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Land & Properties places a chance to establish benefit in a authentic estate play with 6 Flags


Organization: Six Flags is the most significant regional topic park operator in the globe and the biggest operator of drinking water parks in North America. They deliver profits primarily from providing admission to their parks and from the sale of food, beverages, goods and other merchandise and products and services in just the parks.

Inventory Market place Price: $1.9B ($23.25 for each share)

Percentage Possession: about 3.%

Normal Expense: n/a

Activist Commentary: Land & Properties is a true estate targeted very long-small hedge fund that will try out to have interaction with administration on a pleasant foundation when it sees deep price. It invests in deeply discounted true estate in the general public markets and select company engagements. The firm’s positions are usually under the 5% 13D reporting threshold. It is well prepared to nominate directors and has been given board seats at American Campus Communities, Brookdale Senior Dwelling, Felcor Lodging Rely on, Daily life Storage, Macerich, Mack-Cali (now Veris Residential) and Taubman Facilities.

On Dec. 21, Land & Properties issued a presentation detailing a potential operational and strategic turnaround of 6 Flags Entertainment, which includes monetizing the company’s authentic estate assets and contemplating a sale-leaseback.

Land & Structures (“L&B”) is a genuine estate focused trader, and this is primarily a true estate participate in. The business is suggesting that 6 Flags individual its real estate holdings, which L&B thinks are truly worth more than the recent organization benefit of the corporation. L&B has extensive understanding and experience in this spot. In 2015, the hedge fund commenced an activist campaign at MGM Resorts International, which in the end led to the formation of an MGM serious estate financial commitment believe in acquired by VICI Properties and sizeable margin improvement at the working business. New private transaction comps for gaming actual estate, as perfectly as community gaming REIT valuations, level to a 6% to 7% cap rate and mid-teenagers various for property like topic parks. L&B thinks there would be quite a few fascinated acquirers.

In its investigation, L&B assumes a 7.25% cap rate and a $2.8 billion price for the true estate. A sale-leaseback of the true estate could lower earnings before desire, taxes, depreciation and amortization from $520 million to $315 million and assuming a 7x EBITDA numerous (SIX’s current multiple is 8x), the working business would have a $2.2 billion enterprise benefit. With $2.8 billion in dollars and $2.4 billion in personal debt, that would equate to a $2.6 billion asset value or marketplace cap. With 83 million shares superb, that would equivalent a $31.32 share price tag, or a 34% upside to 6 Flags’ latest inventory value (47% upside from the company’s unaffected inventory cost prior to the L&B approach becoming built community). L&B done the exact assessment on 2024/2025 EBITDA targets, which led to a $6.8 billion value and a 150% upside. Additionally, the hedge fund’s investigation assumes the $2.8 billion stays on the company’s stability sheet. If it is made use of to obtain back again shares around the place they are buying and selling now,, the return would even be better.

L&B thinks that a sale of 6 Flags’ true estate would enable the organization to increase share buybacks, reinstate its dividend (which was eliminated at the commencing of the Covid pandemic) and pay back down personal debt. Furthermore, this is a shareholder foundation with several like-minded investors (HG Vora, H Companions, Prolonged Pond Funds) and a somewhat new CEO (November 2021) who may well be amenable to a strategy like this.  

Receiving a plan like this accomplished would give the CEO a whole lot of time and cash (each genuine and figurative) to do what genuinely desires to be finished – repair the operational problems. When Selim Bassoul was appointed as 6 Flags’ CEO in November 2021, he embarked on a tactic of seeking to increase the guest working experience and build a additional lucrative, larger margin business by migrating to a additional affluent, household-oriented client foundation. This new system, which integrated getting rid of many buyer benefits, led to a important drop in attendance, alienation of many recent shoppers and subsequent cost underperformance to friends. On the other hand, the jury is nonetheless out on whether or not it is performing. If it benefits in a increased attendance at larger rates in 2023, then it worked and nothing at all will require to be completed operationally. Even so, if attendance proceeds to lag by way of 2023, Bassoul might have to commence providing again lots of of the perks he experienced taken away, these types of as modified eating passes. He may well even have to take into account reducing charges to their prior degrees. Devoid of stabilizing functions, the genuine estate system can only generate so much shareholder benefit. Even so, optimizing attendance and stabilizing functions will magnify any benefit established by the authentic estate system.

We would expect that Land & Buildings would want to have some sort of board illustration to aid with this method. Frankly, 6 Flags should really want the firm’s assistance if they pick to monetize the real estate. So, it would not be shocking to see an amicable settlement for a board seat or two. Having said that, the director nomination window is concerning Jan. 11, 2023 and Feb. 10, 2023. If there is no settlement by then, L&B is virtually particular to nominate administrators, even if it is just to preserve the firm’s rights when it carries on to talk with management. Must this go to a proxy combat, the like-minded buyers outlined earlier mentioned — H Associates (13.5%), HG Vora (4.2%) and Prolonged Pond Funds (5.7%) — could be potential supporters of L&B.

Ken Squire is the founder and president of 13D Monitor, an institutional investigation service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire is also the creator of the AESG™ financial commitment class, an activist investment decision model concentrated on improving ESG procedures of portfolio businesses. 

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