With $1.3B cash on hand, will Vail Resorts buy more ski areas? | VailDaily.com

With $1.3B cash on hand, will Vail Resorts buy more ski areas?

CEO Rob Katz says company will continue to be aggressive on mergers and acquisitions coming out of the pandemic

VAIL — Vail Resorts hunkered down as a company during the COVID-19 pandemic, tightening its belt in various ways you may or may not have noticed.

In a call to investors earlier this month, Vail Resorts CEO Rob Katz described the company’s efforts as maintaining “disciplined cost controls” which involved “operating our ancillary lines of business at a reduced capacity.”

As a result, executives exited the third quarter in June excited about the company’s balance sheet.

“We’re very pleased with our results for the quarter, and for the full 2020-21 ski season,” said Vail Resorts Chief Financial Officer Michael Barkin.

Now headed into the summer with $1.3 billion cash on hand and no dividend yet planned for shareholders, discipline is the word as executives decide if and how to spend the company’s excess capital.

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“We will continue to be disciplined stewards of our capital, with a focus on high-return capital projects, continuous investment in our people, and strategic acquisition opportunities,” Katz said on the call with investors.

‘Strategic opportunities’

Ski areas across the country which have not yet been acquired by large corporations, or as Vail Resorts execs call them – strategic acquisition opportunities – are on the minds of many who are watching the ski industry at the moment.

Benjamin Chaiken, a Wall Street Analyst at Credit Suisse, asked Vail Resorts if the strength of pass sales in the Northeast could lead to more acquisitions in that area.

A file photo of Wildcat Mountain Ski Area in New Hampshire. The ski area was one of a package of Northeast resorts acquired by Vail Resorts in 2019.
Jim Cole/Associated Press

Katz said while the strong pass sales in the Northeast have helped validate the company’s decision to purchase resorts there – in 2019 Vail Resorts acquired Peak Resorts, owner of 17 resorts in that area – that doesn’t necessarily mean Vail Resorts is looking to acquire more ski areas in the same region.

“I would say that our results to date really confirm that strategy that we’ve had, and our approach to (mergers and acquisitions) remains the same, which is – we absolutely are aggressively looking for opportunities in different markets that we think will have value, but we’re going to remain disciplined and only do things that we think will really make a difference,” Katz said.

Jefferies & Co. Managing Director David Katz asked about acquiring properties in Europe and Asia.

“No doubt, doing something in Japan would have immediate benefit to our connection between Australia, Japan, Canada and the U.S.,” Katz said. “So that would be a stronger immediate boost. In Europe, I think less so because you don’t see those same visitation patterns, but on the other hand, the market in Europe is much bigger so the longer term opportunity in Europe I think is quite strong, but of course it will take more time to get going.”

Debt and dividends

Equity Research Analyst Brandt Montour with J.P. Morgan Securities asked where the company’s priorities lie when it comes Vail Resorts’ excess cash on hand.

Barkin said the company’s priorities haven’t much changed in that regard, as Vail Resorts plans to use the cash first to reinvest in the company’s various businesses, “and certainly second is strategic investment opportunities,” Barkin said. “We do feel like we will continue to be aggressive on acquisitions.”

Barkin said Vail Resorts is in “a very comfortable spot” to examine opportunities to purchase new ski areas if those opportunities come Vail Resorts’ way.

“With the current state of the balance sheet and the liquidity that we have, and the access to the capital markets, we certainly have stability to pursue those acquisitions,” Barkin said.

Access to capital markets has been a major driver of Vail Resorts’ strong balance sheet when it comes to cash on hand.

The company borrowed $600 million in April 2020, which will be due in 2025, and another $500 million in December, which will be due in 2026.

Paving the way for the company to take on that debt was a bit of relief Vail Resorts was offered on some of its existing debt, as a group of lenders led by Bank of America granted Vail Resorts a two-year “generous reprieve,” as described by Bloomberg news, on some of the company’s key debt covenants.

“The waiver for Vail Resorts, Inc,. which extends until Jan. 2022, is one of the longest banks have granted to companies suffering as a result of the Covid-19 pandemic,” Bloomberg reported in April of 2020.

Katz and Barkin did not discuss the company’s debt, but both men stressed that the company remains committed to using the excess capital to return cash to investors along with investing in Vail Resorts’ local businesses and pursuing acquisitions.

“While we are not reinstating the dividend this quarter, we remain committed to returning capital to shareholders,” Katz said. “Our board of directors will continue to closely monitor the economic and public health outlook on a quarterly basis to assess the appropriate time to reinstate the dividend.”

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