PRKS 9.15.25

That's interesting and definitely fairly aligned with how we're looking at it. I guess we’ve probably been in the name for about a year now. But to your point, we see it as cheap on an absolute basis and cheap relative to transaction comps in the space. We like the special situation angle where it doesn’t make sense to remain status quo public for an extended period. We didn't know whether Hill Path would get as large a share repurchase authorized. It was very close, obviously, to getting this last one passed. This is probably the last repurchase. They're going to own close to 80% including the swap, after this one. That's just not a structure that maintains the status quo for an extended period of time. Something should happen in our view. Unfortunately, there's only one pure public comp, and they have their own issues. That doesn't help, multiple wise. We do think it's not a good consumer short because of the points that you spoke to. It’s resilient in a recession, but it's highly shorter. They’re 4.6 million shares short, which is a high percentage of the float. It sounds like we're fairly aligned in how we think about it.

In Q2, they obviously lowered pricing a bit just to drive attendance. They definitely wanted to drive the narrative that they grew in the face of Epic, and so they took a little bit on price. Also, the weather wasn’t super helpful. But longer term, I still think this is a really good value for the consumer even at this price point. Many people say, “Hey, post-COVID, these theme parks are gouging visitors with pricing.” Pricing is up a lot since 2019 on per caps, but holistically, $80 per person for a full day or more of an activity doesn't strike me as that bad a deal. I think pricing is fine. It’s been frustrating that attendance hasn’t been growing. We should be past the Blackfish headwinds here, although there's still that sentiment in the market. Hopefully, we can eke out attendance growth going forward, keep pricing pretty stable, and then manage the cost. But that's clearly the bear case here. People don't want to pay a multiple for something that's not really growing attendance. The weather seems to be the worst every quarter. It's rainy, it's too hot, or there’s a hurricane. There's always something.

I guess that's the reason why I don't own it currently, but I'm looking to get back in. Things have picked up in August, but I'm still a little skeptical given some of the job growth and macro data out there. Those concerns are going to resurface. Whether it's zero, slightly negative, or slightly positive, it's going to be stagnant. I think if it's slightly positive, it's still going to be at the expense of revenue per cap. Whether the stock drifts based simply on that, despite the company obviously buying back shares, is what I wrestle with. Unless things get really bad in the economy, and we go back to $40 to $45 on the stock, then we rebuild our position at that level. I wouldn’t call myself bearish at this point, but I'm skewing in that direction as it relates to the consumer.

I look at this $500 million buyback, and I'm like, “Okay, that's probably a 24-month process to complete that.” Maybe a little sooner, just given the free cap. $500 million is a little less than two years' free cash flow. So, I see it as, “Look, they're going to complete this in 18 to 24 months.” At that point, they own 80% or whatever the number is. It just seems the logical approach. They make a fair offer for the remaining outstanding shares, and in theory, they’d create a lot of value for themselves, I'd imagine. I don't know what their average cost is for getting in. I probably should know that. I don't see them owning 80% of a stock here with a limited float because there’s no point being public at that point. Then you don't get to play the passive game as much. Big institutional investors are going to avoid you because of liquidity concerns. I don't know what the path would be for them other than taking this thing private.

I feel like they're doing this $500 million buyback because they see a very attractive stock price over the long term. They should buy as much stock back with the company's capital at cheap levels. They have to make sure that the check they end up having to write is less than a couple of years, so it's very digestible for them.

You're right. Do you mean now?

I've heard different things about Hill Path's capacity to own this, in terms of the length of time they can do it. Some people have said, “Hey, they're coming up on the end,” and others say, “Hey, they could extend this as long as they want to.” I guess we’ll see.

Do you have any opinions about the land value underlying the parks in addition to the excess land, excluding the excess? I've tried to do back-of-the-envelope, set leaseback math.

If you take the EBITDA underlying the owned parks, so excluding San Diego, and you make the rent payment 50% of that EBITDA at a 5.5% cap rate, you're getting to $5.4 billion of gross value. Now, there's a very low basis in that. I don't think they would ever do that. There's nothing for them to do with the cash now. But I do think that people don't value the land under it. You could do it selectively, but I don't know how this will go with Hill Path. I think there's a possibility they’ll do an acquisition. They obviously made the run at Cedar Fair before, and now Six Flags seems like they're going to have to monetize something. One, if they do a sale leaseback, I think that could be interesting to put a mark on it because people would have to compare that sale leaseback transaction to the land that United Parks and Resorts has. Secondly, if they have to divest some parks selectively, I’d like to see if that’s an opportunity for United Parks & Resorts. Something interesting could happen there. I think that's the only way I'd see them monetizing some of their land. I think they’d never do this. But if they sale-leaseback all the land underneath it, the OpCo would be very levered operationally. So it would be whipping around quarter-to-quarter or year-to-year based on relatively small changes in revenue. It would be too volatile on the equity stub, but they’d pull out more money than it's selling for anyway.