Morningstar | Corporate Action: We Recommend Ardent Securityholders Vote in Favour of Corporatisation Proposal
We recommend securityholders in Ardent Leisure approve the proposal to corporatise the entity, at a Scheme Meeting on Nov. 20, 2018. The proposal involves a new single company, Ardent Leisure Group Limited, replacing the current stapled structure where securityholders own both shares in Ardent Leisure Limited (an Australian incorporated company) and units in Ardent Leisure Trust (an Australian trust).The proposal does not impact our AUD 2.00 fair value estimate. It is a simplification process that reflects the changes to no-moat Ardent's business mix. The disposal of relatively stable and yield-generative assets such as health clubs, marinas and domestic bowling assets in recent years, coupled with an increasing focus on Main Event in the U.S., have extinguished the relevance of the stapled structure. Indeed, the legacy requirement for Ardent Leisure Trust to distribute all its earnings restricts investment flexibility required to execute management's plans to expand Main Event in the world's largest "eat-a-tainment" market.
Other advantages of the proposal include: lower costs (compliance, governance, reporting), a potential increase in investment appeal to a wider investor base (especially those who are more familiar with the U.S. family entertainment space) and flexibility to liberate the value in the excess land around the Dreamworld theme park unrestricted by tax implications from the current trust structure.
The key disadvantage is the effect it will have on Ardent's future distributions, as the income and capital payouts from the trust vehicle will stop. These will be replaced by dividends from the corporatised vehicle whose payout policy will be dictated by Ardent's financial position, having regard to the capital requirements of Main Event. We forecast Ardent's payout ratio to be around 70% over the next three years, equating to DPS of AUD 0.04 to 0.08 per year. On balance, we believe the advantages of the proposal outweigh the disadvantages.
Ardent Leisure invests in and operates leisure and entertainment businesses in Australia, New Zealand and the U.S. Co. is organised into the following divisions: Marinas, which comprises seven d'Albora Marina properties, located in New South Wales and Victoria; Family entertainment centres, which comprises of 27 Main Event sites in the U.S.; Bowling centres, which comprises 48 bowling centres and six amusement arcades located in Australia and New Zealand; Theme parks, which comprises Dreamworld and WhiteWater World in Coomera, Queensland and the SkyPoint observation deck and climb in Surfers Paradise, Queensland; as well as Health clubs, which comprises 76 clubs in Australia.
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