Dreamworld FY-2018 Update

[Tim Dasco]

Key points have been taken in the images below: Link to the full report is here: https://secure.weblink.com.au/Clients/webchartclient/clients/ardentleisure/article.asp?view=21098218

 

Edited August 22, 2018 by Tim Dasco

[Jamberoo Fan]

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...towards becoming the preeminent Gold Coast entertainment precinct built around Dreamworld

"around Dreamworld"? Does that mean their Downtown Disney-like plans for the northern side of DW are progressing?

Well, in the annual report, it does say (again - it was in last year's report too):

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The excess land that sits around the Dreamworld site is potentially of value. The park occupies just over 50% of the land that is owned and a process of determining the best use of this land is in progress. This may include a build out of tourist related adjacencies around the park itself. The plan may also involve an element of other commercial and residential uses.

Also:

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Ardent Leisure Group is currently assessing the merits of the current stapled structure and whether an alternative structure may provide better strategic alignment with the Australian and US businesses.

What does this mean? I feel it means 'Is it best owning DW + Skypoint with Main Event or should we sell one of them?'. I'm assuming 'stapled structure' refers to the joint ownership of DW + Skypoint with Main Event.

I don't know if this has been mentioned anywhere from the annual report:

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...the carrying values of the parks is $78.5 million.

The report also stated that the fair value of 'property, plant & equipment (1)' as $113,644,000. The (1) note just says 'Land and buildings of the Australian theme parks'. Another (1) note on page 59 of the report says 'A 10% reduction in attendance levels would result in the fair value declining to the stand alone land valuation of $60.0 million'. According to the annual report, Dreamworld's excess land is still valued by the directors as $3.6 million & for all of Ardent's investment properties, the current use is still determined as the highest and best use.

In good news, the attendance reduction since the Thunder River Rapids incident has all but stopped as growth in attendance is now -0.3% (compared to -34.3% last year) so there is a chance that people will begin to return to DW this financial year (assuming the Coronial Inquest doesn't reverse this trend). Assuming the trend continues, DW could be back at pre-incident levels in 2019/2020. However, Ardent's valuer has a different view, which is just as likely to be accurate as attendance levels from now on may stagnate:

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In addition, the valuer has assumed a gradual recovery of attendances to FY16 (pre-incident) levels over the next eight years, with FY19 attendances estimated to be approximately 74% of FY16 levels.

Based on the valuer's FY19 attendance estimate, attendance could actually be back at pre-incident levels in 2023/2024 - 6 years not 8 years (2025/2026).

The valuer's attendance estimate for FY18 (from last year) was wrong by about 400,000 people (extra). They also increased their recovery period estimate from their original estimate of 4 years, which is still possible to be accurate even though the possibility of it being wrong is just as likely.

I sometimes wonder about the attendance figures because it isn't made clear if it takes into account repeat visits from passholders. The presentation slides stated that DW + SkyPoint have 250,000 passholders:

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Finished the year with over 250,000 loyal passholders, utilising their benefit of unlimited access.

Based on the current attendance figures, if only passholders visit DW + Skypoint, they would visit on average 6 or 7 times per year. So, do passholders actually visit 6 or 7 times per year? And if they do and the attendance figure does take into account repeat visits from passholders, then that means only 250,000 people visit DW + Skypoint per year and they likely only visit from the Gold Coast-Tweed Heads region. If all passholders are from the Gold Coast-Tweed Heads region, then that means 40% of the Gold Coast-Tweed Heads population has a DW + SkyPoint pass.

The park's capacity is 10,000 and based on the attendance figures in FY16, they get around 6600 people per day on average. Now they get around 4540 people per day on average. Is that reflected with the amount of people actually seen in the park? Because if it is really 250,000 people per year currently, that is equal to 685 people per day on average (likely to be 1020 people per day on average prior to the incident).

Also:

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A number of civil claims by families and other affected persons have been made against the Company and are being dealt with by the Company's liability insurer. 

Edited August 23, 2018 by Jamberoo Fan

[themagician]

Apparently the new flying theatre is ‘virtual reality’ 😒

Anyways, they also commented saying DW are looking at a new boat ride.

[GoGoBoy]

1 hour ago, Jamberoo Fan said:

What does this mean? I feel it means 'Is it best owning DW + Skypoint with Main Event or should we sell one of them?'. I'm assuming 'stapled structure' refers to the joint ownership of DW + Skypoint with Main Event.

No they are talking about Ardent’s share structure, nothing to do with the assets they own. Ardent’s shares are structured in a form known as stapled securities. It’s just a financial thing.

Edited August 23, 2018 by GoGoBoy

[Jamberoo Fan]

Thanks @GoGoBoy. I did find this diagram (below) from their 2017 results presentation earlier and it has Dreamworld separate from Main Event. So, just to clarify, based on the diagram below, that quote still can't imply Ardent may be thinking of selling DW + SkyPoint?

Edited August 23, 2018 by Jamberoo Fan

[Slick]

It's almost like they're setting up their theme parks* up for sale.

*Includes Skypoint, the propper-upper of attendance figures.

[Jamberoo Fan]

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Ardent Leisure Group is currently assessing the merits of the current stapled structure and whether an alternative structure may provide better strategic alignment with the Australian and US businesses.

Ardent Leisure Group today announced their "alternative structure". Key quotes can be found below:

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Ardent Leisure Limited and Ardent Leisure Management Limited in its capacity as the responsible entity of the Ardent Leisure Trust (together, the Ardent Leisure Group)...today announces a proposal for the corporatisation of the Ardent Leisure Group which will involve a new company called Ardent Leisure Group Limited...becoming the single head entity of Ardent Leisure Group in place of the current stapled structure (the Proposal).

Following implementation of the Proposal, the Ardent Leisure Group also intends to undertake a solvent restructure which will realign the group's structure to its two business divisions, Australian Theme Parks and US Entertainment Centres (the Restructure).

Neither the Proposal nor the Restructure will result in any change to...the operations, assets or liabilities of Ardent Leisure Group...

Chairman Gary Weiss said "...the Proposal and Restructure are expected to deliver a number of benefits, including greater flexibility to fund investment into growth of...Dreamworld..."

The Restructure does not require securityholder approval.

...Ardent Leisure Group expects that the Proposal will be implemented before the end of 2018 and the Restructure soon thereafter.

Edited October 3, 2018 by Jamberoo Fan

[Gold Coast Amusement Force]

They put more time into shuffling around Ardent than they do in the future of DW. Although I do hope this means DW will be controlled by at least some people who understand how to operate a theme park. Doubt it however. Thanks for the update @Jamberoo Fan

[Jamberoo Fan]

On 03/10/2018 at 10:27 PM, Gold Coast Amusement Force said:

Although I do hope this means DW will be controlled by at least some people who understand how to operate a theme park. Doubt it however.

Here is a bit of that ASX announcement that I edited out of the quote:

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Neither the Proposal nor the Restructure will result in any change to the composition of the boards of directors or of the management of the Ardent Leisure Group...

Edited October 5, 2018 by Jamberoo Fan

[Jamberoo Fan]

Ardent issued a booklet on their "alternative structure" back on the 10th of October. Below are some quotes of note. Following on from the quote I posted on the 23rd of August stating Ardent is now receiving civil claims due to the Thunder River Rapids incident, there is just this new quote relating to those civil claims:

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Ardent Leisure Group has received numerous civil claims from families and other affected persons and many of those claims have already been settled by Ardent Leisure Group's insurer in the normal course.

Other quotes of note include this one below:

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The benefits of the Proposal include:

• facilitates development of excess Dreamworld land: to retain its status (for Australian income tax purposes) the Trust's activities are limited in certain ways. The development of the Dreamworld land could jeopardise the Trust's tax classification. These constraints should no longer apply after implementing the Proposal as the Trust will be within a tax consolidated group;

Their tax classification/status is, in the current structure, "flow through", which is mentioned elsewhere in the booklet. So according to that quote above, development of excess DW land is being held back due to taxation laws. Can someone explain to me how? After all, their last major expansion in 2006 was for a whole new park. And also, what types of development are limited under the current tax classification/status?

This last quote:

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In addition, the Restructure will result in the separation of the holding companies of the Ardent Leisure Group from the operational companies within the Ardent Leisure Group. This alteration to the holding structure and internal organisation of the Ardent Leisure Group's assets provides increased optionality for future corporate transactions of the Ardent Leisure Group and its two business divisions, US Entertainment Centres and Australian Theme Parks, including flexibility for future capital expenditure or merger and acquisition activity undertaken by Ardent Leisure Group or in relation to those divisions.

Possible mergers of DW or the whole of Ardent's Australian Theme Parks division with another company might be on their mind. Regarding acquisitions, whilst that also might be on their mind, I really hope they aren't thinking of acquiring more theme parks... 

Finally, here is a diagram of the proposed new structure ("alternative structure") compared to the previous one, which was slightly incorrect in the diagram I posted back on the 23rd of August (DW wasn't linked to Ardent Leisure Limited in that diagram) :

Edited October 23, 2018 by Jamberoo Fan

[Jamberoo Fan]

In relation to today's news, which saw the word 'divestment' appear prominently, the booklet did refer to 'divestment' once in a similar quote to the third quote in my previous post in this topic however this quote (below) doesn't specifically refer to theme parks:

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Factors that the Ardent Leisure Group Directors have considered as part of their review include:

• whether an alternative structure to the stapled structure provides optimal flexibility for future corporate arrangements including...divestments....

The "future corporate arrangements", in the above quote, also, without specifically mentioning theme parks, refer to "mergers and acquisitions" but not (mentioning) "future capital expenditure". It also refers to "financing arrangements" (which, according to the booklet, will be more reliant on Main Event revenue because that is Ardent's major (50%+) revenue/profit stream).

The question is what scenarios did Ardent find to be optimally flexible under the proposed new structure?

Edited October 23, 2018 by Jamberoo Fan

[DaptoFunlandGuy]

regarding the tax question, I don't know specifically, but in general - the structure of the group is a 'trust'. trusts are usually bound by a 'deed' which establishes the trust and sets up the rules for which it must abide.

Trusts generally aren't taxable as they distribute their profits to beneficiaries.

If they want to use the trust assets in a way not permitted by the trust deed, they would need to change the current structures to allow this.

A restructure generally comes at a cost, and previously, they've probably considered restructuring too costly for the benefit of the alternative uses.

 

All this is in general, and not specific to their particular circumstances, of which I know zero.