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gateway casinos vernon bc ?Slot Win? within the meaning of the corporate governance rules of the NYSE and will be exempt from certain corporate governance requirements.
We are an ?emerging growth company? Dividend Policy: We do not anticipate paying any cash dividends on our common shares in the foreseeable future.
Prospective purchasers of common shares should carefully consider information set forth under the heading ?Risk Factors? Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.
On May 18, 2010, we were incorporated under the Canada Business Corporations Act, or the CBCA, initially as 7555237 Canada Ltd.
Under the plan of arrangement, we acquired substantially all of the assets and business of Old Gateway.
In connection with the restructuring in 2010, our articles were amended on July 19, 2010, September 14, 2010 and June 25, 2012 to include restrictions on transfers of common shares in order to comply with the regulations and policies of the Gaming Authorities and Gaming Regulators and to effect a consolidation of our common shares.
In addition, our articles were further amended on July 1, 2017 to effect the Internal Corporate Reorganization as defined below.
On July 1, 2017, we completed an internal corporate reorganization, or the Internal Corporate Reorganization, pursuant to which several of our wholly owned subsidiaries were amalgamated with us, with us continuing as the newly amalgamated corporation.
Following the Internal Corporate Reorganization, on October 18, 2017, we acquired all of the issued and outstanding shares of 7588674 Canada Inc.
Our principal office is located at 4331 Dominion Street, Burnaby, British Columbia V5G 1C7 and our telephone number is 604 412-0166.
Our website address is www.
Information contained on, or accessible through, our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference.
The Catalyst team collectively possesses more than 110 years of extensive experience in restructuring, credit markets and merchant and investment banking in Canada, the United States, Latin America and Europe.
Catalyst focuses generally on building businesses and specifically on bringing operational improvements to its investment companies as it leads them through restructurings and other forms of improvement and repositioning.
Since Catalyst acquired control of us under the September 2010 restructuring, we have undertaken a number of strategic initiatives through our disciplined execution and capitalization of growth opportunities.
We have expanded into a new market, Ontario, where we successfully bid on three gaming bundles from the OLG, the Southwest Bundle, North Bundle and, most recently, the Central Bundle.
During that 36 period, we have also completed renovations and improvements and, in several cases, relocations at all of our properties to optimize our operating performance and better serve our markets.
Our revenues and profitability have also grown during that period as a result of strategic acquisitions and property optimization initiatives, including the implementation of new systems, processes and controls across our business to increase organic growth and cash generation.
We have increased our number of employees from approximately 2,800 at the end of 2011 to approximately 8,500 as of September 30, 2018.
Selling shareholders: The Catalyst Capital Group Inc.
Common shares offered by the Selling Shareholders: common shares common shares if the underwriters? provided pursuant to Section 7 a 2 B of the Securities Act.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8 a of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8 a , may determine.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
We are not selling any common shares in the offering.
The common shares are being offered by investment funds managed by The Catalyst Capital Group Inc.
We will not receive any proceeds from the sale of common shares by the selling shareholders in this offering.
We have applied to list our common shares on the New York Stock Exchange, or NYSE, under the symbol ?GTWY?.
Upon the closing of this offering, we will be a ?controlled company? means the aggregate amount of money customers have wagered on slots and other electronic gaming machines; ? in this prospectus.
References to the number of ?slot machines? the pro forma financial statements and pro forma financial information included in this prospectus are presented for illustrative purposes only and may not be an indication of our financial condition or results of operations following the Ontario acquisitions; ? exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; ? the quality and performance of the managers and other staff of our hotel.
These factors may affect our occupancy and rental rates, as well as our convention related revenue, and have an adverse effect on our business, financial condition and results of operations.
We have incurred net losses in the past and may not experience positive net income in the future.
We have incurred net losses in the past and may incur net losses in the future.
To the extent that our revenues decline or do not grow at anticipated rates, our expenses increase or we do not operate our business profitably, our net income could be negatively impacted in the future.
If we have a fair value impairment in a business segment, our net earnings and net worth could be materially and adversely affected by a write-down of intangible assets or fixed assets.
We conduct an impairment analysis at the end of each reporting period when events or changes in circumstances indicate that the carrying amount of our assets may not be recoverable.
This analysis requires our 73 management to make significant judgments and estimates, primarily regarding expected growth rates, the terminal value calculation for cash flow and the discount rate.
We determine expected growth rates based on internally developed forecasts, which consider our future financial plans.
We establish the terminal cash flow value based on expected growth rates, capital spending trends and investment in working capital to support anticipated sales growth.
We estimate the discount rate used based on an analysis of comparable company weighted average costs of capital, which consider market assumptions obtained from independent sources.
The estimates that our management uses in this analysis could be materially impacted by factors such as specific industry conditions, changes in cash flow from operations and changes in growth trends.
In addition, the assumptions our management uses are management?s best estimates based on projected results and market conditions as of the date of testing.
Significant changes in these key assumptions could result in indicators of impairment when completing the annual impairment analysis.
We remain subject to future financial statement risk in the event that goodwill or other identifiable intangible assets become impaired, including in connection with intangible assets acquired in connection with the Ontario acquisitions.
For further discussion of key assumptions in our critical accounting estimates, see ?Management?s Discussion and Analysis of Financial Condition and Results of Operations?Application of Critical Accounting Estimates and Judgements?.
We may not have or may not be able to obtain adequate insurance to cover all risks incident to our business.
We currently maintain customary insurance of the types and amounts it believes are consistent with prudent industry practice; however, we are not fully insured against all risks incident to our business.
We are not obliged to maintain any such insurance if it is not available on commercially reasonable terms other than in Ontario, where our COSAs require us to maintain insurance, and in certain other instances where insurance requirements are customary.
There can be no guarantee that such insurance coverage will be available in the future on commercially reasonable terms or at commercially reasonable rates or that the amounts for which we are insured, or the proceeds of such insurance, will compensate us fully for our losses.
In addition, the insurance coverage obtained with respect to our business and properties will be subject to limits and exclusions or limitations on coverage.
There can be no assurance that the insurance proceeds received by us in respect of a claim will be sufficient in any particular situation to fully compensate us for losses and liabilities suffered.
If a significant accident or event occurs that is not fully insured, it could adversely affect our results of operations, financial position or cash flows.
We have a substantial amount of indebtedness, which may adversely affect our ability to operate our business, remain in compliance with debt covenants or make payments on our indebtedness.
We have significant debt obligations.
If we are unable to meet our debt obligations, we may need to consider refinancing or amending our debt instruments, reducing or deferring any contemplated dividend payments or adopting alternative strategies to reduce or delay expenditures, such as selling assets or seeking additional equity capital.
Our substantial debt has important consequences.
For example, it could: ? maintain out-of-pocket build-out costs in line with our economic model, including by managing construction costs at reasonable levels; ? an orientation towards slot machines, which have less appeal than table games to patrons under 45; ? drop boxes.
Generally, the Table Drop is an indicator of our gaming business; however, over the short-term, the Table Drop is subject to shifts in customer behavior around buying, retaining and cashing-in of casino chips; ? place us at a competitive disadvantage to our competitors with less debt than us; and ? The assumptions and estimates underlying the unaudited adjustments to the pro forma consolidated statement of operations and comprehensive income are described in the accompanying notes, which should be read together with the pro forma condensed consolidated statement of operations and comprehensive income.
The pro forma data presented reflect events directly attributable to the described transactions and certain assumptions that we believe are reasonable.
The pro forma data are not necessarily indicative of financial results that would have been attained had the described transactions occurred on the dates indicated above or which could be achieved in the future.
The adjustments are based on currently available information and certain estimates and assumptions.
Therefore, the actual adjustments may differ from the pro forma adjustments.
The unaudited pro forma consolidated statement of operations and consolidated income has been prepared as if the Interim Period Transactions occurred on January 1, 2017.
See ?Index to Financial Statements?Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2017 and 2016?; b unaudited pro forma combined schedule of revenue and direct expenses of the Southwest Bundle for the period from January 1, 2017 to May 8, 2017.
See ?Index to Financial Statements?Unaudited Southwest Ontario Gaming Bundle Pro Forma Combined Schedule of Revenues and Direct Expenses for the period from January 1, 2017 to May 8, 2017?; c unaudited pro forma combined schedule of revenue and direct expenses of the North Bundle for the period from January 1, 2017 to May 29, 2017.
See ?Index to Financial Statements?Unaudited North Ontario Gaming Bundle Pro Forma Combined Schedule of Revenues and Direct Expenses for the period from January 1, 2017 to May 29, 2017?; and 54 d unaudited pro forma combined schedule of revenue and direct expenses of the Central Bundle for the year ended March 31, 2018.
See ?Index to Financial Statements?Unaudited Central Ontario Gaming Bundle Pro Forma Combined Schedule of Revenues and Direct Expenses for the year ended March 31, 2018?.
The unaudited pro forma combined schedules of revenues and direct expenses for the Southwest Bundle, the North Bundle and the Central Bundle have been prepared by the Company using the format and account classifications of the respective audited Combined Schedules of Revenues and Direct Expenses for each Bundle prepared and provided by the OLG.
For purposes of this unaudited pro forma combined statement of operations and comprehensive income we have adjusted the format and account classifications to align with those of the Company.
You should carefully consider the risks described below, together with the other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus, before making an investment decision.
Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.
We cannot assure you that any of the events discussed in the risk factors below will not occur.
These risks could have a material and adverse impact on our business, results of operations, financial condition and cash flows and, if so, our future prospects would likely be materially and adversely affected.
If any of such events were to happen, the trading price of our common shares could decline, and you could lose all or part of your investment.
Risks Related to Our Business Our business is subject to extensive governmental gaming regulation.
Changes to the regulatory regime governing our business, our inability to renew or obtain new contracts governing our existing gaming operations or our inability to obtain new casino licenses could adversely affect us.
Our gaming operations are highly regulated.
Subject to certain exemptions, the Criminal Code of Canada prohibits most forms of gaming and betting activity in Canada.
While certain limited licensed gaming activities, such as those conducted and managed by charitable or religious organizations, are permissible, dice games and games operated on or through a computer, video device or slot machine may only be conducted through and managed by provincial governments.
Subject to certain conditions, the Criminal Code of Canada also provides exemptions that allow any person, for the purposes of a lawful gaming activity in the applicable province, to do anything in the province, in accordance with the applicable law or license, that is required for the conduct, management or operation of such gaming.
Accordingly, as a licensed service provider we must provide gaming-related services in accordance with applicable provincial laws and regulations.
Gaming in the provinces in which we currently operate is highly regulated.
In addition, any of the federal government of Canada, the provincial governments of British Columbia, Alberta or Ontario, or any applicable municipal or local government may enact, amend or repeal legislation including of a public policy or social benefit nature, such as responsible gaming legislation, reduced operating hours or restrictions on marketing and advertising , or there may be changes in the jurisprudence that relate to the gaming industry, in each case that could have a material adverse effect on our business, financial condition or results of operations.
Additionally, we may not continue to sustain the level of partnership we now have with the Gaming Authorities and Gaming Regulators, which could also have a material adverse effect on our business, financial condition or results of operations.
In British Columbia, we currently receive additional commissions through the BCLC?s MIR program for capital expenditures related to developing and improving our casinos.
Similarly, we receive Permitted Capital Expenditures Allowances from the OLG for gaming-related capital expenditures related to developing and improving our casinos in Ontario.
Although we expect past expenditures not yet submitted to the OLG and future capital expenditures to be eligible to earn additional commissions or qualify for Permitted Capital Expenditure 59 Allowances, as applicable, there can be no assurance that this will be the case.
We may be subject to change to the contracts and licenses related to our existing operations and our contracts or licenses may be revoked or may not be renewed.
In British Columbia, our operations are conducted pursuant to operational services agreements with the BCLC.
The OSAs allow us to provide operational services for each casino and CGC other than Playtime Gaming Victoria for a 20-year term, with an option, exercisable by the BCLC, to renew at the end of such term.
We expect that our continued successful operations will lead BCLC to exercise its renewal rights with us unless we are in breach of the OSAs, however such renewal is at the discretion of BCLC.
Furthermore, a breach of the OSAs could result from certain specified occurrences, including non-performance, bankruptcy or insolvency.
Because of such a breach, the BCLC could suspend or terminate our right to provide the operational services under the OSAs.
Suspension or termination of any of the OSAs would result in the loss of our ability to conduct business at our casinos or CGCs located in British Columbia, as applicable.
In addition, the BCLC may also claim under the indemnities we provide to them under the OSAs for any liability they may suffer from our operations.
The occurrence of any of these events could have a significant adverse effect on our business, financial condition and results of operations.
In the Edmonton region, each of our casinos can only be operated under casino property licenses granted by the AGLC.
Although we have no reason to believe that our licenses will not be reissued upon expiry, there can be no guarantee that the casino property licenses under which our Alberta casinos operate will be reissued, or, if reissued, that they will be on the same or as favorable terms as the existing casino property licenses.
The AGLC has enforcement powers with respect to licenses and may impose conditions or fines or suspend or cancel a casino property license for certain reasons, including non-performance or breach and bankruptcy or insolvency.
Although it has not been the practice of the AGLC to cancel licenses, suspension or cancellation of such licenses could have a significant adverse effect on our business, financial condition and results of operations.
The Southwest Ontario, North Ontario and Central Ontario properties are operated under COSAs, which were entered into with the OLG on closing of each acquisition.
Renewal of the COSAs is subject to the absolute discretion of the OLG, and we cannot guarantee that the COSAs will be renewed on the same terms, or at all.
The COSAs also set out certain events of default, including, among other things, a material adverse effect resulting from our failure to comply with certain obligations set out under the COSAs, an act of insolvency, and any inaccuracy or misrepresentation in any representation or warranty of the service provider in the COSAs.
See ?Regulatory and Licensing Matters?.
Upon the occurrence of an applicable event of default as set out in the COSAs, the OLG could, at its option, suspend or terminate our right to provide all or any part of the services under the COSAs in respect of all or any one or more casinos to which the applicable COSA relates.
In addition, the OLG and certain other indemnified persons may rely on the indemnity that is provided to them in the applicable COSA, should any of them suffer certain liabilities from our operations or in certain other specified circumstances.
The occurrence of any of these events could have a significant adverse effect on our business, financial condition and results of operations.
In addition, in October 2018, it was announced that OLG and the operator of the horse racing facilities at Hiawatha Horse Park in Sarnia have an agreement in principle for the introduction of a slot-machine gaming facility within the Hiawatha Horse Park.
Pursuant to our operating agreements with OLG, we have the right to become the operator of such new facility, subject to reaching an agreement with the OLG on the terms of such operations.
There can be no assurance that we will reach an agreement with the OLG on the terms of such operations, or that if we do, that the facility will perform well.
The AGCO has established stringent terms of registration, which must be complied with to maintain our registration in good standing.
We may not be able to comply with certain of the terms of registration at all times, and consequentially, the AGCO may discontinue the registration.
Our gaming operating agreements and licenses may also change from time to time.
Recently, we entered into the OSAs with the BCLC to replace the multiple casino operating agreement, or the MCOSA, the community gaming centre operational services agreements, or the CGCOSAs and BOSAs other than the Playtime Gaming Victoria BOSA.
Certain changes to the OSAs may negatively affect our business, financial condition or results of operations.
The impact of the OSAs or any changes to our gaming operating agreements or licenses is difficult to predict, and may materially and adversely affect our business, financial condition and results of operations.
At any time, the gaming regulators may conduct inspections to monitor our compliance with legislation, regulations, rules and conditions of registration and operating agreements.
We may be subject to disciplinary action by the gaming regulators if we are informed that a person is unsuitable to have a relationship with us and we fail to pursue all lawful efforts to require compliance with gaming control legislation or our operating agreements.
If we are unable to comply with any current or future reporting or registration requirement, our registrations as a gaming service provider may be suspended or revoked, which would adversely affect our business.
The Gaming Regulators in the provinces in which we operate may also, as applicable, revoke or refuse to issue or renew our registration or licenses, or refuse to renew the terms of our operating agreements for reasons including: if we, or one of our directors, officers, employees or associates i is considered to be a detriment to the integrity of gaming; ii no longer meets a licensing or registration requirement; iii has breached a condition of licensing or registration or an operating agreement with a lottery corporation; iv has made a material misrepresentation to the Gaming Regulators; v has been refused a similar license or registration in another jurisdiction; vi has held a similar license or registration, or a license which has been suspended or cancelled; or vii has been convicted of an offense that calls into question our integrity.
Our ability to obtain additional casino licenses or operating agreements is not guaranteed.
Any new casino to be operated by us will require the entering into or amendment of an operating agreement in the case of a gaming property in British Columbia or Ontario or a casino property license from the AGLC in the case of a casino in Alberta.
The process for obtaining a new operating agreement or license or amending an existing operating agreement or license is complex and we anticipate that there would be intense competition for new operating agreements or licenses.
There can be no guarantee that the BCLC or the OLG will agree to enter into or amend an operating agreement or that the AGLC will grant a new license for any new gaming property that we might propose in the provinces of British Columbia, Ontario or Alberta in the future.
In addition, in January 2015, the AGLC declared an indefinite moratorium on the issuance of new casino licenses and is not accepting applications for new casino properties.
Failure to obtain these licenses or agreements or amendments would potentially limit our growth, thereby adversely affecting our growth potential.
In addition, if we were to expand our business to other provinces and territories in Canada or other jurisdictions we would be required to comply with the regulatory regimes of such provinces and territories or jurisdictions and obtain licenses to operate therein.
As in British Columbia, Ontario and Alberta, the process for regulatory approval and the obtaining of a new license or operating agreement is complex and there is intense competition for new and operating agreements.
Consequently, there can be no assurance that we will be able to expand our business into other provinces and territories or other jurisdictions.
Liquor laws and associated liquor licenses in British Columbia, Ontario or Alberta may affect our operations.
The use and sale of alcohol in gaming properties is highly regulated in British Columbia, Ontario and Alberta through the issuance, monitoring and enforcement of liquor license requirements and related liquor 61 license conditions.
There is no assurance that the regulation of the use and sale of alcohol in gaming properties will not change in the future.
Changes to the regulations regarding the issuance, monitoring and enforcement of liquor license requirements and related liquor license conditions could adversely affect our operations and casino gaming revenue.
The historical financial information for the Ontario properties prior to our acquisition thereof was prepared or provided by the OLG and consists of audited combined schedules of revenue and direct expenses only and does not represent complete financial statements; care should be taken when relying upon such information.
The audited annual financial information and results of the Southwest Ontario properties, North Ontario properties and Central Ontario properties included in this prospectus were prepared or provided by the OLG and consist of combined audited schedules of revenue and direct expenses that are not fully consistent with the statements provided for significant acquisitions under Sections 13 and 15 d of the Exchange Act and do not include a balance sheet, statements of cash flows or the related footnotes to such financial statements.
In addition, this financial information does not include certain information and adjustments necessary to conform with IFRS as issued by the IASB.
The pro forma financial statements and pro forma financial information included in this prospectus are presented for illustrative purposes only and may not be an indication of our financial condition or results of operations following the Ontario acquisitions.
The pro forma financial statements and pro forma financial information included in this prospectus are presented for illustrative purposes only, are based on various adjustments and assumptions and may not be an indication of our financial condition or results of operations following the Ontario acquisitions.
Our actual financial condition and results of operations following the Ontario acquisitions may not be consistent with, or evident from, these pro forma financial statements.
In addition, the assumptions used in preparing the pro forma financial data may not prove to be accurate, and other factors may affect our financial condition or results of operations following the Ontario acquisitions.
The unaudited pro forma financial information included in this prospectus under the headings ?Selected Summary Historical Financial Information? ?Property Highlights? or other proprietary information or other breach of our information security could result in legal claims or legal proceedings, including regulatory 67 investigations and actions, or liability for failure to comply with privacy and information security laws, including for failure to protect personal information or for misusing personal information.
Such legal claims, legal proceedings or liability could disrupt our operations, damage our reputation and expose us to claims from customers, financial institutions, regulators, payment card associations, employees and other persons, any of which could have an adverse effect on our financial condition, results of operations and cash flow.
Canada?s Anti-Spam Legislation, or CASL, also restricts our ability to send commercial ?electronic messages,? program at sites that have not converted to our GMS.
We are in the process of launching our own proprietary loyalty program in Ontario, called My Club Rewards, to coincide with the introduction of the new GMS and we have launched at Woodstock, London, Hanover, Clinton and Thunder Bay.
The Winner?s Circle program is expected to end fully at our properties in the fall of 2019.
Our marketing initiatives, combined with organic market growth and property enhancements, have contributed to a significant increase in slot revenue in recent years.
For example, our Slot Win has increased by 28 40.
Our Slot Coin-In, for carded customers only, at our three GVRD casinos also increased by 54.
Since the acquisition of the North and Southwest Bundles, we began introducing marketing and loyalty programs based on our proven approach in Western Canada.
In the North and Southwest Bundles, we have increased the active customer base from approximately 181,000 members as of April 30, 2017, to approximately 221,500 members as of October 31, 2018, an increase of 22.
We attribute this increase to new sign-ups, more effective use of the database and improved customer segmentation.
Strong Free Cash Flow Conversion We have a strong Free Cash Flow Conversion ratio.
This can be partially attributed to the following aspects of our business: No Obligation to Purchase or Maintain Slot Machines in British Columbia and Alberta: As the BCLC and the AGLC own or lease all slot machines in our British Columbia and Alberta properties, we incur significantly lower expenses related to the maintenance of gaming equipment as compared to gaming companies that are required to purchase, finance or lease their own gaming equipment such as many of our North American peers.
Additional Commissions Related to the Majority of Our Growth Capital Expenditures in British Columbia.
All of our British Columbia properties other than Playtime Gaming Victoria are entitled to earn additional commissions from the BCLC for both eligible gaming and other eligible capital expenditures at a rate of 5% of Net Win through the MIR program.
These commissions are captured as revenue and they increase Adjusted EBITDA, but they do not affect reported capital expenditures, the commissions therefore increase our Free Cash Flow profile but do not improve our Free Cash Flow Conversion ratio.
The commissions described above replace the BCLC?s FDC and AFDC programs, which entitled us to be compensated at a rate of up to 5% of Net Win for eligible capital expenditures that occurred prior to April 1, 2018.
Historically, we have been reimbursed 100% of the approved FDC and AFDC expenditures by the BCLC to the extent of 3-5% of Net Win.
Our minimum investment requirements under the new MIR program are reduced by an amount equal to our carry forward balance under the FDC and AFDC programs.
For our operations in Ontario, we are entitled to Permitted Capital Expenditures Allowance, payable by the OLG, for approved and eligible capital expenditures incurred in the Southwest, North and Central Bundles, as per the terms set forth in the COSAs.
Permitted Capital Expenditures are recorded as part of gaming revenue.
We believe Free Cash Flow and Free Cash Flow Conversion are meaningful to investors as they are useful measures of performance and we use these measures as an indication of the strength of our business model and 29 our ability to generate cash.
For more information about Free Cash Flow Conversion and Adjusted EBITDA, see the ?Presentation of Financial Matters and Other Information?Non-IFRS Financial Measures? successfully compete for new gaming contracts; ? defined to include text, sound, voice and image messages to email, or similar accounts, where the primary purpose is advertising or promoting a commercial product or service to our customers and prospective customers.
CASL requires, in part, that a sender have consent to send a commercial electronic message, and provide the customers with an opportunity to opt out from receiving future commercial electronic email messages from the sender.
Failure to comply with the terms of CASL or any proposed regulations that may be adopted in the future could have a negative impact on our reputation and subject us to material monetary penalties.
We have appealed from these reassessments and loss determinations to the Tax Court of Canada.
If such appeal is not successful, the amount of our non-capital loss carryforwards will be reduced and we will begin to incur income tax sooner than otherwise anticipated.
In addition, the CRA has also issued notices of reassessment or notices of determination of loss to our subsidiaries Boardwalk Gaming Squamish Inc.
We duly filed notices of objection with the Appeals division of the CRA to the reassessments and loss determinations referred to above.
In August, 2018 we received notices of confirmation from the CRA advising that the CRA had reviewed the objections and was confirming the reassessments and loss determinations.
We disagree with the CRA?s position, and intend to vigorously defend our tax filing position.
Accordingly, we have appealed to the Tax Court of Canada with respect to the reassessments and loss determinations.
The likely timing to resolve these issues may take several years.
In that case, we have sufficient non-capital loss carry-forwards to offset the additional income reassessed; however, our non-capital losses available for carryforward to subsequent taxation years would be reduced, and we estimate that we would begin to incur liability for income tax sooner than otherwise currently anticipated.
For more information, please see note 11 of our condensed consolidated interim financial 68 statements and note 16 of our audited consolidated financial statements as at December 31, 2017 and 2016, which are attached to this prospectus.
However, our ability to use these or other non-capital losses may be limited in the future.
The Canadian tax authorities could potentially seek to challenge the amount of such losses or our ability to use such losses against future income, in which case we may be subject to income tax sooner than anticipated.
In addition, if we were to undergo a change of control for Canadian tax purposes whether as a result of this offering or otherwise , we would no longer be able to utilize the POM Acquisition losses and our ability to utilize any other losses would potentially be subject to certain limitations.
Furthermore, our ability to utilize non-capital losses of other companies that we may acquire in future could be subject to limitations.
The Municipal Property Assessment Corporation may in certain circumstances increase our assessments for Ontario property tax, which could result in an increase in our total property tax liability.
We are subject to real property tax in Ontario based on the assessed value of our Ontario casinos as determined by the Municipal Property Assessment Corporation ?MPAC?.
In our financial statements, we have accrued liability for Ontario real property tax based on the valuations and assessments received from MPAC.
In certain cases, however, including if we decide to appeal an assessment, MPAC, or a municipality, is entitled to seek a revision including an increase to a previously issued assessment.
We would have the ability to contest such a proposed increase.
In the event an increase in the assessment is ultimately approved by the Assessment Review Board, there could be an increase in the amount of tax payable and our aggregate property tax liability could be increased, which could have a negative impact on our financial condition.
From time to time, we are a defendant in a variety of litigation matters that may cause us to pay damages if we are unsuccessful in defending against such actions or unable to cover damages with insurance proceeds.
We are involved, from time to time, in a variety of litigation or regulatory investigations arising out of our business, including actions related to patron claims, labor and employees, BCLC?s Voluntary Self-Exclusion Program, GameSense Self Exclusion Program, regulatory compliance and other operational matters.
We establish reserves for matters in which losses are probable and can be reasonably estimated.
While we believe that we have established adequate accruals for our expected future liability with respect to our pending legal actions and proceedings, our liability with respect to any such action or proceeding may exceed our established accruals.
It can be particularly difficult to gauge the potential impact of litigation that involves novel claims, such as claims based on the BCLC?s Voluntary Self-Exclusion Program and GameSense Self Exclusion Program which are premised on customers? and ?Risk Factors? our ability to obtain additional casino licenses or operating agreements is not guaranteed; ? , one of our subsidiaries entered into a 20-year lease for the lands and premises constituting the Grand Villa Casino Burnaby, with one 10-year renewal term plus three 10-year option terms pursuant to an option agreement.
We have completed the addition of 47 slot machines, up to ten table games including four high-limit tables, four poker tables and two regular table games , an Atlas replacing the EBO restaurant , the Bistro restaurant and a CHOW, along with improvements to the hotel.
We have a 10-year contract with Delta Hotels Limited to manage the Delta Hotel and Conference Centre located at the Grand Villa Casino Burnaby, or the Management Agreement, which expires in December 2019 and has two five-year renewal options.
Under the Management Agreement, Delta Hotels Limited operates the hotel and manages the staff of the hotel.
In addition, Delta Hotels Limited provides a reservation service and engages in various marketing activities.
Pursuant to the terms of the Management Agreement, we pay a management fee for these services.
We are in the process of negotiating an agreement to become a franchised property once a definitive franchise agreement is negotiated and takes effect.
Cascades Casino Langley The Cascades Casino Langley is located in downtown Langley, British Columbia.
Serving a growing area with a combined population of over 924,000 according to BC Stats, Cascades Casino Langley is situated 40 kilometers east of downtown Vancouver and within 16 kilometers of the Canada?U.
Under the Sale and Leaseback Transactions, one of our subsidiaries entered into a 20-year lease for the lands and premises constituting the Cascades Casino Langley, with one 10-year renewal term plus three 10-year option terms pursuant to an option agreement.
The approximately 155,200 square foot Cascades Casino Langley offers approximately 54,100 square feet of gaming space, featuring 984 slot machines and 33 table games, including five poker tables, and 185 bingo seats.
During 2018, we expanded the MATCH patio and began an expansion of the property to increase gaming space and add an Atlas.
The expansion is expected to be completed by the end of the second quarter of 2019.
Under the Franchise Agreement, Coast Hotels provides franchise services, including identifying the hotel on its website, toll-free reservation services and participation in Coast Hotel marketing initiatives.
However, unlike our arrangement with Delta Hotels Limited, the management of the hotel remains our exclusive responsibility.
On October 12, 2015, the Franchise Agreement was automatically renewed on the same terms and conditions for an additional five years ending October 13, 2020.
The Franchise Agreement will automatically renew for a further period of five years, provided that we are in compliance with terms of the Franchise Agreement and neither party elects to terminate the Franchise Agreement.
During 2018, we completed a refresh of the convention center and expect to complete hotel renovations in the fourth quarter of 2018.
Starlight Casino New Westminster The Starlight Casino New Westminster features the latest gaming options in a contemporary property.
The Starlight Casino New Westminster is easily visible and accessible as it is situated 24 kilometers southeast of downtown Vancouver, beside the interchange of a major provincial highway and is in close proximity to Richmond, British Columbia that has a high demographic of Asian patrons and surrounding suburban areas.
Under the Sale and Leaseback Transactions, one of our subsidiaries entered into a 20-year lease for the lands and premises constituting the Starlight Casino New Westminster, with one 10-year renewal term plus three 10-year option terms pursuant to an option agreement.
Thompson-Okanagan Casinos Cascades Casino Kamloops The Cascades Casino Kamloops is located in Kamloops, British Columbia, the second largest city in the British Columbia interior according to BC Stats.
Previously operating under the Lake City brand name, the Cascades Casino Kamloops was rebranded and relocated to its current location off Highway 1 in 2015.
Playtime Casino Kelowna The Playtime Casino Kelowna, formerly the Lake City Casino Kelowna, is located within the 257-room Delta Hotels Grand Okanagan Resort in Kelowna, British Columbia.
According to BC Stats, Kelowna is the largest city in the British Columbia interior, and boasts a thriving tourism sector.
In addition to its desirable location in the Grand Okanagan Resort, the Playtime Casino Kelowna benefits from its proximity to the Prospera Place, a 6,886 seat multi-purpose sporting and entertainment facility in downtown Kelowna.
The current lease at this site is due to expire on May 31, 2029 and has two five-year extension options.
Cascades Casino Penticton The Cascades Casino Penticton, formerly the Lake City Casino Penticton, was relocated to the South Okanagan Events Centre in 2017.
Construction on the new property started in May 2016, and the property opened in April 2017.
The current land lease at this site is due to expire on May 3, 2036 and has two approximately 10-year extension options.
Lake City Casino Vernon The Lake City Casino Vernon is located in Vernon, British Columbia.
The Lake City Casino Vernon was relocated to its current location in 2009, significantly increasing its size.
In January 2014, we purchased the land on which the Lake City Casino Vernon is located.
The current property is situated across the street from Vernon?s main shopping center and has good visibility and accessibility from Vernon?s principal highway.
CGCs Our CGCs provide alternative gaming options, mainly in the form of slot machines, in smaller communities without casinos.
In the Lower Mainland, we provide operational services for Chances Mission Mission, British Columbia , Chances Squamish Squamish, British Columbia , and Chances Abbotsford Abbotsford, British Columbia.
In the Vancouver Island region we provide operational services for Chances Campbell River Campbell River, British Columbia , Chances Courtenay Courtenay, British Columbia and Playtime Gaming Victoria Victoria, British Columbia.
In total, our CGCs offer approximately 110,300 total square feet of space and 76,300 square feet of gaming space, accommodating 785 slot machines and 681 bingo seats.
We lease the premises for Chances Mission, which lease expires on September 30, 2019 with one remaining five-year extension option.
Chances Squamish opened in January 2010.
We lease the premises for Chances Squamish, which lease expires on January 30, 2030 and has two 20-year extension options.
We lease the premises for Playtime Gaming Victoria, which lease expires on December 31, 2018.
We expect that our operational services for bingo at the Playtime Gaming Victoria location will cease on December 31, 2018 upon the formal termination of our BOSA.
Ontario Casinos Western Fair District London Slots The Western Fair District London Slots property is a slots property attached to a racetrack situated in London, Ontario, 190 kilometers from Windsor, Ontario to the west and the Greater Toronto Area to the east.
The approximately 78,100 square foot Western Fair District London Slots property is equipped with a new gaming management system, or GMS, 767 slot machines and approximately 54,300 square feet of gaming space.
The Western Fair District London Slots property also has over 220,000 square feet of convention space, a sports complex with four ice surfaces and a Yuk Yuks comedy club.
Additionally, the Western Fair District hosts several large concert events in the racetrack facilities and is home of ?The Western Fair?.
Pending OLG and the necessary government approvals, we have significant plans for investment in the London market.
Based on management?s estimates, this full service entertainment property is expected to host over 40,000 square feet of gaming space excluding back of house with over 900 slot machines and 46 table games.
Non-gaming amenities are expected to include a MATCH, an Atlas, The Buffet and a large casino bar.
The lease at the current Western Fair site is due to expire on March 31, 2020 and has two five-year extension options.
Point Edward Casino The Point Edward Casino is one of our four casinos in the Province of Ontario and is currently the only site in the Southwest Bundle that offers live table games.
It is situated on the banks of the St.
Clair River, across the U.
As of September 30, 2018, the approximately 78,600 square foot Point Edward Casino has approximately 54,300 square feet of gaming space and is equipped with 484 slot machines, 13 table games, including two poker tables.
This site was rebranded as Starlight Casino Point Edward and a MATCH was opened in July 2018.
Completed in November 2018, this full service entertainment property now hosts an expanded 24,000 square feet of gaming space excluding back of house with approximately 491 slot machines and 25 table games, including 3 poker tables.
A new GMS has been installed at the property.
Woodstock Raceway Slots The Woodstock Raceway Slots property is a slots property attached to a racetrack, situated approximately 55 kilometers east of London, Ontario and 140 kilometers west of the Greater Toronto Area.
There is very little investment planned for this location in the immediate future.
It is expected that this site will be rebranded as a Playtime Casino and the property will undergo minor renovations.
The current lease at this site is due to expire on March 31, 2021.
Dresden Raceway Slots The Dresden Raceway Slots property is a slots property attached to a racetrack, situated approximately 115 kilometers west of London, Ontario and 110 kilometers east of Windsor, Ontario.
We plan to relocate the existing gaming property within the same Municipality of Chatham-Kent, from Dresden to a newly built gaming and entertainment property, in an up-and-coming entertainment district with new restaurants, and a hotel and convention center.
This site will be rebranded as the Cascades Casino Chatham and is expected to have over 17,400 square feet of gaming space excluding back of house with approximately 330 slot machines, based on management?s estimates, and table games along with a new GMS.
Development of the new property began in July 2018 and is expected to be completed in the third quarter of 2019.
The current lease at this site is due to expire on March 31, 2019.
Clinton Raceway Slots The Clinton Raceway Slots property is a slots property attached to a racetrack, situated 80 kilometers northwest of London, Ontario.
It is expected that this site will be rebranded as a Playtime Casino.
A new GMS system was installed in July 2018 and the property is currently undergoing a floor renovation and product refresh.
The current lease at this site is due to expire on March 31, 2020 and has two five-year extension options.
Hanover Raceway Slots The Hanover Raceway Slots property is a slots property attached to a racetrack, situated 105 kilometers northwest of Kitchener, Ontario and 60 kilometers south of Owen Sound, Ontario.
The approximately 15,000 square foot property is equipped with 189 slot machines and approximately 13,600 square feet of gaming space.
Subject to OLG and the necessary government approvals, we plan to relocate the existing gaming property to an adjacent building.
It is expected that this site will be rebranded as a Playtime Casino, a new GMS was installed in July 2018 and the property is currently undergoing renovations.
Work on the project began in July 2018 and is expected to be completed by the first quarter of 2019.
The current lease at this site is due to expire on March 31, 2020.
Thunder Bay Casino The Thunder Bay Casino, along with the Sault Ste.
Marie Casino, is currently one of two sites in the North Ontario bundle that offers live table games.
The approximately 46,500 square foot property is equipped with a recently installed new GMS, 450 slot machines and 11 table games, including two poker tables, and approximately 37,700 square feet of gaming space.
There is very little investment planned for this location in the immediate future.
It is expected that this site will be rebranded as a Cascades Casino and the property will undergo minor renovations.
Marie Casino The Sault Ste.
Marie Casino is one of our four casinos in the Province of Ontario and, along with the Thunder Bay Casino, is currently one of two sites in the North Ontario bundle that offers live table games.
It is situated on the banks of the St.
Mary?s River, minutes away from the shores of Lake Superior.
The approximately 61,800 square foot property is equipped with 425 slot machines and 11 table games, including three poker tables, and approximately 51,700 square feet of gaming space.
It is expected that this site will be rebranded as a Playtime Casino, a new GMS will be installed and the property will undergo minor renovations.
Sudbury Downs Slots The Sudbury Downs Slots property is a slots property attached to a racetrack, situated 23 kilometers northwest of downtown Sudbury, Ontario in a small town called Chelmsford.
The lease at the current site is due to expire on March 31, 2020.
We intend to relocate the existing gaming operation to a newly built gaming entertainment property located in Greater Sudbury and are in discussions with a landowner in Sudbury in respect of the acquisition and development of lands, which, subject to OLG and the necessary governmental approvals, will be located in the up-and-coming True North Strong entertainment district.
While we have received initial municipal approval for the relocation of this property, an appeal of that decision has been filed in the Local Planning Appeal Tribunal by certain individuals and community groups which, if successful, would delay the proposed relocation pending further appeals or court challenges.
Subject to extension by the tribunal, a first hearing is expected in summer 2019 with a decision due at the earliest by September 2019.
There is no certainty over whether these individuals and community groups will be partially or wholly successful in obtaining the relief sought.
If relocation to the proposed site is approved, it is expected that this property will be branded as a Starlight Casino and have over 32,000 square feet of gaming space excluding back of house with approximately 600 slot machines and 21 table games along with a new GMS.
Non-gaming amenities at this new Starlight Casino are expected to include a MATCH, a The Buffet, an Atlas and a casino bar.
Gateway Innisfil is the smaller of the two existing properties in the Central Bundle; however, the maximum allowable positions for slots and table games is expected to increase to 1,200 and 100, respectively, pursuant to the OLG?s modernization plan.
Subject to OLG and necessary government approvals, we intend to renovate and rebrand the Gateway Innisfil property as a Cascades Casino, eventually increasing slot machines to over 1,100 later in the year and adding approximately 26 table games, based on management?s estimates.
We also plan to upgrade the current GMS system at the site.
Construction began in the fourth quarter of 2018 and is expected to be completed in the first quarter of 2019.
It is located on reserve lands of the Chippewas of Rama First Nation, approximately five kilometers from the Trans-Canada Highway 12 north of Lake Simcoe, Ontario.
The Casino Rama Resort property opened in July 1996.
The approximately 813,000 square foot property currently offers approximately 172,000 square feet of gaming space, featuring 2,517 slot machines and 101 table games, including 10 poker tables.
A new GMS will be installed at the property.
We intend to maintain the Casino Rama Resort brand.
Edmonton Casinos Grand Villa Casino Edmonton The Grand Villa Casino Edmonton is located in the new ICE District which is expected to include over 1,300 multi-family units in three preliminary residential towers by 2020 and is the sole casino in downtown Edmonton, Alberta.
The approximately 62,600 square foot Grand Villa Casino Edmonton offers approximately 39,600 square feet of gaming space, including 522 slot machines and 28 table games.
The current lease at this site is due to expire on September 30, 2036.
Starlight Casino Edmonton The Starlight Casino Edmonton is situated in the West Edmonton Mall located in Edmonton, Alberta.
The West Edmonton Mall is one of the world?s largest shopping centers with 30.
The current lease at this site is due to expire on August 31, 2037.
Our Proposed New Builds Delta, British Columbia The BCLC announced on September 7, 2017 that we were authorized to relocate our existing license in Newton to a new casino in Delta, British Columbia, subject to municipal approval.
The Delta city council held a number of public hearings on the matter, and the proposed project received final municipal approval in August 2018.
Based on management?s estimates, construction is expected to start in the first quarter of 2019, following final approval from the BCLC, and be completed in late 2020.
We expect to engage a third party to build and operate a hotel at the property.
The Delta property is expected to be branded a Cascades casino.
We have entered into an option to lease and plan to enter into a 30-year lease with three 10-year renewal options that will commence once the construction starts.
There are no existing casinos within this market area.
There are two major access routes to the area, Trans-Canada Highway 17 traversing through Kenora and King?s Highway 17A Kenora By-Pass.
Given Kenora?s unique location on the north shore of Lake of the Woods, it is also positioned to capture existing tourism to the region.
Known as the premier boating community in North America, the Kenora District attracts over 700,000 visitors annually and 20,000 cottagers who are seasonal residents in the region in addition to approximately 15,000 full-time residents.
Subject to OLG, and necessary government approvals, we plan to build a new 19,000 square foot Playtime Casino in the Kenora area Playtime Casino Kenora , with 6,200 square feet of gaming space, including 200 slot machines.
We plan to install a MATCH overlooking the gaming floor.
North Bay, Ontario The City of North Bay, which does not have an existing gaming property, is the eastern-most location in the North Ontario bundle.
It is located 125 kilometers from the property being proposed in Sudbury, Ontario and it is anticipated that the two properties will share a certain portion of their respective databases.
Located 330 kilometers north of Toronto, Ontario, North Bay is situated on the north shore of Lake Nipissing.
The City of North Bay contains approximately 56,000 eligible adult gamers, comprising 81% of the overall population.
Subject to OLG, and the necessary government approvals, we plan to construct a new 37,000 square foot Cascades Casino in North Bay, with approximately 14,100 square feet of gaming space, including 300 slot machines and 10 table games.
We plan to install a MATCH, as well as a bar and The Buffet.
Wasaga Beach There is currently no gaming property located in the Wasaga Beach gaming zone.
The gaming zone covers parts or all of the communities of Collingwood, Ontario, Wasaga Beach, Ontario, Springwater, Ontario and Clearview, Ontario, with a combined regional adult population of approximately 33,000.
Pursuant to the OLG?s modernization plan, allowable slot machine and table game positions for this gaming region are 300 and 120, respectively.
Subject to OLG and necessary government approvals, we intend to construct a Playtime property in Wasaga Beach, on the southern edge of Georgian Bay, including an expected 10,560 square foot gaming floor, 273 slot machines and 10 table games.
Based on management?s estimates, the proposed Wasaga Beach property is also expected to include a MATCH and The Buffet.
Management expects construction to begin in the first quarter of 2019 and the new property is expected to become operational in the third quarter of 2020.
The preceding property descriptions discuss current and projected acquisitions.
See ?Risk Factors?Risks Related to Acquisitions and Capital Projects?While we intend to complete the gaming properties in Kenora, North Bay, Delta and Wasaga Beach on schedule, these properties may not be completed on a timely basis, on anticipated terms or at all due to unforeseen factors.
Subject to final approval from the BCLC and GPEB, the acquisition is expected to close in January 2019.
OUR INDUSTRY The Canadian gaming market is comprised of casino gaming, lottery, online gaming and horse racing.
We operate in the casino gaming segment, which consists of slots, table games and bingo.
The casino gaming market in Canada is characterized by several unique features.
Public-Private Relationships Create a Stable Regulated Environment In British Columbia, Ontario and Alberta, provincial Crown corporations the BCLC, OLG and AGLC, which we collectively refer to as the Gaming Authorities and regulatory bodies the British Columbia Gaming Policy and Enforcement Branch, or GPEB, AGCO and AGLC, which we collectively refer to as the Gaming Regulators oversee the gaming industry and license private service providers to operate casinos within each of their respective provinces.
Casino gaming generates considerable revenue for the provinces and supports a wide range of local volunteer and community-based initiatives.
As a result, provincial governments are significant stakeholders in the Canadian casino gaming industry, creating a mutually beneficial and collaborative relationship between public and private sector participants.
In British Columbia and Alberta, the BCLC and AGLC, respectively, are responsible for providing and maintaining slot machines located within each private gaming service provider?s properties.
To maximize revenue from these machines, policies have been created and implemented to manage competition between gaming properties.
In Alberta, the AGLC has declared an indefinite moratorium on granting new casino licenses.
In British Columbia, the BCLC, in conjunction with host local governments, controls the implementation of new gaming positions to ensure that markets are neither over saturated nor under served.
In Ontario, the OLG manages competition by delineating geographic gaming zones in which only a single gaming property may be operated.
New casino properties must also be approved at the municipal level.
This process involves considerable consultation with the public, including one or more public hearings.
Long-Term Operating Agreements and Licenses Provide Visibility into Stable Future Operating Environment The long-term operating agreements in British Columbia and Ontario and licenses in Alberta under which service providers are engaged by the Gaming Authorities are mutually beneficial for Gaming Authorities and service providers.
Gaming Authorities benefit from long-term partnerships with reliable and experienced service providers that maintain high quality gaming properties and the ability to expand them to meet increases in market demand.
Service providers benefit from a stable, long-term operating environment, which reduces property investment risk.
The terms of the licenses and operating agreements also provide service providers with basic information necessary to forecast future gaming taxes, commissions and competitive conditions, which can be analyzed to develop effective future operating and investment strategies.
Gaming Markets in Canada Are Attractive and Resilient We operate in the provinces of British Columbia, Ontario and Alberta.
These provinces account for approximately 64% of the Canadian population and are the three largest Canadian gaming markets with private sector participation.
Over the past five years, the markets in which we operate have experienced growth in gaming revenue comparable to both the Las Vegas Strip and U.
However, Canadian gaming markets tend to be much more localized as compared to more tourist-driven markets such as the Las Vegas Strip.
Locals-driven markets generally attract a more consistent flow of casino patrons over time, leading to greater stability as measured by total wagers net of prizes paid, or Win.
While Ontario?s historical gaming revenue growth has been muted, the recent opening of the market to private service providers is expected to accelerate growth in the province?s gaming industry.
The following chart demonstrates the resilience as indicated by lower peak to trough declines relative to more tourist-based U.
Locals-Driven Markets and Las Vegas Strip 16 Sources: OLG, BCLC, AGLC, UNLV, Nevada Gaming Control Board, Pennsylvania Gaming Control Board, Louisiana Gaming Control Board, Illinois Gaming Board, New Jersey Division of Gaming Enforcement.
Notes: 1 2018 U.
Canadian fiscal year end is March 31.
The data for Pennsylvania, Louisiana, Illinois and New Jersey is presented for the last twelve months as of March 2018.
Illinois data includes VGTs.
British Columbia Market According to the BCLC, the British Columbia gaming industry consists of 15 casinos, two racehorse casinos, 18 CGCs and five commercial bingo halls.
As of March 31, 2018, the casinos and racehorse casinos operated 10,717 slot machines and 528 tables, while the CGCs operated 2,871 slot machines.
Slot machines consisted of approximately 70% of total casino sector revenue, table games consisted of approximately 25% of total casino sector revenue with the remainder coming from poker and bingo.
In fiscal years 2017 and 2018, 51% of adults in British Columbia ages 19 and up played a BCLC game at least once a month.
This is consistent with strong acceptance and participation numbers in previous years.
Alberta Market Alberta has a population of over 4.
According to the AGLC, in fiscal years 2016?17, there were 19 traditional casinos, four racing entertainment centers, or RECs, five host first nation casinos and 22 bingo facilities throughout Alberta.
Six of these facilities were located within Edmonton.
Throughout Alberta there were 14,281 slot machines including RECs , with 4,616 slots within Edmonton.
This represents 32% of the total slots throughout the Alberta region.
Ontario Market Ontario has a population of over 14 million people, has had an average annual population growth rate of 1% from 2007?2017 and is Canada?s most populous province with approximately 39% of the country?s population.
Ontario?s unemployment rate was 5.
Real GDP growth rate is forecast to be 2.
In early 2012, the OLG announced a ?Modernizing Lottery and Gaming in Ontario? claims that they were permitted to participate in gaming activities on our gaming properties despite having voluntarily registered themselves with the BCLC?s Voluntary Self-Exclusion Program.
These claims are also frequently pursued as class actions.
There can be no assurance that our established accruals or insurance will cover all claims that may be asserted against us.
Should any final judgments or settlements not be adequately covered by our established accruals or insurance, such uncovered losses could increase our costs and thereby lower our profitability, as well as adversely affect our cash flows and liquidity.
A significant portion of our labor force is covered by collective bargaining agreements.
As of September 30, 2018, approximately 57% of our employees were covered by 21 separate collective bargaining agreements which must be renegotiated every few years.
A prolonged dispute with the unionized 69 employees or any labor unrest, strikes or other business interruptions in connection with labor negotiations or other employee compensation could have an adverse impact on our operations.
Further, adverse publicity in the marketplace related to union messaging could further harm our reputation and reduce customer demand for our services.
For information on our historical financial results from the Thompson-Okanagan region, see ?Management?s Discussion and Analysis of Financial Condition and Results of Operations?Results of Operations?Reportable Segments?Operating Results?Detailed Segment Information?Thompson-Okanagan Region?.
We can provide no assurance as to when this work stoppage will cease and a new collective agreement will be entered into.
On June 29, 2018, the BCGEU members at our Thompson-Okanagan properties started strike action.
While managers and supervisors continued to operate the properties with reduced hours and reduced services, the work stoppage adversely affected our financial results from the properties.
We resolved the strike in early November 2018 and since November 13, 2018, all Thompson-Okanagan properties are again open 7 days a week, operating at near normal hours.
However, we can provide no assurance as to what the ultimate impact on our results of operations will be as a result of the strike action.
On December 9, 2018, and prior to any strike action, we tentatively ratified our collective bargaining agreements with the BCGEU with respect to our Grand Villa Casino Burnaby and Starlight Casino New Westminster.
Strikes, lockouts, work stoppages or similar actions could restrict our ability to operate our properties and service our customers and may negatively affect customer experience and access, as well as our business financial condition and results of operations.
In addition, wage and benefit increases resulting from new labor agreements and the certification of additional bargaining units at our properties could have an adverse impact on our results of operations.
If we are unable to attract and retain qualified and skilled employees, our ability to effectively operate our properties may be impaired, which could have a material adverse effect on our businesses and results of operations.
Our businesses are dependent upon attracting and retaining a large number of skilled employees who reflect our brand images and cultures.
Many of these employees are in entry level or part-time positions with historically high rates of turnover.
If we are unable to hire, train and retain employees capable of consistently providing a high level of service to our customers, we may not be able to maintain our competitive strength in offering our customers a favorable gaming experience or to fully realize the benefits expected to result from our formal customer service initiatives and targeted marketing initiatives, which could lead to decreased foot traffic, as well as to increased costs associated with hiring and training new employees.
Our ability to meet our labor needs while controlling the costs associated with hiring and training new employees is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing demographics in Canada.
In particular, recently enacted and proposed minimum wage increases in several provinces of Canada will have an impact on labor costs and our labor force, where the applicable legislation is enacted.
Changes that adversely affect our ability to attract and retain quality employees could have a material adverse effect on our businesses and results of operations.
Municipal restrictions or prohibitions may affect our operations.
Municipalities in British Columbia, Ontario and Alberta have the right to restrict or prohibit gaming properties, including slot machines, within their boundaries.
Gaming proposals are often controversial land use 70 issues and can be highly contested by local politicians, residents and other intervenors.
In the event that a host municipality passes a by-law or zoning change prohibiting or restricting gaming properties, our business, financial conditions and future prospects would be adversely affected.
Renewal of lease agreements for our properties may not be obtained or if obtained, may be on less favorable terms.
A majority of our properties operate out of premises that are leased under lease agreements.
There is a risk that we may not be able to negotiate lease renewals with landlords on terms that are commercially reasonable or acceptable to us or that we may not be able to successfully relocate our properties if we decide not to renew any one or more of our leases.
This could negatively affect our business and results of operations.
There are risks and uncertainties relating to the Sale and Leaseback Transactions On closing of the Sale and Leaseback Transactions, we transferred our freehold interest in the lands and premises constituting each of the SLB Properties.
Although the operation of the properties on the SLB Properties is expected to continue in the ordinary course, the long-term Leases may, in certain circumstances, be terminated or, subject to the approval of the BCLC, assigned to other third-party landlords.
Any such termination or assignment could have a significant adverse effect on our business, financial condition and results of operations at our Grand Villa Casino Burnaby, Starlight Casino New Westminster and Cascades Casino Langley.
The long-term Leases will also require significant periodic cash payments in respect of the required rent thereunder, which we have not historically incurred for the SLB Properties, and other allocated operating and maintenance costs.
The increase in our rent expense may have an adverse impact on our future operations and profitability.
The sale of each of the SLB Properties also eliminates these significant assets from our real property holdings, which may impact our ability to secure financing in the future at commercially reasonable interest rates or at all , as the number and value of assets available to us to pledge as collateral is reduced as a result of the Sale and Leaseback Transactions.
Chances Squamish and Casino Rama Resort are leased property on reserve lands as such term is defined in the Indian Act Canada , which means there is no guarantee of title to our property under the Indian Land Registry System and the validity of our lease is subject to potential approval irregularities that can arise with any reserve land.
Chances Squamish is leased property pursuant to a lease with the Government of Canada and the Squamish Indian Band in respect of certain lands on Stawamus Indian Reserve No.
Our leasehold interest in the Chances Squamish lands is registered in the Indian Land Registry System.
The main parcel of the Casino Rama Resort land is subject to a lease between Casino Rama Inc.
On May 1, 2018, the Chippewas of Rama First Nation Land Code came into effect, which transferred land administration for these lands from the Government of Canada to Rama Nation pursuant to the First Nations Land Management Act Canada.
The Casino Rama Resort property is subleased by Casino Rama Inc.
The OLG in turn sub-subleases the Casino Rama Resort property to us.
Our sub-sub-leasehold interest in the main parcel of the Casino Rama Resort land is registered in a first nations land registry system created pursuant to such First Nation Land Management Act Canada.
Such registry systems are not Torrens systems, and as such do not guarantee title nor provide an assurance fund to indemnify registrants against losses arising from, among other things, errors made by the registrar or from fraud.
As with all such lands, potential irregularities in either the approval of the designation of the lands as reserve lands, the lease documents themselves, the registration systems, or the lease approval process of the band council are a risk to the validity of the lease.
While we have no reason to believe that any such irregularities have occurred, there can be no assurance in this regard.
The main parcel of the Casino Rama Resort land is subject to a lease between Casino Rama Inc.
On May 1, 2018, the Chippewas of Rama First Nation Land Code came into effect, which transferred land administration for these lands from the Government of Canada to Rama Nation pursuant to the First Nations Land Management Act Canada.
The Casino Rama Resort property is subleased by Casino Rama Inc.
The OLG in turn sub-subleases the Casino Rama Resort property to us.
Certain adjacent lands are also owned by Rama Nation and leased directly to OLG, and the OLG then subleases this land to us.
Certain rights and obligations of Casino Rama Inc.
Given the unique ownership structure and the number of interested parties with various rights, including approval rights and rights to consultation, we are likely to encounter more extensive reporting obligations than we do at our other properties and will be required to address the rights held by interested parties, which may result in delays or other issues when making major decisions regarding the operation or development of this property.
Moreover, given that i our direct contractual relationship is with the OLG, ii there are certain communication obligations and rights with Casino Rama Inc.
Delays or impediments to effecting operational or development decisions with respect to the Casino Rama Resort property, or an inability to enforce our rights against one or more interested parties, would have an adverse effect on our business, financial condition and results of operations.
We are dependent upon technology services and electrical power to operate our business, and if we experience damage or service interruptions, we may have to cease some or all of our operations, resulting in a decrease in revenue.
Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical power.
Our security system and all our slot machines are controlled by computers and reliant on electrical power to operate.
Without electrical power or the supply of technology services needed to run our computers, we may be unable to conduct all or part of our gaming operations.
Any unexpected interruption in our technology services or our electrical power supply is likely to result in an immediate, and possibly substantial, loss of revenue due to a shutdown of our gaming operations.
Although our systems have been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks and similar events.
The concentration and evolution of the slot machine manufacturing industry or other technological conditions could impose additional costs on us.
A substantial majority of our revenue will be attributable to slot machines operated by us at our various casinos.
It is important that, for competitive reasons, we offer the most popular and up-to-date slot machine games with the latest technology to our guests.
In recent years, the prices of new slot machines with additional features have escalated faster than the general rate of inflation.
Furthermore, in recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participation lease arrangements in order to acquire the machines.
Participation slot machine leasing arrangements typically require the payment of a fixed daily rental.
Such agreements may also include a percentage payment of coin-in or net win.
Generally, a participation lease is substantially more expensive over the long term than the cost to purchase a new machine.
If the newer slot machines do not result in sufficient incremental revenues to offset the increased investment and participation lease costs, it could hurt our profitability.
We rely on a variety of hardware and software products to maximize revenue and efficiency in our operations.
Technology in the gaming industry is developing rapidly, and we may need to invest substantial amounts to acquire the most current gaming and hotel technology and equipment in order to remain competitive in the markets in which we operate.
Win rates for our gaming operations depend on a variety of factors, some beyond our control, and the winnings of our gaming customers could exceed our casino winnings.
The gaming industry is characterized by an element of chance.
In addition to the element of chance, win rates are also affected by other factors, including players? we cannot assure that our anti-money laundering and anti-corruption policies will be effective in preventing the occurrence of money laundering or other illegal activities; ? appearances in the short-term.
Such disruptions may have an adverse impact on attendance at our properties, resulting in a negative impact on our revenues.
Construction and development costs may be higher than expected and we may not have the funds required to pay any excess costs.
Some of our major construction projects may entail other significant risks, such as shortages of material or labor, unanticipated cost increases or work stoppages.
Our efforts to grow through the acquisition, location, relocation and development of new gaming operations may not be successful.
The acquisition and development of our gaming operations involves significant risks and is dependent on our ability to identify, acquire and develop suitable sites for potential development of new properties or acquisition of existing properties in both new and existing markets.
The cost of acquiring or developing a new property is substantial, and success is not assured.
The expansion of our gaming operations is also contingent upon receiving and maintaining all regulatory licenses, permits, approvals, registrations and findings of suitability.
The timely and successful completion of any acquisition or capital development is subject to regulatory and municipal approvals and we may not be able to determine when, or if, the necessary approvals will be granted.
We may experience difficulties with our internal systems and controls during periods of growth.
As a result of acquisitions and property developments, there may be significant demands that are placed on our managerial, operational and financial resources, including its personnel and systems.
In particular, there may be demands on our operational and accounting information systems and controls and other accounting systems resulting from growth in our operations.
No assurance can be given that our systems, procedures and controls will be adequate to support the expansion of our operations resulting from growth.
Our capital projects, including our growth initiatives, may not receive the required resources.
The nature of our business and our growth strategy dictates a significant amount of expenditure on physical premises, associated amenities and related technologies.
In addition, capital projects are often encouraged by the Gaming Regulators and Crown corporations to ensure modernization.
If our capital projects are not managed effectively, or are not allocated sufficient financial and managerial resources, we may be unable to effectively manage the cost of construction, third-party contractors and the third-party consultants engaged in our capital projects.
As such, our profitability may suffer.
Prior to this offering, there has not been a public market for our common shares.
If an active trading market for our common shares does not develop following this offering, you may not be able to sell your shares quickly or at the market price.{/INSERTKEYS} Attractive and Resilient Industry Long-term licenses in Alberta and operating agreements in British Columbia and Ontario contribute to the stability of our markets while providing us with high visibility into our future operating environment.
The markets in which we operate are also locals-driven with strong growth characteristics.
Based on our carded customer database, on average, 88% of our play in British Columbia comes from within 30 km of the property, with 95% for Grand Villa Casino Burnaby and 96% for Starlight Casino New Westminster.
In Ontario, excluding Casino Rama, approximately 80% of our carded play comes from within a 40 km radius.
We consider the local area in Ontario to have a wider radius than in British Columbia, as properties are located in rural communities and there is a greater distance between properties.
Given this, and our knowledge of our patrons, we 27 believe that the vast majority of our patrons come from each property?s local area and that this provides us with greater stability in our revenue as compared to other gaming companies that operate primarily in tourist-oriented gaming markets.
In particular, we design marketing strategies to attract new or casual players to our properties while increasing frequency of visit and spend per visit of our core gaming customer segment.
This also allows us to diversify our revenue streams.
For example, MATCH serves as an important attractor in local markets, providing a family-friendly environment with live entertainment, a focus on sports programming and contests, and outdoor patio spaces positioned at the front of properties where possible.
Our minimum investment requirements under the BCLC?s new Minimum Investment Requirement, or MIR, program in effect as of April 1, 2018 are reduced by an amount equal to our carry forward balance under the FDC and AFDC programs.
Relative to the four quarter period prior to construction start, the four quarter periods following construction completion have shown average increases in annual revenue of 15.
We have also developed targeted marketing and loyalty programs that are central to retaining the loyalty of our core gaming customers.
These strategies have been instrumental in increasing visitation and spend per visit among customers in our core gaming segment: ? ?Table Drop? limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; 74 ? competition from existing hotels in our regions and new hotels entering our region, particularly those providing convention services; ? and ?Free Cash Flow Conversion?, which we collectively refer to as the Non-IFRS Financial Measures.
? ?Business,? Targeted Marketing Initiatives Using Player Data: Our GMS is our single most powerful marketing and analytics tool.
It allows us to analyze player data to better understand our customers, so that we can tailor marketing initiatives and rewards to individual players based on their playing patterns.
We are in the process of implementing a new GMS in Ontario, which began with implementation at our Gateway Casino Woodstock property in February 2018.
Rollout of GMS to our remaining Ontario properties is expected to continue through 2019.
? ?Risk Factors,? means the ratio of the Table Win divided by the Table Drop, which fluctuates with the statistical variations or volatility inherent in casino games, as well as with changes in customer behavior around buying, retaining and cashing-in of casino chips.
Our audited consolidated financial statements for the years ended December 31, 2017 and 2016 were prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, the independent, private-sector body that develops and approves IFRS.
None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.
Unless indicated otherwise, our financial information in this prospectus has been prepared on a basis consistent with IFRS as issued by the International Accounting Standards Board.
In making an investment decision, investors must rely on their own examination of our results and consult with their own professional advisors.
Historical Financial Data Provided for the Ontario Properties The audited historical financial information and results of the Southwest Ontario and North Ontario properties for their fiscal years ended March 31, 2017 and 2016 and the audited historical financial information and results of the Central Ontario properties for their fiscal years ended March 31, 2018 and 2017 are included in this prospectus and were prepared or provided by the OLG and consist solely of audited combined schedules of revenue and direct expenses.
The unaudited interim financial data for the Southwest Ontario and North Ontario properties for the period of January 1, 2017 to May 8, 2017, and to May 29, 2017, respectively, and the unaudited interim financial data for the Central Ontario properties for the period of January 1, 2018 to July 17, 2018 are included in this prospectus under the heading ?Selected Summary Historical Financial Information?Pro Forma Financial Data?.
See ?Risk Factors?Risks Related to Our Business?The historical financial information for the Ontario properties prior to our acquisition thereof was prepared or provided by the OLG and consists of audited combined schedules of revenue and direct expenses only and does not represent complete financial statements; care should be taken when relying upon such information?.
Non-IFRS Financial Measures This prospectus refers to certain non-IFRS measures including financial measures commonly used by financial analysts in evaluating the financial performance of companies, including companies in the gaming industry.
These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies.
Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management?s perspective.
Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS.
We use non-IFRS measures including ?Adjusted EBITDA?, ?Adjusted EBITDA Margin?, ?Adjusted Property EBITDA?, ?Adjusted Property EBITDA Margin?, ?EBITDA?, ?Free Cash Flow? means Adjusted EBITDA less maintenance capital expenditures, interest expense, current taxes paid and mandatory debt principal repayments.
? and ?Index to Financial Statements?Consolidated Statements of Cash Flows.
Under the Central Bundle agreements, we purchased the assets of the Central Bundle and entered into leases for Casino Rama Resort on Chippewas of Rama First Nation?s Lands and OLG Slots at Georgian Downs subsequently renamed Gateway Innisfil , and have the opportunity to develop a casino in either Wasaga Beach or Collingwood.
For a description of certain limitations regarding the financial information provided by the OLG and the related pro forma information, see ?Risk Factors?Risks Related to Our Business?The historical financial information for the Ontario properties prior to our acquisition thereof was prepared or provided by the OLG and consist of audited combined schedules of revenue and direct expenses only and do not represent complete financial statements; care should be taken when relying upon such information.
? requirement to present only two years of audited financial statements and only two years of related Management?s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus; 34 ? ?Management?s Discussion and Analysis of Financial Condition and Results of Operations,? exemption from the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act; ? Renovating and Rebranding Properties.
Most of the Ontario properties we acquired, with the notable exception of Casino Rama, derive their revenue almost exclusively from slot machines.
? we compete with online gaming and entertainment companies that provide gaming and entertainment experiences, which could adversely affect our future casino gaming revenue; ? a lack of investment in technology to keep pace with the industry; and ? trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
This summary does not contain all of the information you should consider before investing in our common shares.
You should read this entire prospectus carefully, including the information presented under ?Risk Factors, ? ?Net Win? successfully integrate new gaming properties into our existing control structure and operations, including our information technology systems; 63 ? we may be subject to change to the contracts and licenses related to our existing operations and our contracts or licenses may be revoked or may not be renewed; ? ?Free Cash Flow? ?Poker Rake? option is exercised in full.
Use of Proceeds: We will not receive any proceeds from this offering.
Please read ?Use of Proceeds? global economic conditions may have a material adverse effect on our business, financial condition and results of operations.
An emerging growth company may take advantage of specified reduced reporting and other regulatory requirements for up to five years that are otherwise applicable generally to public companies.
These provisions include, among other matters: ? our business is particularly sensitive to reductions in discretionary consumer and corporate spending as a result of global and regional economic conditions; ? reduced business and leisure travel; and ? and ?Principal and Selling Shareholders.
? for a reconciliation of the foregoing non-IFRS measures to their most directly comparable measures calculated in accordance with IFRS.
Experienced Management Team and Dedicated Employees with a Proven Track Record We have a highly experienced senior management team with a proven track record.
Our management team, led by our President and Chief Executive Officer, Tony Santo, has over 100 years of combined experience in the gaming industry.
Santo has over 35 years of experience in the gaming industry, including in senior management positions at Caesars Entertainment Inc.
Together with our dedicated employees, we have an impressive track record of growing our business by expanding existing properties, developing new properties and completing accretive acquisitions.
Critical to this success is a team that brings a deep understanding of the Canadian gaming and entertainment landscape combined with excellent relationships with various levels of government and the communities in which we operate.
Over the past five years, our team has grown our portfolio from 12 to 26 gaming properties and led our successful expansion into new markets in Ontario and Vancouver Island.
We have generally been able to drive significant improvements in customer experience and to increase traffic and average Win per visit through these types of capital projects.
The following table outlines initiatives currently in progress at our operations in British Columbia and Alberta.
We anticipate funding the planned capital expenditures by using cash on hand plus operating cash flow as well as the available capacity under our revolver to manage timing differences in cash flow.
We do not anticipate requiring additional capital to complete these initiatives.
We will continue to employ strategies designed to improve operational efficiency at our existing properties.
We regularly analyze our product mix, floor layout, Slot Win per machine, Table Win per day, occupancy rates and traffic patterns to optimize revenue and maximize floor space at our properties.
For example, as part of a broader renovation at the Grand Villa Casino Burnaby, we expanded our gaming area, which allowed us to add 47 new penny slot machines and up to 10 new table games.
Within the first six weeks of implementing these changes, the new penny slots produced almost twice the floor average Win per slot machine.
We are currently undertaking the following initiatives to grow gaming revenue and improve profitability at our Ontario properties: ? symbol, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names.
All other trademarks used in this prospectus are the property of their respective owners.
We do not intend our use or display of other companies? ?EBITDA? means the amount of Slot Coin-in retained and recorded as casino revenue; ? and ?Index to Financial Statements?Consolidated Statements of Cash Flows?.
See ?Index to Financial Statements?Condensed Consolidated Interim Statements of Cash Flows? Implementing Proven Marketing Strategies at Recently Acquired Properties.
We increased our active member database by 22.
We plan to deploy many of the GMS applications that we currently use in British Columbia, with the added benefit that we also own the GMS and have exclusive use of the player data within it in Ontario.
? means, unless otherwise noted or the context otherwise indicates, income loss and comprehensive income loss for the period plus i amortization of intangible assets, ii depreciation of property and equipment, iii interest expense, net, less iv expense or recovery of income taxes.
? and ?Risk Factors?Risks Related to Our Business?A significant portion of our labor force is covered by collective bargaining agreements.
? initiative, or the OLG Modernization Plan, with the goal of increasing revenue for the Province of Ontario.
As a result, the OLG 17 bundled all slots at racetracks and casino operations, with the exception of Caesars Windsor, into eight gaming bundles.
The Southwest, North and Central Bundles were awarded to us.
As of October 2018, each of the eight bundles has been awarded to various proponents.
A strategy for Caesars Windsor is currently under development.
We have the exclusive right to operate casino gaming within the geographic boundaries of the gaming zones in the gaming bundles for which we are the service provider, subject to certain limited rights of OLG to permit charitable and other gaming within such zones and to modify the boundaries of such zones, all as more particularly set out in each casino operating and service agreement, or COSA.
Forty-seven percent of total revenue was generated from land-based gaming.
Thirty-seven-point-seven million patrons visited Ontario?s land-based gaming facilities representing a year-over-year increase of 1.
Notes: 1 Represents OLG combined revenues for the Resort Casinos Segment and Slots and Casinos Segment.
In fiscal years 2017?2018, OLG reported Resort Casinos and Slots and Casinos as a single business line referred to as Land-Based Gaming.
For fiscal years 2016 to 2018 revenue is presented net of service provider fees.
Results for fiscal years 2011 to 2018 were prepared in accordance with IFRS.
In 2010, the Government of Ontario directed the OLG to begin a strategic review of the province?s gaming industry.
This review resulted in several recommendations, including that the OLG become more customer-focused and expand regulated private sector delivery of casino gaming.
In particular, the OLG noted that several properties are currently located in remote, sparsely populated areas.
To date, the OLG has grouped 28 gaming zones into eight gaming bundles and has commenced the process of awarding service providers the exclusive right to provide gaming services in each of these bundles through a competitive procurement process.
The first OLG bundle was awarded to a private service provider in September 2015 and, as of the date of this prospectus, all eight bundles have been awarded.
In addition, the service provider can propose to add table games to a slots-only property, relocate an existing property, where permitted, within the zone it serves or build a new property in a zone without an existing property, subject to the approval of OLG and the Ontario provincial government of a viable business case.
Also, municipal approval is required before table games are added to a slots-only property or development begins on a new property or a relocated property.
British Columbia British Columbia is Canada?s third largest province with an estimated population of over 4.
For this period, the BCLC generated revenue from the following activities: Total Gaming Win by Channel Casino Gaming Win by Channel Source: BCLC.
Casino Win in British Columbia grew at a CAGR of 2.
According to the BCLC, our British Columbia properties include 41% of all slot machines and 40% of all table games in casinos within the province.
British Columbia can be further divided into five distinct gaming markets.
The total number of gaming positions in the province, along with our share of positions in each market, is highlighted in the table below: Gateway British Columbia Gaming Positions as a Percentage of Total Regional Market as of September 30, 2018 1 Market Total Gaming Positions Gateway Gaming Positions Gateway % of Total Lower Mainland 10,386 4,484 43.
The BCLC owns all slot machines in the province and enters into agreements with private service providers to establish and provide operational services at the properties in which these slot machines are hosted for periods of up to 20 years with an option to extend for an additional five years, exercisable by the BCLC and subject to certain terms and conditions.
Service providers and the BCLC share Win from slots and other games in prescribed percentages based on the type of gaming activity.
Pursuant to the new operational service agreements, or OSAs, the Minimum Investment Requirement ?MIR? 9 Represents the gain loss on foreign exchange related to the long-term debt.
This adjustment removes the non-cash portion of rental expense.
The new OSAs that became effective on April 1, 2018 include changes that increased our share of gaming revenue related to table games.
Regular-limit table games and poker increased from 40% of Net Win to 42.
The new OSAs also eliminated the 0.
In addition to the new OSAs, the BCLC increased the free play caps to 2.
Beginning June 29, 2018, workers at the Thompson-Okanagan properties were on strike, which resulted in reduced gross gaming revenue, increased labor costs, and increased marketing spend.
An agreement to settle the strike has been ratified, and the properties are in the process of resuming normal operations.
From June until August 2018, the Company?s new GMS experienced eight outages at key properties in the North and Southwest Ontario regions, which caused gaming floor disruptions due to slot machine inoperability.
The outages impacted peak hours of operations, the Canada Day Holiday weekend, and several mid-week promotional nights.
The issues with the GMS have been addressed, and the system has been stable since mid-August 2018.
The estimates noted above are based in part on assumptions and estimates of prospective results and actual results might have differed from such estimates materially.
Furthermore, the achievement of such estimated impacts in future periods are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control.
As a result, no assurances can be made that the estimated impacts will be realized in the amounts expected in future periods.
See ?Cautionary Note Regarding Forward Looking Statements? above for a list of defined terms used herein, including certain industry terminology.
OUR BUSINESS Company Overview We are one of the largest and most diversified gaming and entertainment companies in Canada, based on both number of properties and number of gaming positions.
We have demonstrated a track record of successfully operating, developing and acquiring gaming properties and contributing to the communities in which we live and work.
We have a leading market position in each of the markets in which we operate.
In British Columbia, we are one of the most diversified gaming and entertainment companies based on both the number of properties and gaming positions.
Our British Columbia properties include 41% of all slot machines and 40% of all table games in the province.
We provide operational services at six of the 14 properties in the Lower Mainland of British Columbia, or the Lower Mainland, a region encompassing the Sea-to-Sky Corridor, the Fraser Valley and British Columbia?s largest market, the Greater Vancouver Regional District, or the GVRD recently renamed the Metro Vancouver Regional District.
We also provide operational services at three of the nine gaming properties on Vancouver Island and are the only service provider with casinos in the Thompson-Okanagan region of British Columbia, where we provide operational services at properties located in Kelowna, Vernon, Penticton and Kamloops.
In Alberta, we are one of the largest gaming operators in the Edmonton region, where we operate two properties in prime, high-traffic entertainment districts.
In May 2017, we became the exclusive service provider in the OLG?s North Ontario gaming bundle, or the North Bundle, and Southwest Ontario gaming bundle, or the Southwest Bundle.
With these acquisitions, we added nine properties and two new property development opportunities to our portfolio, diversifying our operations into Canada?s largest gaming market and establishing a significant platform for future growth.
On July 18, 2018, we became the exclusive service provider for a third gaming bundle, located in Central Ontario, or the Central Bundle, containing two existing gaming properties and the opportunity to build a third additional property.
As part of our Ontario expansion plan, we expect to develop two additional gaming properties in North Bay and the Kenora area in the North Bundle, which, along with the development of a third property in Wasaga Beach in the Central Bundle, the anticipated acquisition of a gaming facility in British Columbia and a proposed new build in Delta, British Columbia, would bring our total number of properties to 30.
In March 2018, we launched our first Playtime property and are in the process of rebranding smaller properties into the Playtime brand.
Each brand offers a distinct experience to our customers.
Our properties are generally branded according to market size, market growth potential and local community character, with proximity to our other brands also playing a key role in the decision process.
This proprietary branding strategy is meant to associate our properties with exciting local entertainment experiences, which serves to attract new customers and drive increased visitation and loyalty from existing customers.
This branding strategy has been implemented at most of our British Columbia and Alberta properties and we are targeting full implementation in Ontario by 2020.
For a reconciliation of Income Loss and Comprehensive Income Loss to Adjusted EBITDA and Schedules of Adjustments, see ?Summary?Selected Summary Historical Financial Information?.
PROPERTY HIGHLIGHTS Current Properties Overview In total, our current properties including properties leased by us have over one million square feet of gaming space in which we offer 13,618 slot machines, 429 table games, including 48 poker tables, and 866 bingo seats.
We actively look for opportunities to expand and enhance our existing properties and to acquire and develop additional properties.
The chart below summarizes some of the key attributes of each of our current gaming properties and the expiration date of the operating agreements that we have entered into with the BCLC and OLG and licenses from 3 the AGLC.
Excluding the anticipated acquisition of a gaming facility in British Columbia, expected to close in January 2019, and the proposed new builds in Delta, BC, the Kenora area in Ontario, North Bay, Ontario and Wasaga Beach, Ontario, we operate in 20 casinos, five of which are owned and 15 of which are leased.
We also operate in six CGC properties, three of which are owned and three of which are leased.
See ?Risk Factors?Risks Related to Our Business?Renewal of lease agreements for our properties may not be obtained or if obtained, may be on less favorable terms.
Marie Casino Sault Ste.
We provide operational services to the AGLC and the BCLC; however, the AGLC and the BCLC own or lease all of our slot machines, provide certain table game equipment and are responsible for most of the related capital expenditures.
See ?Regulatory and Licensing Matters?.
Because live table games typically have six gaming positions, six touch bet roulette terminals are represented as one table game for the purpose of the table game count.
The addition of an Atlas restaurant, refresh and addition of gaming space, and a refresh of the Coast hotel is currently underway and is expected to be completed in phases beginning this year through to the second quarter of 2019.
We recently added a MATCH restaurant at this location that opened in the first quarter of 2018.
Located in Burnaby, British Columbia and styled as a modern take on an ?Italian Villa?, the Grand Villa Casino Burnaby is designed to provide customers with an inclusive, comfortable and exciting atmosphere.
The property includes the Delta Hotel, part of the Marriott International hotel chain, and benefits from its central location in the GVRD, which is in close proximity to Vancouver and surrounding suburban areas.
The approximately 301,600 square foot casino contains approximately 93,100 square feet of gaming space and 1,200 slot machines, including a high-limit slot machine room and 81 table games, including 11 poker tables.
We expect that the Grand Villa Casino Burnaby will continue to be the most significant contributor to our business in the GVRD.
Under the Sale and Leaseback Transactions as defined in ?Management?s Discussion and Analysis of Financial Condition and Results of Operations?Sale and Leaseback Transactions? of that extended transition period and, as a result, we plan to comply with new and revised accounting standards on the relevant dates on which adoption of those standards is required for non-emerging growth companies.
Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
As a result of our decision to avail ourselves of certain provisions of the JOBS Act, the information that we provide may be different than what you may receive from other public companies in which you hold an equity interest.
In addition, it is possible that some investors will find our common shares less attractive as a result of our elections, which may cause a less active trading market for our common shares and more volatility in our stock price.
In addition, upon consummation of this offering, we will report under the Exchange Act, as a non-U.
As a foreign private issuer, we may take advantage of certain provisions in the New York Stock Exchange, or NYSE, Listing Rules that allow us to follow Canadian law for certain corporate governance matters.
See ?Management?Foreign Private Issuer Status.
? make it more difficult for us to satisfy our obligations under such indebtedness; ? identify and satisfy the gaming preferences of our customers in new geographic areas and markets; and ? the gaming industry is highly competitive and we may lose market share to our local competitors; ? reduced disclosure about executive compensation arrangements.
We have availed ourselves of the reduced reporting obligations with respect to executive compensation disclosure in this prospectus and expect to continue to avail ourselves of the reduced reporting obligations available to emerging growth companies in future filings.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7 a 2 B of the Securities Act for complying with new or revised accounting standards.
An emerging growth company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
However, we are choosing to ?opt out? changes in accounting standards could affect our reported results; ? and ?Selected Summary Pro Forma Financial Information? customer loyalty program.
Through this program, we market targeted product offerings to our player database to encourage repeat visits to our properties.
This program also contributes to our understanding of our customers? is based on certain audited and unaudited financial information prepared or provided by the OLG.
Specifically, i the Southwest Bundle financial information is based on unaudited site financial information prepared by the OLG for the period of January 1, 2017 to May 8, 2017; ii the North Ontario bundle financial information is based on unaudited site financial information prepared by the OLG for the period of January 1, 2017 to May 29, 2017; and iii the Central Bundle financial information is based on unaudited site financial information prepared or provided by the OLG for the period of January 1, 2018 to July 17, 2018 and the audited combined schedules of revenue and direct expenses prepared or provided by the OLG for the twelve months ended March 31, 2018.
Additionally, unless otherwise noted, the unaudited site-level financial information prepared or provided by OLG management for the Southwest Bundle for the period from January 1, 2017 to May 8, 2017, the North Bundle for the period from January 1, 2017 to May 29, 2017 and the Central Bundle for the year ended March 31, 2018 does not include certain information and adjustments necessary to conform with IFRS as issued by the IASB.
We cannot assure that this financial information is accurate, and when we file our financial statements after the integration of the financial results and operations from these properties with our own, such amounts may differ materially from the amounts indicated in this prospectus.
Investors should not place undue reliance on this information and such information should be read together with the pro forma financial statements and historical audited financial statements included herein.
Changes in accounting standards could affect our reported results.
The International Accounting Standards Board, or other regulatory bodies, periodically introduce modifications to financial accounting and reporting standards or issue new financial accounting and reporting 62 standards under which we prepare our consolidated financial statements.
These changes can materially affect the means by which we report financial information, affecting our reported results of operations.
Also, we could be required to apply new or revised standards retroactively.
More specifically, several new or amended standards and interpretations to IFRS are expected over the coming years.
In particular, both IFRS 9, Financial Instruments and IFRS 15, Revenues from Contracts with Customers went into effect on January 1, 2018 and IFRS 16, Leases will go into effect on January 1, 2019.
With respect to IFRS 9 and IFRS 15, we have finalized our assessment of the impact thereof.
With respect to IFRS 16, during 2018, we will gather and update information related to leases, assess extension and termination options as well as possible exemptions, and identify the appropriate discount rate.
Currently, we cannot assure you that the changes with respect to IFRS 16 will not substantially affect our reported results of operations.
It is anticipated that there will be a material impact as a result of the recognition of a right of use asset and a lease liability for leases which are currently treated as operating lease by us.
The gaming industry is highly competitive and we may lose market share to our local competitors.
Despite the high level of regulation in the provinces in which we operate, we often compete directly with other gaming properties operating in surrounding regions.
In recent years, with fewer new gaming regions in Canada for development, competition in existing markets has intensified.
As a result, we, along with many other gaming service providers, have invested in expanding existing properties.
The expansion and aggressive marketing strategies of our competitors have increased competition in many of the markets in which we operate.
If our existing competitors operate more successfully or if new or existing competitors enhance, expand or market their gaming properties more aggressively, or if additional casinos are established in and around the locations in which we conduct business, including in the event federal or provincial regulators with which we work closely alter the manner in which they grant licenses to our competitors, our market share may be eroded.
The expansion of casino or other forms of gaming in or near any geographic area from which we attract or expect to attract a significant number of our customers including outside of Canada could have a significant adverse effect on our business, financial condition and results of operations.
If we fail to successfully implement our growth strategies, which includes acquiring new properties and expanding, renovating and relocating our existing properties, our ability to increase our revenues could be adversely affected.
Part of our growth strategy includes opportunistically acquiring and operating new gaming properties and improving the customer experience at our existing properties.
This will require substantial capital investment, particularly in regions within Canada where we currently do not operate.
Our ability to successfully acquire and operate new gaming properties depends on a number of factors that may be outside of our control, including, among others, our ability to: ? and our consolidated financial statements and related notes appearing elsewhere in this prospectus, before making an investment decision.
Please refer to ?Meaning of Certain References? exemption under the NYSE Listing Rules.
See ?Management?Director Independence? ?Use of Proceeds,? limit, among other things, our ability to borrow additional funds, even when necessary to maintain adequate liquidity or to fund important capital projects, such as new construction, relocations, renovations or equipment upgrades.
We may also incur substantial additional debt in the future, including to fund our capital projects or to refinance existing indebtedness, which could exacerbate the risks above.
We will require a significant amount of cash to service our debt.
Our ability to generate cash depends upon many factors beyond our control, and changes in interest rates and credit spreads may cause our debt financing costs to increase.
Any failure to meet our debt service obligations could harm our business, financial condition and results of operations.
Our ability to make payments on our indebtedness and to fund working capital needs and planned capital expenditures will depend upon our ability to generate cash in the future.
Our ability to do so is largely subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, including prevailing economic, financial and industry conditions.
Our business may not generate sufficient cash flow from operations to repay, and future borrowings may not be available to us in an amount sufficient to enable us to repay our indebtedness or to fund dividends or our other liquidity needs.
We may need to refinance all or a portion of our indebtedness at or before maturity.
We may not be able to refinance any of such indebtedness on commercially reasonable terms or at all.
Our ability to restructure or refinance our indebtedness will depend on the condition of the debt and capital markets and our financial condition at such time.
In addition, any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
Any failure to make scheduled payments of interest and principal on our outstanding indebtedness could, among other things, result in an acceleration of our debt repayment obligations.
Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all , could have a material adverse effect on our business, financial condition and results of operations.
Restrictive covenants in the agreements and instruments governing our indebtedness limit our discretion to operate our business.
The indenture governing the 8.
The restrictive covenants contained in the 2018 Senior Secured Credit Facility and the Indenture may restrict our ability to expand our business or to pursue our business strategies that would be beneficial to us or to our shareholders, including our ability to generate cash flow in the future, borrow under our debt instruments or incur new indebtedness.
We cannot assure you that future borrowings will be available to us under our 2018 75 Senior Secured Credit Facility and Indenture in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
We cannot assure you that we will be able to access the capital markets in the future to borrow additional indebtedness on terms that are favorable to us.
Our ability to comply with these and other provisions may be affected by changes in our business condition or results of operations, adverse regulatory developments or other events beyond our control, including changes in general economic and business conditions.
A breach of any of these and other covenants or our inability to comply with required financial ratios could result in us being in default under these agreements, which could materially adversely affect our business, financial conditions, results of operations and liquidity.
Foreign currency exchange rates may adversely affect the Canadian dollar amount of principal and interest payable under our US dollar denominated debt.
We are exposed to foreign exchange rate risks because the Term Loan B and 8.
If we are unable to fully mitigate our exposure to these risks, our operating results may be adversely affected.
We have entered into CCIRS contracts to manage known currency exposure on its US dollar denominated long-term debt.
The CCIRS also converts the interest rate risks on the Term Loans from being a floating rate to a fixed rate loan.
The CCIRS contracts require the periodic exchange of payments with the exchange at maturity of notional principal amounts on which the payments are based.
The CCIRS contracts pertaining to The New Term Loan: i terminate on March 14, 2022; ii are fixed at a US dollar foreign exchange rate of 1.
The CCIRS contracts pertaining to the 8.
For more information about our foreign exchange rate risk exposure, see ?Management?s Discussion and Analysis of Financial Condition and Results of Operations?Foreign Exchange Rate Risk?.
Risks Related to Acquisitions and Capital Projects We may not realize the anticipated benefits from an acquisition, including the Ontario acquisitions.
Acquisitions, including the Ontario acquisitions, involve the integration of entities that were previously operated independently by other companies or by Crown corporations such as the OLG.
The combined operations resulting from acquisitions may not realize anticipated benefits, synergies or cost reductions.
In addition, other benefits expected from an acquisition, including the Ontario acquisitions, may not be realized on the timeframe we project or at all.
Any acquisition, including the Ontario acquisitions, carries the risk that the resulting changes to our operations, including in respect of property and equipment locations, management and employee base, policies, philosophies and procedures, could have unanticipated effects or require more resources than intended.
Although the Ontario acquisitions will generally be subject to risks similar to those to which we are subject in our existing businesses, the new operations may increase these risks.
For example, the increase in the scale of our operations may increase our operational risks.
Our ability to realize the benefits associated with the Ontario acquisitions will significantly depend upon our ability to manage our expanded enterprise and the associated increased costs and complexity, as well as the challenges of operating in a new market in which we do not have prior operational experience.
In order to support this expanded enterprise, we will need to achieve revenues from the Ontario properties consistent with our business expectations, which may prove more difficult than currently expected.
The anticipated cost savings described in this prospectus are based on estimates and assumptions that we consider reasonable but that are inherently uncertain.
Our expected cost savings, as well as any revenue or other benefits or synergies, are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control.
As a result, there can be no assurance that our expected cost savings, as well as any potential revenue or other benefits or synergies, will be realized in the timeframe we currently anticipate or at all.
Any failure to achieve our expected benefits could affect our profitability, cash flows and liquidity.
We may experience delayed integration and unanticipated costs and liabilities relating to acquisitions.
Before making an acquisition, we conduct thorough due diligence.
However, when we compete in government procurement processes, like the OLG Modernization Plan, the amount of due diligence that we are able to conduct is limited by the processes and other constraints.
It is possible that we will make an acquisition that may not subsequently perform in line with management?s financial or strategic objectives.
Acquisitions may also be subject to regulatory approvals that are beyond our control, which may result in delayed integration and increased costs.
Changes in the competitive and economic environment, as well as other factors, may lower revenues.
There may also be unexpected delays in implementing certain plans relating to the acquisition, leading to delays in achieving full integration.
Delayed integration and increased costs could have a material adverse effect on us.
In connection with acquisitions made by us including the Ontario acquisitions , there may also be liabilities, such as environmental liabilities including liabilities related to the presence or migration of contaminants at or from acquired properties , litigation and regulatory liabilities, which we failed to discover or were unable to quantify in the due diligence conducted prior to the respective closing dates.
We may not be indemnified for some or all of any undiscovered or contingent liabilities.
In addition, although the vendors in our acquisitions may have agreed to indemnify us for certain losses, there is no assurance that such vendors will have sufficient funds available to satisfy the indemnities if called upon to do so.
The discovery of any such liabilities could have a material adverse effect on our business, financial condition or future prospects.
We may pursue additional acquisition opportunities and our efforts to integrate recent acquisitions and complete future acquisitions may not be successful and such efforts may subject us to considerable business and financial risks.
We may continue to pursue additional acquisition opportunities.
While we evaluate potential acquisitions on an ongoing basis, we may not be successful in assessing the value, strengths and weaknesses of acquisition opportunities or completing acquisitions on acceptable terms.
For example, to the extent that our analysis and market studies performed by third parties are not accurate indicators of market, business and gaming trends, we may not appropriately evaluate or realize the future market growth or business opportunities that we expect from an acquisition.
Furthermore, we may not be successful in identifying acquisition opportunities, and suitable acquisition opportunities may not be made available or known to us.
In addition, we may compete for certain acquisition targets with companies that have greater financial resources than we do.
All of these financing mechanisms could reduce our cash available for other purposes.
We may incur significant expenses while pursuing acquisitions, which could negatively affect our financial condition and results of operations.
For example, the acquisition of the Ontario properties has presented financial reporting, accounting and internal controls challenges, as we integrate the operations from these properties into 77 our centralized financial reporting and accounting systems from their legacy systems with the OLG.
Such financial reporting and accounting integration including putting in place proper processes, controls and procedures has diverted management?s time and resources and we will need to put in place additional personnel to help effectively oversee these functions in Ontario.
We may not be able to successfully manage acquired businesses or increase our cash flow from these operations.
If we are unable to successfully implement our acquisition strategy or address the risks associated with acquisitions, or if we encounter unforeseen expenses, difficulties, complications or delays frequently encountered in connection with the integration of acquired entities and the expansion of operations, our growth and ability to compete may be impaired, we may fail to achieve acquisition synergies and we may be required to focus resources on integration of operations rather than other profitable areas.
In addition, the increased costs associated with any acquisitions and related capital expenditures may not be offset by corresponding increases in our revenues, which would decrease our operating margins.
While we intend to complete the gaming properties in Kenora, North Bay, Delta and Wasaga Beach on schedule, these properties may not be completed on a timely basis, on anticipated terms or at all due to unforeseen factors.
As part of our acquisition of the North Ontario properties, we acquired the opportunity to build new gaming properties in both the Kenora and the North Bay areas.
We also plan to build a new property in Delta in British Columbia.
In addition, as part of our acquisition of the Central Bundle, we acquired the opportunity to build a new gaming property in Wasaga Beach.
The proposed properties are subject to the necessary government approvals.
There is no guarantee we will obtain such approvals.
If the new gaming properties and related projects are not completed on schedule, our profitability may suffer.
In addition, we may experience unexpected delays or unanticipated capital costs during development, which may have an adverse effect on our financial condition.
However, there is no guarantee that the scheduled work will be completed on a timely basis, on anticipated terms or at all.
While we have received initial municipal approval for the relocation of its Sudbury Downs facility, an appeal of that decision has been filed in the Local Planning Appeal Tribunal by certain individuals and community groups which, if successful, would delay the proposed relocation pending further appeals or court challenges.
Subject to extension by the tribunal, a first hearing is expected in summer 2019 with a decision due at the earliest by September 2019.
There is no certainty over whether these individuals and community groups will be partially or wholly successful in obtaining the relief sought.
If the relief sought is granted, it could have a material adverse effect on the relocation of the Sudbury Downs facility and the anticipated growth therefrom.
On September 12, 2018, Wauzhushk Onigum Nation, or WON, filed a court application in the Ontario Superior Court of Justice Divisional Court against Gateway, the Ontario Government, and the OLG.
On November 23, 2018, WON filed an amended notice of application.
The application seeks, among other things, a declaration that the Ontario Government and OLG?s decisions, made in 2012, to issue a public tender for the development of a casino in the Kenora area and bundle the Kenora gaming zone with the North Ontario gaming bundle are void or of no force and effect.
The application does not make any specific claims against Gateway.
WON is also seeking an order quashing two related contracts made between Gateway and the OLG and requiring the Ontario Government and OLG to use good faith efforts to facilitate the upgrade of Golden Eagle Charitable 78 Casino and Entertainment Centre owned by WON and located on the WON reserve to a casino with table games and slot machines.
The court application is scheduled to be heard in April 2019.
Although we believe the WON application lacks merit and intend to oppose the relief sought on the application, there is no certainty over when a decision will be released, or what the outcome will be.
Construction may interfere with our operations.
Capital projects to improve our properties and our guest experience may result in construction disruptions and may affect our properties? personal information could materially harm our reputation and business.
We collect and store confidential, personal information relating to our customers for various business purposes, including marketing and financial purposes, and credit card information for processing payments.
For example, we handle, collect and store personal information in connection with customers staying at our hotels and enrolling in our customer loyalty programs.
We may share this personal and confidential information with vendors or other third parties in connection with processing of transactions, operating certain aspects of our business or for marketing purposes.
Our collection and use of personal data are governed by privacy laws and regulations.
Privacy law is an area that changes often and varies significantly by jurisdiction.
We may incur significant costs in order to ensure compliance with the various applicable privacy requirements.
In addition, privacy laws and regulations may limit our ability to market to our customers.
Although we have taken steps designed to safeguard our customers? liquor laws and associated liquor licenses in British Columbia, Ontario or Alberta may affect our operations; ? and Management?Foreign Private Issuer Status?.
Investing in the common shares involves risks.
See ?? means Free Cash Flow divided by Adjusted EBITDA.
These Non-IFRS Financial Measures are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures.
We also believe that securities analysts, investors and other interested parties frequently use these Non-IFRS Financial Measures in the evaluation of issuers similar to us.
In particular, EBITDA, Adjusted EBITDA, Adjusted Property EBITDA and Adjusted EBITDA Margin are non-IFRS financial measures commonly used by financial analysts in evaluating the financial performance of companies, including companies in the gaming industry.
We believe Free Cash Flow and Free Cash Flow Conversion are non-IFRS measures that are meaningful to investors as they are useful measures of performance and we use these measures as an indication of the strength of our business model and our ability to generate cash.
Our management also uses these Non-IFRS Financial Measures in order to facilitate operating performance comparisons on a consistent basis from period to period, to provide a more complete understanding of factors and trends affecting our business, to prepare annual operating budgets and forecasts and to determine components of management compensation.
As there is no generally accepted method of calculating the Non-IFRS Financial Measures, the Non-IFRS Financial Measures as used herein are not necessarily comparable to similarly titled measures of other companies.
The items excluded from EBITDA are significant in assessing our operating results and liquidity.
The Non-IFRS Financial Measures have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income, cash flow from operations or other data prepared in accordance with IFRS.
Therefore, readers are cautioned that the Non-IFRS Financial Measures do not have a standardized meaning and should not be used in isolation or as a substitute for net loss income, cash flows from operating activities or other income or cash flow statement data prepared in accordance with IFRS.
For a presentation and reconciliation of the foregoing Non-IFRS Financial Measures to their most directly comparable measures under IFRS, see ?Selected Summary Historical Financial Information?.
We publish our consolidated financial statements in Canadian dollars.
This prospectus includes our audited consolidated financial statements as of and for the years ended December 31, 2017, 2016 and 2015 presented in Canadian dollars and prepared in accordance with IFRS as issued by the IASB.
This prospectus includes our unaudited condensed consolidated financial statements for the nine months ended September 30, 2018 and 2017 presented in Canadian dollars and prepared in accordance with IAS 34.
None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.
As a result of the acquisition of the North and Southwest Bundles from the OLG each as defined herein , the year ended December 31, 2017 may not be comparable to the years ended December 31, 2016 and 2015.
In addition, as a result of the acquisition of the Central Bundle as defined herein from the OLG in July 2018, the nine months ended September 30, 2018 may not be comparable to the nine months ended September 30, 2017.
We have made rounding adjustments to some of the figures included in this prospectus.
Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
These forward-looking statements are contained principally in the sections entitled ?Prospectus Summary,? means the ratio of Adjusted Property EBITDA for a reporting segment to total revenue of the reporting segment.
? and ?Our Growth Strategies?; our estimates regarding future revenue, expenses and needs for additional financing; and our ability to keep and retain key employees.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus.
Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results or performance may be materially different from what we expect.
Solely for convenience, our trademarks and trade names referred to in this prospectus may appear without the ´┐Ż or ? and ?Our Growth Strategies.
? b Acquisition of the North Bundle On May 30, 2017, we signed a 20-year COSA with the OLG for the operation of the North Bundle.
Under the North Bundle TAPA, we acquired gaming assets and assumed certain liabilities of the Thunder Bay, Sault Ste.
Marie and Sudbury casinos and the approval for new casino developments in Kenora and North Bay.
The pro forma financial information for the North Bundle represents the period from January 1, 2017 to May 29, 2017 prior to our acquisition of the North Bundle and is based on the site-level financial information for the North Bundle from January 1, 2017 to May 29, 2017, prepared by and obtained from the OLG.
The proceeds from the 2017 Refinancing were used to repay the existing debt and fund the acquisition of the North Bundle and Southwest Bundle.
Pro Forma adjustments as described in items a through g above are reflected below as ?Adjustments.
? ?Business,? beginning on page 59.
The selling shareholders have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to an additional common shares at the initial public offering price less the underwriting discount.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the common shares against payment on or about , 2018.
LLC CIBC Capital Markets Macquarie Capital SunTrust Robinson Humphrey , 2018 ii iii iv vi vii viii 1 38 40 59 91 92 93 94 95 96 101 152 192 205 215 217 220 223 240 243 249 251 256 257 257 259 260 261 F-1 We are responsible for the information contained in this prospectus and in any free writing prospectus we prepare or authorize.
Neither we, the selling shareholders nor any of the underwriters have authorized anyone to provide you with different information, and neither we, the selling shareholders nor any of the underwriters take responsibility for any other information others may give you.
We and the selling shareholders are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
The information in this prospectus is only accurate as of the date of this prospectus.
You should not assume that the information contained in this prospectus is accurate as of any date other than its date.
Our business, financial condition, results of operations and prospects may have changed since that date.
We also commissioned a report from The Innovation Group in relation to the Central Bundle landscape and other matters pertaining to that gaming market.
Neither we, the selling shareholders nor any of the underwriters have independently verified the accuracy or completeness of any third-party information.
Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based upon our management?s knowledge of the industry, have not been independently verified.
While we believe that the market data, industry forecasts and similar information included in this prospectus are generally reliable, such information is inherently imprecise.
In addition, assumptions and estimates of our future performance and growth objectives and the future performance of its industry and the markets in which it operates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those discussed under the heading ?Risk Factors,? increase our vulnerability to general adverse economic and industry conditions; ? {INSERTKEYS}As filed with the Securities and Exchange Commission on December 18, 2018 Registration No.
Employer Identification Number 4331 Dominion Street Burnaby, BC V5G 1C7 604 412-0166 Address, including zip code, and telephone number, including area code, of registrant?s principal executive offices Cogency Global Inc.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards? Principal and selling shareholders: Upon completion of this offering, affiliates of Catalyst will continue to own a controlling interest in us.
Accordingly, we currently intend to avail ourselves of the ?controlled company? option to purchase additional common shares: The selling shareholders have granted the underwriters an option, exercisable in whole or in part, at any time for a period of 30 days from the closing of this offering, to purchase up to an additional common shares being equal to 15% of the common shares sold as part of this offering at the offering price.
Common shares held by the selling shareholders after this offering: Upon completion of this offering, based on the midpoint of the estimated price range set forth on the cover page of this prospectus, the selling shareholders will, collectively, directly or indirectly own or control % of the issued and outstanding common shares % if the underwriters? ?Management?s Discussion and Analysis of Financial Condition and Results of Operations,? option to purchase additional shares from the selling shareholders is exercised in full.
Common shares to be outstanding immediately after this offering: common shares Underwriters? Introducing the Industry?s Newest Slots and Adding More Premium Branded Games.
As was identified by the OLG?s modernization report, the gaming technology used in Ontario gaming properties has failed to keep pace with the industry.
In the limited time we have owned these properties, we have already experienced positive results by updating our Ontario gaming equipment.
Changes made to our slot strategy and product at our refreshed Southwest Ontario and North Ontario properties have driven our Slot Win rate up by approximately 3.
? Promoting Customer Loyalty Programs to Increase Visitation: In British Columbia, we participate in the BCLC?s ?Encore Rewards? ?Table Win %? the historical financial information for the Ontario properties prior to our acquisition thereof was prepared or provided by the OLG and consists of audited combined schedules of revenue and direct expenses only and does not represent complete financial statements; care should be taken when relying upon such information; ? in this prospectus include video lottery terminals, or VLTs, and electronic table games.
References to the number of ?table games? our casino gaming revenue is currently concentrated in the GVRD area and Ontario, which makes us especially subject to economic and competitive risks associated with the conditions in those areas; ? and a ?foreign private issuer? an exemption from the requirement to seek non-binding advisory votes on executive compensation and golden parachute arrangements; and ? b Sale and Leaseback Transactions On December 15, 2017, we entered into a definitive agreement with Mesirow Realty Sale-Leaseback, Inc.
Under the Sale and Leaseback Transactions, certain of our subsidiaries entered into long-term leases, as tenants, for each of the SLB Properties.
The 2018 Senior Secured Credit Facility consists of a 46 U.
As at the date of this prospectus, no amounts have been drawn under the 2018 Senior Secured Revolving Credit Facility.
Pro forma adjustments for the Sale and Leaseback Transactions, the 2018 Refinancing and the Term Loan Upsize are reflected below as ?Adjustments.
? section of this prospectus in deciding whether to invest in our securities.
Among these important risks are the following: ? means the Adjusted EBITDA for each reporting segment or property, as applicable, excluding corporate costs.
? ?Table Win? secure governmental, municipal and other necessary approvals and permits; ? common shares reserved for future issuance under our equity compensation programs as described in ?Executive Compensation?Equity-Based Compensation.
This information should be read together with our financial statements and the related notes and the discussion under ?Use of Proceeds?, ?Capitalization?, ?Management?s Discussion and Analysis of Financial Condition and Results of Operations? British Columbia: According to the BCLC, our British Columbia properties include 41% of all slot machines and 40% of all table games in the province and we are one of the largest gaming service providers based on both number of properties and gaming positions.
We provide operational services at six of the 14 gaming properties in the Lower Mainland which includes the largest population center in British Columbia, the GVRD.
We also provide operational services at three of the nine gaming properties on Vancouver Island and are the only service provider with casinos in the Thompson-Okanagan region of British Columbia, where we provide operational services at properties located in Kelowna, Vernon, Penticton and Kamloops.
? means the aggregate of Slot Win and the Table Win less free play and loyalty points redeemed; ? require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, dividends and other general corporate purposes; ? ?Slot Win %? means the amount of Table Drop retained and recorded as casino revenue; and ? Relocating Select Properties to Higher Density Urban Centers.
Partly as a function of their historical ties to the Ontario horse racing industry, some of the Ontario properties we acquired are located in relatively remote areas.
However, the gaming zones that these remote properties serve also include denser urban centers, providing us with an opportunity to relocate the properties to better locations within the gaming zone.
We anticipate that by relocating our Sudbury Downs Slots and Dresden Raceway Slots Chatham properties to higher density areas, we can attract greater traffic, allowing us to build properties with greater scale.
These costs are expected to be funded through a combination of cash on hand and operating cash flow.
We are confident in our ability to execute our growth initiatives in Ontario, particularly given our recent success in integrating properties that we acquired from the Playtime Gaming Group in December 2015.
Development in New Markets Based on our management team?s significant gaming and entertainment operations experience and our strong financial position, we believe we are well positioned to realize new growth opportunities as they arise.
These opportunities may include the acquisition or development of new gaming properties, as well as other growth opportunities in the gaming and entertainment industry.
We regularly consider attractive opportunities to consolidate the gaming industry in our markets and to diversify our operations into new regions.
Risks Associated with Our Business and to Acquisitions and Capital Projects Our business is subject to a number of risks of which you should be aware before making an investment decision.
You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under the ?Risk Factors? and revenue generated from ?table games? increase brand awareness; ? ?Adjusted Property EBITDA? ?Adjusted Property EBITDA Margin? and ?Management?s Discussion and Analysis of Financial Condition and Results of Operations? under applicable Securities and Exchange Commission rules and, as such, will be eligible for reduced public company disclosure requirements.
See ?Prospectus Summary?Implications of Being an Emerging Growth Company and a Foreign Private Issuer? 14 Represents maintenance capital expenditures.
See ?Index to Financial Statements?Condensed Consolidated Interim Statements of Cash Flows? hire, train and retain a growing workforce of employees, including key management personnel; ? skill and experience, the mix of games played, the financial resources of players, the spread of table limits, the volume of bets played and the amount of time played.
Our gaming profits are mainly derived from the difference between our casino winnings and the casino winnings of our gaming customers.
Since there is an inherent element of chance in the gaming industry, we do not have full control over our winnings or the winnings of our gaming customers.
If the winnings of our gaming customers exceed our winnings, we may record a loss from our gaming operations, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are subject to all operating risks common to the hotel business, which may adversely affect our hotel occupancy and rental rates.
A portion of our revenue is derived from our hotel and convention services.
In the nine month period ended September 30, 2018 and 2017, revenue from our hotel and convention services represented 2.
In the year ended December 31, 2017 and 2016, revenue from our hotel and convention services represented 2.
The hotel business is highly competitive and may be subject to greater volatility than our gaming business.
While our hotel business represents a small portion of our operations, operating risks common to the hotel business could adversely affect hotel occupancy and the rates that can be charged for hotel rooms, as well as increase our operating expenses.
Such risks include, among other things: ? ?Property Highlights? Ontario: We are currently the exclusive service provider in three gaming bundles in Ontario the North, Southwest and Central Bundles , containing 11 properties in total and the right to develop two new gaming properties in the North bundle in North Bay and the Kenora area , which we expect to open in the first quarter of 2020, and a third gaming property in the Central Bundle in Wasaga Beach , which we expect to open in the third quarter of 2020.
Upon completion of the North Bay, Kenora area and Wasaga Beach properties, we will operate 14 properties in Ontario.
The Starlight Casino Edmonton, which completed a major renovation and expansion in September 2018, is located in the West Edmonton Mall, North America?s largest mall with approximately 30.
The Grand Villa Casino Edmonton is the only casino in downtown Edmonton and is located within the new ICE District, adjacent to the recently constructed Rogers Place, home of the Edmonton Oilers.
As illustrated in the following charts, our recent expansion into the Ontario market has greatly diversified our revenues by region: Revenue by Region as at December 31, 2016 1 2 as % of revenue for twelve months ended December 31, 2016 Revenue by Region as at December 31, 2017 1 3 as % of revenue for twelve months ended December 31, 2017 Notes: 1 Lower Mainland properties include Grand Villa Casino Burnaby, Starlight Casino New Westminster, Cascades Casino Langley, Chances Mission, Chances Squamish, Chances Playtime Abbotsford, Newton Community Gaming Centre which ceased operations effective April 2018 and Chances Playtime Langley which ceased operations effective February 2018.
See ?Risk Factors?Risks Related to our Business?The historical financial information for the Ontario properties prior to our acquisition thereof was prepared or provided by the OLG and consists of audited combined schedules of revenue and direct expenses only and does not represent complete financial statements; care should be taken when relying upon such information.
? ?Cautionary Note Regarding Forward-Looking Statements? means the aggregate amount of money customers deposit to purchase casino chips to wager on table games, and is commonly computed as the aggregate amount of money counted in the table games? negotiate acceptable lease terms, including favorable levels of tenant improvement allowances; ? ?Free Cash Flow Conversion? which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control.
In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance.
Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the factors discussed under the headings ?Risk Factors,? ?Management?s Discussion and Analysis of Financial Condition and Results of Operations? section in this prospectus.
See ?Selected Summary Historical Financial Information? and ?Principal and Selling Shareholders.
? and ?Risk Factors?Risks Related to Acquisitions and Capital Projects? These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under ?Risk Factors,? means the ratio of Slot Win divided by Slot Coin-in; ? identify desirable gaming locations; ? exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, requiring mandatory audit firm rotation or a supplement to the auditor?s report, in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; ? secure financing; ? if we fail to successfully implement our growth strategies, which includes acquiring new properties and expanding, renovating and relocating our existing properties, our ability to increase our revenues could be adversely affected; 33 ? play patterns and allows us to target marketing messages and reward specific groups of players through our player database.
In Ontario, we currently participate in the OLG?s ?Winner?s Circle? our business is subject to extensive governmental gaming regulation.
Changes to the regulatory regime governing our business, our inability to renew or obtain new contracts governing our existing gaming operations or our inability to obtain new casino licenses could adversely affect us; ? confidential personal information, our network and other systems, and those of third parties, such as service providers, could be compromised by a third-party breach of our system security or that of a third-party provider or as a result of purposeful or accidental actions of third parties, our employees or employees of a third party.
Advances in computer and software capabilities and encryption technology, new tools and other developments may increase the risk of such a breach.
As a result of any security breach, customer information or other proprietary data may be accessed or transmitted by or to a third party.
Despite these measures, there can be no assurance that we are adequately protecting our information.
Any loss, disclosure or misappropriation of, or access to, customers? and revenue generated from ?slot machines? program has replaced the FDC and AFDC programs.
Under the MIR program, service providers are required to make minimum investments generally in an amount equal to 5% of Net Win for the year ended March 31, 2018 multiplied by 20 years in their properties throughout the terms of the OSAs and in return, the BCLC will pay an additional commission to service providers at a rate of 5% of Net Win.
Ontario Ontario is Canada?s largest province with an estimated population of over 14.
The following chart illustrates the division of OLG total revenues by gaming activity: OLG Win by Channel year ended March 31, 2018 Source: OLG.
The OLG currently generates revenue from four large casinos targeting destination visitors, which we refer to as the Resort Casinos Segment, and 22 casinos oriented towards the local market, which we refer to as the Slots and Casinos Segment.
The OLG has played a central role in the development and operation of the Slots and Casinos Segment gaming properties since their inception and has only recently begun to increase the role of private sector service providers.
Due to a lack of investment, slot machine focus and increased cross-border competition, casino Win in Ontario declined between the fiscal years ended March 31, 2006 and March 31, 2015, primarily within the Resort Casino Segment.
Casino Win in the more locally focused Slots and Casinos Segment was flat over the same period, though investment in these properties was also minimal.
In the two fiscal years since March 31, 2015, casino revenue after prizes has grown at a 5.
The OLG forecasts that gaming revenue in its Resort Casinos Segment will decline at a CAGR of 0.
This equates to an overall CAGR of 3.
Notes: 1 Represents OLG combined revenues for the Resort Casinos Segment and Slots and Casinos Segment.
In 2017-2018, the OLG reported Resort Casinos and Slots and Casinos as a single business line referred to as Land-based Gaming.
For fiscal years 2016 to 2018 revenue is presented net of service provider fees.
Results for fiscal years 2011 to 2018 were prepared in accordance with IFRS.
The Ontario market is relatively underpenetrated compared to the other Canadian gaming markets in which we operate.
As illustrated in the chart below, for the year ended March 31, 2017, gaming revenue per capita was 113% higher in Alberta than in Ontario, 65% higher in British Columbia and 120% higher in the five largest U.
Notes: 1 Adult population includes individuals ages 18 years and older; population statistics as of July 1, 2017.
Notes: 1 Adult population includes individuals ages 18 years and older; population statistics as of July 1, 2017.
Locals Driven Markets, Alberta and British Columbia; Ontario gaming positions for Gateway?s properties per the prospectus and all other Ontario properties are per The Innovation Group report from November 2017; table games includes poker tables and assumes six gaming positions per table.
Notes: 1 Gaming win is presented for the last twelve months as of March 31, 2018.
Illinois data includes VGTs and Alberta data includes VLTs.
The resulting modernization report identified multiple factors explaining declines in land-based gaming revenue, including: ? in this prospectus include touch bet roulette and poker tables.
Additionally, as used in this prospectus, the following terms have the meanings set forth below: ? address competitive, marketing, distribution and other challenges encountered in connection with expansion into new geographic areas and markets.
To the extent that we acquire gaming properties in markets where we already have existing gaming properties, we may experience reduced revenues at those existing gaming properties.
There is no guarantee that newly opened gaming properties will be received as well as, or achieve profitability levels comparable to those of, our existing gaming properties within our estimated time periods, or at all.
If our gaming properties fail to achieve, or are unable to sustain, acceptable profitability levels, our business may be materially adversely affected and we may incur significant costs associated with closing or relocating gaming properties.
In addition, our current expansion plans are only estimates, and the actual number of gaming properties that we open, the timeline on which we do so and the actual number of suitable locations for our new gaming properties could differ significantly from these estimates.
If we fail to successfully open and operate new gaming properties and execute our growth plans, the price of our common shares could decline.
We compete with online gaming and entertainment companies that provide gaming and entertainment experiences, which could adversely affect our future casino gaming revenue.
In addition to bricks-and-mortar casinos, we compete with online gaming and other forms of entertainment.
Online gaming platforms and certain provincial gaming corporations offer a variety of online games, many of which simulate the games on our properties.
The sophistication and availability of online gaming, both domestically and internationally, is continuing to improve and it is possible that these platforms will develop into a greater form of competition, which could have an adverse impact on our business, financial condition and results of operations.
We also compete with other non-gaming resorts and vacation areas and entertainment businesses.
If our national and global competitors offer more attractive gaming and non-gaming experiences, there is a risk that our customers, and particularly the high-limit players that frequent our properties, may choose to travel away from our properties to our competitors or other entertainment destinations.
A significant reduction in high-limit play at our properties could have a significant adverse effect on our business, financial condition and results of operations.
We cannot assure that our anti-money laundering and anti-corruption policies will be effective in preventing the occurrence of money laundering or other illegal activities.
Certain industries in Canada, like the gaming sector, are subject to the federal Proceeds of Crime Money Laundering and Terrorist Financing Act, or the PCMLTFA.
Casinos in Canada operate under, and are required to meet, the strict anti-money laundering, customer identification and reporting requirements set out in the PCMLTFA.
A 2016 report commissioned by GPEB on anti-money laundering practices in British Columbia revealed the existence of an investigation into the alleged flow of unsourced cash at a competitor casino.
In September 2017, the British Columbia Government hired an independent investigator, Peter German, to commission a report into money laundering and other illegal practices at casinos in the Lower Mainland of British Columbia, which was received by the Attorney General of British Columbia on April 3, 2018 and released publicly on June 27, 2018.
German?s report focused on the role of partners and agencies, including provincial regulators, federal regulators, law enforcement and operators such as Gateway.
The 48 substantive recommendations contained in the report include a potential shift to a new standards based model more similar to that in Ontario and a number of recommendations to shift certain responsibilities from the Gaming Regulators to private operators, such as responsibilities with respect to AML annual risk assessments, reporting with FINTRAC, conducting due 64 diligence on suspicious transactions and overseeing cash alternatives and related compliance.
In November 2018, the House of Commons of Canada released the report of the Standing Committee on Finance which focused on the anti-money laundering and anti-terrorist financing regime?s legislative and regulatory gaps, the exchange of information and the privacy of Canadians, ways of strengthening intelligence capacity and enforcement measures, as well as the modernization of the regime.
The substantive recommendations contained in the report include, among others, that i the Government of Canada expand FINTRAC oversight to ensure that all casino operators, employees, and frontline gaming personnel are trained in anti-money laundering legislation, ii the Government of Canada establish an information sharing regime through FINTRAC and provincial gaming authorities to ensure more accurate and timely reporting, and iii the Government of Canada enhance the direct reporting system of casinos to FINTRAC through the suspicious transaction reports to include suspicious activities.
While we currently believe that the recommendations will not have a material impact on our business, there can be no assurance as to what the business, operational and financial impacts from the recommendations or the implementation thereof will be until specific amendments are proposed to gaming laws and regulations.
Although we have a compliance program that addresses anti-money laundering program and our properties are subject to anti-money laundering programs run by the Gaming Authorities, there is no guarantee that our operations are protected from being used to launder illicit funds or that our program will be effective in detecting all such activities.
Additionally, casinos and the gaming industry are a regulatory focus for anti-money laundering violations, and any repeated money laundering violations could affect our access to credit from financial institutions.
Thus, any incidents of money laundering, accusations of money laundering or regulatory investigations into possible money laundering activities involving us, our employees or our customers would have a material adverse impact on our reputation, relationship with our regulators, business, cash flows, financial condition, prospects and results of operations.
Our casino gaming revenue is currently concentrated in the Greater Vancouver Region and Ontario, which makes us especially subject to economic and competitive risks associated with the conditions in those areas.
Because our revenue and profits are primarily derived from the Greater Vancouver Region and Ontario, we are subject to greater risks from local conditions than a gaming company with more geographically diverse operations.
A decrease in revenue from, or increase in costs for, our casinos located in the Greater Vancouver Region or Ontario is likely to have a proportionally higher impact on our business, financial condition and results of operations than it would for a gaming company with revenue generated from more geographically diverse operations.
More generally, our net revenues are highly dependent upon the volume and spending levels of our customers.
Decreases in discretionary consumer spending brought about by weakened general economic conditions may affect our revenues.
Our business results are related to the economic and competitive conditions in the regions we operate in, and any downturn in the economic conditions or increase in competition in these regions will have a material adverse effect on our business, financial condition and results of operations.
Our business is particularly sensitive to reductions in discretionary consumer and corporate spending as a result of global and regional economic conditions.
Consumer demand for casinos and hotels and for the type of amenities that we offer is particularly sensitive to changes in the global economy, which adversely affect discretionary spending on leisure activities.
Changes in discretionary consumer spending or consumer preferences brought about by factors such as perceived or actual general global and regional economic conditions, high unemployment, weakness in housing or oil markets, perceived or actual changes in disposable consumer income and wealth, an economic recession and changes in consumer confidence in the global economy, or fears of war and future acts of terrorism have in the past and could in the future reduce customer demand for the amenities and leisure activities we offer, and may have a significant negative impact on our operating results.
Additionally, consumer demographics and preferences may 65 evolve over time, which, for example, has resulted in growth in consumer demand for non-gaming offerings.
Our success depends in part on our ability to anticipate the preferences of consumers and react to those trends and any failure to do so may negatively affect our operating results.
Global economic conditions may have a material adverse effect on our business, financial condition and results of operations.
In recent years, global economic conditions have resulted in tighter credit conditions and recessions in most major economies.
The Canadian economy, and in particular British Columbia and Ontario, were not as adversely impacted by these economic conditions as the economies of the United States and other industrialized countries.
Although we were not as adversely affected by these recent economic conditions as other gaming companies across North America, future economic downturns may affect our business significantly in a number of ways.
For example, our business offers a highly discretionary set of entertainment and leisure activities and amenities, and if a similar global economic downturn occurs, discretionary consumer spending may be adversely affected and our revenue may decrease while some of our costs would remain fixed or increase.
Additionally, if we were to require access to the capital markets in the future during such a downturn, there can be no assurance that we will be able to secure financing.
Changes to our customer base may adversely affect our business and results of operations.
We cater to our customer base by providing entertainment suited to the demographics of each local region in which we operate, in order to maximize customer retention and secure repeat visitors.
Changes in our customer demographics or to local economic conditions or our potential inability to cater or respond to those changes may have an adverse effect on our business, financial condition and results of operations.
Unusual weather, natural disasters, geo-political events or acts of terrorism could adversely affect our operations and financial results.
Extreme weather conditions in the areas in which our properties are located could adversely affect our business.
Frequent or unusually heavy snowfall, ice storms, rainstorms, forest fires or other extreme weather conditions over a prolonged period could make it difficult for our customers to travel to our properties and thereby reduce our revenue or otherwise adversely affect our business.
For example, revenues were negatively impacted in the first three quarters of 2017 at our four Thompson-Okanagan casinos.
Severe snowfall and subsequent flooding in the Okanagan region depressed revenues during the first and second quarter.
During the third quarter, the Okanagan region saw extreme forest fires and many patrons in the area had to be evacuated.
The fires caused poor air quality and a sharp decline in local patrons and tourists to these casinos.
In addition, natural disasters such as hurricanes, tornadoes and earthquakes, or a combination of these or other factors, could severely damage or destroy one or more of our properties located in the affected areas, thereby disrupting our business operations.
In addition, unstable political conditions or civil unrest, including terrorist activities, military and domestic disturbances, changes in trade policy and conflicts, may result in political or economic instability and could have a material adverse effect on our business and results of operations.
We face the risk of fraud or cheating commonly faced by the gaming business, which could adversely affect our results of operations.
Players in our casino may commit fraud or cheat in order to increase their winnings.
Acts of fraud or cheating could involve the use of counterfeit chips or other tactics, possibly in collusion with our employees.
Internal acts of cheating could also be conducted by employees through collusion with dealers, surveillance staff, floor managers or other casino or gaming area staff.
Failure to discover such acts or schemes in a timely manner 66 would negatively impact our gaming revenue.
In addition, negative publicity related to such schemes could have an adverse effect on our reputation and have a significant adverse effect on our business, financial condition and results of operations.
We are subject to the reputational challenge of operating in the gaming industry.
The gaming industry is subject to negative publicity relating to perceptions of underage gaming, exploitation of vulnerable customers and the historical link of the gaming industry to criminal enterprises.
As an operator within the industry, such negative publicity can adversely affect our reputation and correspondingly affect our financial performance.
Historically, gaming has been considered to be an undesirable activity in Canada.
Until 1969, gaming in most forms, with the exception of horseracing, was a criminal offense.
Subject to certain exemptions, the Criminal Code of Canada currently prohibits most forms of gaming and betting activity in Canada.
Casino operators still face stigma in many areas of day-to-day operations.
Negative public perception of gaming within any region lessens the likelihood that a new casino can be established there or that an existing casino will be financially viable, which could affect possible expansions.
Any increase in the negative public perception of gaming could have a negative impact on our business and results of operations.
We are subject to cybersecurity risk.
We maintain confidential information regarding our business plans, strategy and potential strategic opportunities in our computer systems.
We also maintain an internet website.
Despite the implementation of network security measures, this infrastructure may be subject to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems.
Advances in computer and software capabilities and encryption technology, new tools and other developments may increase the risk of such a breach.
A security breach of computer systems could disrupt operations, damage our reputation, result in legal or regulatory liability and could have a material adverse effect on our business and results of operations.
Compromises of our information systems or unauthorized access to confidential information or our customers? beginning on page 42 and all other information set forth in this prospectus before deciding to invest in our common shares.
Listing: We have applied to list our common shares on the NYSE under the symbol ?GTWY?.
The number of our common shares to be outstanding after this offering is based on common shares outstanding as of and excludes: ? The assumptions and estimates underlying the unaudited adjustments to the pro forma combined statement of operations and comprehensive income are described in the accompanying notes, which should be read together with the pro forma combined statement of operations and comprehensive income.
The pro forma data presented reflect events directly attributable to the described transactions and certain assumptions that we believe are reasonable.
The pro forma data are not necessarily indicative of financial results that would have been attained had the described transactions occurred on the dates indicated above or which could be achieved in the future.
The adjustments are based on currently available information and certain estimates and assumptions.
Therefore, the actual adjustments may materially differ from the pro forma adjustments.
However, management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma financial information.
The unaudited pro forma combined statement of operations and comprehensive income has been prepared as if the Interim Period Transactions occurred on January 1, 2018.
See ?Index to Financial Statements?Condensed Consolidated Interim Statements of Operations and Comprehensive Income Loss for the nine months ended September 30, 2018 and 2017?; and b unaudited pro forma combined schedule of revenue and direct expenses of the Central Bundle for the period of January 1, 2018 to July 17, 2018.
See ?Index to Financial Statements?Unaudited Central Ontario Gaming Bundle Pro Forma Combined Schedule of Revenues and Direct Expenses for the period from January 1, 2018 to July 17, 2018?.
The unaudited pro forma combined schedule of revenues and direct expenses for the Central Bundle for the period of January 1, 2018 to July 17, 2018 has been prepared by the Company using the format and account classifications of the audited Combined Schedules of Revenues and Direct Expenses of the Central Gaming Bundle for years ended March 31, 2018 and 2017 prepared and provided by the OLG.
For purposes of this unaudited pro forma combined statement of operations and comprehensive income we have adjusted the format and account classifications to align with those of the Company.
Year Ended December 31, 2017 The following table provides our unaudited pro forma combined statement of operations and comprehensive income for the year ended December 31, 2017 and has been prepared by management for illustrative purposes using our historical consolidated statement of operations and comprehensive income for the year ended December 31, 2017, included elsewhere in this prospectus, and the pro forma combined schedules of revenue and direct expenses, included elsewhere in this prospectus, for the Southwest Bundle and the North Bundle, which are based on the site-level financial information for the periods indicated below, prepared or provided by the OLG, and for the Central Bundle, which is based on the audited combined schedules of revenue and direct expenses for the Central Bundle, prepared by and obtained from the OLG, for the year ended March 31, 2018, and adjusted by the Company to give pro forma effect to the acquisitions of the Southwest Bundle, the North Bundle and the Central Bundle, the Sale and Leaseback Transactions, the 2018 Refinancing and the Term Loan Upsize, as further described below, as if they had occurred on January 1, 2017: a Acquisition of the Southwest Bundle On May 9, 2017, we signed a 20-year COSA with the OLG for the operation of the Southwest Bundle.
Under the Southwest Bundle transition and asset purchase agreement, or TAPA, we acquired gaming assets and assumed certain liabilities of the London, Point Edward, Woodstock, Dresden, Clinton and Hanover casinos.
The pro forma financial information for the Southwest Bundle represents the period from January 1, 2017 to May 8, 2017 prior to our acquisition of the Southwest Bundle and is based on site-level financial information for the Southwest Bundle from January 1, 2017 to May 8, 2017, prepared by and obtained from the OLG.
For a description of certain limitations regarding the financial information provided by the OLG and the related pro forma information, see ?Risk Factors?Risks Related to Our Business?The historical financial information for the Ontario properties prior to our acquisition thereof was prepared or provided by the OLG and consists of audited combined schedules of revenue and direct expenses only and does not represent complete financial statements; care should be taken when relying upon such information.
? ?Slot Coin-in? means the commission we earn from poker tables and is calculated as a fixed percentage of the amount wagered by our customers, up to a predetermined maximum amount, on every hand of poker played; ? included elsewhere in this prospectus.
The summary historical consolidated financial information for the years ended December 31, 2017 and December 31, 2016 was derived from our audited consolidated financial statements and related notes for such periods, which were prepared in accordance with IFRS and are included elsewhere in this prospectus.
The summary historical consolidated financial information for the nine months ended September 30, 2018 and September 30, 2017 and balance sheet data as at September 30, 2018 was derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus.
The unaudited historical financial information has been prepared on the same basis as the audited historical financial information and, in management?s opinion, reflects all adjustments necessary for the fair presentation of the financial information set forth therein.
The preparation of the financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
We base our estimates on historical experience, current trends and various other assumptions that are believed to be reasonable under the circumstances.
Actual results could differ from those estimates.
Historical results of operations and trends that may be inferred from the following financial information may not necessarily indicate future results from operations and the results of operations from any interim period are not necessarily indicative of the results to be expected for the full year or any future period.
For a reconciliation of Adjusted EBITDA to its most directly comparable measures calculated in accordance with IFRS, see the table immediately below.
? a decline in cross border-patrons due to increased competition from casinos in bordering U.
The strategic review reached the conclusion that the role of private sector service providers should be expanded.
To implement this recommendation, the OLG divided 28 gaming zones into eight gaming bundles and awarded these bundles to service providers through a competitive procurement process.
Within each bundle, the OLG awards the winning service provider the exclusive right to operate gaming properties.
According to the new policies implemented under the OLG modernization plan, gaming proceeds are shared between services providers and the OLG as follows: Roles of Service Providers and OLG in Ontario The COSA contains a covenant by Gateway to realize revenue in each operating year that is equal to or greater than a set ?Threshold?, or to pay to OLG the difference.
The Threshold for each of the first 10 operating years is a fixed amount that was set out by Gateway during the RFP process and incorporated into the relevant COSA.
After the initial ten years, the threshold for each subsequent year of the operating term is calculated based on a formula that takes into account the revenue generated in prior years, the difference between the Threshold for prior years and the revenue generated in such years, and inflation.
Alberta is also the third largest casino gaming market in Canada.
Win during this period was generated from the following activities: Total Gaming Win by Channel 1 Charity Gaming Win by Channel 2 Source: AGLC.
Notes: 1 Slots represents credits played less credits won for casino gaming machines as reported by AGLC.
Table games represents casinos segment of AGLC charitable gaming segment.
The following chart presents annual Win in Alberta for the 10-year period ended March 31, 2018.
The AGLC licenses the operation of casinos to third-party gaming service providers and licenses charities to hold casino gaming events.
However, since 2008, the AGLC has deferred consideration of any new casinos and racing entertainment centers in the province.
In February 2015, the AGLC announced that it would be extending this moratorium on new licenses indefinitely.
Within Alberta, we operate exclusively within the city of Edmonton.
As of March 31, 2017, the AGLC reported that there were a total of eight casinos in the city of Edmonton and 5,692 casino slot machines.
We operate two of these casinos, both of which are located in prime, high-traffic entertainment districts.
INVESTMENT HIGHLIGHTS Leading and Diversified National Gaming Footprint We are one of the largest and most diversified gaming and entertainment companies in Canada, with an attractive portfolio of gaming and entertainment properties.
We have a leading market position in each of the markets in which we operate: ?


Vernon, BC 2019


147 148 149 150 151

Tom Barker. Security Compliance Manager at Gateway Casinos and Entertainment Limited. Lake City Casino VernonJustice Institute of British Columbia.


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