FAST ACQUISITION CORP. II has merged with FALCON’S BEYOND GLOBAL, INC.
FAST Acquisition Corp. II (FZT) raised $222M in March, 2021 to utilize in acquiring a company in the hospitality industry. The Sponsorship group, now included on the Board of Directors, was led by Doug Jacob and Sandy Beall, both with outstanding brand building credentials within hospitality related industries. We were initially intrigued with their creativity in terms of improving the original SPAC structure, and informed our readers accordingly on 7/28/2002. Over the fifteen months since, the financial structure has been improved further for the benefit of public investors, just as the fundamental long-term outlook has also been enhanced, in particular by (1) a new Joint Venture relationship with one of the largest commercial property owners in China and (2) the addition of highly regarded Simon Philips as President of the Company.
FAST II has now combined with Falcon’s Beyond Global, Inc., an Orlando, FL based fully integrated, experiential entertainment enterprise with a collection of both Brick & Mortar and Intellectual Property assets.
The following short video provides a one-minute introductory overview.
( https://vimeo.com/570417222 ) (point & right-click, open hyper-link)
The Executive Chairman of Falcon’s Beyond is Scott Demerau, founder in 2007 of the House of Katmandu in Mallorca, Spain, which became a model for successful theme parks worldwide. In 2012 he established a 50/50 Joint Venture with Meliá Hotels International, which operates more than 380 resort properties across over 40 countries.
The CEO of Falcon’s Beyond is Cecil D. Magpuri, who founded in 2000 predecessor Falcon’s Treehouse, which has designed, planned and helped to execute over $100 billion worth of destination hospitality/entertainment venues worldwide. Prior to that Cecil had been Creative Director at Universal Studios and directed several projects like Apollo13, The Ride, Twister Ride it Out!. In 2021, Demerau and Magpuri merged their companies to create Falcon’s Beyond Global, Inc. (FBYD)
In addition to Falcon’s Creative Group (FCG) that designs projects, and Falcon’s Beyond Destinations that implements, plans and owns hotels, theme parks and retail destinations, there is Falcon’s Beyond Brands (FBB) that is developing Intellectual Property across entertainment and consumer product categories. As referenced above, Simon Philips, previously a senior advisor to Falcon’s Board of Directors, has recently joined full time as President. Philips most recently was Managing Director, Global Consumer Products, at Moonbug Entertainment, the company behind properties such as CoComelon, Blippi and Little Angel. Before that he was President of Marvel Entertainment Int’l, where he was a member of the leadership team that paved the way for its sale to Disney. At Disney, he become Executive VP and General Manager, Europe, the Middle East & Africa, where his strategic approach helped to generate over $16 billion of annual sales across iconic brands within the Disney, Star Wars, Pixar and Marvel portfolios. His particular skill set is obviously relevant to the expectation that Intellectual Property will amount to about one third of long-term corporate value.
The broad mission of the newly public Falcon’s Beyond Global is to produce operating cash flow, at the same time building for themselves brick and mortar and intellectual property, just as they have created, planned and built for others over the last twenty-two years.
SUMMARY OF DEAL TERMS AND CURRENT VALUATION (@ $10.00/share
Special note: as of 10/17/23 at 1:30pm. In the last ten days FBYD, the stock, has gone from $10-12/share to $28, back to $12, as high as $40/share at 11:00am on 10/18 and is trading at $28/share as this is written at 1:30pm on 10/18 in the Big Apple. This extreme volatility has precedent with other SPACs just after their Business Combinations. Though we are obviously optimistic relative to the long-term prospect for FBYD, we expect it to fall back to a more “normal” level before moving higher over time.
The post-deal valuation, at $10.00/share, based on the starting shares outstanding will be about $570M, which is prior to “contingent” earn-outs that will depend on stock price and/or EBITDA generation in calendar ’23 and’24. Over the next eighteen months, as calendar ’23 and ’24 quarterly results are reported, 77.5M additional shares could be issued to holders of Company Units (including management, the Sponsors and underwriter, Jefferies. These earn-out shares are contingent upon the stock trading through the twenties to over $30/share, with revenues over $70M in ’23 and $140M in ’24 and EBITDA of at least $12.4M and $44.8M respectively. Keep in mind that ’23 and ’24 would be setting the stage for a much larger ’25, with the proxy material projecting Revenues of $449-499M and EBITDA of $133-148M.
It is worth noting that the operating principals of Falcon’s Beyond have contributed their entire equity ownership of Falcon’s Beyond in exchange for stock, owning as a result a combined 47.3% of the new equity. Our further approximation is that the combined company will have Infinite Acquisitions LLLP owning 47.1%, Scott Demerau (Executive Chairman) and Cecil Magpuri (CEO) owning 22.9% and 24.4% respectively, and a variety of others with about 6%.
Critically, with the proxy material suggesting $7M of EBITDA in the second half of ’23, there should be no operating “burn rate” in the short term, since the Falcon’s Creative Group is already a going concern, with visibility to provide $755M of goods and services over 4-5 years. The cash flow generation from Creative should help to fund the capital needs of Destination’s brick and mortar effort, with the first Meliá JV project (Punta Cana) already operating and two more to follow in ’25 and ’26. Longer term, the potential from building Brands’ proprietary Intellectual Property is expected to be a substantial third leg of Falcon’s unique position in hospitality/entertainment, generating asset light revenues and cash flow.
BRIEF DESCRIPTION of FALCON’S BEYOND
THREE SEGMENTS – (CREATIVE – DESTINATIONS – BRANDS) – Short to intermediate term, Creative and Destinations will be fifty-fifty contributors to the results. Longer term Brands, is expected to be an equal third leg.
A 2:26 minute Descriptive Video – just below
https://vimeo.com/641310306 – (point & click, point & click on link)
Falcon’s Creative Group, (FCG) led by CEO, Cecil Magpuri, in addition to supporting internal projects, is currently executing the master planning for five third party theme park operators. These five parks will include the design of over 100 attractions, the media production for over 19 attractions, as well as procurement of necessary hardware. This backlog (including $100M for the Destination/Meliá JV) will amount to about $755M of billing over 4-5 years, and, based on indicated margins, should generate EBITDA of about $158M. These projects include a very large Creative project involving engagement by Saudi Arabia’s Qiddiya Investment Company (which recently purchased 25% of FCG for $30M) to lead the design of 26 assets within which $5 trillion is expected to be invested over twenty years in a new entertainment district called Qiddiya. Creative began work on Qiddiya in 2018 on this very long-term project that will encompass 367 square kilometers (19×19 km. = 11×11 mi.).
Please watch the short videos below – only 3 of $100B worth of projects – (point & click, point & click on link)
BaNa Hills Mountain Resort in Da Nang, Vietnam on Vimeo
Making-of Becoming Jane: The Evolution of Dr. Jane Goodall at National Geographic Museum on Vimeo
https://vimeo.com/279458337 Atlantis Sanya – China’s premier Underwater World
Falcon’s Beyond Destinations is already capitalizing on the potential of the joint venture with Meliá Hotels International, owner and operator of about 380 resort hotels worldwide. In most anticipated locations Meliá plans to contribute an existing hotel to each project within the 50-50 joint venture and Destination provides the capital for the Katmandu Park (owned 50-50) as well as the 100% Destination owned Falcon’s Central entertainment and food center. Already in the JV is the Hotel and Park, now long established in Mallorca. The first new JV project is in Punta Cana (the site plan shown below), Dominican Republic, with the Park now open for six months, the hotel (contributed by Meliá) already the number one hotel in Punta Cana, with Falcon’s Central planned to open in early 2025. The next joint location is planned to be at Tenerife, in the Canary Islands, with the existing hotel planned to be renovated in 2024, the Park and Falcon’s Central planned to open in mid-2025. Planned after that is Playa del Carmen (in Mexico), with Falcon’s Central to open possibly in early 2025, the Park to fold in by mid-2025 and the hotel by mid-2026.
The Investor Presentation from 2022 estimated that, with the three new JV projects opened, Destination’s 50% of the joint venture plus 100% of Falcon’s Central, depending on the cap rate, will be worth from $954M to $1.451B.
Falcon’s Beyond Brands is focusing on expansion, execution and monetization of proprietary as well as partnered brands. Brands, consumer products and entertainment content can all be licensed, just as proprietary existing brands such as Katmandu, Cadim and the Monster Wave and VQuarium. In conjunction with Creative and Destination, as well as 3rd party partnerships with PBS Kids, Epic Story Media and others, this is an asset light effort that could be very substantial over time. Management estimates that Creative and Destinations will contribute 50% each to EBITDA for the next two years, but each division could contribute about 33% longer term. As indicated above, the recent installation of Simon Philips, with his brand building experience, as President of Falcon’s Beyond, is an important new ingredient.
CONCLUSION:
The value of Falcon’s 50% portion of just the first few projects with Meliá Hotels could approximate or exceed the initial valuation. Longer term, more Destination projects with Meliá, the most recently announced Destination project with one of the largest mall operators in China (described below), expanded Creative business with Qiddiya (also described below), and Brands could combine to double the projected mid-2026 $140M run rate of EBITDA by ’28-’29. We emphasize again that current Creative operations should be cash flow positive in the very short term, providing the absence of operating burn rate.
There are sufficient very large moving parts so that future results can only be approximated in terms in terms of quantity and timing. It does, however, seem that success is more a question of how much and when, rather than if. The professionals at Falcon’s Beyond are not being asked to do anything they haven’t done before. The fact that this young creative name in the hospitality/entertainment arena could attract such world class JV partners owners speaks volumes. The starting valuation, without the earn-outs, is substantial but can be justified by the long-term potential, whether or not short-term results trigger the earn-outs. On the upside, if the stock is $20-30 share, earn-outs will not bother investors. There will be a similar lack of concern if EBITDA has been produced as planned because the ongoing multi-decade opportunity should support the valuation at that point.
In summary, the possibility of about $140M of annualized EBITDA in less than 3 years, combined with the potential to build billions of dollars of brick-and-mortar capitalized assets makes the starting valuation under $600M seem reasonable. While acknowledging that the timing of projects so large in scope can be problematic, based on the past accomplishments of the Falcon’s management team, as well as the financial strength and long-term commitment of their joint venture partners, we believe the order of magnitude of expectations is credible. Accordingly, we believe that the common stock of newly public Falcon’s Beyond Global, Inc. (FBYD) offers an extremely attractive long term investment opportunity.
FALCON’S BEYOND IN MORE DETAIL
Falcon’s and its predecessor Creative companies have executed immersive story-driven development projects related to over $100B of projects in 27 countries and currently have $755M of revenue visibility. They are uniquely equipped to respond to the secular shift to “experiential” consumer leisure pursuits.
A 50/50 Destination driven joint venture with Meliá Hotels International, operator of 380 resort venues around the world, can provide value to Falcon’s common stock by way of $150M of annual EBITDA and $1B of asset value within several years. Also exciting are the long-term relationships with Qiddiya Development Company (building a $5 trillion entertainment district in the UAE) and New World Development Company (a major Chinese property owners).
Last, but far from least, Falcon’s Intellectual Property and Brand Development is expected to be an equal third leg to Falcon’s long term value building process. Falcon’s Creative Group designs the projects, Destination develops the hard assets, and Brands will deploy proprietary and partnered brands across entertainment and consumer product categories. Recently recruited Simon Philips is now President of the Company, the implication being obvious as to the major role development of Intellectual Property is expected to plan.
For twenty-two years Falcon’s Creative Group has executed master plans, design, and media production projects all over the world, winning over 30 industry awards, and creating the capacity to serve billions of guests. The decades of experience as a third-party consultant sets up Falcon’s to now develop physical entertainment attractions and Intellectual Property for their own account. Their historical success is supported by the fact that 58% of first-time clients have returned for additional services, the scope of which expanded by 60x. Specific projects have included master plans for Lionsgate Zone in Dubai, U.A.E. and Atlantis Sanya in Hainan Island, China. Attractions and experiential destinations have included Hulk Epsilon Base 3D in Dubai, U.A.E. and Kennedy Space Center Heroes & Legends in FL, USA. Captivating media projects have included Become Jane: The Evolution of Jane Goodall, in Washington, DC, and Halo: OutPost Discovery which toured across the USA. Experiential Restaurant and Retail developments have included Finn & Jake’s Everything Burrito and Marvel Vault Store, both at the IMG Worlds of Adventure Theme Park in Dubai.
Below are links to short video presentations for just a few of the just named projects.
ESPECIALLY ILLUSTRATIVE OF THEME PARK CAPABILITIES: SEE “IMG”, BELOW:
(point & click, point & click on link)
https://vimeo.com/227291407 “IMG” Worlds of Adventure, Dubai –
https://vimeo.com/372003261 – Halo: Outpost Discovery
https://vimeo.com/378417546?share=copy – SpectraVerse Game Bay ecosystem
https://vimeo.com/111864378 – Suspended Theatre
Current projects:
As shown in the first chart below, Falcon’s Creative is finalizing the full concept master plans for five “third party” theme parks, estimated to amount to $655M of goods and services, in addition to about $100M relative to the JV with Meliá. Applying the estimated gross margin of 30-35% to services and 17-18% to hardware, the total gross margin (at the midpoint) would be $158M. Based on the timeline shown on the chart just above, one fifth of that would be about $32M of annual gross margin generated for Falcon’s.
Not shown below, Falcon’s is also actively developing the pre-concept master plans for three unique theme parks, as well as the full concept design for nine specialty themed hotels, each of which can generate subsequent phases of design.
Creative (as a segment of Falcon’s Beyond) should be demonstrating over the next six months a substantial positive cash flow, based on the indicated backlog
There is continuing support of Qiddiya, one of a series of giga-projects in Saudi Arabia, designed to consist of 367 square kilometers of family friendly theme parks, sports arenas (suitable for int’l competitions), academies for sports and the arts, concert and entertainment venues, motorsport racetracks and nature/environmental adventure activities. To date, for Qiddiya Falcon’s Creative has led the design of 26 assets within its distinct entertainment district. This has included the design of the region’s largest water theme park, spanning 252,000 square meters and combining 22 wet and dry attractions alongside competition level water sports facilities. Falcon’s is also now supporting the project in the role of creative guardian as construction advances.
Importantly, QIC Delaware, Inc., an affiliate of the Qiddiya Investment Company, invested $30M on 7/27/23 for a 25% equity interest in FCG (Falcon’s Creative Group LLC. This commitment obviously demonstrates Qiddiya’s intention to be intimately involved over the long term with Falcon’s Beyond.
FALCON’S BEYOND DESTINATIONS (FBD)
Falcon’s Beyond Destination is currently comprised of the hotel and Katmandu theme park in Mallorca, plus the Hotel and Park in Punta Cana, with Falcon’s Central in Punta Cana, plus Tenerife and Playa del Carmen planned to be developed in the next twenty-four months. The hotels, contributed by Meliá and the Katmandu parks built and financed by Falcon’s, will be part of the 50-50 joint venture. Falcon’s Central, the adjacent retail, dining and entertainment venue will be built, operated and 100% owned by Falcon’s.
The model for the Falcon’s Destination/Meliá Joint Venture was the Sol Katmandu Park and Resort in Mallorca, Spain, the park having been established in 2007, whose performance improved substantially after merging with the adjacent Meliá hotel in 2012, complemented by the Falcon’s designed Katmandu compact theme park. The design of this combined “entertainment with rooms” destination makes it convenient for guests to visit throughout the day and evening. Falcon’s developed stories, characters and environments to transport guests to Katmandu via immersive theming from entry through queues into each attraction. The theme park, prior to COVID, averaged over 240,000 visitors per year, generated in only seven months per year as a seasonal destination. The hotel’s average occupancy was 77%, 6 points better than non-Katmandu hotels in Mallorca, with an average room rate of $154, 11% higher than non-Katmandu rooms.
The improvement in Mallorca, and the working relationship between Falcon’s Chairman, Scott Demerau, with Meliá encouraged the formation of the JV. Meliá has more than 380 resort and beach destinations across over 40 countries. Scott Demerau’s team has the theme park operating experience, and Cecil Magpuri leads the Creative production of a leading-edge entertainment experience. Meliá, by contributing an existing hotel to the JV, is betting that their 50% of the theme park (which Falcon’s is building) plus their 50% of the improved hotel cash flow, with higher room rates and occupancy, plus more business at other properties they may own in the area, will be more than their current cash flow from the hotel. Falcon’s is getting access to premium resort real estate owned by Meliá that would be largely untouchable at today’s values. Both Meliá and Falcon’s will benefit from Meliá’s long term banking relationships, in addition to Falcon’s new access to US capital markets
Below is a concept rendering of the general site plan in Punta Cana, including, in listed order, the existing Falcon’s Resort by Meliá, the Falcon’s Central RD&E Zone, the Katmandu Park, and an approximate representation of the existing surrounding Meliá properties including Meliá Caribe, Meliá Punta Cana Beach, and Paradisus Palma Real, and Garden Suites by Meliá, the last of which has been rebranded as Falcon’s Resort by Meliá.
As the charts below from the Investor Presentation show: Within the joint venture are the Mallorca Sol Hotel Katmandu Park and Resort, theme park, plus the hotel and theme park in Punta Cana (Dominican Republic, with Tenerife (Canary Islands) and Playa del Carmen (Mexico) planned. It should be noted that all are year-round tourist locations, 3.5M annually in Punta Cana, 8.4M in Tenerife and 12.5M in Playa del Carmen (excluding cruise ship visitors).
By the end of 2026 the joint venture expects to own and operate four destination resorts with over 2,000 hotel rooms, four theme parks, and three 100% owned retail districts. As shown below, the capitalized value of this brick-and-mortar portfolio could approximate the initial valuation of the deal, possibly more. Primary monetization of these developments will consist of hotel bookings, entertainment ticket sales, retail & food & beverage sales, and management fees.
Joint Venture Economics
As presented in the Investor Presentation in ’22, The Joint Venture, once all three new locations are opened and ramped, is expected to generate, after capex, about $125M of annual Cash Flow. Falcon Beyond’s 50% share would be about $63M, as shown in the chart below. We note the reference on the left “we expect to take advantage of Meliá longstanding banking relationship to secure attractive banking terms.” Leverage is calculated at 40-45% loan-value, which generates a 37% pretax return on equity for Falcon’s Beyond. The calculation, as shown in the Investor Presentation is just below:
Falcon Central – the concept and the economics
Falcon’s Central is the “signature” venue at the center of the theme park, merging retail, dining and entertainment. Guests are exposed to a multitude of entertainment experiences, amenities, IP content and merchandise. Dining experiences are offered both from local restaurants as well as newly developed concepts. The shopping district offers both local and global retailers showcasing varied IP-infused merchandise. Attractions featured at Falcon’s Central may be VQUARIUM (planned to be provided to the KII JV in China), a virtual adventure, STORY HUB, an immersive location-based entertainment experience, CURIOSITY PLAYGROUND, an experiential edutainment venue, and GAMEHUB, an immersive video game experience.
The chart, as presented in the ’22 Investor Presentation, shows Falcon Central’s Cash Flow, after capex and interest, from the three new locations amounting to $44M, generating a 36% pre-tax return on equity. Once again, as with the theme park development, Meliá banking relationships are expected to be instrumental (Borrowing $96M out of $217M initial investment).
Total Hard Asset EBITDA Generation (and capitalized Value)– at mid-’26 Run Rate
As described in the discussion above:
When the three new locations are completely opened by mid-2026, the Joint Venture with Meliá is expected to be annualizing (for Falcon’s Beyond) EBITDA at $73M, before maintenance capex of $5.5M. Falcon’s Central (100% owned) is expected to be annualizing at $53M before maintenance capex of $5M capex. The EBITDA annualized run rate on “hard assets”, after maintenance capex, is therefore expected to be about $118M. The difference between that and the $146-$156M of total EBITDA is expected to be generated by Falcon’s Creative, which appears reasonable based on the backlog of projects and the commensurate margins.
Capitalized Asset Value
Cash flow generation obviously has a value, depending on the reliability of the cash flow, and the cap rate provided by capital markets. The following table, from the ’22 Investor Presentation shows the calculation behind an asset value of $954M to $1.451B, depending on cap rate.
PLUS: JOINT VENTURE WITH “KII”– OPERATOR OF 26 MALLS, EACH OVER 5M SQUARE FEET, IN CHINA
On November, 2021, Falcon’s Beyond entered into a joint venture agreement (“Karnival”), as a 50-50 owner, with K11 Group’s “Raging Power,KII” itself a subsidiary of publicly held (in Hong Kong) New World Development Company Limited (NWDC), owner of 26 malls in China, each over 5M square feet. For perspective, there is only one mall of this size in the US, the 5.5M square foot Mall of America in Minneapolis. NWDC is described by Wikipedia: “Over the last four decades the group has…..established itself as one of the largest foreign direct investors…..existing investments in Mainland China has exceeded US$16.5 billion, spreading across four municipalities and 19 provinces”. An anticipated opening of the first project will be an installation of Falcon’s Vquarium attraction, at the Hong Kong International Airport “ll Skies” project, developed by NWDC’s subsidiary, K11. The Vquarium attraction may also be featured at Falcon’s Central (within the Meliá JV), per the proxy material: “Discovery and conservation come together through this educational, virtual adventure. With the assistance of an intelligent submersible vessel, a team of young scientists is guided through learning about our planet in ways never thought possible.”. This project, expected to be Hong Kong’s largest hub for retail, dining and entertainment, is expected to open in 2025. While Falcon’s investment has not yet been disclosed, Falcon’s is to receive 16.6-20.6% of the gross revenues.
FALCON’S BEYOND BRANDS, (FBB) – the asset light “kicker”
Falcon’s Brands will deploy and monetize owned and partnered brands. The unique brand expander strategy compresses the normal timeline for brand monetization and will do so across multiple venues, to include licensing agreements across outside channels. In March,2023, Simon Philips was named President of Falcon’s Beyond, the mission being expansion of existing business, with an emphasis on the Brands division. His particular experience should allow for deployment and monetization of Falcon’s Story-driven IPs and Third-party Partnered Brands through entertainment content and consumer products.
This effort is led by both internal talent, and outside advisors including Board members. It will include multi-media story telling by way of social media, films, books, comics, gaming, VR, apps, music, podcasts, audio books, etc. Distribution can take place through brick-and-mortar retailers, online direct to consumer, as well as in 3rd party marketplaces. A variety of characters and universes are already within Falcon’s portfolio of brands.
A number of strategic partnerships with leading developers and distributors of brands are already in place to jump-start this effort. The synergistic effect of FBYD’s three divisions should be noted, since each project done well by a particular segment builds long term value for the others
The brand expander strategy is broken down into three primary components: (1) Entertainment Content (2) Consumer Products (3) Destinations. The three divisions feed into each other to accelerate the growth strategy.
Within Brands lies FBYD’s award winning ride systems and technology, including experiences such as Spheron, CircuMotion, Falcon’s Vision AR Headset, Suspended Theater, SpectraVerse and SpectraVerse GameBay, ONIX Theatre, and ÄEONXP technology. In the course of developing the above attractions and technology, multiple patents have been granted in more than a dozen countries.
Their extensive work-for-hire history provides a platform for research and development, leading to this portfolio of award-winning proprietary technology and attraction systems, as well as patents covering some of these technologies and systems. Many of the Attraction-based IPs have been developed and tested in-house at their Falcon’s X-Lab facility in Orlando, including:
Demonstrative of FBYD’s capabilities tying into monetization of brands: announced in September, 2022 was BeyondME, a new fan loyalty and online game platform powered by the proprietary ÄEONXP technology, which is designed to enable players of all ages to connect, personalize, and be rewarded for their engagement across both digital and real-world experiences. BeyondME aims to encourage players to gain experience points as virtual currency, called XP, by participating in a variety of real-world experiences across Falcon’s properties and virtual experiences within the BeyondME web app, and by playing BeyondME-enabled online games. XP can also be earned on purchases at Falcon’s own physical retail locations and on the Falcon’s e-commerce store.
Falcon’s Beyond Brands is expected to be, over the long-term, a one third contributor to total corporate EBITDA, equal to each of Creative and Destinations. This Division is alone worthy of (literally) a book to be written, describing the process and potential of developing and monetizing Intellectual Property. We expect to be exploring this area at depth with our readers.
PRO FORMA BALANCE SHEET AND NEAR TERM CASH FLOW DISCUSSION
As expected, redemptions from the original SPAC investors came in virtually at the maximum level, leaving very little from the original offering over two years ago. As described in the latest proxy material, remaining commitments from the private placement investors, as well as the $30M strategic investment from QIC is therefore funding working capital needs as the Creative division ramps up its activities. Falcon’s capex contributions for brick-and-mortar projects, with Meliá Hotels International and K11 in China will be made in conjunction with their financially strong partners, who obviously look to Falcon’s more for their creative contribution than deep pockets.
Investors should be aware that, due to the closing on October 6th, the 9/30/23 10Q will not yet reflect the balance sheet for the Business Combination. The facts and figures relative to the current operating quarter (Q4’23) will not be disclosed until the year-end 10K is filed, probably in March, though there will no doubt be operational and financial announcements between now and then.
We would be remiss not to reiterate the boilerplate caveats included in the 800-page proxy document. Adjustments to financial plans, for better or worse, are always a possibility. Brick and mortar can open late, cost more, or do less well than expected, and financing might not be available as planned. In this case, however, the substantial and apparently growing contractual backlog with the Creative division should allow for adjustments in timing, rather than elimination, of future projects. The predictable positive operating run rate at Creative would also buy time to arrange acceptable financing for brick-and-mortar projects. While short-term results could be affected, longer term plans would (hopefully) remain intact.
PEER VALUATION COMPARISONS
The chart below, from the proxy material shows the valuations of publicly held companies that are also in the hospitality/entertainment business. The starting valuation for Falcon’s Beyond, without including possible earn-out shares, at $10.00 per share is only about four times the projected $140M of EBITDA in calendar ’26, less than half the comparable composite ’25 peer numbers, perhaps half of peer ’26 estimates. If Falcon’s hits their projections, the extra shares would bring Falcon’s multiple roughly in line with the peer group. We suggest that the growth rate at Falcon’s, a different order of magnitude, would likely create a much higher multiple. None of these “peers” has, or is likely to have, any thing remotely like the story that Falcon’s Beyond Global has to tell.
CONCLUSION: As provided above
The value of Falcon’s 50% portion of just the first few projects with Meliá Hotels could approximate the initial valuation. Longer term, more Destination projects with Meliá, the most recently announced Destination project with one of the largest mall operators in China (described above), expanded Creative business with Qiddiya (also described above), and Brands could combine to double the projected mid-2026 $140M run rate of EBITDA by ’28-’29. We emphasize again that current Creative operations should be cash flow positive in the very short term, providing the absence of an operating burn rate.
There are sufficient very large moving parts that future results can only be approximated in terms in terms of quantity and timing. It does, however, seem that success is more a question of how much and when, rather than if. The professionals at Falcon’s Beyond are not being asked to do anything they haven’t done before. The fact that this young creative name in the hospitality/entertainment arena could attract such world class JV partners speaks volumes. The starting valuation, without the earn-outs, is substantial but can be justified by the long-term potential, whether or not short-term results trigger the earn-outs. On the upside, if the stock is $20-30 share, earn-outs will not bother investors. There will be a similar lack of concern if EBITDA has been produced as planned because the ongoing multi-decade opportunity should support the valuation at that point.
In summary, the possibility of about $140M of annualized EBITDA in less than 3 years, combined with the potential to build billions of dollars of brick-and-mortar capitalized assets makes the starting valuation under $600M seem reasonable. While acknowledging that the timing of projects so large in scope can be problematic, based on the past accomplishments of the Falcon’s management team, as well as the financial strength and long-term commitment of their joint venture partners, we believe the order of magnitude of the projections is credible. Accordingly, we believe that the common stock of newly public Falcon’s Beyond offers an extremely attractive long term investment opportunity.
Roger Lipton