Customers are socially distancing on games like Wonder Woman: Lasso of Truth at Six Flags Great Adventure in Jackson, New Jersey.
Kenneth Kiesnoski/CNBC
Company: Six Flags Entertainment (SIX)
Business: Six flags is the largest regional amusement park operator in the world and the largest water park operator in North America. They generate revenue primarily from the sale of tickets to their parks and from the sale of food, beverages, merchandise, and other products and services within the park.
Stock market value: $1.9 billion ($23.25 per share)
related investment news
Activist: Land & Buildings Investment Management
Ownership rate: about 3.0%
Average costs: do not have
Activist comments: Land & Buildings is a short-term hedge fund focused on real estate that will strive to engage with management on a friendly basis when it sees deep value. It invests in mass-market deeply discounted real estate and selects corporate commitments. Company positions are typically below the 5% 13D reporting threshold. It is ready to nominate directors and has received board seats at American Campus Communities, Brookdale Senior Living, Felcor Lodging Trust, Life Storage, Macerich, Mack-Cali (now Veris Residences) and the Taubman Center.
What’s going on?
Above December 21stLand & Buildings delivered a presentation detailing Six Flags Entertainment’s potential operational and strategic changes, including monetizing the company’s real estate assets and considering a sale. -sublet.
Behind the scene
Land & Buildings (“L&B”) is an investor focused on real estate and it is primarily a real estate game. The company is suggesting that Six Flags separate properties that the L&B believes are worth more than the company’s current business value. L&B has extensive knowledge and experience in this area. In 2015, hedge fund started an active campaign at MGM Resorts International, which eventually led to the formation of the MGM real estate investment trust which was acquired by VICI Properties and significantly enhanced margins at the operating company. Recent private transactions calculated for gaming real estate, as well as public gaming REIT valuations, show cap rates between 6% and 7% and multiples of middle-aged teens for properties. properties such as amusement parks. L&B believes there will be many interested buyers.
In its analysis, L&B assumes a ceiling rate of 7.25% and a value of $2.8 billion for the property. The sale and sublease of real estate can reduce earnings before interest, taxes, depreciation, and amortization from $520 million to $315 million, assuming a 7x EBITDA multiple (current multiple of SIX is 8x), the running company will have an enterprise value of $2.2 billion. With $2.8 billion in cash and $2.4 billion in debt, that would equate to an asset value or market capitalization of $2.6 billion. With 83 million shares outstanding, that equates to a share price of $31.32, or a 34% increase from Six Flags’ current share price (47% increase from the unaffected share price). influence of the company before the L&B plan is made public). L&B did a similar analysis of its 2024/2025 EBITDA targets, which resulted in a value of $6.8 billion and a 150% increase. Furthermore, the hedge fund’s analysis assumes that $2.8 billion remains on the company’s balance sheet. If it is used to buy back shares around where they are trading, the profits are even greater.
L&B believes that the sale of Six Flags real estate will allow the company to increase share buybacks, restore dividends (which have been eliminated at the beginning of the covid pandemic) and repay the debt. Furthermore, it is a shareholder base with many like-minded investors (HG Vora, H Partners, Long Pond Capital) and a relatively new CEO (November 2021) who might follow a plan like this.
Completing a plan like this gives the CEO a lot of time and capital (both real and figurative) to do what really needs to be done – fix operational problems. When Selim Bassoul was appointed CEO of Six Flags in November 2021, he embarked on a strategy of trying to enhance the guest experience and create a more profitable business, higher margins by shifting to a more affluent, family-oriented customer base. This new strategy, which included the removal of some customer perks, resulted in a significant drop in attendance, alienation of many existing customers, and subsequently lower prices compared to industry peers. However, the jury is still out on whether it will work. If it leads to higher attendance at a higher price by 2023, it is already up and running and nothing will need to be done during the operation. However, if attendance continues to slow through 2023, Bassoul may have to start returning many of the perks he took away, such as modified dinner tickets. He may even have to consider lowering the price to previous levels. Without stable operations, real estate strategy can only create so much value for shareholders. However, optimizing attendance and stabilizing operations will magnify any value created by the real estate strategy.
We expect that Land & Buildings will want some kind of board representative to help with this strategy. Honestly, Six Flags should want the company’s help if they choose to monetize real estate. So it wouldn’t be surprising to see a seat or two on the board of directors amicably settled. However, the deadline to nominate a director is from January 11, 2023 to February 10, 2023. If there is no settlement before that time, L&B will almost certainly nominate a director, even when it’s just to protect the company’s rights while the company continues to talk to management. If this leads to a proxy war, the like-minded investors mentioned above — H Partners (13.5%), HG Vora (4.2%) and Long Pond Capital (5.7) %) — could be potential L&B backers.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of 13D Activist Fund, a fund mutual investment in the portfolio of 13D activists. Squire is also the creator of the AESG™ portfolio, an active investment style focused on improving the ESG practices of portfolio companies.
