Gamehost Income Fund- Reports 2010 Q2 Interim Financial Results

RED DEER, ALBERTA–(Marketwire – Aug. 16, 2010) – Gamehost Income Fund (the “Fund”) (TSX:GH.UN)

Management and Trustees of Gamehost Income Fund (the “Fund”) are pleased to present results for the six months ended June 30, 2010 (the “Period”) and three months ended June 30, 2010 (the “Quarter”).

More of a Good Thing

During the Quarter the Fund acquired an additional 51% of the Deerfoot Joint Venture (the “Acquisition”) The Fund now owns 91% of the Deerfoot Joint Venture and controlling interest from the pre-Acquisition interest of 40%. Obtaining controlling interest in the Deerfoot Joint Venture necessitates a change in accounting and reporting methodology. Post-acquisition, the Fund reports 100% of the Deerfoot Joint Venture results. An offsetting 9% of the Deerfoot Joint Venture’s results are reported as a single line on the balance sheet and income statement indicating a non-controlling interest (NCI) in equity and net operating results respectively. The acquisition was funded by a $55 million convertible debenture offering and is immediately accretive to the Fund.

The New Order

Quarterly revenues inclusive of a NCI totaled $16.2 million compared to $12.1 million for the same quarter in 2009, a 34% increase credited largely to the Acquisition. 

EBITDA inclusive of a NCI for the Quarter gained $1.2 million to $6.6 million compared to $5.4 million for the same quarter in 2009, a 22% increase credited mostly to the Acquisition. Versus the previous year EBITDA margins were lower for the Quarter by 5%. It should be expected that lower EBITDA margins will continue on an ongoing basis due to the Acquisition of the additional interest in the Deerfoot Joint Venture. The Deerfoot Joint Venture operates at lower EBITDA margins than other Fund properties due to its more complex operation of owner operated food, beverage and banquet operations. While the Deerfoot property may have the effect of reducing overall Fund EBITDA margins its contribution on a dollar basis is significant. The Deerfoot property produces nearly as much EBITDA as all other Fund properties combined. One-time costs of $0.6 million associated with the Acquisition were expensed during the Quarter further affecting EBITDA margins.

Piece Meal

Results for the Quarter at Boomtown Casino were flat to last year. We’ll take that all day long after a lengthy string of quarterly declines. Most of recent news about the oils sands, on which our Boomtown Casino thrives, is negative and has been intensified following the oil spill in the Gulf of Mexico. Nevertheless, the oil sands remain a critically important supply source for the world. The magnifying glass currently focused on the oil sands will eventually prove to be positive on many fronts as pressure mounts to improve the ecological impacts from extraction. The oil sands are a politically friendly source of energy for an energy dependent North America. The industry provides thousands of direct jobs in Alberta and increasingly indirect jobs including those in green technologies. For these reasons we believe firmly in continued and improving success of our Boomtown Casino.

Industrial activity in the Grande Prairie area is picking up and despite increased hotel capacity added to the market area over the last few years, quarterly results for our Service Plus hotel turned positive in the Quarter after too many quarters of decline. We are hopeful that what we are seeing at the Service Plus will soon be the story at Great Northern Casino. Results there were still down marginally year over year for the Quarter.

In Calgary, results are providing reason for optimism. Hotel and convention business at the Deerfoot Joint Venture showed quarterly growth year over year and quarter over quarter. More significantly, slot business volumes at the Deerfoot Joint Venture, our most important performance indicator, showed good year over year and quarter over quarter growth as well. 

We are bullish on the long term prospects for the Deerfoot Joint Venture. The southeast quadrant of the city continues to be one of the hottest areas of commercial and residential growth in the city. The South Health Campus, a new 155,000 square metre hospital project located south of the Deerfoot Joint Venture on 44 acres is slated to be one of the largest health facilities in North America on completion. Phase 1 construction currently underway is valued at $1.25 billion. The project will draw a host of additional commercial and residential development to its surrounding area bringing thousands more people to the market area of the Deerfoot Joint Venture. 

Corporation Bound

At the Annual Special General Meeting of the Fund held April 30, 2010 in Calgary, the Fund received approval on a plan of arrangement (the “Arrangement”) that will see the Fund convert to a corporation (“Gamehost Inc”) no later than January 2011. As a corporation, distributions will receive a more favourable tax treatment as eligible dividends compared to income distributions from the present trust model. The Arrangement together with the Acquisition and an improving economy sets the stage for sustaining distributions at their current rate of $0.0733 per unit for the foreseeable future.

Consolidated Balance Sheets     
  (unaudited)  (audited)
  June 30, 2010  December 31, 2009
Assets     
 Current assets:     
 Cash and cash equivalents$16,418,683 $9,973,895
 Restricted cash 87,206  67,700
 Accounts receivable 1,424,565  827,504
 Inventories 483,060  305,488
 Prepaid expenses 854,938  175,278
  19,268,452  11,349,865
 Property, plant and equipment 90,869,281  31,007,914
 Licenses 19,000,000  
 Goodwill 48,852,216  42,579,216
 $177,989,949 $84,936,995
      
Liabilities and unit holder equity     
 Current liabilities:     
 Accounts payable and accrued liabilities$4,541,580 $2,198,254
 Revolving credit lines 6,000,000  6,000,000
 Demand loans 24,313,111  17,250,076
 Unit holder distributions payable 2,148,493  1,547,184
  37,003,184  26,995,514
      
 Debentures payable 47,687,395  
      
 Future income taxes 1,065,038  1,523,866
      
  85,755,617  28,519,380
 Class B limited partnership equity 38,192,112  25,977,980
  123,947,729  54,497,360
      
 Non-controlling interest 8,197,324  
      
 Unit holders’ equity 45,844,896  30,439,635
 $177,989,949 $84,936,995
      
Consolidated Statements of Income and Comprehensive Income 
  (unaudited)  (unaudited) 
  six months ended June 30  three months ended June 30 
  2010  2009  2010  2009 
Revenue            
 Hotel – rooming$4,223,213 $3,479,046 $2,549,639 $1,466,941 
 Table games 4,172,658  4,323,203  2,342,158  2,108,937 
 Slot machines 10,454,404  9,658,047  5,954,153  4,874,959 
 Food and beverage services 6,611,110  5,353,704  3,940,741  2,565,099 
 Lease and rental 196,792  175,094  98,191  88,654 
 Other 2,262,258  1,989,106  1,318,448  1,000,365 
  27,920,435  24,978,200  16,203,330  12,104,955 
Operating Expenses            
 Cost of goods sold 2,055,665  1,663,916  1,219,019  807,411 
 Human resources 7,664,510  6,484,301  4,529,471  3,248,550 
 Marketing and promotions 1,263,245  1,001,162  795,407  515,287 
 Operating 3,347,423  2,956,106  1,934,069  1,499,900 
 Corporate and general administration 1,565,131  1,102,482  1,154,049  646,710 
 Amortization of property, plant & equipment 1,009,626  946,465  574,989  473,779 
  16,905,600  14,154,432  10,207,004  7,191,637 
Operating income 11,014,835  10,823,768  5,996,326  4,913,318 
Other income and (expenses)            
 Gain (loss) on sale of assets 22,163,015    22,163,015   
 Interest charges (1,442,758) (380,420) (1,222,392) (172,906)
Income before taxes and minority interest 31,735,092  10,443,348  26,936,949  4,740,412 
             
 Future income tax recovery (expense) 458,828  1,775,893  490,830  1,745,139 
  32,193,920  12,219,241  27,427,779  6,485,551 
             
 Allocation to Class B limited partners (14,155,569) (5,403,719) (12,047,837) (2,868,107)
  18,038,351  6,815,522  15,379,942  3,617,444 
Net and comprehensive income (loss)            
 Continuing operations            
  Fund unit holders’$17,853,926 $6,815,522 $15,195,517 $3,617,444 
  Non-controlling interest 184,425    184,425   
  18,038,351  6,815,522  15,379,942  3,617,444 
 Discontinued operations   (3,441,921)   (3,269,993)
 $18,038,351 $3,373,601 $15,379,942 $347,451 
Net income/unit and comprehensive income/unit – Basic            
 Continuing operations$1.516 $0.579 $1.291 $0.307 
 Discontinued operations   (0.292)   (0.278)
 $1.516 $0.287 $1.291 $0.030 
Net income/unit and comprehensive income/unit – Diluted            
 Continuing operations$1.377 $0.579 $1.074 $0.307 
 Discontinued operations   (0.292)   (0.278)
 $1.377 $0.287 $1.074 $0.030 

This press release may contain forward-looking statements. Forward-looking statements may contain words such as “anticipates”, “believes”, “could”, “expects”, “indicates”, “plans” or other similar expressions that suggest future outcomes or events. Use of these statements reflect reasonable assumptions made on the basis of management’s current beliefs with information known by management at the time of writing. Many factors could cause actual results to differ from the results discussed in forward-looking statements. Actual results may not be consistent with these forward-looking statements.

The Fund is an unincorporated open-ended limited purpose trust established under the laws of the Province of Alberta. The Fund’s activities are currently confined to the Province of Alberta, Canada. Operations include the Boomtown Casino in Ft. McMurray, the Great Northern Casino, Service Plus Inns & Suites and a strip mall all located in Grande Prairie. The Fund is also a 91% joint venture partner in the Deerfoot Inn & Casino in Calgary.

Complete consolidated financial statements and MD&A for the three and six months ended June 30, 2010 are available on the company’s website at www.gamehost.ca and will be filed in their entirely along with the Fund’s other interim filings, when they are available, on SEDAR at www.sedar.com.

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