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Our ClubCorp $MYCC valuation models imply nice upside b4 earnings Wednesday:
Fair Value Analysis
Short seller tees up attack on Dallas-based golf course operator ClubCorp (4/07/16)
By Lauren Coleman-Lochner and Esha Dey
Bloomberg
ClubCorp Holdings Inc. shares declined Thursday after an attack by short seller Kerrisdale Capital Management, which says the country-club operator is worth less than a quarter of its current value.
Participation in golf is shrinking, particularly among younger players, and operating golf clubs is a capital-intensive business, Kerrisdale said in a report released on Thursday. That’s left ClubCorp vulnerable, the firm said. The company, which had a market value of about $866 million as of Wednesday’s close, is the largest operator of private country clubs in the U.S.
ClubCorp fell 7.6 percent to $12.26 on Thursday. For the year to date, the stock is down 32.9 percent. The Dallas-based company, which also runs sports and alumni clubs, has posted losses in two of the past three years.
Most clubs aren’t run for profit, meaning customers often have relatively cheap alternatives, Kerrisdale said. The large proportion of mid-tier clubs in ClubCorp’s portfolio make it particularly vulnerable in a recession, when members could defect to public golf courses, according to the firm. A high debt load and state audits over refundable deposits also may lead to “a potentially fatal debt burden,” Kerrisdale said.
Short sellers like Kerrisdale bet that a stock will decline in value and rely on research to back up their case. The firm previously went after Sage Therapeutics Inc., saying in March that the biotechnology company’s leading drug candidate was likely to struggle. That stock fell 13 percent in the wake of that report, though it has rebounded in the past two weeks.
ClubCorp wasn’t immediately available for comment.
Analysts surveyed by Bloomberg have 11 buy ratings, one hold and no sell recommendations on the company.
http://www.dallasnews.com/business/headlines/20160407-short-seller-tees-up-attack-on-dallas-based-golf-course-operator-clubcorp.ece
ClubCorp bets on bringing modern vibe, more affordability to its golf venues (3/24/16)
By Karen Robinson-Jacobs
On a blustery, sunswept Sunday, three lanky tweens giggled their way across a new miniature golf course near an al fresco dining area of the country club popularly known as Prestonwood.
Nearby, 30-year-old Glenn Smith, a club member since August, lounged in a patio-like setting a few paces from an outdoor bar. Smith, accompanied by 8-year-old daughter Allana, joined the club through a young executive program, an effort launched during the economic downturn that aims to attract younger golfers with promotional pricing.
“I’m looking to play golf a little better,” said Smith, who was accompanied by a group of friends. “I sucked so bad at Topgolf, I decided to come here.”
Topgolf is the high-tech entertainment complex that is part driving range, part bar and grill. ClubCorp is the nation’s largest owner/operator of private golf and business clubs and the owner of the Preston Road country club that’s part of The Clubs of Prestonwood.
Both Dallas-based companies are fighting trends that have seen golf participation levels weaken considerably across the country.
Topgolf has found success as a millennial magnet and a low-cost date night option.
Clubcorp, where fees can easily stretch into the thousands of dollars, is promoting lower-cost memberships, some of which have nothing to do with golf.
“We don’t like to consider ourselves a golf company,” said Eric Affeldt, who’s been chief executive since 2006. “We’re in the membership business, and we make money by creating an environment that would be [appealing] to people that aren’t just golfers.”
Range of activities
In the young executive program, “we’re trying to encourage younger executives to come out and enjoy not just the golf but the dining and the fitness and the social and the swim and everything else,” he said.
To become more attractive to families, many of ClubCorp’s 207 properties have added activities including Friday Night Out, which can include live music, karaoke and grilling on the patio; Movies on the Lawn; Margarita Golf, which includes a cocktail, group instruction and a few holes of golf; local wines of the month; craft beer tastings; grilling and cooking classes; and complimentary golf and tennis clinics.
In 2015, ClubCorp invested in a multimillion-dollar update at The Clubs of Prestonwood, which includes the Creek Clubhouse on Preston Road and the Hills Clubhouse in Plano. The update gave the main dining area at the Preston Road location a “modern mid-century design,” with multiple flat-screen TVs, a communal table with charging stations and a walk-in wine cellar. The club also added a covered patio and the outdoor lounge area that hosted Smith and his pals.
The Hills Clubhouse also received new dining area, lounge with media area and lobby.
“Our clubs offer I won’t say something for everybody, but something for a lot of people,” Affeldt said.
The company says that today, at least half of the members in its “golf and country club segment” don’t play golf. Other memberships include use of the tennis, fitness and or dining facilities.
Based largely on the $260 million purchase of Sequoia Golf Holdings in 2014 — the largest acquisition in company history — ClubCorp topped $1 billion in revenue for the first time in 2015 and saw total membership jump to 183,000 from 146,800 in 2013 .
The 183,000 marks the highest membership level ever. That’s 11 percent higher than in 2006, when the North Texas-born company was purchased by KSL Capital Partners.
The company, which launched in Farmers Branch in 1957 with Brookhaven Country Club, went public in 2013. KSL sold off the last of its ownership stake in 2015.
Upgrading clubs
Acquisitions (nine clubs were purchased in 2015) helped plump up the top line, but ClubCorp still ended 2015 with a $9.6 million loss. That was a swing from the $13.3 million profit in 2014. However, the company posted losses of at least $27 million in each of the three prior years, according to regulatory filings.
That was partly due to an aggressive campaign to update properties in the portfolio, said Frank Molina, ClubCorp’s vice president of investor relations.
In 2015, the company spent $52.1 million to expand and improve existing properties, including major renovations.
Affeldt said the company will continue to grow through purchases, which adds to both revenue and the member rolls. Recently it announced the acquisition of Santa Rosa Golf & Country Club, a member-owned club in the Sonoma wine country of Northern California.
Acquisition has been crucial to ClubCorp’s business model since its early days, accounting for most of the revenue and membership growth. For 2015, membership at existing clubs slipped by 353 while new or acquired clubs added more than 5,000 members, according to regulatory filings.
Affeldt said he expects an uptick in memberships this year, noting that interest last year in Texas was at least partly watered down by unending days of rain.
“That tends to dampen people’s interest in coming out to the club,” he said of the rains in Texas, which accounts for 30 percent of business. “They want to play a round to give it a test drive. When the rains came as they did, as hard as they did, that slowed down our membership momentum.”
Participation dips
As it looks to increase membership, ClubCorp is facing an industrywide challenge. The number of people who play at least one round of golf a year dipped to 24 million in 2015. That’s down from 29 million a decade ago.
More than 200 golf facilities closed in 2015 and are not expected to reopen.
Many millennials are more likely to be drawn to Topgolf. The company says its 24 locations serve 8 million guests annually, including about 7 million in the U.S.
It costs $5 to get a lifetime membership at Topgolf in The Colony, which includes free club rentals. Players rent a bay starting at $20 an hour with a group of up to six people.
While there are some encouraging signs, traditional golf, particularly for private clubs, continues to struggle, said James J. “JJ” Keegan, who runs the website jjkeegan.com. He was complimentary of Affeldt’s efforts to diversify the activities available at a ClubCorp’s facility by appealing to a broader demographic but said, “The headwinds are against him.”
Overcoming obstacles
The biggest barrier, he said, is the difficulty and time its takes to become a competent even as a recreational golfer.
Another hurdle, Keegan said, is the cost, which varies by club. At ClubCorp’s Gleneagles location in Plano for example, the initiation payment is $32,500. Add to that $800 in monthly fees.
Then there’s the cost of equipment. Given the cost of clubs, “you could easily spend $2,000 before you hit your first shot,” Keegan said.
As Leo Cardenas of Lewisville scanned the aisles at the recent DFW Golf Show in Irving, he said his reason for not joining a private club is pretty simple.
“We can’t afford it,” said Cardenas, 42, who plays about once a month. “I’m not in a situation where I can spend a few hundred bucks to belong to a club that I probably won’t use very much.”
ClubCorp hopes to address the affordability concern through promotional programs like the young executive one. Adding events and amenities is meant to give members — and potential members — more reasons to visit.
To address both membership and retention, which has slipped to about 83 percent for ClubCorp’s golf clubs, the company this year combined both functions under one leader.
The company has membership sales and retention goals for each of its clubs, but it declined to release those.
“We’ve spent millions and millions of dollars providing a contemporary dining experience and pools and fitness and tennis, so that it’s not so much a golf phenomenon as it is for the whole family,” Affeldt said.
With the rains having abated and new attractions launching, “we would anticipate that membership would grow this year,” he said.
http://bizbeatblog.dallasnews.com/2016/03/seeing-green-clubcorp-bets-on-bringing-modern-vibe-more-affordability-to-its-golf-venues.html/
ClubCorp: Still Hitting It Straight Down the Fairway (6/27/15)
Clubcorp, operator of golf, country and professional clubs, is thriving with strategy focused on acquisitions and on sprucing up properties.
By David Englander
While It’s a relatively new public company, ClubCorp Holdings hasn’t disappointed its investors. Since its September 2013 initial public offering, its shares have shot up 70%. They are 31% higher than when this column wrote favorably about the company in spring 2014, far outpacing the 14% return for the Russell 2000 (“A Stock That Could Stay on the Leaderboard,” April 21).
At a recent $24, the stock (ticker: MYCC) still looks attractive.
ClubCorp owns and operates 160 golf and country clubs in the U.S., encompassing about 200 courses. The industry’s largest player, it has been rolling up clubs and refurbishing them. In the past year, its memberships have soared 22%, to 180,000, driving sales and earnings higher.
There’s plenty of mergers-and-acquisitions potential left. The U.S. golf market is highly fragmented, with about 4,000 clubs. Most of them are run by small operators, are not well-capitalized, and need renovations. In fact, refurbishing existing clubs presents a sizable opportunity, with ClubCorp management targeting 10% to 15% cash-on-cash returns there.
MKM Partners analyst Christopher Agnew estimates that earnings before interest, taxes, depreciation, and amortization could jump 20% by 2017, to nearly $280 million, from the $233 million expected this year. Management has set a $300 million Ebitda goal by 2018, not including new acquisitions.
Agnew values the shares at $30, on an enterprise value of 10 times his 2017 estimate, but he believes that, in two years, they could be worth as much as $40. The stock yields 2.2%.
ClubCorp came out of private-equity ownership. In 2006, KSL Capital Partners bought the company, which was founded in Dallas in 1957. KSL has been winding down its stake since the IPO, but still retains about a 50% interest. ClubCorp CEO Eric Affeldt, a former KSL principal, has held the job since the buyout.
THE CLUBS ARE IN 26 STATES, including Florida, Texas, and California. ClubCorp also operates 49 business clubs, which cater to professionals. Club members spend, on average, more than $5,000 per year, and the affluent clientele tends to stick around. Retention rates exceed 80%.
Member dues contribute to an attractive business model, with recurring revenue representing nearly 50% of the total. The remainder comes from food, drink, and golf-related sales. This year, earnings could reach $32 million, or 49 cents a share, on $1 billion in revenue. They could rise 32%, to 65 cents a share, in 2016.
Since the IPO, ClubCorp has been an aggressive acquirer, snapping up 63 golf and country clubs in 2014 and 2015. Last August, management struck its largest deal—the $265 million purchase of Atlanta-based Sequoia Golf, owner of 30 clubs.
Acquisitions can offer meaningful synergies, with roughly half related to cost savings from centralized procurement and back-office support. Remodeling clubs—what ClubCorp calls “reinventing”—boosts memberships. Updates tend to focus on non-golf areas, such as fitness centers, restaurants, and pools, to boost a club’s appeal to families. ClubCorp has refurbished 33 golf and country clubs, and 21 business clubs, and plans to complete 30 this year.
On ClubCorp’s April earnings call, CEO Affeldt noted the success of the remodeling of the Prestonwood Country Club in Texas, bought last year. Since the updates, membership has soared nearly 50% at its two sites, in Dallas and Plano, with 40% of new members under age 40.
The O.N.E. promotion is also driving sales. The program, which gives members discounts on dining and access to other clubs around the country, carries high margins and improves retention rates.
ClubCorp’s balance sheet is in good shape. With about $100 million in annual free cash flow, there’s plenty of flexibility for the company to continue its growth.
On the April call, Affeldt sounded upbeat about his company’s prospects. Given what he has accomplished since the IPO, there’s no reason to doubt that he can keep hitting it straight down the fairway.
http://online.barrons.com/articles/clubcorp-still-hitting-it-straight-down-the-fairway-1435372741
Red Alder Group Delivers Letter to Board of ClubCorp Holdings Urging Pursuit of Restructuring
http://finance.yahoo.com/news/red-alder-group-delivers-letter-100000171.html
Believes ClubCorp is Meaningfully Undervalued and has a Unique Opportunity to Maximize Value for all Shareholders
Urges ClubCorp to Move Immediately to Evaluate and Implement Conversion to a REIT and Spin-Off of Non-Real Estate Assets
Calls Upon the Board to Form a Special Committee to Explore Restructuring that is in the Best Interests of All Shareholders
Believes ClubCorp Could be Conservatively Worth Between $31 (No Incremental Leverage) and $36 (Appropriate Leverage) per Share upon Restructuring
NEW YORK, Sept. 29, 2014 /PRNewswire/ -- Red Alder LLC ("Red Alder") and ADW Capital Partners L.P. ("ADW") (the "Red Alder Group"), significant shareholders of ClubCorp Holdings, Inc. ("ClubCorp" or the "Company") (MYCC), today announced that they have delivered a letter to the independent members of the Company's Board of Directors (the "Board"), the full text of which is included below, urging the Company to immediately pursue a restructuring transaction. The Red Alder Group believes that the Company's conversion to a REIT and spin-off of its non-real estate assets to shareholders would enable the Company to increase dividends, lower its cost of capital and significantly enhance long-term shareholder value. The Red Alder Group believes that the time is ripe for the Company to pursue this strategic alternative and has called upon the Board promptly to form a special committee so as not to allow the window of opportunity for this transaction to close.
The full text of the letter follows:
September 29, 2014
Independent Members of the Board of Directors
c/o Mr. John A. Beckert, Chairman
ClubCorp Holdings, Inc.
3030 LBJ Freeway, Suite 600
Dallas, TX 75234
Dear Independent Board Members:
Red Alder LLC ("Red Alder") and ADW Capital Partners L.P. ("ADW") (the "Red Alder Group" or "we") are significant shareholders of ClubCorp Holdings, Inc. ("ClubCorp" or the "Company"). We have made a sizable investment in ClubCorp because we believe the Company is materially undervalued. However, we believe the Company's Board of Directors (the "Board") can substantially increase shareholder value if it seizes a unique (but fleeting) opportunity to restructure the Company's operations.
Our extensive due diligence on ClubCorp has furthered our initial view that management, the Board, and the current largest shareholder, KSL Capital Partners, LLC ("KSL"), have done a praiseworthy job nurturing ClubCorp from a financially troubled enterprise into North America's largest scale owner / operator of golf and country clubs with a brighter future than ever. ClubCorp now enjoys a 4-5x stronger market position than its closest peer in the highly fragmented ~4,000 North American golf and country club segment. ClubCorp and KSL have proven to be successful consolidators, culminating with the recent Sequoia acquisition. KSL's expertise as a premier investor in travel and leisure businesses and its significant Board representation have so far positioned the Company on a promising trajectory.
In particular, we laud CEO Eric Affeldt and his management team for carefully navigating the financial crisis and subsequently taking advantage of the resulting circumstances by buying distressed assets and leveraging the Company's best-in-class platform to make them valuable additions to the network. As long term investors, we have great faith in the operational abilities of current management. However, we believe that the Company's current corporate structure limits its ability to allocate capital effectively and maximize shareholder value.
The success thus far of KSL's ClubCorp investment and its positive broader track record are encouraging to us that reasonable and competent stewards of capital are involved and equipped to study and execute the corporate structure change we are calling for. We recognize private equity can have its limitations, though. Our research suggests that the fund that consummated the investment in the Company is nearing the end of its life. The recent secondary offering by KSL (taking its stake from almost two thirds to 51%) was multiple times oversubscribed and could have warranted a restructuring of the original transaction to allow far more shares to be sold. KSL clearly believes that ClubCorp's best-in-class fee simple real estate portfolio and operating company are worth substantially more than the public markets are currently assigning. Unfortunately, the current corporate structure will create, in our view, ongoing difficulties for other investors to see through the overhang of KSL subsequent equity sales to the robust real estate of the Company; in fact, the golf and country club real estate value was recently appraised at $1.1 Billion, essentially the entirety of the Company's current market capitalization and a dominant percentage of its enterprise value.
After consulting a range of real estate experts and legal advisers specializing in relevant corporate structure changes, we believe the optimal structure for ClubCorp is to convert into a real estate investment trust ("REIT") such as through an "OpCo / PropCo" structure. Although composition of shareholder base would be a gating issue, from our direct experience with family-oriented publicly traded REITs, and through our study of other companies that have gone through similar conversions, we are confident that there are a number of established precedents for how the Company and KSL could work together quickly to resolve the remaining ownership issue.
It is clear to us that a corporate restructuring will significantly enhance shareholder value. A restructuring will enable the Company to diversify its real estate investment portfolio by pursuing real estate acquisitions outside the Company's existing core business of golf courses and country clubs. In addition, the Company will have the ability to partner with other golf course and country club operators to take advantage of opportunities within its existing core business in geographic markets where the Company has underperformed. By combining the ability to diversify its real estate portfolio and pursue a wider array of business opportunities in its core business with the increased tax efficiency inherent in operating as REIT, the Company also should be able to increase dividends to its shareholders and lower its cost of capital.
To facilitate your review, we attach a basic financial model outlining the projected outcome of a proposed change, using the "OpCo/PropCo" structure for modeling purposes. As shown in the financial model, we believe a restructuring could yield equity values per share of $31 (assuming no incremental leverage) and $36 (assuming appropriate incremental leverage), offering shareholders approximately 65% to 90% upside, respectively, from the current stock price of $18.74.
The improving economy and looming rise of interest rates make us believe that any delay in implementing a corporate restructuring, including to allow KSL to further liquidate its position in the Company, would be ill-advised and against KSL's own economic interests. In our view, the Company must act now while the window to lock in attractive long-term fixed financing is still open. We believe the successful execution of the initiatives outlined in this letter will reward shareholders, many of whom have earned little return on their investment to date, and to whom the Board owes a foremost fiduciary duty.
Accordingly, we request that the Board immediately establish a special committee to explore all available options regarding a corporate restructuring. Providing transparency on the formation of the special committee would underline to stakeholders the seriousness and urgency with which the Board determines to approach this matter. If the Company does not formally communicate to shareholders its expedited timetable, we believe it would be a clear signal to shareholders the Board is failing to act in a manner that is in its own best interest and would maximize value for all shareholders.
In conclusion, we believe that the Board has a unique and pressing opportunity to pursue a corporate restructuring to achieve a materially higher valuation for the benefit of all shareholders without commensurately increasing risk to investors. In fact, we believe that a properly valued equity currency in combination with attractive long-term fixed financing could serve to accelerate the Company's long-term consolidation plan and increase its ability to create significant shareholder value. The confluence of the availability of the Company's tax loss carryovers and interest rates at unsustainably low levels makes the time for focus and action now.
We hope that the Company will take the required steps to capitalize expeditiously on this opportunity. We look forward to hearing your prompt response and working constructively with the Board.
Sincerely,
Schuster Tanger Adam Wyden
Red Alder LLC ADW Capital Partners L.P.
Managing Member Managing Member
ClubCorp Holdings, Inc. owns and operates golf, country, business, sports, and alumni clubs. The company's Golf and Country Clubs segment operates private country clubs that provide 18-hole golf course and various other recreational amenities for members and their guests; golf clubs, which offer private and public golf play, and other recreational amenities; and public golf facilities. The Business, Sports, and Alumni Clubs segment operates business clubs that provide a setting for dining, business, or social entertainment for business executives, professionals, and entrepreneurs located in office towers or business complexes; sports clubs, which comprise fitness and racquet facilities; business/sports clubs; and alumni clubs that associate with universities. As of April 30, 2014, the company owned or operated a portfolio of approximately 160 golf and country clubs, business clubs, sports clubs, and alumni clubs in 25 states, the District of Columbia, and 2 foreign countries. The company was founded in 1957 and is based in Dallas, Texas. ClubCorp Holdings, Inc. is a subsidiary of Fillmore CCA Investment, LLC.
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