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Edited Transcript of GC.TO earnings conference call or presentation 6-May-19 3:00pm GMT

Q1 2019 Great Canadian Gaming Corp Earnings Call

Richmond May 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Great Canadian Gaming Corp earnings conference call or presentation Monday, May 6, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew A. Newsome

Great Canadian Gaming Corporation - VP of Finance

* Rodney N. Baker

Great Canadian Gaming Corporation - President, CEO & Director

* Terrance M. Doyle

Great Canadian Gaming Corporation - President of Strategic Growth & Chief Compliance Officer

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Conference Call Participants

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* Authi Seevaratnam

Cambridge Advisors - Equity Analyst

* Chris Colvin

Breach Inlet Capital Management, LLC - Founder & Portfolio Manager

* Damir Gunja

TD Securities Equity Research - Director

* David John McFadgen

Cormark Securities Inc., Research Division - Director of Institutional Equity Research

* Derek Dley

Canaccord Genuity Limited, Research Division - MD & Consumer Products Analyst

* George Doumet

Scotiabank Global Banking and Markets, Research Division - Analyst

* Sabahat Khan

RBC Capital Markets, LLC, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Great Canadian Gaming Corporation First Quarter 2019 Results Conference Call (Operator Instructions) This call is being recorded on Monday, May 6, 2019.

I would now like to turn the conference over to Mr. Terrance Doyle. Please go ahead.

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Terrance M. Doyle, Great Canadian Gaming Corporation - President of Strategic Growth & Chief Compliance Officer [2]

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Thank you, Leoni, and good morning, everyone, and welcome to Great Canadian Gaming Conference Call to review the company's financial results for the first quarter ended March 31, 2019.

Joining me on the call this morning is Rod Baker, the company's Chief Executive Officer; and John Russo, the company's General Counsel and Chief Privacy Officer.

I would like to remind listeners that the latter portion of this call is reserved for institutional investors and analysts. Any media-related inquiries can be directed towards Chuck Keeling, Vice President, Stakeholder Relations and Responsible Gaming. He can be reached at (604) 247-4197.

Before we begin, I must caution all listeners that this conference call may contain forward-looking statements that reflect management's expectations regarding the company's future. These statements, which will be identified by words such as anticipate, believe, expect or similar expressions, are based on information currently available to the company. Investors should not place undue reliance upon these statements, which involve significant risks, uncertainties and assumptions. These statements are made as of the date of this call, and the company assumes no obligation to update or revise them to reflect new events or circumstances.

Unless otherwise indicated, all financial information in this call is presented in Canadian dollars and is in accordance with International Financial Reporting Standards except for adjusted EBITDA, which is a non-IFRS term defined in the company's MD&A.

I will now pass the call over to Rod to review Great Canadian's financial results for this quarter. He will then provide commentary on the company's overall operation and strategic outlook. Rod?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [3]

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Thank you, Terrance. Good morning, everyone, and thank you for joining us today. Today, I'd like to go over the key highlights of Great Canadian this quarter followed by an overview of the company's first quarter financial results and future outlook.

I would like to begin the conference call with the recent news that the company has completed agreements with the Ontario Lottery and Gaming Corporation and the owners of Ajax Downs to extend operations at Casino Ajax beyond the opening of our casino resort property currently under development in Pickering, which will allow this gaming and horseracing facility that was previously expected to close, to continue making economic contributions to the community it serves.

Under the agreement, we reached terms with the OLG to establish a new gaming zone for Casino Ajax and to provide typical allowances for the ongoing operating costs and capital requirements. No changes were made to the pre-established threshold amounts for the GTA Gaming Bundle and a prescribed mechanism was established to adjust for potential delays in property development plans and associated growth in gaming revenues.

The agreement also provides for an additional 10 years to be added to the existing extension in the casino operating and services agreement based on certain conditions being met. The ability for a new gaming facility to be developed and operated within the GTA remains unchanged.

Subsequent to the first quarter 2019, the company announced an agreement to sell its subsidiary, Great American Gaming Corporation to Maverick Gaming LLC for proceeds of USD 56 million.

Great Canadian has evolved over the last few years and has taken actions that will allow the company to focus on our recent acquisitions in Ontario, which offer opportunities for significant organic growth in underserviced gaming markets. The divestiture of Great American is in line with the company's strategic goals and demonstrates our commitment to explore opportunities that create shareholder value.

As previously mentioned in our fourth quarter earnings call, our first quarter in 2019 experienced challenges from the extreme weather conditions, which negatively impacted guest visitation, particularly at our Ontario gaming facilities. The company also experienced delays in the execution of its development and related operational plans for the West GTA Gaming Bundle, which has negatively impacted revenue and profitability expectations of the bundle. Due to delays at Elements Casino Mohawk and Elements Casino Flamboro related to -- related -- or required approvals and negotiations with third parties to expand facilities, construction plans commenced later than originally anticipated. In connection with these delays, the company was unable to fully launch a comprehensive marketing plan to introduce the new gaming and hospitality amenities to their respective markets, which is integral to driving new revenues in the bundle.

Based on the revenue uptick at Woodbine for the launch of table games in August 2018 also with limited marketing in nongaming amenities, we remained optimistic that we would see the same traction upon the initial introduction of table games at Mohawk and Flamboro in December 2018. Unfortunately this did not prove to be the case. Management can confirm that all key approvals for the initial developments have now been received allowing the company to continue with its construction plans.

I want to provide further clarity to a question that was asked in our fourth quarter earnings call regarding the sequential increase in Ontario's gross gaming revenues in Q4 2018 when compared to Q3 2018. However, our reporting -- however, our reported gaming revenues for these periods were relatively consistent. In my response, I've referenced the difference in PCE between the reporting periods, which was correct and represented approximately 1/3 of the difference in the ratio between GGR and gaming revenues in those 2 periods. Another 1/3 of the difference was related to a correction of the GGR number previously overreported in Q1 and Q2 2018. The true-up adjustment was done in Q3 2018, which increased the GGR variance between Q4 2018 and Q3 2018. The remaining difference was made up by numerous items, including certain revenues, such as poker rake, lottery and pull-tab that are not included in the GGR number. The technology fee that we received in East Gaming Bundle, the cost of our loyalty rewards and any changes in the service provider fees comprising PCE, fixed fee and variable fee. There are quite a few moving pieces that are required to precisely reconcile the changes in GGR to gaming revenues between reporting periods.

I'm now going to comment on the financial highlights for the quarter -- first quarter of 2019. Great Canadian's revenues have increased by 35% or $81.6 million from $230.5 million to $312.1 million during the first quarter of 2019 when compared to the same period in 2018. The increase in revenues during the first quarter of 2019 when compared to the same period in the prior year was attributable to a full quarter of operations from the West GTA Gaming Bundle, 22 additional operating days in the GTA Gaming Bundle and new revenues from the introduction of table games at Woodbine.

Revenues also increased from the East Gaming Bundle due to the additional revenues of Shorelines Casino Peterborough which opened on October 15 and Shorelines Slots at Kawartha Downs which we reopened under agreed terms on December 19, 2018. These increases were partially offset by the previously mentioned extreme weather conditions experienced in Ontario.

Adjusted EBITDA was $111.6 million for the first quarter of 2019, which included a $20.8 million positive impact from IFRS 16, the new lease accounting standard adopted on January 1, 2019. Adjusted EBITDA was $88.9 million in the same prior year period. Readers are cautioned that the financial results for the comparative period in 2018 have not been adjusted for IFRS 16.

Shareholders' net earnings was $32.6 million or $0.55 per common share for the first quarter of 2019, which had a $2.2 million or $0.04 per common share negative impact from IFRS 16 adoption. Shareholders' net earnings was $29.2 million or $0.48 per common share in the same period in 2018.

The company remains focused on the execution of its operational and development plans for 2019 and beyond. Construction is underway at several gaming facilities in the GTA and West GTA Gaming Bundles despite certain delays as previously mentioned. Development plans for the gaming facilities in these bundles will expand gaming offerings and introduce an exciting mix of hospitality and entertainment features at the properties that will deliver exceptional guest experiences within their respective markets.

Construction of the new world-class casino resort in Durham region located in Pickering is well underway. We're eagerly anticipating the introduction of this property into the GTA marketplace, which will represent the next material increase in slot and table capacity in the GTA Gaming Bundle.

During the quarter, we expanded capacity at the Elements Casino Mohawk and Elements Casino Grand River adding approximately 290 and 190 slot machines, respectively. Elements Casino Mohawk is expected to launch further expanded gaming in the second quarter of 2019 and will feature approximately 1,500 slot machines and 60 gaming tables once renovations are complete. We look forward to transforming these properties into premiere gaming and entertainment destinations.

Great Canadian maintained a strong financial position at December 31, 2018, which included a cash balance of $304 million, available capacity of $397 million on senior secured credit facilities, available capacity of $907.1 million on One Toronto Gaming credit facilities and $151 million on Ontario Gaming West GTA's revolving credit facility.

The comprehensive development plans for Ontario gaming properties will be supported by the respective partnership's non-recourse credit facilities, reinvested cash flow from operations, any partner contributions required. Under the terms of the respective Ontario partnership credit agreements, the cash generated from the businesses will primarily be used to fund capital investments up to completion of the initial development plans.

Great Canadian's enhanced capital structure after its corporate refinancing in the fourth quarter of 2019 has given the company additional flexibility to invest in our business and pursue other opportunities to enhance value. In the fourth quarter of 2018, we utilized $40 million of capacity on our revolving credit facility to repurchase shares under the normal course issuer bid, which was fully repaid in the first quarter of 2019, demonstrating our disciplined approach to use of capital that has allowed us to maintain our strong financial position.

Great Canadian continues to make meaningful investments and explore opportunities that will drive its business forward and provide added value to our shareholders and guests, as evidenced by the recent divestiture of Great American. We have a busy year ahead of us with our development plans, and we look forward to sharing our progress of our plans in the future.

Terrance, you can now invite questions. Thank you.

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Terrance M. Doyle, Great Canadian Gaming Corporation - President of Strategic Growth & Chief Compliance Officer [4]

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Thanks, Rod. And before we begin today's question-and-answer session, I would like to remind everyone that questions will be reserved for institutional investors and analysts. I would like to reiterate the company's Investor Relations philosophy, which encourages investors and analysts to utilize this public conference call as a principal medium to speaking with Great Canadian's senior management. Leoni, we'll now go to the Q&A. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from Sabahat Khan from RBC Capital Markets.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [2]

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Just maybe starting with the Ontario segment. Can you maybe give us a little bit more color on the quarter-over-quarter cost increase on the labor side? There looks to be a step-up there. Can you maybe talk about how much of that is related to the GTA facilities versus some of the other bundles?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [3]

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So I think when you look at material step-ups in costs, you should look at as one of the key metrics where gaming tables have been established. So if you remember, we introduced tables at Mohawk and Flamboro on December 19. I think it was 18 and 21. Now it's like 20 and 22, but roughly around 20 tables each, as I think we've educated everybody over the years. Labor has a much more direct correlation to table activity versus slot activity. And as you're aware and as obviously we're quite disappointed with building up some of our amenities is coming, but a bunch of that is still to come in the future. That's another place where obviously labor will increase correlated to nongaming revenues. But -- so if you look at that, you should look at our tables activity both in terms of the number of tables and then also any growth in table GGR and it would correlate up with that. We haven't increased HR materially in any other business segments.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [4]

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Okay. And then, when you -- I guess, when you take into account the weather headwind that you called out, if we're just looking at the margin profile, like did you -- was it just some underutilization that resulted and that impacted margins? How should we think about the margin of this Q1 relative to a normal Q1 if there weren't some of these headwinds that you called out?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [5]

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So this is going to be very unhelpful. We are -- we closed in 2018 both the GTA and the West GTA Bundles. And as we're looking for a normal margin in Q1, I don't think we're going to have a normal Q1 for many years. And so if you think about it, we didn't have Q1 last year at all for the West GTA. We had a partial Q1 for the GTA. And next year, I'm excited because we're anticipating the opening up of Pickering, which is a step function increase in Ontario business in Q1 of next year, which will have start-up costs, ramp-up literally in the middle of that Q1 period. And then, if you want to roll forward the following year, we're going to have a materially different operating environment in terms of GGR levels as well as amenities throughout all of our properties. So this is a very long nonanswer for you and it's not going to help your modeling, but I really don't think you should go and figure out a typical Q1 over the next 2, 3, 4 years' percentage and apply that to your model. I think you have to be more specific to the actual year on what it will look like. I'll also, I think, reinforce what I said, I believe, last call and in prior calls, as our business continues to grow and evolve going forward with the business plan that we have in place, we are going to be changing the mix of gaming revenues to nongaming revenues as we go and build out properties that were -- and still remain very gaming-centric, particularly from our perspective right now, it being very limited nongaming amenities and also I choose the more substantial properties within the GTA being both Woodbine and Mohawk. Mohawk, where we have a third party providing our food and beverage up until this point in time. That will change going forward when we build our new facility at Woodbine. So there'll be some changes in that respect. But for the time being, our direct nongaming revenues are extremely, extremely modest and very modest in relation to the ratio of gaming revenues to nongaming revenues for our Ontario business at this point in time. That will change.

As that changes, as I've mentioned, our margins will decrease over time. And I sort of apologize for that and -- I think -- but again I'll repeat it. Folks look at and value, I believe, our business based on its operating margin metrics, which I totally respect and appreciate. That being said, the journey that we're on is to grow our aggregate profitability, and we are interested on pursuing growth that will have the impact of growing aggregate profitability with a very appropriate healthy and positive ROI based on capital invested, but the net result of all of that will actually decrease our margins, our operating margins over time because a lot of these nongaming levers and amenities will be very helpful at driving the gaming revenues, but they come with much, much lower operating margins than say our slot business -- an incredible slot business and certainly our table business as well. So that's a very long-winded answer and I apologize for that, but I would really caution you to not just plunk down one operating margin and roll it out over the next 2, 3, 4, 5 years in your model.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [6]

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Okay. And then, I guess, maybe just want to clarify the commentary you gave earlier on the negotiation you had for Ajax and the 10-year extension. Was that 10 years on the initial 20 or potential for an additional 10 years on the option to extend that? If you could maybe just clarify that.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [7]

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Yes. So there's a very good alignment in the deal. And we're pleased with it. And I believe OLG is as well in terms of growing the business going forward, that the additional 10-year option is based on the extension. So there remains -- and it's almost a doubling down of the incentive and focus to get our build-out completed at Woodbine, which we are very focused and excited about. So it is attached to that extension and not the original term.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [8]

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Okay. And then, just a question on your share buyback commentary. I guess, how do you think about that for the rest of the year? Are you going to be opportunistic with it? Do you have a plan in mind for how you want to potentially buy back shares?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [9]

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So I think we always have plans in mind, and with the stock price and what the stock price does is determined by all of you, we tried very diligently to make the company be worth more every day. And certainly, as you know, we've not been shy to access returning capital to shareholders when we thought it was value creating for the remaining shareholders. And look, this is clearly a disappointing quarter, and we've got a bunch more work to do, which I can confirm for you and everybody else on the call that we are diligently working on continuing to move our business forward. If there is a short-term view that's expressed through our share price, that the value of the company is materially going down, we wouldn't necessarily subscribe to that view from management's perspective. And with our very strong balance sheet, we would absolutely look to create value for shareholders by returning some capital at hopefully attractive pricing over the next year. I would make a caveat there that our current NCIB has roughly 525,000 shares remaining as available to be purchased through what would be the earliest renewal July 2 of this year.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [10]

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Okay. And just one last from me. Can you maybe provide some commentary on what are you seeing in British Columbia? I think the revenues year-over-year were flat. Just want to understand what you're seeing in that market as you lap the regulatory environment and there's been some media reports about a peer that's not doing so well financially. So I just want to understand what you're seeing in the market from both your own trend as well as the competitive environment there?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [11]

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Certainly. So we never comment on peers, and we do have -- we share, frankly, weekly GGR revenue. So we know things about our competitors that it would be inappropriate for disclose -- to disclose. I think in terms of the business, it's actually been modestly growing out here generally, if you look back over the last year. This quarter, I think, was more tempered. I don't know if we even at management would read anything into that tempering other than calling it still a relatively stable environment. And again, I am very respectful to not comment on peers and their performance. I do think if one were to go and access public information on debt filings and whatnot, it could become, I think, more obvious that some peer issues a lot of the time are not operational in nature, they are more balance sheet in nature. I'm not saying that's necessarily totally the case, but certainly leverage sometimes makes things appear to be in a much worse position than the business is actually operationally doing.

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Operator [12]

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Your next question is from Derek Dley from Canaccord Genuity.

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Derek Dley, Canaccord Genuity Limited, Research Division - MD & Consumer Products Analyst [13]

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I think on your Q4 call, you tried to quantify what you expected the weather impact to be in terms of your EBITDA. I think it was $18 million to $19 million on the quarter. Can you give us an update on what it actually was?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [14]

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Yes. So I think we said $17 million to $18 million, and I think we were fairly close in line at the point of visibility. We had done the work. And luckily, there was not incremental material weather that followed our communication with you. So I think that would be a good assessment of the impact on the weather.

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Derek Dley, Canaccord Genuity Limited, Research Division - MD & Consumer Products Analyst [15]

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Okay. You mentioned in your MD&A that VIP play was down in B.C. and at River Rock and Hard Rock, in particular. Can you just comment on some of the trends that you've seen there? And then as well, how's the VIP performance at Woodbine been in the early days of having that offering?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [16]

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So -- yes, so VIP play is still down out here in B.C. We don't give a lot of visibility, but we have mentioned over the last few quarters post our labor disruption at Hard Rock that the table side of the business, which was frankly much less broadly dispersed at the VIP level than our River Rock business, which is obviously much more robust and large and diversified among a larger player base. So I think if you look at that number, River Rock, as we cycle through some of the changes from last January, is, order of magnitude, a little more stable. We're still having challenges rebuilding the table side of the business at Hard Rock and those challenges year-over-year continue to remain. In terms of Woodbine, I think Woodbine is deserving a bit of a conversation. It's obviously continued to do well and grow the table side of the business, which is obviously what's represented there into growth and that number. Order of magnitude, it's a much bigger driver than obviously the size and scope and scale of GBH or Brantford historically. And we've mentioned to you the less-than-satisfying traction that we've received in the table business in the early days both at Flamboro and Mohawk.

So you can look to Woodbine as a principal driver of the increase in the table business at Woodbine, which is great. And certainly, VIPs would be contributing that, but I would tell you that the tables business at Woodbine has been and continues to be much more broadly based. It doesn't have anywhere near as acute of a VIP-type weighting as, for instance, River Rock has had historically here over the years, which has also been muted in the last couple of years. But -- so the balance is different. I think it is what it is. It's also a good thing. I think it also speaks to the depth and breadth of the market. I think it also speaks to -- and look, if you've been there, Derek, you see we have, I would say, decent offerings, but really we don't have a true VIP experience. We are very amenity light and even the finishings and the overall experience really isn't VIP in nature there. So we have not -- I think our team has done a good job executing, but we're really not in the VIP business at this point in time from Woodbine's perspective.

If I can -- you didn't ask a question, but I think we should also from the slot side of the business, VIP and also more casual play, I think it's important to understand that this year, we had a very big up last year in terms of bringing the businesses on and exponential and step function changes in our financial metrics. We're really excited and looking toward the opening of our new destination resort in Pickering in Q1 of next year. The flip side of that is until then, any gains that we make will be incremental in nature at best versus exponential at a lot of these businesses. So we continue to moving forward, but because our business has gotten so much bigger, the base is so much bigger and significant, it's going to actually be much harder to materially move the needle until we have a game change in our platform through the opening of our Pickering facility next Q1.

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Derek Dley, Canaccord Genuity Limited, Research Division - MD & Consumer Products Analyst [17]

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Okay. That's great. That's very helpful and it kind of leads me into my final question just in terms of the revenue threshold, which in Ontario, as I understand, went up on April 1. I mean, I'm assuming that, that revenue threshold takes into account exactly what you just said in terms of the rollout of incremental gaming capacity and development coming online, again more skewed towards the beginning of 2020 versus 2019. How comfortable are you with the new threshold as it stands?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [18]

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Yes. So it does take that -- it doesn't take that into account. I just -- we had an amazingly growing year last year. I -- we don't like to give guidance. I just didn't want anybody to have expectations of the order of magnitude a very similar plant and equipment and level of amenities. Obviously, we continue to move things forward and we've got some exciting things literally next week in terms of Mohawk. But when you look at the size, scope and scale of our business and the threshold increase of April 1, I think this year is going to be a stable year financially and working toward some interesting improvement post the opening of Pickering next year.

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Operator [19]

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Your next question is from David McFadgen from Cormark Securities.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [20]

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Maybe, Rod, I'll just follow up on what your comment was right there, you just said 2019 is probably going to be a stable year financially. Do you mean like -- do you mean in terms of revenues and EBITDA that you expect to report?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [21]

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So we're talking more profitability. Revenues, as you've seen, have gone up quite a bit and obviously we didn't match that. That's the metric that I was referring to and I think is more relevant as we look at our business. We're not interested in making business bigger. We're interested in making our businesses be more profitable however you get there. So bigger is not necessarily better in terms of revenues.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [22]

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Okay. So when you're talking 10-year financing, I mean, like, I guess, EBITDA. Would that be the way to look at it?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [23]

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Look, I think there's various metrics for -- after expenses. I think you can look at any of those if you'd like to.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [24]

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Okay. Well, I'm just wondering what that comment refers to. If it refers to net income, earnings before tax, EBITDA? Any sort of color would be helpful.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [25]

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So it looks at all of those. And it's just a rough comment. It's not specific to any. It's a general trend. I think you just have to be careful about IFRS 16, which clearly goes and is a big assist in our reported EBITDA and it actually -- when you -- when we've gone through and you have the amortization and the implied interest costs attached to those, it actually hurts our net earnings. So I think it's a general statement. But if you look at those 2 levers, it's going to torque them each a little bit in a different direction.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [26]

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Okay. So I guess, I'm not trying to put words in your mouth, but excluding any IFRS change, then it would probably be stable. Is that correct?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [27]

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So order of magnitude, yes, it's correct. All I'm doing is, if people are modeling material increases like we had last year, I don't think that out of the current base of business that's something that is going to occur, particularly with the delays that we are experiencing here in the West GTA. That's going to hurt our math here for some amount of time as it has in this quarter.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [28]

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So just on the IFRS 16, should we take what happened in Q1 and annualize that? Is that the right way to approach it?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [29]

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Yes. So I wouldn't say I'm the biggest expert in IFRS 16, but I probably know enough to be dangerous. So what you will see over a prolonged period of time is the reversal of some of the metrics that you would have seen in this first quarter. And so I don't want to get into too many details, but just to frame that for you, the short answer is, yes, you can annualize it. The longer answer is the positive impacts on reported EBITDA of $20.8 million in the quarter will revert itself down to no positive implication in 2029 according to our current assumptions. Now the other -- and then it will flip the other way through the remaining term of the leases. There's one caveat to that. We have to -- on a regular basis, if you -- if the definitions of your leases change or if you exercise lease extension or if you change your discount rate, so there's a bunch of items that are utilized to regularly compute these amounts. And if you've made changes in your lease arrangements, then that will result in an adjustment of these amounts, so -- but I don't foresee anything along those lines in a material fashion for this year, so I think you can safely just go and multiply that by 4 for this year and not go too far on.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [30]

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Okay. Can you give us the PCE revenue that was in Q3, Q4 in this quarter? Just really help us out a lot to be able to understand what's happening with the revenue versus the GGR.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [31]

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So I think I just mentioned in Q3 that 1/3 of that delta was PCE related. And then Q4, I believe, it was a very modest, almost immaterial number like a few hundred thousand dollars. And I don't believe there was any PCE whatsoever in this quarter. And just to refresh, I'm sure you're well aware -- remember because you're very diligent. But if there's others on the call that maybe are not a renewer, PCE is a Q2 recognition period. Once we've gone through these early day -- where we closed in May 1, so West GTA didn't obviously all get recognized in that quarter. So there was some recognition in Q2, Q3 and Q4. So none in Q1. And I believe, if not all of it because I'm not 1,000% certain, but I'm almost certain that all of it should be recognized for all 3 bundles in Q2 for 2019.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [32]

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Okay. Do you have an idea on the magnitude of the amount you would recognize?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [33]

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I can't remember, but I think it's publicly disclosed already what the -- or it's not publicly disclosed? I'm getting nodded at here. So I'm going to say low $20s million, and hopefully I can disclose that and not get in trouble because it's sort of a grouping of all 3, so I'm not actually saying something I shouldn't, but order of magnitude should be low 20s of millions.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [34]

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Okay. In Q2 '19?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [35]

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Correct.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [36]

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Okay. And so it's been over 2 years now that you guys have not had a CFO. Are there any plans to get a CFO?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [37]

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There are plans. We have a search ongoing right now. Are you asking me this because my IFRS 16 number -- because the answer was not very thoughtful and comprehensive? Look, I apologize. I don't mean to be joking now. It's a serious point. And we absolutely want to continue to fill up the team. The note that I got from Matt Newsome, who's in the room as well with us right now, one of our VPs in the finance area. And so hopefully, one day, we'll have an announcement of a new senior team member to join the leadership. And again, if I can repeat it if it's a concern for somebody, I do believe we are very well served from a finance perspective and a leadership in terms of finance and accounting. Hopefully, what people have seen us do in terms of acquisitions and financing and refinancing and disclosures and all of that is more than acceptable. I think it's a high-caliber piece of work that our team puts together. But it's -- I would love to not have to have 1.5 jobs, absolutely. And so hopefully, we can find the right person, but it's about fit as opposed to throwing somebody in the box prematurely. So we're definitely working on it and we have an active search ongoing right now.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [38]

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Okay. And can you tell us what you expect the after-tax proceeds to be on the Great American sale and when you expect it to close?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [39]

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So the Great American between basically transaction costs and tax costs -- cash tax costs will be roughly USD 5 million. So less than 10% leakage on the gross purchase price.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [40]

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Okay. Okay. And then, the closing again, sorry?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [41]

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So the closing, we said it, everything is fully financed and it's agreed to. It's basically requires Washington State gaming regulatory approval, which is -- timing is uncertain. Our best expectation right now is Q3 of this year.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [42]

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Okay. And then, you gave us a bunch of details on your expectations for expanding the slots and the tables at some of the properties. I mean it would really be helpful if you could give us your best guess right now on what you think the ultimate tables and slots would be at all the properties or at least on a consolidated basis for the GTA and West GTA. Can you do that?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [43]

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So I -- I'm going to look at Matt again. Isn't it publicly disclosed the maximum caps on slots and tables and whatnot? I think...

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [44]

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We have the maximum slot, we have the max, but we don't know exactly what your expectations are. Are they to hit the max in all of them or...

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [45]

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So I wouldn't want to be held to all 11 properties on the phone here. My recollection from all of our work is that we anticipate to use in a productive fashion virtually all of the slot allocations in all of the bundles, and I think the tables as well. That being said, we have, I believe, 400 tables allocated for Woodbine and 200 tables for our Pickering facility. And I do believe we will get to a point where we will have those fully allocated. It may occur on a phased basis in terms of those tables as we launch our 2 new resort properties. So obviously, Pickering Q1 of next year, which is much more real-time. Woodbine, a couple of years to follow after that.

I think it's premature in terms of our programming as we sit here today to give you a graduated time line of the opening and rollout of those table capacities. I don't believe, although it hasn't been finalized and this is almost a year from now and a few years from now, we haven't done the work, but I would be surprised if we were going to open up on the very first day with every single table open and staffed. I just don't think that, that's a thoughtful business approach to what will be a very exciting and robust ramp-up, but there will still be a ramp-up from where we're sitting today. So where we actually get to? I think over the fullness of our -- obviously our operating agreements, which last for decades and decades and hopefully, now 42 years in the GTA versus even 32 years, we expect to absolutely use all of those capacities.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [46]

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Well, if you could just give us what you expect on opening of the redevelopment that would be really helpful, if you could just -- you could do that?

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Terrance M. Doyle, Great Canadian Gaming Corporation - President of Strategic Growth & Chief Compliance Officer [47]

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So David, this is Terrance here. And obviously, on the opening of the redevelopment at Pickering, we will be reaching the maximum number of slot machines and probably very close to the maximum number of table games at that facility within 6 months of opening. For our Woodbine facility, when that opens, we will be reaching the maximum number of slot machines, probably 3/4 of the maximum number of tables. GBH will be at the maximum number of both. At our West GTA Bundle, we will probably be at about 75% capacity on our slot machine maximum counts when those Phase 1 developments open and the table games count will probably be 70% to 80% maximum. But as Rod said, those numbers will climb over the 2 to 3 years as those facilities continue to build out. In our East bundle, we're already at maximum number of slot machines in those bundles, and we're near maximum capacity on our table capacity.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [48]

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Yes, I would ask Terrance the questions from now on and not me.

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Operator [49]

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(Operator Instructions) Your next question is from George Doumet from Scotiabank.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [50]

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Yes. I just wanted to talk about a little bit about the -- I think in your prepared remarks you'd mentioned delays in execution in the West GTA and you also mentioned the level of table gaming not really materializing. Are those two tied? Or just kind of maybe some color around there, and how long should we take -- how long should we think of those delays kind of going for?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [51]

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So yes, they are tied and lots of detail and I don't really want to get into a lot of the specifics. I think our team has done a very, very good job. As everyone knows, there's third-party approvals and we're dealing with third parties in many respects between municipality, OLG, the government, landlord as is in the case at Mohawk, we're obviously our own landlord at Flamboro. A combination of factors. Again, it all falls on us because we need to execute, but we have not been able to move things along on the time frame that we wanted. When you look at it and it's materially impacted our table game business plan and approach. And so a couple of the key things that have occurred here. And again, we were -- we're not naive and we don't like to be hopeful. But as I mentioned in my prepared remarks, build it and they will come. At Woodbine, we really had amazing, immediate and deep traction when we introduced tables there. And we thought that, that was still in the art of the possible at both Mohawk and Flamboro and it turned out to be. And so one of the challenges that we had there was, obviously, we don't have the -- we haven't got the amenities to where we wanted them to be through various reasons of delays that I don't want to get into at both properties because then it individualizes conversations with key stakeholders that frankly, we need to continue to deal with. So it's not constructive to do that, but we did and we are delayed in our amenities, which is very difficult.

We also opened up tables very quickly without short notice because we were ready to go, but we weren't authorized to proceed which meant there was no premarketing or whatnot both at Flamboro and Mohawk. We also planned on having our first launch of tables earlier when, frankly, weather was way better as opposed to December 19 when the days are very short and dark and the weather is very bad and obviously you saw in Q1. So these properties are a little bit different then. Time-wise, there's very approximate to dense population, but people still need to "drive on highways to get there as opposed to drive down the street to get to Woodbine." So I think we -- I would say, we underappreciated, maybe we're overly hopeful that launching these tables without any of the preparation and with very, very few amenities that we were hoping to be there that they would still come in droves because now we had tables that were much more proximate to where they live or work versus their other gaming options before. And frankly, we were disappointed that the traction was much less robust than we were hoping for and expected.

That being said, we're very focused on fixing everything that's been delayed here and setting ourselves up for maximum success going forward. And getting our buffet organized in some of our food experiences at Flamboro, which has been delayed for permit reasons, is coming in Labor Day, so we're going to have the buffet up and running. That's good there. We're working on a much better food and beverage offering and experience at Mohawk, which is critically important as well. So that's work in progress. I did mention the opening of level 2 at Mohawk, which we think will be an important component to growing the business.

Our time and options approach, frankly, we jammed originally 18 and now 22 tables open at Mohawk in a very low-ceiling repurposed part of the main gaming floor and got decent traction but not robust traction. We are migrating those tables upstairs to a real table game experience with 61 gaming tables in total versus the 22 downstairs, then an incremental 39, which I think will set us up for once we add property -- proper amenities and F&B experience with that. I think that sets us up for a bunch more success to get traction and grow this business in the quarters and years ahead. So I mean, that's a little bit of a -- it may be that's too long winded for you, but I wanted to make sure that you understood where we are today and how we sort of got here and our continued plan for moving the business forward in the quarters ahead.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [52]

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No. That's helpful. I was just wondering like -- the Terrance's commentary, I was just wondering why the capacity would be -- for the West GTA on the table side would be 70% to 80% and not like 100% of the total allowable tables?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [53]

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So we -- I think we've done a good job getting in business in the early days. Part of that -- part of the secret to that has been in securing existing real estate, i.e., stuff that's already built. And so at this first stage, this phase of both Woodbine and -- sorry, Flamboro and Mohawk expansions, not dissimilar to Woodbine actually, we've gone and leased more space from the third-party landlords, but frankly, gave ourselves the space that's been repurposed at Flamboro for these purposes. But the flip side of that is we didn't get all the space we needed. And so we actually have a space issue to adding that last incremental bit of capacity in the foreseeable future here. So it's really a space issue at this point in time. And obviously, if we can gain approvals and additional -- either land and/or approvals at Mohawk because we have a third-party landlord there or if we get permit approvals to expand outside the walls at Flamboro through the permit process and the business there to warrant that, then obviously we'll figure out ways to increase the capacity up to the maximum levels to take advantage of the GGR opportunities.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [54]

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Okay. No, that's good. That's helpful. And maybe just back to Woodbine as it relates to the VIP offering. I know you've been kind of busy making investments there. Just wondering what your view would be, when you would anticipate kind of the higher level of VIP play to kind of payback for some of those investments?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [55]

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So Woodbine is a phenomenal facility and it is, I think, our greatest single opportunity over the medium and longer term. I don't want to pivot everybody more than you want to be pivoted because I'll lead the horse to water, but you only drink if you want. I think if people are focused on the VIP opportunity within the GTA over the near to medium term, it's certainly management's business plan and expectations that our incredible facility out in Pickering that we're going to be opening up in Q1 of next year will afford us the best opportunity to start to mine a true VIP business and deliver a true VIP experience to our most valued guests within the GTA. So you mentioned it would be about Woodbine and Woodbine-centric, I think the team is doing a good job and is growing that business. But really doing it with at least a hand tied behind their back wherein Pickering will afford us an opportunity and we're creating an environment -- an operating environment for us but also an experiential environment that will afford VIPs a really fantastic gaming and nongaming experience as well as more casual play. So I think if you guys are looking for good VIP traction out of the GTA over the next 12 to 24 months, I think your question should start to orient more around the potential and what our plans are vis-à-vis Pickering as opposed to Woodbine, again, for -- over the short and medium term.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [56]

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Okay. That's great. Just one last one, if I may. Corporate expenses doubled for the quarter. Maybe provide some color on what happened there and should we expect that to be the new run rate going forward?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [57]

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Look, I'm not exactly happy with that. If you were -- if you looked at Q1 of last year, which was basically a flat corporate number, once I cleaned it up and reduced it 10 years ago when I first got here, I think we've done a very good job growing our business over that period while maintaining a very stable, i.e. flat corporate cost structure. The good and the bad news is we doubled, tripled the size of the business starting in January 23 through the acquisition of GTA and then the West GTA May 1 of last year. That's put us in a totally different realm of businesses that we own and operate now and that has resulted in more labor, high-value labor in order to do a good job in managing our overall business. It's also resulted in -- I shouldn't say this, but I was giving Deloitte the gears yesterday. Our business is so much bigger as you're well aware and, obviously, complexity and diversity and associated costs like our auditing fees have gone up materially. When you have more business, obviously things like -- you can't just use software, you need to always pay licenses. So when you double and triple the size of the business, things like software licenses, subscriptions, they haven't gone up on a per unit basis. We just have so many more units now that we've got costs going up like that. So that's a very long-winded answer, but I don't like our G&A costs going up by order of magnitude $4.5 million, $5 million here. But that's a part of the deal with doubling and tripling the size of our business here. So yes, I mean, that's the new, new. But we're very diligent and make sure that we get value from those cost inputs.

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Operator [58]

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Your next question is from Chris Colvin from Breach Inlet Capital.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [59]

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Going back to IFRS 16, so the $20 million effectively moved from an expense reducing EBITDA to the cash flow statement and if we're just looking at like cash basis. And you said that $20 million we can just annualize for '19 and then went into an explanation of it declining, but just from a cash basis, so it's no longer hitting EBITDA. It's not in the cash flow statement. Is that going to grow as you add -- as you continue to expand, so shouldn't the lease payments grow? Am I thinking about that right?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [60]

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So there was a whole bunch of questions there, and I'm going probably have to get you to remind me as I start answering them. So this is a noncash item in our cash flow statement because of how we segment different line items out of our cash flow and income statement, it shows up like our cash flow is higher and then it gets reduced down below out of the interest expense line. But I think you just need to back both of those out and not be confused like there's actually a change at all in the cash flow. So we still pay the rent. We don't actually own the assets. Just IFRS 16 accounting now wants to make it look like [through this] significant control that it looks like we now don't pay rent anymore and that we own it and we pay interest expense instead and we amortize it like we own the asset. We have a right to use asset in our balance sheet number. We don't actually have the actual REO, real estate owned, on our balance sheet. That's -- I think there's something similar to the U.S. non-IFRS. But if there's a nonperforming lease -- I looked at it with another company, I forget the phraseology. I think it's something similar that's used in the U.S. market at this point now as well. You got to refresh me on the other questions you were asking me to tackle.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [61]

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Yes. I think we're saying the same thing differently, but basically the lease payments, those should increase as the business grows obviously, right?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [62]

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So the lease payments will change as we go and take on more lease or if we go and -- so yes, that's the case. We have some lease payments that are participating in nature as well. And Matt, I'll look to you, do those then get adjusted if our GGR goes up? And do we have a reset in this IFRS 16 allocation or not?

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Matthew A. Newsome, Great Canadian Gaming Corporation - VP of Finance [63]

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No, the fixed payments will be fixed over the life of the lease and the variable portion will be in property management administration expenses.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [64]

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All right. Okay. So there won't be any change as our effective rental cost changes over time by the variable component of our rent, which is participating rent component that we have at a couple of our facilities.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [65]

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In that lease payment, part of that is effectively owed by your West GTA and GTA partners, right, they're paying part of that?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [66]

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Yes. So I mean, the partnerships pay all of it and we don't own all of the partnerships. So if you want to say indirectly they're paying it, they are, but the part in totality looks after all of its business and all of its revenues. But yes, if you want to allocate it out to true ownership if you upstairs the ownership, then it's just -- it's not technically all for our accounts.

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Chris Colvin, Breach Inlet Capital Management, LLC - Founder & Portfolio Manager [67]

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And then last question, you had said EBITDA or you didn't say specifically EBITDA, but I guess, I'll ask more specifically is if we look at EBITDA less your minority interest, so the EBITDA attributable to GC, you're kind of forewarning us that look, it's probably going to be roughly flat this year versus '18 because of some of the delays in these projects and the weather impact in the first quarter. Is that correct?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [68]

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I don't like to give guidance. All I was trying to do was, whether it's flat or up or down, I'm not really commenting on -- I just didn't want anybody to do step-function increases like we experienced last year. So I'm -- and I apologize for saying this much and then not following through and like fine-tuning down to what we believe internally is the last penny because honestly, we're going to be wrong in terms of the last penny in any event. So there's a lot of years still to do and a lot of exciting things going on and a lot of moons that need to line up. I was just trying to level set against order of magnitude expectations, that's all.

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Operator [69]

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Your next question is from Authi Seevaratnam from Cambridge Global Asset Management.

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Authi Seevaratnam, Cambridge Advisors - Equity Analyst [70]

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I know the U.S. assets were not overly material to the financial results of the company anymore, but can you provide context and rationale for the sale of those assets?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [71]

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Certainly. So we've had those assets since 2004. They've been good producers and we did very well with them over the course of time generating cash flow. So they served us very well. I would tell you that when our business changed over the last couple of years here in terms of our short- to medium-term focus on Ontario and the opportunities that we have there, Great American became noncore from a management perspective. And I can get into a bunch more detail, which I'm happy to do. These are good businesses, but there are also very different businesses than the rest -- virtually the rest of our assets. The rest of our assets have very long-term operating agreements in oligopolistic-type markets, where we have very close working relationships with Crown partners. And so it's a -- that's the operating model. The cardroom model in Washington state is very different. You get an annual but rolling right to operate from the local municipality and the regulator, which we've always had a role, so it's not really a rollover risk of sorts.

That being said, the municipalities down there can decide to let 14 more cardrooms open up on all on the corners. So they can decide to take that away from you if they want to as well. I would also tell you, and I've been here 10 years now, and I watched the cycle of life in Washington state and it's in a very good place now, but I watched competitors do things like introduce matchplay coupons, which -- so if I bet $100 and then the house gives me $100 to play beside that, the player loves it. Some of our less sophisticated competitors down there, I think misunderstood -- house advantage on a lot of these games is like a few percent per hand and then it adds up to a nice hold rate if people play for long period of time.

The problem is when you have other participants in the marketplace and I've witnessed this through 2 cycles in my 10 years. When competitors are trying to grow business and they don't understand what happens to your math when you offer too many free play coupons and it looked as though like a lots of guys has a chance of almost of 50-50 to either win on a $100 or not, the math when you go and you play that through means to make that back when the house loses not quite half of the time on that hand, means you got make a lot, a lot of hands to make it up. And frankly, the economics of the business for those of you that have watched it for a while, we've had EBITDA swoon twice in my 10 years. And so that's a long-winded answer to say, this is a different size, scope and scale and future growth opportunity than the rest of our business, that also has some particular sensitivities that when times are good, it's great; when times are not so good, it's actually much less good than rest of our businesses. And so now that times were good and we were generating, I think, very decent cash flow, this opportunity got created to sell that cash flow on what we think is a pretty decent multiple and we can redeploy that capital. And as I mentioned earlier, the leakage on the cost of the process and the taxes is relatively modest. So even on a net after-tax basis, we think it's -- even though I'll tell you that it's -- it was we sold this at a -- well, I think, it's probably a discount to our trading multiple. A lot of guys wouldn't sell businesses because they think it's value destructing to sell something below your multiple. I actually think we did a phenomenal job for shareholders here of monetizing the business at this amount of U.S. dollars to be repatriated and to be reinvested in our core opportunities out here in B.C. or Ontario or Atlanta Canada or other opportunities that we may pursue down the road. So very long-winded answer, but that's sort of management and the Board's thinking on our Great American journey and process up to this sale initiative.

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Authi Seevaratnam, Cambridge Advisors - Equity Analyst [72]

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That's really helpful. And I guess, how long was this something you guys were contemplating? And if I could ask, are there any other changes or areas of the portfolio that you consider noncore?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [73]

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So -- no, I think if you look at everything else that we have right now, it fits into our wheelhouse and we like it and the plan is to continue to move all of our businesses forward and hopefully make them be worth more in the future than they are today. So that was the one.

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Operator [74]

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Your next question is from Damir Gunja from TD Securities.

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Damir Gunja, TD Securities Equity Research - Director [75]

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Most of my questions have been answered. I just have a housekeeping one on the $20.8 million of IFRS 16 benefit, just to confirm how much of that would be allocated to the NCI?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [76]

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Sorry, the noncontrolling interest, is that what you just said, the NCI?

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Damir Gunja, TD Securities Equity Research - Director [77]

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Yes.

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [78]

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So what I would say is that virtually all of this is domiciled within our Ontario segment. So whatever you'd use as the NCI ratio, I would just use a similar ratio relating to the $20.8 million IFRS amount.

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Damir Gunja, TD Securities Equity Research - Director [79]

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Okay. So about $18.5 million will be like quick, rough math here?

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Rodney N. Baker, Great Canadian Gaming Corporation - President, CEO & Director [80]

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Okay.

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Operator [81]

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There's no more questions at this time. Please proceed.

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Terrance M. Doyle, Great Canadian Gaming Corporation - President of Strategic Growth & Chief Compliance Officer [82]

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Thank you, Leoni, and thanks, everyone, for participating in the call this morning. Before we conclude, I would like to remind listeners that forward-looking statements were made during this call. For those who joined midway, I encourage you to listen to the replay of this call to hear my earlier comments regarding these forward-looking statements. This replay will be available through the Investor Relations section of our website at www.gcgaming.com. This now concludes our call. Thank you.

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Operator [83]

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Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines.