Land & Buildings Spots Alternative to Create Worth in Actual Property Recreation with Six Flags

Visitors are socially distanced on rides like Surprise Lady: Lasso of Reality at Six Flags Nice Journey in Jackson, New Jersey.

Kenneth Kiesnoski/CNBC

Firm: Six Flags Leisure (SIX)

Firm: six flags is the biggest regional theme park operator on the earth and the biggest water park operator in North America. They generate income primarily from the sale of admissions to their parks and from the sale of meals, drinks, merchandise, and different services and products on the parks.

Market worth: $1.9 billion ($23.25 per share)

Activist: Administration of land and actual property investments

Share of possession: about 3.0%

Common price: n / A

Activist Remark: Land & Buildings is a long-short property-focused hedge fund that may attempt to interact with administration on a pleasant foundation when it sees deep worth. It invests in actual property at deep reductions in public markets and selects company commitments. Agency positions are sometimes under the 5% 13D reporting threshold. He is able to appoint administrators and has acquired board seats from American Campus Communities, Brookdale Senior Dwelling, Felcor Lodging Belief, Life Storage, Macerich, Mack-Cali (now Veris Residential) and from Taubman Facilities.

What is going on?

At December 21Land & Buildings launched a presentation detailing a possible operational and strategic turnaround for Six Flags Leisure, which incorporates monetizing the corporate’s actual property property and contemplating a sale-leaseback.

Within the wings

Land & Buildings (“L&B”) is an actual property targeted investor, and it’s primarily an actual property sport. The corporate means that Six Flags separate its actual property, which L&B says is price greater than the corporate’s present enterprise worth. L&B has intensive data and expertise on this space. In 2015, the hedge fund launched an activist marketing campaign at MGM Resorts Worldwide, which finally led to the formation of an MGM actual property funding belief acquired by VICI Properties and a major enchancment in working firm margin. Latest non-public deal comps for playing actual property, in addition to public valuations of playing REITs, level to a 6%-7% cap charge and a mid-teen a number of for property akin to amusement parks. theme. L&B believes that there could be many consumers.

In its evaluation, L&B assumes a capitalization charge of seven.25% and a worth of $2.8 billion for the actual property. A sale-leaseback of the actual property might cut back earnings earlier than curiosity, taxes, depreciation and amortization by $520 million to $315 million and assuming an EBITDA a number of of 7x (present SIX a number of is 8x) , the working firm is claimed to have an enterprise worth of $2.2 billion. With $2.8 billion in money and $2.4 billion in debt, that might equate to an asset worth or market capitalization of $2.6 billion. With 83 million shares excellent, that might equate to a inventory value of $31.32, up 34% from the present Six Flags inventory value (up 47% from of the corporate’s unaffected inventory earlier than the L&B plan was made public). L&B carried out the identical evaluation on 2024/2025 EBITDA targets, which led to a worth of $6.8 billion and a 150% improve. Moreover, the hedge fund’s evaluation assumes that the $2.8 billion stays on the corporate’s stability sheet. If used to purchase again shares round the place they’re at the moment buying and selling, the return could be even better.

L&B believes {that a} sale of Six Flags actual property would enable the corporate to extend share buybacks, restore its dividend (which was eradicated initially of the Covid pandemic) and repay the debt. Moreover, it’s a shareholder base with many like-minded traders (HG Vora, H Companions, Lengthy Pond Capital) and a comparatively new CEO (November 2021) who could also be supportive of a plan like this.

Finishing up a plan like this is able to give the CEO loads of time and capital (actual and figurative) to do what actually must be executed – repair operational issues. When Selim Bassoul was named CEO of Six Flags in November 2021, he launched into a method to enhance the shopper expertise and create a extra worthwhile, higher-margin enterprise by migrating to a extra prosperous, customer-focused buyer base. on the household. This new technique, which included the removing of a number of buyer advantages, resulted in a major drop in footfall, the alienation of many present clients, and value underperformance relative to friends. Nevertheless, the jury remains to be out on whether or not it really works. If this leads to increased footfall at increased costs in 2023, then it labored and nothing will must be executed operationally. Nevertheless, if attendance continues to sluggish by means of 2023, Bassoul might have to start out returning most of the advantages he acquired, akin to modified meal passes. He might even have to think about reducing costs to their earlier ranges. With out stabilization of operations, the actual property technique can solely create shareholder worth. Nevertheless, optimizing footfall and stabilizing operations will enlarge any worth created by the actual property technique.

We’d anticipate Land & Buildings to wish to have some kind of board illustration to assist with this technique. Frankly, Six Flags ought to want the corporate’s assist if it chooses to monetize actual property. So it would not be stunning to see an out-of-court settlement for a seat or two on the board. Nevertheless, the director nomination window is between January 11, 2023 and February 10, 2023. If there is no such thing as a settlement by then, L&B is nearly sure to nominate administrators, even whether it is simply to protect the rights of the corporate whereas she continues to talk with administration. Ought to this flip right into a proxy combat, the like-minded traders talked about above – H Companions (13.5%), HG Vora (4.2%) and Lengthy Pond Capital (5.7%) – may very well be potential L&B supporters.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and he’s the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist investments 13D. Squire can also be the creator of the AESG™ funding class, an activist type of investing targeted on enhancing the ESG practices of portfolio firms.