Theme Parks - A new frontier

Theme parks offer an exciting business proposition catering primarily to the leisure and tourism market. Theme parks can be generally categorised into two key markets, being destination based and Tourism based. In some instances, the tourism based products create a destination precinct, such as the Gold Coast with six attractions. 

Destination Parks include assets whereby their location is vital to their operation as a park. Such examples include The Sydney Harbour Bridge Climb, Scenic World at the Blue Mountains and various Ski Resorts. These assets have significant appeal to the tourism market whereby the visitor uses the parks facility to enjoy the attractions of the local area.  

Tourism Parks rely primarily on visitors to the area with the parks providing an entertainment option during a stay in the area. The Gold Coast has morphed as the Theme Park capital in Australia with various attractions.


Theme Parks - A new frontier

Barriers to entry
The key barriers to entry, as with most developments are planning and the upfront development costs. Further, unlike more traditional real estate and tourism products, forecasting visitations and average spend per customer are sometimes difficult to estimate. The highly subjective forecasting can often deter potential investors for new parks. These barriers to entry protect existing operators within the market. 

A recent proposal is for a Chinese Theme park to be located at Wyong on the Central Coast of NSW, with an estimated cost of $500 million. The park is still in the planning process, however if constructed, would represent the largest single investment of a theme park in recent times. 

Key valuation considerations
There are limited transactions of theme parks, with prime assets seldom sold. Secondary assets also transfer infrequently, and as such there is a lack yield evidence. Nonetheless, benchmarking of yields from dated transactions to more traditional going concern assets provides a reasonable guide for comparison. 

Key considerations in maintaining value in theme parks are:
• Consistent Turnover and EBIDTA trends
• Ongoing Capex to ensure market share
• Diversification of income streams.

The first two are relevant to many asset classes and are primarily controlled through good management. Diversification of income can be somewhat more difficult. International theme parks have been very good at attaching accommodation to their assets. The inclusion of accommodation enables the park operator to have more control of the visitors and increase their average spend. 
Accommodation not only includes room revenue, but also confines the visitor to the park increasing F&B sales. Operators with more than one park also have the advantage of providing package deals
which also increases the appeal to the consumer. The provision of accommodation allows for non-core business such as functions and weddings in non-peak periods. 

Merchandise done properly, is also another profitable cash generating unit, and can significantly enhance revenue without the requirement for significant capital expenditure. The explosion in the
demand for good coffee, together with its high profitability should also be considered for tired parents.

The expansion of theme parks internationally combined with a historically high Australian dollar has been detrimental to the local tourism market and theme park operators. The decline in the Aussie 
Dollar since September 2014 is likely to benefit Theme Parks two fold. Firstly, domestic travel is likely to increase as the affordability of international holiday’s decrease. Secondly, international visitors are likely to increase due to the increased affordability of tourism in Australia. 

The challenge for domestic operators of theme parks will be their ability to engage with international visitors and ensure booking and payment prior to arrival in Australia. This will require more sophisticated marketing and distribution than what is currently the norm within the Australian theme park market.

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