Catalyst’s Gateway Casinos inks $500 mln sale-leaseback deal

Canadian gaming company Gateway Casinos & Entertainment Ltd has agreed to a sale-and-leaseback deal involving three casino properties in the Vancouver region. Under the agreement’s terms, an affiliate of Chicago financial services firm Mesirow Financial will become the landlord of the properties for more than $500 million. Several of Gateway’s subsidiaries have entered into leases for each of the properties and will continue to operate the casinos. With the deal’s close, expected in March, the company will see net proceeds of $483 million. Vancouver-based Gateway has been owned since 2010 by Canadian private equity firm Catalyst Capital Group.

PRESS RELEASE

Gateway Casinos & Entertainment Limited Announces Sale and Leaseback Transaction Valued in Excess of $500 Million

February 26, 2018

BURNABY, British Columbia–(BUSINESS WIRE)–Gateway Casinos & Entertainment Limited (“Gateway”), one of the largest and most diversified gaming and entertainment companies in Canada, announced today that in December 2017 it entered into an agreement for the sale and leaseback of certain real estate properties (the “Sale-Leaseback”) in the Greater Vancouver Regional District, including the Grand Villa Casino Burnaby, Starlight Casino New Westminster and Cascades Casino Langley. The transaction has now received regulatory approvals with the British Columbia regulators.

Under the agreement, Mesirow Realty Sale-Leaseback, Inc. (“MRSL” or affiliates thereof), the net-lease real estate investment arm of Mesirow Financial, a diversified financial services firm headquartered in Chicago, will become the landlord for the three properties for a purchase price in excess of $500 million and delivering net proceeds of $483 million to Gateway. Certain of Gateway’s wholly owned subsidiaries have entered into long term leases for each of the properties and will continue to operate the casinos under the leases, offering the same exceptional customer experience with no expected changes to employees or operations at these locations. Following the close of the Sale-Leaseback, the company will continue to hold a real estate portfolio with a book value of over $200 million and continues to evaluate real estate investment opportunities in and around its operations.

“Gateway is unmatched in the industry when it comes to the quality of its assets and strategy, strength of its financial performance and, just as importantly, the operational excellence of its management team,” said Gabriel de Alba, Gateway’s Executive Chairman. “We have dramatically changed Gateway’s performance profile, positioned it to reduce debt and expanded both the company’s top and bottom line, giving it significant opportunities for growth and a high return on capital. With strong future cash flow generation and other strategic opportunities to unlock value, Gateway is extremely well positioned to execute on its corporate strategy and deliver outstanding results over the long-term.”

“This traditional real estate transaction unlocks significant value and generates cash which the company will use to reduce debt, invest in Gateway’s growth, support new developments and job creation, and deliver value to our stakeholders,” said Tony Santo, Gateway’s Chief Executive Officer. “With robust growth, sophisticated operations and excellent customer service at our properties across the country, Gateway has established itself as the leading gaming and entertainment operator in Canada. We look forward to continuing to advance our operations and to build new community partnerships as we execute on our growth plans.”

With 25 properties – up from 12 in 2015 – Gateway has significantly expanded its footprint and portfolio. Through this growth, Gateway’s pro forma1 annual revenues, EBITDA and Free Cash Flow for the 12 months ended September 30, 2017, were approximately $590 million, $156 million, and $139 million2, respectively. Over the same period, the Company has diversified and expanded its product offering, including developing proprietary casino and restaurant brands, which has increased its operating performance and real estate value. This multi-pronged growth strategy has resulted in strong, diversified revenue growth, expanded margins and robust free cash flow, along with improved guest experiences. In addition to its strong organic growth, Gateway’s current strategic opportunities include a $57 million rebrand and renovation of the Palace Casino at the West Edmonton Mall to Starlight Casino Edmonton, a proposed $70 million local entertainment destination in Delta, renovations and rebranding at Kelowna, Chances Campbell River and Chances Courtenay, and the first Gateway redevelopment in Point Edward, Ontario, to be rebranded Starlight Casino Point Edward.

Mesirow Financial’s Sale-Leaseback Capital group arranged for the purchase of the three Gateway properties. The acquisition financing is being structured in collaboration with Mesirow Financial’s Credit Tenant Lease (CTL), as well as its Institutional Sales and Trading division.

Doug Barker, Senior Managing Director of Mesirow Financial, stated, “After having closed more than US$1.5 billion in sale-leaseback transactions in the last two years, we are excited to be closing on Mesirow Realty Sale-Leaseback’s first cross-border transaction monetizing these three exceptional and strategic assets. We look forward to partnering and forging new relationships with both Gateway and The Catalyst Capital Group Inc.”

“This transaction once again signifies the strong collaboration between our capital markets businesses. We continue to enhance our full-service platform in acquiring single-tenant properties, now internationally, complemented by our strong capabilities in debt placement,” said Dominick Mondi, President of Mesirow Financial and of its Capital Markets Division.

The Sale-Leaseback transaction is expected to close in the first half of March, subject to final documentation and customary closing conditions.

Bennett Jones LLP and Latham & Watkins LLP served as legal counsel to Gateway. Colliers International, Capital Markets Group, also advised Gateway on the transaction. MRSL is being principally represented by Goldberg Kohn and Boughton Law Corporation served as Canadian counsel. Quantum Global LLC also advised the buyer on the transaction.

About Gateway Casinos & Entertainment

Gateway Casinos & Entertainment Limited (“Gateway”) is the largest and most diversified gaming company in Canada. Operating in British Columbia, Edmonton and Ontario, Gateway has 6,000 employees and operates 25 gaming properties with 282 tables, over 9,500 slots, 68 restaurants and bars and 272 hotel rooms. As the selected service provider in Southwestern and Northern Ontario, Gateway will undertake two new planned builds in North Bay and Kenora. Gateway is undertaking an ambitious growth strategy to dramatically improve the customer experience and attract new customers. This includes the development of proprietary casino and food and beverage brands like Match Eatery & Public House and Atlas Steak + Fish. In 2017, Gateway celebrated 25 years in the business of gaming and entertainment in Canada. Further information is available at www.gatewaycasinos.com.

About The Catalyst Capital Group Inc.

The Catalyst Capital Group Inc., a private equity investment firm with more than $6 billion in assets under management founded in 2002, is a leader in operationally focused turnaround investing. The firm’s mandate is to manufacture risk adjusted returns, in keeping with its philosophy of “we buy what we can build.” Catalyst’s Guiding Principles of investment excellence through operational involvement, superior analytics, attention to detail, intellectual curiosity, team and reputation are key to the firm’s success. 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.

About Mesirow Financial:

Mesirow Financial is an independent, employee-owned firm founded in 1937. As specialists in investment, risk management and advisory services, we are committed to helping our institutional, corporate and individual clients achieve their objectives. Our professionals are inspired by an entrepreneurial desire to develop tailored solutions that deliver measurable results. To learn more, please visit mesirowfinancial.com.

1 Pro forma numbers include assumed $35mm annual sale leaseback expense
2 Defined as Corporate EBITDA less Cash Taxes less Maintenance CapEx

Contacts
Gateway:
Carrie Kormos, +1.416.456.5606
Senior Vice President, Marketing and Communications
ckormos@gatewaycasinos.com
or
The Catalyst Capital Group Inc.:
Gagnier Communications
Dan Gagnier, +1.646.569.5897
dg@gagnierfc.com

Photo courtesy of Gateway Casinos & Entertainment Ltd