Brookfield/Center Parcs: short break group is first resort for buyout returns
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Every holiday has a return date. That time approaches for Brookfield, owner of Center Parcs. The Canadian alternative assets group plans to sell the UK holiday resorts business for a mooted price of more than £4bn. Not all of Brookfield’s holiday snaps will bring back happy memories, especially of empty rooms during Covid-19. But it should still earn a healthy return.
Center Parcs specialises in activity holidays for better-off families. It operates five “villages” in the UK and one in Ireland. It has few rivals at its price point — about £250 per person daily. This represents a rebound to pre-Covid levels.
Families typically take Center Parcs breaks on top of annual foreign holidays. It is a steady, cash-generative business. However, the company has lately invested in expanding its sites. As a result, Center Parcs’ free cash flow was £117mn for the nine months through to December, down a fifth year on year.
Brookfield has not grown the Center Parcs estate at the rate originally envisaged. Environmental objections killed off a proposal for a new park in West Sussex, south of London. It still plans to add a sixth UK site, though, and to increase its Irish lodges by 40 per cent to 700.
Blackstone took Center Parcs private for £205mn in 2006. It sold it to Brookfield for £2.4bn in 2015.
What would Brookfield make on this latest sale? Center Parcs’ UK properties were independently valued at £4.1bn in April, so a deal at £4.5bn seems possible. That would equate to an unlevered annualised return of more than 8 per cent. Assuming about 60 per cent debt was used in the original purchase price, that would imply a return of almost four times, or 18 per cent annualised, after interest costs.
Center Parcs has provided a decent payday for its last two owners. The test for a new owner would be to expand faster without diluting the offer — or returns made from it.
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