Century Casinos Inc: Form 10-Q for the period ended Sep 30, 2023

Forward-Looking Statements, Business Environment and Risk Factors

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In addition, Century Casinos, Inc. (together with its subsidiaries, the “Company”) may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to industry trends and future expectations of the Company and other matters that do not relate strictly to historical facts and are based on certain assumptions by management at the time such statements are made. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in the section entitled “Risk Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. We caution the reader to carefully consider such factors. Furthermore, such forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

References in this item to “we,” “our,” or “us” are to the Company and its subsidiaries on a consolidated basis unless the context otherwise requires. The term “USD” refers to US dollars, the term “CAD” refers to Canadian dollars, and the term “PLN” refers to Polish zloty. Certain terms used in this Item 2 without definition are defined in Item 1.

Amounts presented in this Item 2 are rounded. As such, rounding differences could occur in period over period changes and percentages reported throughout this Item 2.

EXECUTIVE OVERVIEW

Overview

Since our inception in 1992, we have been primarily engaged in developing and operating gaming establishments and related lodging, restaurant and entertainment facilities. Our primary source of revenue is from the net proceeds of our gaming machines and tables, with ancillary revenue generated from hotel, restaurant, horse racing (including off-track betting), sports betting, iGaming, bowling and entertainment facilities that are in most instances a part of the casinos.

We view each region in which we operate as a separate operating segment and each casino or other operation within those markets as a reporting unit. We aggregate all operating segments into three reportable segments based on the geographical locations in which our casinos operate: United States, Canada and Poland. We have additional business activities including certain other corporate and management operations that we report as Corporate and Other.

After the Nugget Acquisition in April 2023, we evaluated our operating segments and concluded that as a result of the growth in the United States we would begin viewing our operating segments as East, Midwest and West. The reporting units, except for Century Downs Racetrack and Casino and Casinos Poland, are owned, operated and managed through wholly-owned subsidiaries. Our ownership and operation of Century Downs Racetrack and Casino and Casinos Poland are discussed below.

The table below provides information about the aggregation of our operating segments and reporting units into reportable segments.

(1) The real estate assets are owned by VICI PropCo.

(2) We operated Century Sports through February 10, 2022. See discussion below.

(3) We operated ship-based casinos through April 16, 2023.

(4) Prior to the Nugget Acquisition, our equity investment in Smooth Bourbon was included in the Corporate Other reporting unit.

After selling the casino operations of Century Casino Calgary in August 2020, we continued to own the land and building and to operate Century Sports, a sports bar, bowling and entertainment facility located on the property. In February 2022, we sold the land and building we owned in Calgary, transferred the lease agreement for the casino premises to the buyer and ceased operating Century Sports. Prior to the sale, Century Sports was included in the Canada reportable segment.

We have controlling financial interests through our subsidiary CRM in the following reporting units:

We have a 66.6% ownership interest in CPL and we consolidate CPL as a majority-owned subsidiary for which we have a controlling financial interest. Polish Airports owns the remaining 33.3% of CPL. We account for and report the 33.3% Polish Airports ownership interest as a non-controlling financial interest. CPL has been in operation since 1989. As of September 30, 2023, CPL owned and operated eight casinos throughout Poland. The following table summarizes information about CPL’s casinos as of September 30, 2023.

* We closed the casinos in Katowice and Bielsko-Biala on October 16, 2023 due to the expiration of the gaming licenses. CPL has submitted applications for new casino licenses for these locations, but licenses have not been awarded by the Polish Minister of Finance for either location. There can be no assurance that such licenses will be received. For the nine months ended September 30, 2023, the Bielsko-Biala casino generated approximately 3% and Katowice generated approximately 8% of CPL’s gaming revenue and together approximately 1.5% of our consolidated net operating revenue. CPL has also applied for a casino license in Wroclaw ahead of that license’s expiration, but the license has not yet been awarded, and there can be no assurance that such license will be received.

In September 2022, CPL transferred the casino license for the Warsaw Marriott Hotel expiring in July 2024 to the Warsaw Hilton Hotel, and CPL was granted a new license for the Warsaw Marriott Hotel expiring in September 2028. Casino licenses are granted for six years. When a casino license expires, the Polish Minister of Finance notifies the public of its availability, and interested parties can submit an application for the casino license. Following approval of a casino license by the Minister of Finance, there is a period in which applicants can appeal the decision.

We have a 75% ownership interest in CDR, and we consolidate CDR as a majority-owned subsidiary for which we have a controlling financial interest. We account for and report the remaining 25% ownership interest in CDR as a non-controlling financial interest. CDR operates Century Downs Racetrack and Casino, a REC in Balzac, a north metropolitan area of Calgary, Alberta, Canada. CDR is the only horse racetrack in the Calgary area and is located less than one-mile north of the city limits of Calgary and 4.5 miles from the Calgary International Airport.

Through our wholly owned subsidiary Century Nevada Acquisition, Inc., we have a 50% equity interest in Smooth Bourbon. Prior to the Nugget Acquisition, we reported this interest as an equity investment in the Corporate Other reportable segment. On April 3, 2023, as a result of closing the Nugget Acquisition, we began consolidating Smooth Bourbon as a subsidiary for which we have a controlling financial interest. The remaining 50% of Smooth Bourbon is owned by Marnell and is reported as a non-controlling financial interest.

We had a concession agreement for one ship-based casino through April 16, 2023. See “Corporate and Other” below.

Recent Developments Related to COVID-19

Since the inception of the COVID-19 pandemic in March 2020, our casinos varied their operations based on the governmental health and safety requirements in the jurisdictions in which they are located. The COVID-19 pandemic impacted our results of operations in 2020 and the first half of 2021, and into the first quarter of 2022 for our Canada properties. Currently, our operations have no health and safety requirements for entry and few other COVID-19 related restrictions. The duration and impact of the COVID-19 pandemic remains uncertain. We cannot predict the negative impacts that COVID-19 will have on our consumer demand, workforce, suppliers, contractors and other partners and whether future closures will be required. Such closures have had a material impact on us. The effects of COVID-19, ongoing governmental health and safety requirements and any future closures could have a material impact on us. We will continue to monitor our liquidity and make reductions to marketing and operating expenditures, where possible, if future government mandates or closures are required that would have an adverse impact on us.

Other Projects and Developments

Nugget Casino Resort in Sparks, Nevada

In February 2022, we entered into a definitive agreement with Marnell, pursuant to which we, through a newly formed subsidiary, agreed to purchase from Marnell (i) 50% of the membership interests in Smooth Bourbon, and (ii) 100% of the membership interests in Nugget. Nugget owns and operates the Nugget Casino Resort in Sparks, Nevada, and Smooth Bourbon owns the real property on which the casino is located.

We purchased 50% of the membership interests in Smooth Bourbon for approximately $95.0 million at the First Closing on April 1, 2022. We used approximately $29.3 million of cash on hand and borrowings under the Goldman Credit Agreement in connection with the First Closing. We purchased 100% of the membership interests in Nugget for approximately $104.7 million (subject to certain adjustments) at the Second Closing on April 3, 2023. In August 2023, we paid from cash on hand an additional $0.8 million related to working capital adjustments. Following the Second Closing, we own the Nugget Casino Resort and 50% of the membership interests in Smooth Bourbon. We also have a five-year option through April 1, 2027 to acquire the remaining 50% of the membership interests in Smooth Bourbon for $105.0 million plus 2% per annum. At the First Closing, Smooth Bourbon entered into a lease with Nugget for an annual rent of $15.0 million.

We accounted for the transaction as a business combination, and accordingly, the acquired assets of $256.9 million (including $6.8 million in cash) and liabilities of $194.8 million were included in our consolidated balance sheet at April 3, 2023. The Nugget Acquisition generated $43.4 million of tax deductible goodwill for the United States segment.

Rocky Gap Casino, Resort & Golf in Flintstone, Maryland

In August 2022, we entered into a definitive agreement with Golden, Lakes Maryland, a subsidiary of Golden, and VICI PropCo, pursuant to which we agreed to acquire the operations of Rocky Gap. Pursuant to a real estate purchase agreement, dated August 24, 2022, by and between Evitts and VICI PropCo Buyer, VICI PropCo Buyer agreed to acquire a related interest in the land and building associated with Rocky Gap.

On July 25, 2023, we completed the Rocky Gap Acquisition. We paid approximately $59.1 million (subject to certain adjustments), and VICI PropCo Buyer purchased a related interest in the land and building associated with Rocky Gap for approximately $203.9 million. In connection with the closing of this transaction, one of our subsidiaries and a subsidiary of VICI PropCo entered into an amendment to the Master Lease that (i) added Rocky Gap to the Master Lease, (ii) provided for an increase in initial annualized rent of approximately $15.5 million, and (iii) extended the initial Master Lease term for 15 years from the date of the amendment (subject to the existing four five-year renewal options).

We accounted for the transaction as a business combination, and accordingly, the acquired assets of $238.9 million (including $6.1 million in cash) and liabilities of $212.4 million were included in our consolidated balance sheet at July 25, 2023. The Rocky Gap Acquisition generated $32.6 million of tax deductible goodwill for the United States segment.

Canada Real Estate Sale

On May 16, 2023, we entered into definitive agreements for subsidiaries of VICI to acquire the real estate assets of the Century Canadian Portfolio. The sale was completed on September 6, 2023 for an aggregate purchase price of CAD 221.7 million ($162.6 million based on the exchange rate on September 6, 2023). We expect to retain approximately CAD 154.5 million (USD $114.6 million based on the exchange rate on September 30, 2023) of the purchase price after giving effect to the purchase of the Century Downs land that previously was subject to the CDR land lease, selling expenses, Canadian and US taxes and proceeds to be paid to the minority owners of Century Downs. The CDR land lease ended on September 6, 2023 in conjunction with the Canada Real Estate Sale. Simultaneous with the closing of the transaction, our existing Master Lease was amended to (i) add the Century Canadian Portfolio to the Master Lease, (ii) provide for an increase in initial annualized rent of approximately CAD 17.3 million ($12.8 million based on the exchange rate on September 30, 2023), and (iii) extend the initial Master Lease term such that the lease will have a full 15-year initial base lease term, with four 5-year renewal options. We recorded a loss on debt extinguishment related to the CDR land lease of CAD 9.9 million ($7.3 million based on the exchange rate on September 6, 2023) in interest expense in our condensed consolidated statements of (loss) earnings for the three and nine months ended September 30, 2023.

Recent Developments Related to Century Casino Caruthersville

The Caruthersville casino had been operating on a riverboat and barge since 1994. On October 13, 2022, the riverboat had to be closed as it was no longer accessible from the barge because of the record low water levels in the Mississippi River. On October 26, 2022, the MGC approved the relocation of the casino at Century Casino Caruthersville from the riverboat and barge to a land-based pavilion until the new land-based casino and hotel are completed (discussed below). The riverboat casino had 519 slot machines and seven table games. From October 2022 to December 2022, Caruthersville operated the casino from the barge with 299 slot machines and four table games. The move to the pavilion, which has 416 slot machines and six table games, was completed in December 2022. The pavilion building will not be affected by water levels, is protected by a flood wall and provides for easier access to the casino for customers than the riverboat. We have not experienced a negative impact on results following the move to the pavilion and have had a positive reaction from customers. The riverboat and barge were removed on February 25, 2023.

Caruthersville Land-Based Casino

We are building a new land-based casino with a small hotel. We estimate the project will cost $51.9 million. Construction started in December 2022 with completion expected in the second half of 2024. We plan to finance the cost of this project with financing provided by VICI PropCo. To finance the Caruthersville project, we entered into an amendment to the Master Lease with VICI PropCo that provided for (i) modifications with respect to certain project work to be done by the Company related to Century Casino Caruthersville, (ii) modifications to rent under the Master Lease to provide for an increase in initial annualized rent by approximately $4.2 million after completion of the Caruthersville casino project and (iii) other related modifications. Following completion, VICI PropCo will own the real estate improvements associated with the Caruthersville project. As of September 30, 2023, we have received $30.2 million from VICI PropCo and have spent approximately $16.7 million of those funds on this project.

Caruthersville Hotel

In July 2021, we announced that we had purchased land and a small two-story hotel near Century Casino Caruthersville with plans to refurbish the existing hotel’s 36 rooms. The completely renovated hotel called The Farmstead opened on October 30, 2022 with a grand opening held in December 2022. The total cost of the project was $3.6 million.

Cape Girardeau Hotel

We are building a hotel at our Cape Girardeau location. The hotel is planned as a six-story building with 68,000 square feet that will be adjacent to and connected with the existing casino building. Construction on this project began in September 2022 and is expected to be completed in the first half of 2024. We estimate the project will cost $30.5 million, and we plan to finance this cost with cash on hand. As of September 30, 2023, we have spent approximately $16.5 million on this project.

Additional Gaming Projects

We currently are exploring additional potential gaming projects and acquisition opportunities. Along with the capital needs of potential projects, there are various other risks which, if they materialize, could affect our ability to complete a proposed project or acquisition or could eliminate its feasibility altogether.

Presentation of Foreign Currency Amounts

The average exchange rates to the US dollar used to translate balances during each reported period are as follows:

We recognize in our condensed consolidated statements of (loss) earnings foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than US dollars. Our casinos in Canada and Poland represent a significant portion of our business, and the revenue generated and expenses incurred by these operations are generally denominated in Canadian dollars and Polish zloty. A decrease in the value of these currencies in relation to the value of the US dollar would decrease the earnings from our foreign operations when translated into US dollars. An increase in the value of these currencies in relation to the value of the US dollar would increase the earnings from our foreign operations when translated into US dollars.

DISCUSSION OF RESULTS

Century Casinos, Inc. and Subsidiaries

Amounts in thousands

(1) For a discussion of Adjusted EBITDA and reconciliation of Adjusted EBITDA to net earnings attributable to Century Casinos, Inc. shareholders, see “Non-US GAAP Measures – Adjusted EBITDA” below.

Items impacting comparability of the results include the following:

Nugget – We acquired the operations of the Nugget on April 3, 2023. The Nugget is reported in the United States reportable segment and contributed $32.5 million in net operating revenue and $1.3 million in net earnings attributable to Century Casinos, Inc. shareholders for the three months ended September 30, 2023, and $59.6 million in net operating revenue and $3.3 million in net earnings attributable to Century Casinos, Inc. for the nine months ended September 30, 2023. The Nugget is in a gaming jurisdiction that is new to us and we incurred additional general and administrative expenses related to the acquisition.

Rocky Gap – We acquired the operations of Rocky Gap on July 25, 2023. Rocky Gap is reported in the United States reportable segment and contributed $14.6 million in net operating revenue and ($1.4) million in net loss attributable to Century Casinos, Inc. shareholders for the three and nine months ended September 30, 2023. Rocky Gap is in a gaming jurisdiction that is new to us and we incurred additional general and administrative expenses related to the acquisition.

Canada (Real Estate Sale) – In September 2023, we completed the Canada Real Estate Sale. As part of the sale, we purchased the land at CDR for CAD 29.4 million ($21.6 million based on the exchange rate on September 6, 2023) prior to its sale to VICI. The purchase of the land at CDR resulted in a loss on debt extinguishment of CAD 9.9 million ($7.3 million based on the exchange rate as of September 6, 2023) that is recorded as interest expense in our condensed consolidated statements of (loss) earnings for the three and nine months ended September 30, 2023.

Canada (Calgary) – In February 2022, we sold the land and building that we owned in Calgary for CAD 8.0 million ($6.3 million based on the exchange rate on February 10, 2022). We recorded a loss on the sale of the land and building of CAD 2.7 million ($2.2 million based on the average exchange rate for the month ended February 28, 2022). We have received earn out payments of CAD 0.5 million ($0.3 million based on the exchange rate on September 30, 2023) and CAD 2.1 million ($1.6 million based on the exchange rate of September 30, 2023) for the three and nine months ended September 30, 2023, respectively, that are recorded to gain on sale of casino operations on our condensed consolidated statements of (loss) earnings.

COVID-19 (Canada) – Through early February 2022 we required customers to provide proof of vaccination, a negative rapid test result or an original medical exemption letter for entry to comply with a government mandate. In accordance with a government mandate, all customers and employees were required to wear masks while indoors through early March 2022. As the spread of COVID-19 slowed and these measures were lifted, we saw increased guest numbers and increased revenues in 2023 as compared to 2022.

Inflation and Staffing – We have seen material increases in our operating expenses at our properties, including payroll wages and benefits, insurance and utilities, maintenance costs and food and beverage costs. We have also experienced difficulties attracting and retaining staff at some locations in the US and Canada. As a result, we have had to adjust hours of some food and beverage outlets, the number of table games open and the number of rooms available at some of our hotels. We have been able to make adjustments during non-peak times to mitigate some of the impact to our operating results.

Deferred Financing Costs – We wrote-off approximately $7.3 million of deferred financing costs to interest expense in the second quarter of 2022 in connection with the prepayment of the Macquarie Term Loan.

Valuation Allowance – We released a $10.2 million US valuation allowance against deferred tax assets, resulting in an income tax benefit for the three and nine months ended September 30, 2022.

Results of Operations

Net operating revenue increased by $48.6 million, or 43.2%, and by $79.7 million, or 24.4%, for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022. Following is a breakout of net operating revenue by segment for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022:

United States increased by $46.1 million, or 65.2%, and by $71.4 million, or 34.6%.

Canada increased by $0.9 million, or 4.3%, and by $1.2 million, or 2.1%.

Poland increased by $1.7 million, or 7.7%, and by $7.2 million, or 11.1%.

Corporate and Other remained constant and decreased by ($0.1) million, or (53.4%).

Operating costs and expenses increased by $53.1 million, or 56.7%, and by $81.0 million, or 29.5%, for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022. Following is a breakout of operating costs and expenses by segment for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022:

United States increased by $42.7 million, or 78.5%, and by $69.2 million, or 44.2%.

Canada increased by $2.7 million, or 16.6%, and decreased by ($0.7) million, or (1.6%).

Poland increased by $3.1 million, or 16.0%, and by $8.8 million, or 14.9%.

Corporate and Other increased by $4.7 million, or 117.0%, and by $3.8 million, or 28.1%.

Earnings from operations decreased by ($5.5) million, or (27.7%), and by ($2.4) million, or (4.4%), for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022. Following is a breakout of earnings from operations by segment for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022:

United States increased by $3.5 million, or 21.2%, and by $2.1 million, or 4.3%.

Canada decreased by ($1.8) million, or (46.7%), and increased by $1.9 million, or 21.3%.

Poland decreased by ($1.4) million, or (52.2%), and by ($1.5) million, or (23.0%).

Corporate and Other decreased by ($5.8) million, or (199.9%), and by ($4.8) million, or (43.5%).

Net earnings attributable to Century Casinos, Inc. shareholders decreased by ($17.1) million, or (581.5%), and by ($29.4) million, or (244.6%), for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022. Items deducted from or added to earnings from operations to arrive at net earnings attributable to Century Casinos, Inc. shareholders include interest income, interest expense, gains (losses) on foreign currency transactions and other, income tax expense (benefit) and non-controlling interest. Increased interest expense negatively impacted net loss attributable to Century Casinos, Inc. shareholders for the 2023 periods. Interest expense increased primarily due to additional properties added to the Master Lease, increased interest rates on our Goldman Credit Agreement and $7.3 million of additional interest expense related to the CDR land lease debt extinguishment. Other items that impacted the comparability of the results are discussed above.

Pari-Mutuel

Pari-mutuel revenue includes live racing, export, advanced deposit wagering and off-track betting. Pari-mutuel expenses relate to pari-mutuel revenue and the operation of our racetracks.

Other

Other revenue and other expenses include gift shops, entertainment, bowling and spa. Other revenue also includes revenue from ATM and credit card commissions.

Non-US GAAP Measures – Adjusted EBITDA

We define Adjusted EBITDA as net earnings (loss) attributable to Century Casinos, Inc. shareholders before interest expense (income), net, income taxes (benefit), depreciation, amortization, non-controlling interest earnings (losses) and transactions, pre-opening expenses, acquisition costs, non-cash stock-based compensation charges, asset impairment costs, loss (gain) on disposition of fixed assets, discontinued operations, (gain) loss on foreign currency transactions, cost recovery income and other, gain on business combination and certain other one-time transactions. Expense related to the Master Lease is included in the interest expense (income), net line item. Intercompany transactions consisting primarily of management and royalty fees and interest, along with their related tax effects, are excluded from the presentation of net earnings (loss) attributable to Century Casinos, Inc. shareholders and Adjusted EBITDA reported for each segment. Non-cash stock-based compensation expense is presented under Corporate and Other in the tables below as the expense is not allocated to reportable segments when reviewed by our chief operating decision makers. Not all of the aforementioned items occur in each reporting period, but have been included in the definition based on historical activity. These adjustments have no effect on the consolidated results as reported under US generally accepted accounting principles (“US GAAP”). Adjusted EBITDA is not considered a measure of performance recognized under US GAAP.

Management believes that Adjusted EBITDA is a valuable measure of the relative performance of the Company and its properties. The gaming industry commonly uses Adjusted EBITDA as a method of arriving at the economic value of a casino operation. Management uses Adjusted EBITDA to evaluate and forecast the operating performance of the Company and its properties as well as to compare results of current periods to prior periods. Management believes that presenting Adjusted EBITDA to investors provides them with information used by management for financial and operational decision-making in order to understand the Company’s operating performance and evaluate the methodology used by management to evaluate and measure such performance. Management believes that using Adjusted EBITDA is a useful way to compare the relative operating performance of separate reportable segments by eliminating the above-mentioned items associated with the varying levels of capital expenditures for infrastructure required to generate revenue, and the often high cost of acquiring existing operations. Our computation of Adjusted EBITDA may be different from, and therefore may not be comparable to, similar measures used by other companies within the gaming industry.

The reconciliation of Adjusted EBITDA to net earnings (loss) attributable to Century Casinos, Inc. shareholders is presented below.

Amounts in thousands

(1) Interest expense (income), net includes interest expense of $12.0 million and $0.9 million related to the Master Lease in the United States and Canada segments, respectively, and interest expense of $0.4 million related to the CDR land lease and $7.3 million related to the debt extinguishment of the CDR land lease in the Canada segment. Cash payments related to the Master Lease and CDR land lease were $11.9 million and $0.3 million, respectively, for the period presented. The CDR land lease ended on September 6, 2023 in conjunction with the Canada Real Estate Sale.

(2) Included in the Canada segment is $0.3 million gain related to the earn out from the sale of casino operations in Calgary in 2020.

Amounts in thousands

(1) Interest expense (income), net includes interest expense of $7.2 million related to the Master Lease in the United States segment and interest expense of $0.6 million related to the CDR land lease in the Canada segment. Cash payments related to the Master Lease and CDR land lease were $8.5 million and $0.5 million, respectively, for the period presented. The CDR land lease ended on September 6, 2023 in conjunction with the Canada Real Estate Sale.

Amounts in thousands

(1) Interest expense (income), net includes interest expense of $26.4 million and $0.9 million related to the Master Lease is included in the United States and Canada segments, respectively, and interest expense of $1.4 million related to the CDR land lease and $7.3 million related to the debt extinguishment of the CDR land lease is included in the Canada segment. Cash payments related to the Master Lease and CDR land lease were $25.7 million and $1.3 million, respectively, for the period presented. The CDR land lease ended on September 6, 2023 in conjunction with the Canada Real Estate Sale.

(2) Included in the Canada segment is $1.6 million gain related to the earn out payment from the sale of casino operations in Calgary in 2020 and cost recovery income for CDR.

Amounts in thousands

(1) Interest expense (income), net includes interest expense of $21.3 million related to the Master Lease in the United States segment, interest expense of $1.7 million related to the CDR land lease in the Canada segment, and interest expense of $7.3 million related to the write-off of deferred financing costs in connection with the prepayment of the Macquarie Term Loan in the Corporate and Other segment. Cash payments related to the Master Lease and CDR land lease were $19.1 million and $1.6 million, respectively, for the period presented. The CDR land lease ended on September 6, 2023 in conjunction with the Canada Real Estate Sale.

(2) Loss of $2.2 million related to the sale of the land and building in Calgary in February 2022 is included in the Canada segment.

Non-US GAAP Measures – Net Debt

We define Net Debt as total long-term debt (including current portion) plus deferred financing costs minus cash and cash equivalents. Net Debt is not considered a liquidity measure recognized under US GAAP. Management believes that Net Debt is a valuable measure of our overall financial situation. Net Debt provides investors with an indication of our ability to pay off all of our long-term debt if it became due simultaneously. The reconciliation of Net Debt is presented below.

Amounts in thousands

Reportable Segments

The following discussion provides further detail of consolidated results by reportable segment.

Amounts in thousands

We began consolidating Nugget and Smooth Bourbon in the United States segment on April 3, 2023 following the Second Closing of the Nugget Acquisition, and we began consolidating Rocky Gap on July 25, 2023 following the closing of the Rocky Gap Acquisition.

Sports wagering in Colorado became legal in May 2020. We have partnered with sports betting operators that will conduct sports wagering under each of the three Colorado master licenses for sports wagering held by our Colorado subsidiaries. One of these mobile sports betting apps launched in July 2020, a second launched in August 2021, and the third launched in September 2022. Each agreement with the sports betting operators provides for a share of net gaming revenue and a minimum revenue guarantee each year.

We operate an internet and mobile interactive gaming application in West Virginia with two iGaming partners. The agreements provide for a share of net iGaming revenue.

The Walker’s Bluff Casino in Illinois opened in August 2023. This casino is expected to increase competition for our Missouri casinos, primarily our Cape Girardeau casino, which could have a negative impact on our results of operations in Missouri. While we saw a small decline in revenue and customer visits in the first couple of weeks of the Walker’s Bluff operations, we believe that our marketing efforts have been effective in offsetting this competition to date. Additionally, there are two potential competing casinos that may open in the Central City, Colorado market in 2024. An increase in competitors could lead to a decrease in visitors at our casinos and have a negative impact on our results of operations in Central City.

The table below provides results by operating segment within the United States reportable segment.

Amounts in millions

(1) Operating costs and expenses are calculated as total operating costs and expenses less depreciation and amortization.

Three Months Ended September 30, 2023 and 2022

The following discussion highlights results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

East – Increased net operating revenue and operating costs and expenses were due to the acquisition of Rocky Gap. Net operating revenue from existing operations in the segment decreased due to decreased gaming revenue. We have seen a decrease in gaming revenue in West Virginia, particularly in table games, since sports betting in Ohio began at the beginning of 2023. Operating expenses in West Virginia remained constant.

Midwest – Net operating revenue remained constant, as increased revenue in Missouri was offset by decreased gaming revenue in Colorado. In Missouri, increased revenue was primarily at our Caruthersville location and from hotel revenue from The Farmstead, which opened in October 2022. The decreases in gaming revenue in Colorado were offset by revenue from the third sports betting app in Colorado that launched in September 2022. Operating expenses in the Midwest operating segment increased due to increased payroll and marketing costs.

West – As a new operating segment, all increases are due to the acquisition of the Nugget on April 3, 2023.

Nine Months Ended September 30, 2023 and 2022

The following discussion highlights results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

East – Increased net operating revenue and operating costs and expenses were due to the acquisition of Rocky Gap. Net operating revenue from existing operations decreased due to decreased gaming revenue offset by increased hotel revenue from increased hotel occupancy and room rates. We have seen a decrease in gaming revenue in West Virginia, particularly in table games, since sports betting in Ohio began at the beginning of 2023. Operating expenses increased due to increased insurance costs offset by decreased gaming related expenses.

Midwest – Net operating revenue decreased due to decreased gaming revenue, primarily in Colorado. In Missouri, increased revenue was primarily at our Caruthersville location and from hotel revenue from The Farmstead, which opened in October 2022. We believe there has been some negative impact on net operating revenue by the construction projects at our Missouri properties. The decreases in gaming revenue in Colorado were offset by revenue from the third sports betting app in Colorado that launched in September 2022. Operating expenses in the Midwest increased due to increased payroll and marketing costs.

West – As a new operating segment, all increases are due to the acquisition of the Nugget on April 3, 2023.

A reconciliation of net earnings attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-US GAAP Measures – Adjusted EBITDA” discussion above.

Amounts in thousands

In February 2022, we sold the land and building we owned in Calgary, transferred the lease agreement for the casino premises to the buyer and ceased operating Century Sports, which impacts comparability of the Calgary operating segment in 2022. We have received earn out payments from the sale of the Calgary casino operations of CAD 0.5 million ($0.3 million based on the exchange rate on September 30, 2023) and CAD 2.1 million ($1.6 million based on the exchange rate of September 30, 2023) for the three and nine months ended September 30, 2023, respectively, that are recorded to gain on sale of casino operations in our condensed consolidated statements of (loss) earnings.

In late November 2022, a competing casino was relocated to a new site approximately eight miles south of Century Downs. Competition from this casino has had a negative impact on financial results at this location. In addition, in January 2022, the Alberta Gaming, Liquor and Cannabis Commission (“AGLC”) removed the moratorium on new gaming facilities. While we do not expect new gaming facilities in the markets in which we operate, an increase in competitors could have a negative impact on our results of operations in Alberta.

In February 2023, the AGLC approved a temporary increase from 15% of slot machine net sales retained by casinos to 17% effective from April 1, 2023 through March 31, 2025. The increase in the slot machine net sales retention percentage is expected to have a positive impact on net operating revenue and results of operations at our Canadian properties during this time period.

Effective August 1, 2023, the AGLC extended the operating hours for slot machines by 30 minutes on weekdays and 90 minutes on weekends.

In September 2023, we completed the Canada Real Estate Sale. As part of the sale, we purchased the land at CDR for CAD 29.4 million ($21.6 million based on the exchange rate on September 6, 2023) prior to its sale to VICI. The purchase of the land at CDR resulted in a loss on debt extinguishment of CAD 9.9 million ($7.3 million based on the exchange rate as of September 6, 2023) that is recorded as interest expense in our condensed consolidated statements of (loss) earnings for the three and nine months ended September 30, 2023.

Results in US dollars were impacted by a (2.8%) and a (4.9%) decrease in the average exchange rate between the US dollar and Canadian dollar for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022, respectively.

The tables below provide results for the Canada reportable segment.

Amounts in CAD, in millions

Amounts in USD, in millions

(1) Operating costs and expenses are calculated as total operating costs and expenses less depreciation and amortization and gain on sale of casino operations and loss on sale of assets.

Three Months Ended September 30, 2023 and 2022

The following discussion highlights results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Explanations below are provided based on CAD results.

Gaming revenue increased at all of our Canada locations, with the exception of Century Downs, due primarily to the additional 2% slot machine net sales retained starting April 1, 2023. Gaming revenue decreased at Century Downs by (CAD 0.2 million), or (2.8%), ($0.2 million, or 5.5%), due to a competitor opening close to the casino in November 2022. Operating costs and expenses increased due to increased payroll, cost of goods sold, utility costs and one-time costs of CAD 1.9 million ($1.4 million) related to the Canada Real Estate Sale.

Nine Months Ended September 30, 2023 and 2022

The following discussion highlights results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Explanations below are provided based on CAD results.

Through early February 2022 we required customers to provide proof of vaccination, a negative rapid test result or an original medical exemption letter for entry to comply with a government mandate. In accordance with a government mandate, all customers and employees were required to wear masks while indoors through early March 2022.

Gaming revenue increased at all of our Canada locations, with the exception of Century Downs, due to the COVID-19 restrictions lifting. In addition, gaming revenue increased due to the additional 2% slot machine net sales retained starting April 1, 2023. Gaming revenue decreased at Century Downs by (CAD 0.9 million), or (6.1%), ($1.2 million, or 10.4%), due to a competitor opening close to the casino in November 2022. Operating costs and expenses increased due to increased payroll and marketing costs, cost of goods sold, utility costs and one-time costs of CAD 1.9 million ($1.4 million) related to the Canada Real Estate Sale. In February 2022, we ceased operating Century Sports, which contributed to a decrease in net operating revenue of (CAD 0.3 million) ($0.3 million) and decreased operating costs and expenses of (CAD 0.3 million) ($0.3 million) for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

A reconciliation of net earnings attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-US GAAP Measures – Adjusted EBITDA” discussion above.

Amounts in thousands

In Poland, casino gaming licenses are granted for a term of six years. These licenses are not renewable. Before a gaming license expires, there is a public notification of the available license and any gaming company can apply for a new license for that city. CPL was awarded a casino gaming license in the Warsaw market which it is currently using at the casino in the Warsaw Marriott. In September 2022, CPL transferred the casino license for the Warsaw Marriott Hotel expiring in July 2024 to the Warsaw Hilton Hotel, and CPL was granted a new license for the Warsaw Marriott Hotel expiring in September 2028.

We closed the casinos in Katowice and Bielsko-Biala on October 16, 2023 due to the expiration of the gaming licenses. CPL has submitted applications for casino licenses in these cities. At the time of filing licenses have not been awarded by the Polish Minister of Finance for either location. There can be no assurance that such licenses will be received. For the nine months ended September 30, 2023, the Bielsko-Biala casino generated approximately 3% and Katowice generated approximately 8% of CPL’s gaming revenue and together approximately 1.5% of our consolidated net operating revenue. The next license expiration for a CPL casino occurs in November 2023 in Wroclaw. CPL has also applied for a casino license in Wroclaw ahead of that license’s expiration, but the license had not yet been awarded. There can be no assurance that such license will be received.

Results in US dollars were impacted by a 12.0% and 3.6% increase in the average exchange rate between the US dollar and Polish zloty for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.

The tables below provide results for the Poland reportable segment.

Amounts in PLN, in millions

Amounts in USD, in millions

Three Months Ended September 30, 2023 and 2022

The following discussion highlights results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Explanations below are provided based on PLN results.

Net operating revenue decreased primarily due to decreased gaming revenue primarily at our Bielsko-Biala, Krakow and Marriott Warsaw locations. Operating costs and expenses increased due to an increase in payroll costs offset by decreased gaming-related expenses.

Nine Months Ended September 30, 2023 and 2022

The following discussion highlights results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Explanations below are provided based on PLN results.

Net operating revenue increased primarily due to increased gaming revenue. We saw an increase in revenue throughout 2022 and into 2023 as COVID-19 related travel restrictions lessened. Operating costs and expenses increased due to an increase in payroll costs, marketing expenses and gaming-related expenses.

A reconciliation of net earnings attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-US GAAP Measures – Adjusted EBITDA” discussion above.

Amounts in thousands

The table below illustrates the ships operating during the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, 2023 and 2022

The following discussion highlights results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Net operating revenue decreased due to the remaining ship-based casino contract ending in April 2023. General and administrative expenses increased by $4.7 million, or 121.6%, due primarily to increased payroll and acquisition costs. Earnings from equity investment relates to income from our 50% membership interest in Smooth Bourbon prior to its consolidation in the United States reportable segment on April 3, 2023.

Nine Months Ended September 30, 2023 and 2022

The following discussion highlights results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Net operating revenue decreased due to the remaining ship-based casino contract ending in April 2023. General and administrative expenses increased by $3.9 million, or 30.4%, due primarily to increased payroll and professional service expenses and acquisition costs. Earnings from equity investment relates to income from our 50% membership interest in Smooth Bourbon prior to its consolidation in the United States reportable segment on April 3, 2023.

A reconciliation of net loss attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-US GAAP Measures – Adjusted EBITDA” discussion above.

Non-Operating Income (Expense)

Non-operating income (expense) was as follows:

Amounts in thousands

Interest income

Interest income is directly related to interest earned on our cash reserves and the Acquisition Escrow. The Acquisition Escrow was used to fund the Nugget Acquisition on April 3, 2023.

Interest expense

Interest expense is directly related to interest owed on our borrowings under our Goldman Credit Agreement, Macquarie Credit Agreement, our financing obligation with VICI PropCo, our CPL and CRM borrowings, our capital lease agreements and interest expense related to the CDR land lease. We recorded a loss on debt extinguishment related to the CDR land lease of CAD 9.9 million ($7.3 million based on the exchange rate on September 6, 2023) in interest expense in our condensed consolidated statements of (loss) earnings for the three and nine months ended September 30, 2023. We wrote off approximately $7.3 million of deferred financing costs to interest expense in the second quarter of 2022 in connection with the prepayment of the Macquarie Term Loan. Increases in interest expense were due to increased interest rates on our Goldman Credit Agreement, interest on the Revolving Facility with Goldman from July to September 2023 and increased interest related to the addition of Rocky Gap and the Century Canadian Portfolio to the financing obligation with VICI.

Gain on foreign currency transactions, cost recovery income and other

CDR received cost recovery income of $3.5 million for the nine months ended September 30, 2023 related to infrastructure built during the development of the Century Downs REC project. The distribution to CDR’s non-controlling shareholders through non-controlling interest is part of a credit agreement between CRM and CDR. Cost recovery income of $1.9 million was received by CDR for the nine months ended September 30, 2022.

Taxes

Income tax expense is recorded relative to the jurisdictions that recognize book earnings. During the nine months ended September 30, 2023, we recognized an income tax benefit of ($1.3) million on pre-tax loss of ($11.4) million, representing an effective income tax rate of 11.8% compared to an income tax benefit of ($8.1) million on pre-tax income of $8.6 million, representing an effective income tax rate of (94.1%) for the same period in 2022. For further discussion of our effective income tax rates and an analysis of our effective income tax rate compared to the US federal statutory income tax rate, see Note 8, “Income Taxes,” to our condensed consolidated financial statements included in Part I, Item 1 of this report.

LIQUIDITY AND CAPITAL RESOURCES

Our business is capital intensive, and we rely heavily on the ability of our casinos to generate operating cash flow. We use the cash flows that we generate to maintain operations, fund reinvestment in existing properties for both refurbishment and expansion projects, repay third party debt, and pursue additional growth via new development and acquisition opportunities. When necessary and available, we supplement the cash flows generated by our operations with either cash on hand or funds provided by bank borrowings or other debt or equity financing activities.

Cash Flows – Summary

Our cash flows; cash, cash equivalents and restricted cash; and working capital consisted of the following:

Amounts in thousands

Amounts in thousands

(1) Cash, cash equivalents and restricted cash as of September 30, 2022 includes $100.1 million related to the Acquisition Escrow.

(2) Working capital is defined as current assets minus current liabilities and includes the $100.1 million related to the Acquisition Escrow as of September 30, 2022.

Operating Activities

Our cash flows from operations have historically been positive and sufficient to fund ordinary operations. Trends in our operating cash flows tend to follow trends in earnings from operations, excluding non-cash charges. Please refer to the condensed consolidated statements of cash flows in Part I, Item 1 of this Form 10-Q and to management’s discussion of the results of operations above in this Item 2 for a discussion of earnings from operations.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2023 consisted of $98.8 million to acquire the Nugget, net of cash, $53.0 million to acquire Rocky Gap, net of cash, $0.4 million for slot machine purchases, $0.2 million in gaming-related purchases and $1.1 million in various improvements to the Mountaineer property in West Virginia, $0.8 million in gaming related purchases in Maryland, $13.7 million for our hotel project in Cape Girardeau, $14.5 million for our casino project in Caruthersville, $1.3 million in improvement projects for the temporary casino in Caruthersville, $0.2 million for our stand-alone hotel project in Caruthersville, $0.7 million for slot machine purchases and $0.4 million for surveillance equipment at our Missouri properties, $2.7 million for slot machine purchases and $1.1 million in exterior improvements in Nevada, $0.6 million for slot machine purchases, $0.1 million in gaming-related purchases and $0.1 million in camera upgrades at our Colorado properties, $1.4 million in slot machine purchases in Poland, $0.4 million related to adding sportsbooks at our Canada properties and $2.4 million in other fixed asset additions at our properties, offset by $1.6 million in proceeds from the earn out related to the sale of casino operations in Calgary in 2020, $2.3 million in dividends from Smooth Bourbon, $0.1 million in proceeds from the disposition of assets, and $0.5 million in cash due to consolidating Smooth Bourbon following the Nugget Acquisition.

Net cash used in investing activities for the nine months ended September 30, 2022 consisted of $95.0 million for the purchase of the 50% equity interest in Smooth Bourbon, $0.4 million for a casino license in Poland, $1.6 million for slot machine purchases, $0.2 million in gaming-related purchases, $0.1 million for outdoor pool and patio furniture and $0.1 million for hotel carpet in West Virginia, $0.9 million for our hotel remodel in Cape Girardeau, $1.3 million for our casino project in Caruthersville, $1.9 million for our stand-alone hotel project in Caruthersville, $1.5 million for slot machine purchases at our Missouri properties, $0.4 million for slot machine purchases, $0.2 million in gaming-related purchases and $0.2 million in camera upgrades at our Colorado properties, $0.6 million for employee housing in Cripple Creek, $0.7 million in slot machine and table game purchases in Poland, $0.2 million for carpet at Century Downs and $3.0 million in other fixed asset additions at our properties, offset by $6.3 million in proceeds from the sale of the land and building in Calgary, $1.0 million in dividends from Smooth Bourbon and $0.1 million in proceeds from the disposition of assets.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2023 consisted of $162.6 million in proceeds from the Canada Real Estate Sale and $0.1 million in proceeds from the exercise of stock options, offset by $0.6 million in principal payments, net of proceeds from borrowings, $1.3 million to repurchase shares to satisfy tax withholding related to our performance stock unit awards and $12.9 million in distributions to non-controlling interests.

Net cash provided by financing activities for the nine months ended September 30, 2022 consisted of $179.9 million in proceeds from borrowings net of principal payments and $0.3 million in proceeds from the exercise of stock options, offset by $18.9 million in payments of deferred financing costs, $0.4 million to repurchase shares to satisfy tax withholding related to our performance stock unit awards and $2.4 million in distributions to non-controlling interests in CDR and CPL.

Borrowings and Repayments of Long-Term Debt and Lease Agreements

As of September 30, 2023, our total debt under bank borrowings and other agreements, net of $14.8 million related to deferred financing costs, was $333.1 million, of which $328.2 million was long-term debt and $4.9 million was the current portion of long-term debt. The current portion relates to payments due within one year under our Goldman Credit Agreement and the UniCredit Term Loan. On April 1, 2022, we entered into the Goldman Credit Agreement which provides for a $350.0 million Term Loan and a $30.0 million Revolving Facility. We drew the $350.0 million under the Goldman Term Loan on April 1, 2022 and used the proceeds as well as approximately $29.3 million of cash on hand to fund the Nugget Acquisition, repay the $166.2 million outstanding on the Macquarie Credit Agreement, and for related fees and expenses. We drew $30.0 million under the Revolving Facility on our Goldman Credit Agreement on July 20, 2023 for the Rocky Gap Acquisition and repaid the Revolving Facility in full on September 21, 2023. For a description of our debt agreements, see Note 5, “Long-Term Debt” to our condensed consolidated financial statements included in Part I, Item 1 of this report. Net Debt was $158.9 million as of September 30, 2023 compared to $268.0 million as of September 30, 2022. The decrease in net debt is due to increased cash from the Canada Real Estate Sale and decreased debt due to the purchase of the land that was subject to the land lease at CDR in conjunction with the Canada Real Estate Sale. The CDR land lease was treated as a financing obligation. For the definition and reconciliation of Net Debt to the most directly comparable US GAAP measure, see “Non-US GAAP Measures – Net Debt” above.

The following table lists the amount of remaining 2023 maturities of our debt:

Amounts in thousands

(1) The Term Loan under the Goldman Credit Agreement requires scheduled quarterly payments of $875,000, equal to 0.25% of the original aggregate principal amount of the Term Loan, with the balance due at maturity.

The following table lists the amount of remaining 2023 payments due under our operating and finance lease agreements:

Amounts in thousands

As of September 30, 2023, cash payments due under the Master Lease for the remainder of 2023 are $10.5 million, which includes a CPI increase and increased rent related to the Rocky Gap Acquisition and Canada Real Estate Sale (both discussed below). Cash payments to the non-controlling partners under the lease between Smooth Bourbon and Nugget for the remainder of 2023 are $1.9 million. We estimate cash payments due under the Master Lease for 2024 to be $54.5 million. This amount does not include an estimated CPI increase.

Common Stock Repurchase Program

Since March 2000, we have had a discretionary program to repurchase our outstanding common stock. The total amount remaining under the repurchase program was $14.7 million as of September 30, 2023. We did not repurchase any common stock during the nine months ended September 30, 2023. The repurchase program has no set expiration or termination date.

Potential Sources and Uses of Liquidity and Short-Term Liquidity

Historically, our primary source of liquidity and capital resources has been cash flow from operations. As of September 30, 2023, we had $189.0 million in cash and cash equivalents compared to $101.8 million in cash and cash equivalents at December 31, 2022. Cash and cash equivalents increased primarily due to the Canada Real Estate Sale. We expect to retain approximately CAD 154.5 million (USD $114.6 million based on the exchange rate on September 30, 2023) of the purchase price from the Canada Real Estate Sale after giving effect to the purchase of the Century Downs land that previously was subject to the CDR land lease, selling expenses, Canadian and US taxes and proceeds to be paid to the minority owners of Century Downs. As of December 31, 2022, we also had $100.2 million of restricted cash in the Acquisition Escrow. The Acquisition Escrow was used to fund the Nugget Acquisition at the Second Closing on April 3, 2023. When necessary and available, we supplement the cash flows generated by our operations with funds provided by bank borrowings or other debt or equity financing activities. As of September 30, 2023, we had $30.0 million available on our Revolving Facility.

Impact of COVID-19

The duration and impact of the COVID-19 pandemic remains uncertain. We cannot predict the negative impacts that COVID-19 will have on our consumer demand, workforce, suppliers, contractors and other partners, and, whether future closures will be required. While the severity and duration of such business impacts cannot currently be estimated, the effects of COVID-19, governmental health and safety requirements and any future closures are expected to have a material impact on our business. We will continue to monitor our liquidity and make reductions to marketing and operating expenditures, where possible, if future government mandates or closures are required that would have an adverse impact on our cash flows, liquidity and results of operations.

Planned Projects, the Nugget Acquisition, the Rocky Gap Acquisition and Canada Real Estate Sale

Planned capital expenditures for the remainder of 2023 include approximately $15.5 million in gaming equipment and renovations to various properties and security system upgrades. We are constructing a new land-based casino with a small hotel adjacent to and connected with the existing pavilion building at Century Casino Caruthersville. Construction began in December 2022 with completion expected in late 2024. We estimate this project will cost $51.9 million. The project is being financed with financing provided by VICI PropCo. As of September 30, 2023, we have received $30.2 million from VICI PropCo and have spent approximately $16.7 million of those funds on this project. We estimate that we will spend approximately $22.5 million on this project in the remainder of 2023. We are also building a hotel at our Cape Girardeau location. Construction began in September 2022 and is expected to be completed in the first half of 2024. We estimate this project will cost approximately $30.5 million. We plan to fund the project with cash on hand. As of September 30, 2023, we have spent approximately $16.5 million on this project. We estimate that we will spend approximately $5.9 million on this project in the remainder of 2023.

On April 3, 2023, we purchased 100% of the membership interests in Nugget for approximately $104.7 million using the funds in the Acquisition Escrow and cash on hand. On August 29, 2023, we paid an additional $0.8 million in working capital adjustments. We also have a five-year option to acquire the remaining 50% of the membership interests in Smooth Bourbon for $105.0 million plus 2% per annum.

On July 25, 2023, we completed the Rocky Gap Acquisition for approximately $59.1 million (subject to certain adjustments). In connection with the closing of this transaction one of our subsidiaries and a subsidiary of VICI PropCo entered into an amendment of the Master Lease that provides for an increase in initial annualized rent of approximately $15.5 million. We borrowed $30.0 million from the Revolving Facility on July 20, 2023 to fund the Rocky Gap Acquisition along with cash on hand. The Revolving Facility was repaid on September 21, 2023.

On September 6, 2023, we completed the Canada Real Estate Sale with VICI and received, net of the CDR land purchase and closing costs, CAD 190.9 million ($140.1 million based on the exchange rate on September 6, 2023) in cash. We expect to retain approximately CAD 154.5 million (USD $114.6 million based on the exchange rate on September 30, 2023) of the purchase price after giving effect to the purchase of the Century Downs land that previously was subject to the CDR land lease, selling expenses, Canadian and US taxes and proceeds to be paid to the minority owners of Century Downs. Simultaneous with the closing of the transaction, our Canadian subsidiaries and subsidiaries of VICI PropCo entered into an amendment of the Master Lease that provides for an increase in initial annualized rent of approximately CAD 17.3 million ($12.8 million based on the exchange rate on September 30, 2023).

We may be required to raise additional capital to address our liquidity and capital needs. We have a shelf registration statement with the SEC that became effective in June 2023 under which we may issue, from time to time, up to $100 million of common stock, preferred stock, debt securities and other securities.

If necessary, we may seek to obtain further term loans, mortgages or lines of credit with commercial banks or other debt or equity financings to supplement our working capital and investing requirements. Our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. A financing transaction may not be available on terms acceptable to us, or at all, and a financing transaction may be dilutive to our current stockholders. The failure to raise the funds necessary to fund our debt service and rent obligations and finance our operations and other capital requirements could have a material and adverse effect on our business, financial condition and liquidity.

We estimate that approximately $132.9 million of our total $189.0 million in cash and cash equivalents at September 30, 2023 is held by our foreign subsidiaries, of which $117.3 million is held by our Canadian subsidiaries, and is not available to fund US operations unless repatriated. With the completion of the Canada Real Estate Sale, we do not currently intend to permanently reinvest approximately $40.0 million of earnings and profits from the Canadian subsidiaries, which would be available for repatriation. In anticipation of the potential repatriation, which would generally be exempt from taxation in the United States, we recorded a deferred tax liability of $2.9 million for the required foreign tax withholding associated with the repatriation. For further discussion of the deferred tax liability associated with the repatriation of earnings in Canada, see Note 8, “Income Taxes.” Management does not currently anticipate a need or intend to repatriate earnings from other foreign jurisdictions.

Critical Accounting Estimates

As of the filing date of this report, there were no significant changes in our critical accounting estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2022. See Note 2 to our Unaudited Condensed Consolidated Financial Statements for accounting pronouncements issued but not yet adopted that may impact the Company’s consolidated financial position, earnings, cash flows or disclosures.

We had no material changes in our exposure to market risks from that previously reported in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.

Evaluation of Disclosure Controls and Procedures – Our management, with the participation of our principal executive officers and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, for the period covered by this report. Based on such evaluation, our principal executive officers and principal financial officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting – Our management has initiated the process of reviewing and implementing financial internal controls on the operations associated with the Nugget, which was acquired in April 2023, and Rocky Gap, which was acquired in July 2023.

Other than the foregoing, there have not been any changes in our internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.