Cedar Fair reduces annual distribution to $1.00, wants to sell Valleyfair and Worlds of Fun

Posted Monday, March 9, 2009 9:30 AM | Contributed by Jeff

Cedar Fair Entertainment Company, a leader in regional amusement resorts, water parks and active entertainment, today announced it will decrease its annual distribution rate to $1.00 per limited partner unit. On a quarterly basis, the Company’s distribution rate will be $0.25 per unit and will begin with the distribution that is expected to be declared in the second quarter of 2009.

“Although Cedar Fair has continued to report solid earnings and cash flows with some of the best operating margins among regional amusement parks, the Board of Directors is taking this action in order to retain additional cash flow to delever the Company over the next several years,” said Dick Kinzel, Cedar Fair’s chairman, president and chief executive officer. “The current macro environment requires us to balance the distribution of excess cash flow to our unitholders with the Company’s strategic objective of strengthening our balance sheet.”

The Company currently pays approximately $105 million in distributions to its investors on an annual basis. A $0.92 reduction in the per-unit rate, along with scheduled debt repayments and interest savings on the lower debt balance, will allow the Company to reduce its debt by approximately $200 million over the next three fiscal years. This distribution reduction is a first step in Cedar Fair’s strategy to reduce debt and strengthen its balance sheet.

In addition, the Company continues to pursue the sale of excess land in the Toronto and Cleveland markets and continues to discuss the potential sale of California’s Great America, in Santa Clara, California, with the San Francisco 49ers. It has also completed a strategic review of its assets and has decided to explore the potential sale of Worlds of Fun, in Kansas City, Missouri and Valleyfair, in Shakopee, Minnesota. The Company said it would be premature to speculate on either the price or timing of any potential transaction.

“In light of current economic and market conditions, reducing our debt and strengthening our balance sheet must continue to be a priority,” added Kinzel. “These actions are designed to reiterate our commitment to create long-term value for our unitholders. We feel confident that we are proactively taking steps to reduce our leverage and strengthen our financial position over the long term.”

Read the entire press release from Cedar Fair.

Monday, March 9, 2009 2:59 PM

Kansas City has actually gotten a lot of attention lately. Schlitterbahn is moving in 30 minutes down the road from WoF and Merlin explored the idea of putting a Legoland here. Even when one of the suburbs said no they tried again in another one. They really wanted to set up shop here because the lack of major competition and the amount of people within a one day drive.

The land that WoF sits on can't be worth much so I would suspect that it has to be sold as a park.

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Monday, March 9, 2009 3:07 PM

"The point remains, though...who wants to go to Kansas City?"

Can't the same be said of Sandusky, Ohio? Cincinnati, Ohio? Or Muskegon, Michigan?

This is a surprise to me. Would've expected Michigan's Adventure to go first.

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Monday, March 9, 2009 3:36 PM

The best brand name that Cedar Fair has is Knott's, to the point that for a while they were toying with referring to the Santa Clara park as "Knott's Great America".

wahoo, it's not that they necessarily need to make all of their parks into regional destinations as they have with Cedar Point and (to a lesser degree) Knott's Berry Farm. But for those two particular parks...Valleyfair! and Worlds of Fun...which are located in relatively isolated metro areas where there isn't a lot of population growth going on, increasing length of stay, increasing frequency of visits, and increasing the travel distance are really the only ways to improve attendance. Increasing frequency is the least helpful of the methods, as that translates into season pass sales.

Carowinds is in one of the fastest growing markets in the country. Canada's Wonderland, Dorney Park, and Kings Dominion are located among gigantic population centers. Cedar Point is a destination resort, located in an area that would still be the "Lake Erie Vacationland" even if Cedar Point wasn't there. Kings Island is a special case. :) And again, Knott's and its associated properties are in gigantic population centers. That leaves three parks that don't have those advantages: Worlds of Fun, Valleyfair!, and Michigan's Adventure.

Of those, I can see Worlds of Fun developing into a "Cedar Point of Mid America". But the problem with that goes back to the question of who is going to vacation in Kansas City, whose primary draw seems to be that it is about fifteen degrees cooler than St. Louis. To develop that into a destination resort is a challenge comparable to what Disney did in Orlando, but without either the year-round warm weather or the brand name to help.

--Dave Althoff, Jr.

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Monday, March 9, 2009 3:54 PM

Amnesiac:
Sandusky is the heart of the Lake Erie vacationland, a collection of lakeside attractions centered around the Lake Erie islands. Believe it or not, people go to that part of Ohio for two- or three-week vacations and never set foot on the Cedar Point peninsula. Sandusky itself isn't much of a draw; the attractions are generally more towards Port Clinton, Marblehead and Catawba Island; but it's right there in the neighborhood; in fact it's the biggest city in the region.

Kings Island is a special case. I don't know why that place draws over 3,000,000 a year, but I suspect it has something to do with the historical attraction of Coney Island, because certainly Americana never managed those kinds of numbers. I suspect that the fact that Cincinnati appears to have a *huge* tradition of company picnic outings probably has something to do with it.

As for Michigan's Adventure, I'm with you on the business case. That would be the second most likely property for Cedar Fair to unload, after Great America. Yes, Muskegon is in Michigan's vacation district, but where Ohio has a vacation region in a relatively small parabola (oddly enough with Cedar Point right at the focal point!), Michigan scatters that all around its five coasts. It's an enormous, largely empty state that borders on four of the Great Lakes, so there is a lot of vacation travel going on (more boats than any other state!), but it isn't centralized anywhere; Muskegon is one of several Michigan hot-spots, but it isn't *THE* travel spot. Politically, though, Michigan's Adventure might be more difficult to unload, as I believe the sale to Cedar Fair came with some seats on the Board of Directors for members of that family.

In all, though, I still think this may be a case of Cedar Fair being willing to sell some properties if all the conditions are right, but not really being in a big hurry to do so. I wouldn't be surprised if some years from now, Cedar Fair still owns all their current parks and continues to spend capital in all of them.

--Dave Althoff, Jr.

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Monday, March 9, 2009 3:58 PM

Let's start with the gut reaction...NNNNNNNNNNNNNNNNOOOOOOOOOOOOOOOO!

Okay. With that over with, here are a few more thoughts:

- There goes the B&M hopes for VF.

- They chose those two parks for the fact that they probably would sell before anything else like Dorney or MiA. And for a cheaper cost than the Bush parks since they are seasonal. But that is just my speculation.

- And if they were to sell would the new owner put the trees back?

- Since CW may out do CF in attendance soon, they could change the company name to "Wonderland Parks". Whatever.

- Could it be (and this is just something I was told a while ago) that VF management kind of runs rogue against the parent group? Would that have anything to do with the choice to sell?

- Can't speak to WoF other than that IS why I go to Kansas City. Plus there is a Harra's not too far from there. Nice town actually.

I could give a rat's ass about their stocks.

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Monday, March 9, 2009 4:06 PM

If Cedar Fair wasn't happy with the management of one of its parks, it could simply replace the management.

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Monday, March 9, 2009 4:11 PM

I can't help but wonder if the mention of the possible sales of VF and WoF was more to offset the negative announcement of the distribution being cut in half. Perhaps it was just a smoke screen to quiet investors fears. Everyone was expecting the distribution to be cut; most people were anticipating a more drastic decrease. If you tell investors you're looking to cut costs, that makes people worry less. Saying you would consider selling isn't the same as signing off on the deal. CF would probably consider selling several of their assets, if the price was right. FUN is up ~5% for the day - not bad considering they had a negative announcement today.

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Monday, March 9, 2009 4:56 PM

I can tell you why KI is such a draw: It's BECAUSE of the largwe population center in Cinci.

As for CP, do you knucleheads forget that's within spitting and smack dab between Toledo AND Cleveland?

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Monday, March 9, 2009 4:58 PM

Kathy Seaman said:
Wow, that even more reason now for me to get rid of their stock before there's nothing left at all. YIKES!

FUN is up 6% today, the Dow is down 1.5%.

Let's again realize that the choice of parks (Great America aside) is not because they're poor performers, but likely because they are solid performers and they think they can get a certain amount of cash that would meet their goals. I absolutely don't believe this is a reflection of the quality of those parks, but rather a function of getting to a certain number. And as others have said, those are likely parks that they don't feel have strong growth potential. It doesn't mean they aren't solid businesses.

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Monday, March 9, 2009 5:47 PM

I don't even think it is a matter of not having strong growth potential, especially in the case of Worlds of Fun. Apart from having a couple of very strange theme elements (Worlds of Fun is allegedly themed after "Around the World in 80 Days", but one of the themed sections is "Scandinavia", and there is another section near Mamba whose theme I can only describe as "Cedar Point"...Mr. Phogg never went to either of those places) that park is really nice, has an awesome infrastructure in place, and all of the surrounding property (a) is owned by Hunt Midwest, and (b) is potentially for sale (at least on the surface*) if the park wants to expand. Long term, that place could become "Cedar Fair World" but it would require an investment of time and capital, not to mention promotion, that neither Cedar Fair nor anybody else can justify right now. But the potential is certainly there.

--Dave Althoff, Jr.

*Not so certain about underneath. The property immediately to the South is Subtropolis and an underground limestone mine; I don't know whether that extends under the park or not. I have heard rumors that it does...

--DCAjr

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Monday, March 9, 2009 8:32 PM

Worlds of Fun only owns the land on the surface. All underground space is owned by Hunt Midwest.

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Monday, March 9, 2009 8:49 PM

Jeff said:


Kathy Seaman said:
Wow, that even more reason now for me to get rid of their stock before there's nothing left at all. YIKES!


FUN is up 6% today, the Dow is down 1.5%.

Let's again realize that the choice of parks (Great America aside) is not because they're poor performers, but likely because they are solid performers and they think they can get a certain amount of cash that would meet their goals. I absolutely don't believe this is a reflection of the quality of those parks, but rather a function of getting to a certain number. And as others have said, those are likely parks that they don't feel have strong growth potential. It doesn't mean they aren't solid businesses.

Sorry Jeff, I hadn't looked at the Stock Market today before making my comment...I just got my portfolio statement from Fidelity today for last month.....all I have to say after looking at "FUN"....oh my! Of course..I know mine isn't the only one that is suffering.

"That beautiful Season! The Summer! Filled was the air with a dreamy and magical light!"

Last edited by Kathy Seaman, Monday, March 9, 2009 8:53 PM
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Monday, March 9, 2009 11:04 PM

The odd thing is that even with the distribution down to a buck, at the current trading price it's still a 15% return.

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Monday, March 9, 2009 11:40 PM

I've always thought the purchase of the entire Paramount chain was a bad idea. Such rapid growth is way too risky, especially in the state our economy has been in over the last five years.

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Monday, March 9, 2009 11:56 PM

Looking back at the purchase man was i loving it at the time. Now it seems that they put alot of faith that the money they put in the purchase would be returned at a very quick rate. They were probably above figures at the parks when they made the purchase, meaning they were in the black as far as figures go.

Sure we could look at the current state and say why didnt they think of that back then. Truth is they were hoping for a quick return in a few years time to basically offset the losses they made purchasing the parks. It certainly seemed logical at the time.

I doubt they will stop building the rides now that they have invested in them, and it also raises the prices they are asking for for the parks. Its a shocking move to say the least, but it is probably more neccessary now, than seeing them start wholesaling the rest of the chain as well.

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Tuesday, March 10, 2009 12:48 AM

Reading all the posts I'm intrigued by the following things:

1) there are still people around here who are holding FUN stock.

2) Someone believes that Charlotte is a [still] growing area (it was, until about 4 months ago). However, the implosion of the banking industry has crushed Charlotte's potential further growth, and will likely cause it to be equal to Detroit in rapid job loss, migration out, or decline in quality of life. Not sure which will come to pass, as Charlotte has mild enough climate to maintain the large number of people who will be severely under-employed, who may wish to remain in the area. (We can have a different thread on how long Charlotte can support pro sports teams after Bank of America, Wachovia, et al have imploded. Those white collar jobs will NEVER be replaced in Charlotte.)

3) The number of people who now think that cutting the Dist to $0.25 a Quarter wasn't enough. Missed that sentiment around here earlier when we were discussing the impending distribution cut. Who knew?

4) Someone is surprised that FUN is following the SIX path. I am stunned that anyone didn't see this coming, after the vigorous discussions we've had here.

5) a 15% rate of return, even after a distribution cut, is not "odd", it's further proof that the inherent risk for continued ownership mandates an obscenely high rate of return, one that would place FUN still in the Junk Bond category. When Treasury rates are under 3%, FUN is returning 15%. There is also a distinct reason that the Distribution wasn't cut further.


As someone (Wahoo or Ensign?) mentioned earlier, the Distribution cut isn't enough to save them from violating the covenants down the road. Fortunately for the enthusiast in all of us, no one is going to want VF and WoF right now for "development", so there is not an immediate risk of them being turned into condos or Category Killer retail areas with Circuit City(s), Linens N' Things, Bennigan's, etc (yes, there is extreme Snark there).

The sad thing is that Kinzel has chased a down market all the way, and now can't get any real premium price for either property. Whether there is actual intent to sell, I don't know. It was already stated that with the SIX parks in dire straits, InBev selling PREMIUM assets, and the pool of potential FUN asset buyers being limited, Dick will have a hard time actually moving those parks for anything close to a what would be needed/warranted to offset potential Covenant issues. Remember that when you sell a (what we assume is a profitable?) business, you get the cash from the sale, but you lose whatever EBITDA contribution they were making. What does the post sale EBITDA to Debt ratio look like? How much do you have to get for the sale to make any significant improvement in that, then ask yourself how realistic is it that someone will pay that amount.


SLOW DEATH SPIRAL

Last edited by CreditWh0re, Tuesday, March 10, 2009 12:54 AM
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Tuesday, March 10, 2009 9:08 AM

CreditWh0re said:
Reading all the posts I'm intrigued by the following things:

4) Someone is surprised that FUN is following the SIX path. I am stunned that anyone didn't see this coming, after the vigorous discussions we've had here.

Perhaps it has been your approach that has made your messages difficult to hear. You call the discussions vigorous; I'm not sure I would use that word.

The general perception of Cedar Fair over time has been anything but that it's on a slow death spiral as you put it. Whether it's true or not, coming in with that proclamation is a rough sell. Then to use concepts like "covenant" and "EBITDA" to support your claim is just not likely to turn every head within a coaster enthusiast's forum.

Again, I'm not saying your message was wrong. But I definitely think the delivery was way too far off for you to be coming in now and saying, (in my words, of course), "Hey idiots, why are you surprised? I've been telling you this all along!"

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Tuesday, March 10, 2009 9:39 AM

Circuit City went out of business, investment whiz.

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Tuesday, March 10, 2009 9:49 AM

The amusement park industry needs a government bailout. Write to your Congressman immediately.

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Tuesday, March 10, 2009 9:53 AM

Jeff said:
Circuit City went out of business, investment whiz.

So did Linens 'n Things and Bennigan's... I think that was the joke. :)

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