MGE NIAGARA RESORTS

12 Months Ended

Sep. 30, 2020

MGE NIAGARA RESORTS:

In September 2018, MGE Niagara was selected by the OLG to be the service provider for the MGE Niagara Resorts. On June 11, 2019 (the “Closing Date”), MGE Niagara completed the acquisition of the MGE Niagara Resorts (the “Acquisition”), assumed the day-to-day operations of the properties under the terms of the COSA and engaged in a series of transactions related thereto, including:

•a lease agreement with the OLG to lease the Fallsview Casino Resort and related administrative office space. This lease agreement requires MGE Niagara to make monthly payments of 2.2 million Canadian dollars ($1.6 million as of September 30, 2020) until the end of the lease term on March 31, 2040. This lease is classified as an operating lease.

•a lease agreement with a third-party investor to lease Casino Niagara and related license agreements to operate an adjacent parking lot and the right for patrons to use an adjacent parking garage. This lease agreement requires MGE Niagara to make monthly payments of approximately 500,000 Canadian dollars (approximately $374,000 as of September 30, 2020) until the end of the lease term on March 31, 2040 in exchange for the rights under the lease and licenses. The present value of the future payments was allocated to the respective rights based upon their relative fair value as follows: (i) 36.9 million Canadian dollars ($27.6 million as of September 30, 2020) towards the Casino Niagara lease, which is classified as a finance lease, (ii) 6.9 million Canadian dollars ($5.2 million as of September 30, 2020) towards an intangible asset, which is being amortized over the term of the lease on a straight-line basis and (iii) the residual allocation of the payments is classified as an operating land lease.

•a commitment to enter into a lease agreement with a third-party to lease the Niagara Falls Entertainment Centre on a date after the completion of its construction. The Company was deemed, for accounting purposes only, to be the owner of this construction project, despite not being the legal owner prior to the completion of construction. Accordingly, the Company capitalized 119.6 million Canadian dollars ($90.3 million as of September 30, 2019) for amounts paid as a build-to-suit asset within property and equipment, net and recorded a corresponding build-to-suit liability. As of October 1, 2019, the adoption of ASU 2016-02 resulted in the derecognition of the build-to-suit asset and related liability. On June 5, 2020, MGE Niagara received notice from the landlord of the Niagara Falls Entertainment Centre that construction of the facility had reached substantial completion. Accordingly, MGE Niagara entered into an agreement to lease the facility commencing on August 19, 2020. This agreement requires MGE Niagara to make monthly payments of 900,000 Canadian dollars (approximately $673,000 as of September 30, 2020) until the end of the lease term on March 31, 2040. This lease is classified as an operating lease.

As of the Closing Date, the purchase price of the Acquisition was approximately 96 million Canadian dollars (approximately $72 million), net of cash acquired of approximately 57 million Canadian dollars (approximately $43 million). During the fiscal year ended September 30, 2020, the Company recorded adjustments to the purchase price of the Acquisition totaling 2.2 million Canadian dollars ($1.7 million), net of cash acquired of approximately 518,000 Canadian dollars (approximately $390,000). MGE Niagara funded the Acquisition with proceeds from borrowings under a 100.0 million Canadian dollar term loan facility, the issuance of a 40.0 million Canadian dollar convertible debenture to a third-party investor and a 60.0 million Canadian dollar investment by the Company. The Acquisition was accounted for as a purchase of a business under the acquisition method of accounting in accordance with guidance provided by ASC Topic 805, “Business Combinations”.

The following table summarizes the allocation of the total purchase price to the estimated fair values of the assets acquired and liabilities assumed (in thousands):


	Purchase Price
Accounts receivable	$	1,448
Inventories	3,410
Other current assets	15,983
Property and equipment	50,282
Intangible asset	16,689
Due to Ontario Lottery and Gaming Corporation	1,525
Other current liabilities	(15,384)
Total	$	73,953

As a result of the temporary suspension of operations that stemmed from Regulation 82/20, the Emergency Management and Civil Protection Act mandated the closure of all places of non-essential business in Ontario. In collaboration with the OLG, the following has been temporarily agreed to for a defined period, subject to further extension(s) on mutual agreement: (i) the continuation of the service provider base fixed fee payments as required by the COSA and (ii) the temporary suspension of the payment of the portion of gaming revenues that represents the threshold, such that threshold payments do not apply during the casino closure period while there are no gaming revenues. MGE Niagara has also agreed with the OLG to work on a graduated and commercially reasonable phase-in of threshold payments to accommodate the extended business ramp up periods once health concerns are curtailed and approvals are obtained to reopen the MGE Niagara Resorts. In addition, in collaboration and cooperation with the OLG, MGE Niagara will work on a casino restart plan to effect the safe, orderly, efficient and commercially reasonable restart of the MGE Niagara Resorts’ operations at the end of the extended casino closure periods. Additionally, MGE Niagara was granted a deferral of rental payments due under certain of its lease agreements.