavily impacted earlier times. Additionally, the last two trades I've observed in the PropCo OpCo sector, specifically Craig's Trade in Boston and Bill's Trade Opco at Mirage, serve as excellent comparisons for anyone looking to market a Center Strip asset. We believe that our decision to wait before pursuing this opportunity was the right one, and we're enthusiastic about the potential outcomes. As you may remember, we acquired Caesars for $17 billion and outlined the synergy expectations. With those synergies considered, we effectively bought Caesars for under 6 times EBITDA. The upcoming sale of the Vegas asset is expected to return more than 15% of those proceeds to our balance sheet, so we are very pleased with our current position regarding the sale of the Strip asset.

Thank you. Our next question comes from Dan Politzer with Wells Fargo. You may proceed with your question.

I just wanted to touch on regionals really quickly. Can you just give us an update? Are you seeing any properties or regions of pockets part of promotions? And I guess outside of Rockford and Omaha, maybe one or two other markets. Can you just remind us where we should be thinking about new competition coming online? And then just one other along those lines, just any update on February trends to date.

In terms of the promotional environment, there’s nothing significant to highlight that would affect our outlook as a company. Regarding competitive openings, Rockford is temporary and Omaha will likely have some temporary impacts in 2022. We are continuing to work on the Monarch addition in Colorado. I should have mentioned that earlier when discussing property performance; we took over that property when it was generating about $35 million in EBITDA, and it exceeded $60 million last year despite the Monarch opening nearby. The Monarch property is very impressive, so the competitive opening is not having the expected impact. Spectacle opened their property in Gary on the interstate last year, and Hammonds has performed exceptionally well since that opening, remaining stable or even increasing in EBITDA. Is there anything else you can think of that might open?

No.

That's all I can take it in terms of February, and February has been stronger than January. As I said, we were 75% occupied in Vegas in January, 80% month-to-date in February for looks strong as well. Super Bowl was really, really good, and President's Day weekend was really, really good as well.

Got it. Regarding the Strip, you mentioned margins around the 50 percent level and the return of group and convention activities possibly later this year. How should we consider this moving forward? Is it reasonable to view this as a normalized run rate, or are you focused on increasing EBITDA in absolute terms like some of your competitors?

I believe you're going to observe both outcomes. In this quarter, if you consider the real lease similarly to other leases, we achieved a 48% margin during a traditionally low quarter. Therefore, I would suggest that a margin in the high-40s to low-50s, approximately straddling 50, is a reasonable expectation based on seasonality. The return of group business positively impacts our rates, which enhances hotel margins and revives our banquet business, exceeding the overall Vegas margin. We anticipate this will contribute positively to EBITDA and margins as it returns.

Thank you. Our next question comes from John DeCree with CBRE. You may proceed with your question.

Maybe a two-part question, Tom, and I appreciate the trip down memory lane that you took us earlier and all the success you've had in regional gaming M&A. So I wanted to ask if that strategy could be part of Caesars future. I realize there's a lot less white space today, but given the success. And I ask in the context of looking into 2023 when the CapEx that you have currently starts to wind down, EBITDA and Digital and flex, the balance sheet should be delivered, and as Bret talked about some opportunistic refinancing ahead, lots of free cash flow in our model. How do you think about deploying that middle of 2023, not that far away? And if regional gaming M&A could be a part of that strategy?

It appears to be one of our strengths in maximizing cash flow from assets previously owned by others. We are aware of this. However, as we grow larger, it becomes increasingly challenging from an antitrust standpoint, which is something we need to consider. Additionally, until we become EBITDA positive in digital, I do not expect any significant mergers or acquisitions on our part.

Fair enough. And would the same comment hold true for other uses of capital as we approach the fourth quarter of next year, given the free cash that your portfolio is generating?

It's hard to project that far in the future on that question. Obviously, it's going to depend on what does the valuation look like? If I'm still getting negative $15 a share for Digital, maybe I become a buyer of my stock, but I would expect that we'll have corrected that at that time. And we'll see how the stock behaves. We'll see how it performs as we delever. I think that's going to be multiple enhancing. But by the time frame that you're laying out, we'll know that answer and be better informed.

Thank you. Our next question comes from Chad Beynon with Macquarie. You may proceed with your question.

Two on Digital. One, as you continue to come through the data, Tom, you talked about inflection in Q4 '23. Wondering if the 30% to 35% long-term EBITDA margin still holds up in your view? And then secondly, some of the other companies have expanded their digital offerings to marketplace and NFTs, and that seems like a pretty high-margin business to just offer your users. Is that something that you would consider exploring just as your DAUs and MAUs grow?

So Chad, on the second question, I would say absolutely not. I'll tell you what's a high flow-through business and high-margin business. It's the Casino business. And that's what we operate outside of Digital, and we think it's an extremely strong complement to the Digital business. The first quite is the first to two factors.

Yes. So I mean...

I appreciate your question, Chad. The short answer is no. There seems to be a misconception in the investment community that associates a low hold business with a low margin business. We have states in our portfolio where we hold a strong market share in mobile and can achieve mobile sports betting EBITDA margins well over 50%. This will vary in other states due to competitive or regulatory reasons. However, this is a 5%, 6%, 7% hold business. If you consider the Regional Gaming business, a significant portion of that involves video poker, where the hold on those games is about 3%, 4%, or 5%. We maintain margins in those properties of 40% to 45%, even 50%, while managing the full operating costs of a physical property. So we remain very optimistic about our potential for margins in digital, which will become clearer as we move beyond the launch period and the customer base shifts from new users to existing ones.

Thank you. Our next question comes from David Bain with B. Riley. You may proceed with your question.

Great. Very helpful commentary and transparency. We agree the balance sheet activity is a near-term catalyst for valuation. And kind of just hoping maybe, Tom, you could big picture the balance sheet playbook that captures the William Hill proceeds, the forward strip asset sale, free cash flow from operations, interest savings. Is there a net leverage kind of target or expectation by the end of next year when you funnel those items in?

We expect to have the majority of our desired capital and debt structure available by the middle of this year. Currently, our unsecured debt trades at about 5.25% to 5.5%, making it our most expensive debt, while secured debt is priced lower. We've outlined our interest expenses, and we see significant opportunities to reduce them. We are currently around $22 billion to $23 billion in gross lease-adjusted leverage, generating approximately $2 billion in brick-and-mortar free cash flow. We anticipate proceeds from the William Hill transaction and have expectations for the asset sale on the Vegas Strip. We plan to invest some funds into Digital as well. In the next 18 months, we could see our outstanding lease-adjusted debt decrease to the mid- to high teens and our leverage could drop into the 4s as we see positive results from Digital, leading to a quicker reduction in leverage, potentially within the next 18 to 24 months.

Okay. Great. Understand. And then just lastly, when looking at news impacting the stock market, including today, and the overall patron economic setup this year with indirect stimulus versus direct last year. How should we view the kind of the macro setup overall, understanding there's specific catalysts that you mentioned like conventions coming and the older demographic coming back. But just if you could big picture that as well, that would be helpful.

Yes, I'd say our business, not just our business, since reopening has been highly correlated to both the COVID case counts and the coverage of COVID in general. When the coverage leads to fear, we see a reduction in business. And when you get to where we appear to be getting to with Omicron, we tend to see pent-up demand. We see no reason that, that would be a different scenario this time. The household savings rate is still at extraordinarily high levels relative to history. The Fed obviously has a big job in front of them in terms of managing inflation as we move forward and what they do with rates. And that's obviously an exogenous effect that could impact wealth effect if they make a move that the markets don't like, but we feel generally very positive with where our consumer is. That 55-plus customer is still not back in anywhere near the levels of the younger crowd, and that historically has been a key driver of business both in destination markets and regional.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Tom Reeg for any further remarks.

Thanks, guys. That's all we got. We'll talk to you after the first quarter.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.