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.

Tuesday, March 10, 2009 9:54 AM

I wouldn't know. We don't have those around here.

Tuesday, March 10, 2009 12:06 PM

Jeff said:
I wouldn't know. We don't have those around here.

Bennigan's was located in North Olmsted and Montrose

Tuesday, March 10, 2009 12:16 PM

I never go to N. Olmsted, but Montrose? Where? I don't go out that way much either, but I don't recall it there.

Tuesday, March 10, 2009 12:56 PM

The units are up 23% since the announcement. Anyone want to explain the optimism?

Tuesday, March 10, 2009 1:25 PM

The market's rallying pretty much across the board today, based on Citigroup saying they've had two good months. Further proof many investors should never be trusted with instruments sharper than crayons.

If the three parks in question are sold off, can I claim a loss on my platinum pass on my 2009 return? :)

Tuesday, March 10, 2009 1:53 PM

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

ACtually Circuit City, Linens N'Things and Bennigans all filed Bankruptcy. Thus my note about extreme Snark.

again, sarcasm lost around here.

Tuesday, March 10, 2009 1:57 PM

Dow and NASDAQ are up 3 to 4% in the last day or so, compared to now almost 25% for FUN.

Why is that, CreditWh0re? You have so much conviction about this death spiral, so I'm curious to know what you think, if you can rise above the sarcasm for a moment.

Tuesday, March 10, 2009 2:26 PM

Jeff said:
Dow and NASDAQ are up 3 to 4% in the last day or so, compared to now almost 25% for FUN.

Why is that, CreditWh0re? You have so much conviction about this death spiral, so I'm curious to know what you think, if you can rise above the sarcasm for a moment.

sure, I'll try.

As mentioned by others above, market is up about 4-5% today. Given the announcement by FUN, one can reasonably assume that the next distribution is safe. (such a bold statement yesterday would surely run afoul of litigation were the distribution to not be made on the next scheduled date). So $0.25 for less than three months hold time on a $6+ stock is about a 4% yield. Buying now, or this morning, you will eventually get the $0.25; and I'm assuming that investors are buying thinking that FUN actually has a plan, and that Dick's announcement is reassuring to them. I think the waiting for the announcement, knowing that a Dist Cut was coming, was causing anyone looking to get back into this stock to wait, thus driving the price down as other sellers exited. Also, the fact that Dick didn't announce a share offering (don't forget that there is a shelf registration still out there), and/or some other form of dilution, might have assuaged some fears.

So, inherent guarantee that the distribution will continue (at $0.25/Q), general uptick in the market, and still relatively low volume stock (under 400,000 shares last I checked, which is more than daily average, but still not a ton of movement for a $6-7 stock), all leads to short term spike. Someone who is sarcastic might call it a dead-cat bounce. I'll just say it's not uncommon, and point out that the stock is still down +/- 70% from it's high.

So anyone who bought at the absolute low, has indeed made a 25% return, but that is a VERY small population of people, probably less than 1,000 separate entities, and probably very few individuals (mainly large blocks bought/sold by market makers and index funds).

I mentioned in an earlier post (in another thread) that big rallies would not be uncommon given the low dollar price, and relatively low volume of shares that trade. This stock is truly not "widely" held, and it doesn't take much to move it. However, I wouldn't be fooled into believing that this stock is going up for any extended period. Others on here (Wahoo,Ensign, and others) have expressed the same concern that the Dist cut won't be enough to resolve their problems, and I've mentioned previously that I can't foresee the sale proceeds of the two parks to make much of a difference either.

Tuesday, March 10, 2009 2:40 PM

I will also add (as I looked around a bit) that there is again talk of Ohio approving Casinos. Cedar Point is often rumoured to be a location for such a license given the infrastructure already in place. That may also be some impetus for the recent 2 day move.

I have no idea how serious the Casino talk is within the State House, or whether FUN/Sandusky would be a location for a licensee. I'm just adding that as a potential reason for the recent run up off of the multi-year low.

Tuesday, March 10, 2009 2:47 PM

Ohio is not going to approve casinos any time soon, as it has been rejected quite hard four times in recent memory. The latest lobbying effort would put them in Cleveland, Toledo, Columbus and Cincinnati, which wouldn't do anything for Cedar Fair. I think it's safe to say that it's a non-factor.

Last edited by Jeff, Tuesday, March 10, 2009 2:48 PM
Tuesday, March 10, 2009 2:51 PM

Thank you, Carrie for posting almost exactly what I was thinking while reading C-Ho's previous post (except I was using less charitable language :) ). C-Ho, for whatever reason, it's apparent you have a bug up your ass as far as CF is concerned. You basically cherry pick whatever bad information you can find to validate your opinion.

I have shares of CF in my portfolio, but by no means is it my only investment. Sure the stock price is down and the distribution has been cut. But that's true of every thing else I own, almost in the same proportion too. Every stock I own that still pays a dividend is paying in excess of 10% of the stock price. Does that mean they're all junk too?

If I sell my units of CF what should I buy? Pharmaceuticals down, energy down, tech down, consumer goods down, international stocks down... Just about every mutual fund out there has dropped more than 10% this year, and they're made up of hundreds of companies' stocks. So obviously CF isn't the only company that's in a death spiral. I guess the only thing that's gone up is my savings account racking up 0.5% interest.

Tuesday, March 10, 2009 3:55 PM

Ok, so I've been sarcastic (even an *ss, about FUN). Guilty as charged. However, as a fan of the industry, I watch these companies closely, and my day job revolves around working with troubled companies (FUN is not a client, never has been). Thus I'm perhaps a bit closer to this scenario than the general enthusiast. And I thought(?) I was seeing the writing on the wall, even if others weren't.

I was hoping that by having a discussion (heated as it has been at times), that people might see things that they weren't aware of, and perhaps evaluate their holdings appropriately.

yes, the rest of the market has been in collapse. Fun has moved in a similar direction, but with greater velocity.

However, eventually good companies will rebound. I don't think FUN will. That's a major difference.

My point has been that FUN was headed this way even if the markets hadn't tanked, because the fundamentals of their balance sheet, EBITDA, and their debt agreements all point to an ugly day of reckoning. If you look at their historical stock chart, you'll see things started heading this way prior to the major collapse of the broader indices.

In times like these, there's nothing wrong with holding cash.

Tuesday, March 10, 2009 4:37 PM

FUN has the potential to rebound but I don't think it will happen under current leadership. I don't think it will happen with handpicked, internal leadership change.

Unfortunately, I don't think the Board of Directors feels it is empowered to go against Dick.

What is really needed is large scale institutional pressure and THAT does have a potential of happening. I'm just hopeful that it happens soon enough.

Tuesday, March 10, 2009 6:00 PM

CreditWhore, I appreciate your insight and comments, and I hope you continue to post about what is going on with FUN. Thanks!

Tuesday, March 10, 2009 7:48 PM

Jeff said:
I never go to N. Olmsted, but Montrose? Where? I don't go out that way much either, but I don't recall it there.

The Bennigan's in Montrose was up on the hill, where the Outback Steakhouse is. It's sort of a revolving door of restaurants. Damon's Bennigan's, Don Pablo's, and Thirsty Dog, to name a few, were up there and have since left. The Bennigan's location is still vacant.

I still think that the reason to try to sell VF and WoF was not so much a choice of "these are the parks that will bring in enough money" but more of a "these two are nowhere close to anything else we manage" idea. The ironic thing is that I think that VF was one of the better run CF parks, likely because they were not always under the watchful eye of DK. Having never been to WoF, I can only speculate, but I would guess that they were similar.

Tuesday, March 10, 2009 8:12 PM

I've checked my local MLS and I don't see an asking price for WOF. Any ideas as to how much they will list it for?

A couple ideas on the sale, I think they are selling WOF and Valleyfair because they are proffitable and their geographic location. Multiple reasons on geography. First, CF obviously owns the upper midwest cooridor, that is a given. Second, anything within a days driving distance of Detroit is hurting seriously. Michigan's adventure would take a bath right now if they sold it. As bad as the country is hurting right now, MI is hurting worse. Trying to sell properties in that area of the country for ammusement or development just isn't a good business decision right now.

I also agree with the notion this is as much a token gesture that they want to raise cash and pay off debt. If they can't get the money out of WOF or VF, they won't sell.

Ok, so my way out there theory on WOF. Comments on Schlitterbahn opening this year were made earlier. But anyone who is familiar with that site can see they are no where near completion. They have pushed off completion for the past two years. They issued a press release today anouncing the rides that will be opening in May/June. However, no season ticket sales, no employee job fairs, very little equipment has arrived, none of the normal things ammusement parks would have been doing for the past 3 month have happened with the Schlitt yet. I have to believe Schlitt's investors are very uncomfortable right now, one reason for their press release today. What does the potential sale of WOF do to those investors? Only speculation, but this could also be a move on the competition.

Tuesday, March 10, 2009 8:49 PM

I had a new theory presented to me today: They have no intention of selling VF or WOF, unless someone makes a really good offer. The theorist suggests that this is just buying them time until the credit markets free up and someone will give them money.

If there's a feeling of doom around the company, the people inside of it aren't showing it.

Wednesday, March 11, 2009 12:20 AM

Where have you been, Jeff? sws actually suggested that in almost as many words back on Page 2, and I've been thinking along the same lines in every comment I've made on this thread. :)

The actual language they used was very carefully crafted: "[Cedar Fair has] decided to explore the potential sale of Worlds of Fun, in Kansas City, Missouri and Valleyfair, in Shakopee, Minnesota." That means they have agreed to think about it. It doesn't mean they intend to do it, only that it is an option they are "exploring".

Given the extremely conservative approach the company takes to managing its finances, if they continue to turn a profit over the next few years, I predict that five years from now, Cedar Fair will still own and operate Worlds of Fun, Valleyfair!, AND Great America. And it's anybody's guess as to where the 49'ers new stadium will be. Unless someone comes up with several dump truck loads of cold, hard cash. Money talks for FUN, everything else...well...you know the drill.

Remember, this is the company that pays for $100,000,000 capital improvement projects out of operating cash.

--Dave Althoff, Jr.

Wednesday, March 11, 2009 12:58 AM

I wasn't going to say anything Dave, but yeah that was the point I was trying to make. I wondered if the timing on the news about possibly cutting costs/selling assests was being used to counter the negative impact of slashing the dividend to help cushion the stock price of FUN. As to why FUN's stock price rose 25% since the announcement, the dividend cut was expected and accounts for alot of the recent decline in FUN. I think most people expected a greater decrease in the dividend. There is a lot of pessimism factored into current stock prices. So if the bad news isn't quite as bad as people feared, stock prices can recover. If people are fortunate enough to have any expendible cash and can leave money untouched for 5-10 years, now is a great time to invest in an S&P 500 index fund in a retirement account. Once the recession passes, which will obviously take longer than first feared, stocks will sky rocket very quickly. It's just a matter of when.

Wednesday, March 11, 2009 1:37 AM

Selling any assets you don't HAVE to sell at this point probably means taking a pretty serious hit. It's buying time now, prices are cheap. They're going to get low-balled, nobody is going to pay full value for ANY property assets right now - don't have to. I guess it really comes down to how soon CF needs cash....if they can wait out the recession, they'll end up getting a MUCH better price sometime between 12-36 months down the road. In the scheme of buy low, sell high, they bought the PPs at a poor time...but they're good parks and will make money. Schlitterbahn could put a pretty serious hurt on WoF (maybe Legoland too?). The VF! thing kinda surprises me a little more.


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