Monday, January 13, 2020

Six Flags Gives Official Update on Chinese Park Development

© Six Flags China
As a follow up to our post from December 29th, Six Flags Entertainment Corporation has filed an update with the SEC that details the trouble they have encountered with their Chinese development partners.

As news started to spread about the halting of the construction of the first parks, located in Haiyan, the company filled in investors and it wasn't good news.  They stated that the Six Flags branded parks being built on Riverside Investment Group's dollar have "encountered continued challenges" and have "not progressed as" Six Flags expected.  They note that Riverside is facing "severe challenges due to the macroeconomic environment and the declining real estate market in China."

Riverside has defaulted on their payment obligations to Six Flags (remember these parks are not paid for by Six Flags, instead Six Flags earns a fee for helping design them and allowing them to use the Six Flags name) and they have been served formal notices of default.

This, according to Six Flags, means that the future of the projects could vary anywhere from the eventual continuation of all or some of the parks (perhaps with another investor), or even the termination of all the Six Flags branded parks in China.  Further, Six Flags will recognize no revenue from the agreement in the 4th quarter of 2019, and will instead have to book a $1 million revenue adjustment plus another $10 million charge due to the collapsing deal and other litigation.

Moving forward into 2020 Six Flags expects to not have any more charges on the books related to the China deal, however if Riverside doesn't improve their status they might get no further revenue from the partnership at all.  Perhaps we will see some of the rides designed and partially fabricated for Six Flags Haiyan show up in the 2021 season at the North American parks?

Unrelated to that news, Six Flags also let the investor community know that they experienced lower attendance in the 4th quarter of 2019, due to "softer than expected season pass and membership sales."  They expect revenue for the period to be less than the prior year by $8 to $10 million.

Needless to say Six Flags' stock dropped a tremendous amount the day the news broke, plunging to a five year low when all was said and done.