How to sell-up without giving up the dream
Adding new rides and features. Maintaining infrastructure. Delivering fresh experiences for guests. For owners and operators of attractions the world over, this “to do” list has one thing in common: It requires capital, lots of it. Curt Caffey offers one solution.
In this era of tight credit markets, it is increasingly difficult for amusement park owners to access lines of credit from traditional lenders. Partnering with a national or multinational attractions brand can have its drawbacks, including losing local market appeal. Private equity options are few, and most of these are limiting to the borrower. But the need for capital is as strong today as ever as operators seek to elevate their properties to meet guest expectations.
Emerging as an attractive source of capital for some operators is the real estate investment trust (REIT), which offers a number of advantages to operators keen to grow their core business: The park itself.
Since entering the amusement market in 2005, CNL Lifestyle Properties (with which I am associated) has made a half billion US dollars in acquisitions and capital improvements in 24 properties across the United States, making it the leading REIT in the attractions industry.
We aim to offer park owners immediate access to capital and a long-term lease relationship in a partnership that preserves local control of both the park and its brand. Last year alone, CNL invested over $300 million through the acquisition of seven former Six Flags parks and Magic Springs & Crystal Falls, a theme park and waterpark located in Arkansas.
When a REIT purchases a property to hold in its portfolio, typically it will simultaneously enter into a sale-leaseback agreement with the former owner/operator. While private equity investors typically view attractions purchases as short-term investments, REITs typically seek a 20 to 40-year lease term.
REITs generally pay market value for properties. The sale-leaseback transaction provides the seller (and ongoing property operator) with a blended cost of capital that can be lower than traditional debt if the business continues to grow. This infusion of capital from the sale enables the operator to fuel core operating strategies and to earn profits while creating long-term value.
This enables the operator to look ahead and make major property improvements that will keep paying dividends decades down the road. For example, at our two Hawaiian Falls properties in Texas, CNL invested $1.5 million in 2007, adding a wave pool at one property and a slide tower with three slides at the second.
Long-term capital investments such as these are not unusual for a REIT because it intends to stabilise its portfolio for many years. They would, of course, be out of reach for many family-owned regional amusement parks. Through this arrangement the public can often see the benefit immediately.
Real estate investment trusts can offer the attractions industry access to capital and long term flexibility. That can be a combination of powerful options that increasing numbers of owner/operators find appealing as they seek capital to improve their guest experience and their bottom line.
Curt Caffey is vice-president of investments for CNL Lifestyle Company, advisor to CNL Lifestyle Properties. He joined CNL in 2005, bringing 20 years’ industry experience with parks including Volente Beach Waterpark, Austin, Texas; Weeki Wachee Springs and Buccaneer Bay, Flordia; and Schlitterbahn Waterparks. He was also part of the Ogden Acquisitions team that purchased Wet ’N’ Wild from Universal and Raging Waters from Paramount. Curt.Caffey@cnl.com
REIT was right for us
This business is not one where you want to have to look at an exit strategy in three to five years. We are in this for a very long time and we needed a capital partner that had that same perspective.
About a year ago, Parc Management and CNL Lifestyle Properties were at the centre of a $312 million deal when Six Flags agreed to sell seven of its properties. Parc became the operator while CNL acted as funding source for the transaction abd is the owner. We are leasing these seven properties under a long-term agreement that gives our team the flexibility to make decisions on the ground as well as the capital to make a big impact.
The parks in question are Wild Waves, Seattle, Washington; Darien Lake, Buffalo, New York; Frontier City, Oklahoma City, Oklahoma; Splashtown, Houston, Texas; Waterworld, Concord, California; White Water Bay, Oklahoma City; and Elitch Gardens, Denver, Colorado.
After it made the initial acquisition, CNL agreed to invest an additional $5 million. Furthermore, at the end of last season we targeted additional needs, which it has agreed to fund. With its focus on lifestyle properties, CNL has people experienced in the business we are in, and they are willing to invest to make a difference.
A key focus for us is creating the right guest experience. That encompasses a whole spectrum of elements starting with safety for our guests and our staff and extends to thinking about comfort and fun as integral components of the experience. The initial $5 million investment bought many things that guests now see such as new carpets, roofs, waterpark slides and theme park rides. This also aided us in also adding new shows such as Darien Lake’s Cirque-style show and a laser/fireworks finale that won awards at last winter’s IAAPA show.
The REIT investment represents more than dollars. It also represents time and experience. I will admit that deals can be difficult to put together. A large part of the equation is the quality of the relationship among all players involved. This is a tough business to run. Our main focus is on building a quality company, and I feel we now have a partner and the capital to do it. -Randy Drew, CEO, Parc Management
