Six Flags will not exercise buy-out option of Six Flags Over Texas

Old school fans of the park have to be over the moon about this since they've always believed that the limited partnership is what keeps the capital flow going. The buyout for SFOG made it seem like it was inevitable the same thing would happen at SFOT.

I don't think the company is in a good spot finically to make this move at this time.

Given that the payment would be due in 2028, that looks to me like a clear assessment that they won’t be flush by then.

FUN shares are down 4% on a day when the S&P is up almost 1%.

read into this what you will.

It's hilarious that enthusiasts called the merger a bad deal for Cedar Fair for all of the reasons that came true.

All of those hours of playing RCT amounted to something, dammit.

I’m too tired to try and calculate what the buy out amount might be, but could be a fun exercise.

[edit: see Gobuck’s comment below as they had access to firm data from the 2024 financial statements. I was going by a valuation amount cited in some articles from 2024, which were obviously not in alignment with the partnership agreement data presented down thread]

the 2023 valuation amount that was floated for all of SFoT was ~$527MM. (Note that was wasn’t a purchase price, but a valuation amount). Use that as a starting point. Modify for estimated change in value from 2023 to today, (change in estimated profits/losses [normalized EBITDA] since then); tweak for appreciation of land, if any; offset for any impairment, add in any capital improvement (e.g. Tormenta), then multiply by 46%.

I’m sure I’m missing a few things to call out, but you get the general idea.

In the end they determined that a purchase price of roughly $250mm or more, wasn’t in the best interest of the company.

if Dallas, arguably one the top 10 markets in the country isn’t worth the investment, that tells you two things. One, either the business (theme parks) isn’t a healthy one to start with, or they don’t think they would be able to come up with that cash in 2028 (either organically or by additional borrowings).

Neither answer is a good one.

They had indicated around the time of the SFOG exercise that they were leaning to do the same for SFOT (and renew lease on Schlitterbahn Galveston.)

So it seems something fundamentally changed, whether that be revenue, financing, or just the shake up in CEO and board members seeing something different. If the latter reason, then that may indicate they are looking at a more asset lite approach, and selling real estate and don't want to own more, since it was already mentioned.

What changed is that they are jodidoed.

they were in 2024 too, but they just didn’t realize how badly.

You hit the nail on the head: owning assets either isn’t feasible (no cash) or not the long term plan (i.e. planning on sales-sale/leasebacks). Either way it’s a death spiral.

The company sets forth the option amount every year as part of its financial statements. From 2024 annual report (footnote 7 on page 70):

To exercise the End-of-Term Option for the Texas Partnership, the Combined Company must give the Texas Partnership notice of its exercise no later than December 31, 2025. If the End-of-Term Option is not exercised, the parties may decide to renew and extend the arrangements relating to the Texas Partnership. Alternatively, if the End-of-Term Option is not
exercised, the Texas Partnership entities may be sold and the proceeds applied to redeem the outstanding interests in the Texas Partnership. If the End-of-Term Option is exercised, the price offered, and required to be accepted by the holders’ of the limited units that the Combined Company does not then own, is based on the agreed upon value of the Texas Partnership included in the original agreements, multiplied by the change in the Consumer Price Index (“CPI”) between the beginning and end of the agreement. The decision to exercise, or not exercise, the End-of-Term Option for SFOT will ultimately be made based on numerous factors, including prevailing macro-economic and industry conditions and the cost and availability of financing to fund the purchase.

The agreements for the Georgia Partnership and Texas Partnership began in 1997 and 1998, respectively. The agreed upon value for the partnerships when the agreements were executed was $250.0 million and $374.8 million for SFOG and SFOT, respectively. As of December 31, 2024, the agreed-upon value, as adjusted for CPI, would be $504.5 million and $742.6 million for SFOG and SFOT, respectively. The agreed-upon values, if determined as of December 31, 2024, multiplied by the 68.2% and 45.9% of units held by the limited partner for SFOG and SFOT respectively, represent $347.2 million and $344.7 million that would be required to be paid to the limited partner of SFOG and SFOT, respectively at the End-of-Option Term. The actual agreed upon value of the End-of-Term Option will be further adjusted by CPI until
the end of each respective agreement.

https://www.sec.gov/Archive...67dars.pdf

Inflation in the past few years would impact the economics of exercising the option.

Texas park partnership agreement is probably an attachment to the company's financial statements. Could do the calculation yourself if you want.

$742 million for 100% of SFoT seems like a valuation that doesn’t match the reality of the going concern.

I’m not even sure it matches the land value. $742M / 212 acres (some of which includes a creek and often floods) = $3.5M/acre if allocated pro rata. Even the once in a lifetime opportunity of 212 acres in the heart of the metroplex along an interstate doesn’t seem like it would command that price.

Quick ballparking of per acre cost for land in Forth Worth Texas is $100-$350k. I don't believe the development and goodwill on that land would command a 10x multiple.

if Dallas, arguably one the top 10 markets in the country isn’t worth the investment, that tells you two things...

There's a third possibility: The deal is terrible.

Yeah, I'm not sure it's an ability to exercise (though it's probably that too) as much as it's just not a very good deal.

My initial comments were based on my flawed assumption of a lower purchase price. So yeah it’s not a good deal at the valuation outlined above.

by the same token, the 54% they own isn’t worth as much as either. So….. additional impairment coming? Implied lower value if they were to try and sell their 54%?

none of this is as simple as “we chose not to overpay for an asset”

I don't think its as simple as we don't want to overpay for an asset either. But also don't think its as simple as we don't have funds to buy said asset. Sure they went through an involved financial analysis in terms of benefits and costs of exercising.

And I think its a different analysis/issue in terms of whether it makes sense to pay the option price (which has grown based on CPI which is different from company growth (or lack thereof)) and what the existing owned equity is worth. Wouldn't need to be the case that the park itself was worth less than expected but rather not worth what the exercise price has grown to be based on the contractual formula.