Activist shareholder wants Six Flags to sell or spin off its real estate

[DiamondbackFan]

Here is a link to the presentation.

https://landandbuildings.com/wp-content/uploads/2022/12/LandB-Six-Flags-SIX-—-Thrilling-Real-Estate-Value.pdf

 

[CoastersRZ]

These kind of things kind of seem like a short term gain at the expense of future benefit.  Ie. lets sell our land now and get a big paycheck, but then we have to pay lease payments in perpetuity.  What happens if the real estate a particular park sits on doubles in price?  Well we already sold the land so the REIT benefits from the increase in land value.  Also, the REIT could increase the lease payment required by Six Flags.  Again,  seems like a short term gain at the expense of long term future profit opportunity.

[Gabe]

It's def a slick presentation to be sure and while I think a sale-leaseback of some of its properties would help. the plan they have in place to increase attendance in 2023 is an oxymoron, given that to accomplish these things, you need labor, which is one area where this group wants to cut back.  Did Chapek suddenly join this investment group?  This smacks of his tenure at Disney, which for the parks anyway was to offer less and charge more.  

[KIBeast]

3 hours ago, CoastersRZ said:

These kind of things kind of seem like a short term gain at the expense of future benefit.  Ie. lets sell our land now and get a big paycheck, but then we have to pay lease payments in perpetuity.  What happens if the real estate a particular park sits on doubles in price?  Well we already sold the land so the REIT benefits from the increase in land value.  Also, the REIT could increase the lease payment required by Six Flags.  Again,  seems like a short term gain at the expense of long term future profit opportunity.

I wonder if this is what they think would be an alternative to selling off some of the parks? That is something that I believe is more likely to happen than leasing properties.

[Kenban]

I think it’s important to point out from what I can tell they want Six Flags to sell everything, not just the land, but all of the parks, rides and everything.  Then Six Flags turns into a pure management only company, which would have a giant annual lease to operate the parks.  

The proposal uses MGM resorts and Marriott as examples.  Personally I find Marriott a terrible example, it’s a franchise business model that provides brand standards, marketing, rewards program, etc.  Marriott does not really operate or lease the hotels, overall it has more in common with a fast food restaurant like McDonalds or Subway.  I just don’t know enough about the MGM resorts and it’s corporate structure, but it feels like it might be at least comparable.

Six Flags already does not own all of the parks, they only manage Darien lake for instance, they also only own roughly 50% of Over Georgia and Over Texas.  While this might work for Magic Mountain, Great Adventure, St Louis and a lot of other parks, I cannot imagine they would be allowed to sell their half of Over Texas or Georgia to a third party, and this could also allow them to leave Six Flags, there has been a lot of complaints about mismanagement over the years.

This feels like something that could be a problem long term.

[Leland Wykoff]

Spinning off real estate assets into a REIT could be a smart move.  For several reasons.  If the REIT is spun off to the shareholders of Six Flags it is an even better possible move.  Shareholders are rewarded with market rents on land, building, and ride assets (by collecting lease rent payments on the assets) and are generally receive dividends for the capital investment.  

Additionally, the surviving Six Flags operating company is placed into a position to earn proper returns on long lived assets such as land holdings.  In the absence of such an arrangement SIX management is given an easy out on earnings.  Since they do not have lease payments on valuable assets the earnings of the company are overstated while the actual returns are discounted by essentially subsidized "free" rents.  

What can happen when such a situation exists over a long period of time?  Saks Fifth Avenue gives us an excellent example to answer this question.  Saks owned over 40 Legacy department store locations, including the New York Herald Square store.  With no "rents" the company appeared to be returning 6% to 10%.  However, had Saks been paying market rents on the legacy owned locations it is likely the company would have been loosing money for many years.  Accounting standards in the US allow for long lived assets such as land and buildings to be carried at book value when purchased so the financials falsely report the true value of the company.  In Saks case, such shenanigans drastically undervalued the company.

Along comes Hudson's Bay Company department stores from Canada.  They purchase Saks for pennies on the dollar of the true value (due to the accounting quirk, which is not legal in Europe) and soon after acquisition of Saks finances the Fifth Avenue flagship store for an appraised amount $3.7 billiion. Or $800 million dollars more than the $2.9 billion price they paid to acquire the entire chain, one of the worlds most recognized brand names, a thriving eCommerce division, and 40ish owned locations.    

To say shareholders got taken to the cleaners is an understatement.  I was one of those shareholders who was robbed of the proper monetization of the asset classes held by Saks.  Despite having asked management, for almost ten years, to spin off the land and building assets into a REIT to shareholders.  

Management was reluctant to do so, in my opinion, as it would have made their jobs much more difficult:  they would have had to start producing adequate real returns on the invested assets.  Instead, they retired, and oversaw the sale of the company on the cheap with all the rich properties attached.  Hudson Bay was reported to be planning to spin off Saks.com into a separate company with a valuation of approximately $6 billion.   

Six Flags is in the same position.  A poorly performing company.  With the advantage of "free" rent on many properties masking even poorer performance.  The separation of the land, buildings, rides, etc. will force management to make better decisions, or to close non-productive parks and deploy the assets elsewhere.

I am all for a transaction which separates the land and other assets from SIX in a manner benefiting current shareholders.  This will help the company become stronger, focus on real earnings, and reduce the risk of shareholders being liquidated out of the hard assets should things go South.

https://archive.nytimes.com/dealbook.nytimes.com/2014/11/24/a-deal-mortgaging-the-store-values-saks-at-3-7-billion/
     

[nickp1991]

shocked if Selim agrees to this