After accounting for the 66% ownership by Hill Capital and passive funds, the actual short interest on United Parks' available float is in the 70-85% range. This creates a volatile situation where positive news, such as a strong earnings report, could trigger a rapid price increase as short sellers are forced to cover their positions.
By applying a real estate valuation framework (NOI conversion with a CapEx reserve), United Parks appears extraordinarily cheap. Its 8% unlevered cash yield after CapEx starkly contrasts with the 3-4% yields of stable multifamily properties, highlighting a potential market mispricing for this hard asset business.
United Parks exhibits traits that are "catnip" to value investors: levered buybacks, irreplaceable assets, and a majority hedge fund owner. However, these situations can be dangerous. An excessive focus on financial metrics can obscure fundamental business problems, creating a value trap where everything looks great on paper while actual operations are struggling.
The significant drop in SeaWorld's EBITDA is not necessarily a sign of structural decay. It's more likely a direct result of Universal opening its massive Epic Resort in Orlando, a $7 billion investment that has temporarily absorbed national destination park demand. This suggests the headwind is temporary rather than a permanent impairment of the business.
Despite hype for competitors like Six Flags, splitting the property (Propco) from operations (Opco) for United Parks would likely fail to unlock value. The required rent coverage and cap rates for entertainment REITs mean the combined valuation would probably not exceed the current enterprise value. The strategy only makes sense in a take-private for tax efficiency.
A key risk with majority PE ownership is that management might "strip" the business by underinvesting. The best place to check is CapEx. United Parks is spending ~13% of revenue on CapEx, in line with pre-COVID averages. This suggests a commitment to reinvesting to keep parks fresh, a positive sign for long-term value.
United Parks' management has blamed poor weather for performance in 15 of the last 16 quarters and 25 of the last 40. This recurring excuse is a red flag, suggesting leadership may be unwilling to transparently discuss core operational challenges, such as the competitive impact of Universal's new park.
Unlike a tech or service business, the core value of a theme park is the physical, irreplaceable asset itself. This provides a margin of safety against management mistakes. While poor decisions can hurt performance, it is difficult to permanently destroy the value of a well-located, branded physical park, making it a more durable investment.
Majority owner Hillpath is contractually limited from exceeding 70% ownership. The company's aggressive share buyback program is rapidly increasing Hillpath's stake toward this ceiling. This creates a medium-term catalyst, forcing a decision: either halt the value-accretive buybacks or pursue a strategic alternative like a full sale of the company.