A recent article by Hugo Martin of the Los Angeles Times titled "Fewer Americans plan summer trips to Europe" begins:
With airfares to Europe on the rise, it looks like Americans are planning to rediscover the good ol' U.S.A. this summer.
The article cites statistics by the travel web site kayak.com showing that searches during January for summer airfares to Hawaii, Las Vegas, Los Angeles and San Francisco are all up by double digit percentages compared to 2011, while searches for airfares to London were down 40% and Rome down 65%. If this is a good barometer for summer travel plans, it indicates that more families will be staying closer to home this summer and that could be a boon to Cedar Fair, LP (FUN).
Cedar Fair is a limited partnership (LP) that owns and operates 17 amusement parks with several in Ohio and California. They include Knotts Berry Farm, located not far from Disneyland (DIS), Dorney Park in Eastern Pennsylvania and others in Canada, Virginia, Minnesota and elsewhere. Cedar Fair also owns five hotels and several water parks. As an LP, Cedar Fair pays a "distribution" rather than a dividend and reports earnings on a Form K1 rather than a 1099.
Cedar Fair has a highly seasonal business with all its parks (except Knotts Berry Farm) closed from Halloween through the end of March. Investors can expect to see small numbers when the LP reports first quarter earnings on May 3rd. It should be noted that the LP has reinstated an even quarterly payout. It is a sizable distribution of $0.40 per quarter and at the current unit price of about $31, and the yield is a little more than 5%. Management is also expecting to pay out a distribution of at least $2 in 2013.
Cedar Fair is in a recession resistant industry. The parks draw on local populations, and when families cut back on expensive vacations, they still find a way to make day trips for a relatively inexpensive family outing. Will rising gas prices be an issue? Perhaps, although some analysts believe we will see the highest prices before Memorial Day, and AAA has reported that prices have declined for the past three weeks.
Is History Repeating Itself?
Apollo (APO) tried to purchase Cedar Fair at a below market price of $11.50 per unit in late 2010. Q Investments stepped in and gathered support to defeat the takeover. Since then, Cedar Fair has tripled in value and a new management team is in place.
Apollo is at it again, trying to take over Great Wolf Resorts (WOLF) at a discounted price. Fortunately for Wolf shareholders, KSL Capital Partners has entered into a bidding war over Wolf and the offers keep rising.
The current yield and management's statements about aggressively increasing the payout are certainly attractive in a low interest rate environment. However, it should also be noted that Cedar Fair comes with a high level of debt and may be considered too risky for conservative investors.
Additional disclosure: I have no positions in any of the other companies mentioned in the article.