Per the filing:
“On March 7, 2024, the Katmandu Park in Punta Cana, Dominican Republic was closed to visitors. The closure follows financial, operational, and infrastructure challenges … and a recent shift in the strategic focus of the Company…part of the Company’s unconsolidated Sierra Parima reporting segment….the Falcon’s Beyond Destinations business… one of two entertainment destinations developed, owned and operated through three joint venture entities between the Company and Meliá Hotels International, S.A…… and the closure of Katmandu Park does not immediately affect the operations of the other two joint venture entities. The Company believes that the closure of the park is in the best interest of the joint venture at this time because the closure eliminates potential ongoing operational losses. Prior to the park’s closure, the Company experienced losses as a result of the financial, operational, and infrastructure challenges encountered at Katmandu Park, including as a result of visitor levels at Katmandu Park that were below management’s expectations. As part of the preparation of its financial statements ……… for its “Annual Report” the Company ….expects to record an impairment charge….for the year ended December 31, 2023….. the closure of Katmandu Park also aligns with the Company’s recent shift in business strategy, including its intention to employ an asset-efficient approach to its Falcon’s Beyond Destinations business and center its strategic focus and growth plans on the Falcon’s Creative Group (“FCG”) business. The Company expects growth and expansion of FCG to be bolstered by the previously announced strategic investment by Qiddiya and projects launched following this investment, including as part of the previously reported Consultancy Services Agreement with a total contract value of up to approximately $83.3 million….as further described on form 8-K filed on 1/26/24.”
We have written extensively over the last eighteen months about Falcon’s Beyond, describing a number of important relationships. Our update, published on 1/22/24 described briefly, quoted below, described briefly some of FBYD’s most important current relationships. Today’s announcement applies to only the first, with Melia’ Hotels.
1) FBYD has a joint venture partnership with Melia’ Hotels, operator of almost 400 resort properties worldwide, planning to build compact theme parks adjacent to Melia’ properties. Melia’ contributes an existing successful hotel property and FBYD builds the park and other dining/entertainment facilities.
(2) FBYD’s Creative division, Falcon’s Creative Group, has a sight line of $755M from Qiddiya Investment Company (QIC) a wholly owned entity of the Kingdom of Saudi Arabia’s Public Investment Fund, who plans, over twenty years, to invest trillions to build the largest entertainment district in the world. This Saudia Arabian partner has invested $30M for a 25% ownership stake in FBYD’s Creative Group Division.
(3) FBYD has a joint venture with Hong Kong based K11 Group, one of the largest commercial property owners in China, operator of over twenty shopping malls, each of which is as large or larger than the U.S.’s largest, the 5.5 million square foot Mall of America. The first FBYD/K11 joint project will be installation of FBYD’s Vquarium, an underwater themed virtual adventure – at the 11-Skies development adjacent to the Hong Kong International Airport expansion.
(4) THE HERSHEY LICENSE, announced 1/19/24, is a validation of Falcon’s reputation…. as stated ….“through this expansive contract, Falcon’s will conceive and develop Hershey Branded Location Based Entertainment experiences, featuring …..Hershey’s iconic IP….in both the United States and international markets….Falcon’s will develop…”retailtainment” destinations that offer families and snack enthusiasts new immersive ways to experience their favorite tasty brands….each destination highlighted by a Hershey inspired attraction, a food and beverage experience….and a retail offering to shop for one of a kind products.”
(5) THE TANSEISHA CO.,LTD relationship, announced 1/17/24 – Tanseisha being a Tokyo based designer and creator of commercial and cultural facilities with a history of working with globally recognized brands. (Sounds similar to FBYD’s Creative division.) Per the release: “The two companies will explore collaborating to develop new themed entertainment experiences, to bring popular Japanese anime and manga intellectual property (IP) to life through location-based entertainment (LBE), games, movies, and more.” Our research indicates that Tanseisha is a publicly held company in Japan, profitable with very little debt, generating about $150M annually in revenues. The corporate skills as described seem to overlap those of FBYD in many respects, presumably with the potential for joint benefit, including introduction of Falcon’s IP to Japan, utilization by Falcon’s of Tanseisha’s IP, creative collaboration and utilizing Tanseisha’s relationships within Japan. More details describing the commercial potential of this new relationship will no doubt emerge in the near future.
OUR INTERPRETATION AND CONCLUSION
We know nothing more than we have provided above, from the 8-K filing and the excerpts (provided above) from our most recent update. We are not surprised that the near-term focus of FBYD will be the “capital light” projects, because (1) the capital available is far less, under $100M, than the $200M+ originally raised in the SPAC and (2) the size and variety of the creative projects “in hand” (“asset” or “capital” light), along with the potential development of Intellectual Property, are more substantial than ever. This is evident by the recent tripling of the Creative Division’s facility in Orlando, now over 50,000 square feet, along with the $30M investment by the Saudis into this subsidiary.
While surprised that the “plug was pulled” in only about a year after opening, considering that the “model” with Melia’ in Mallorca took years to evolve, we respect the decision to reduce the operating losses. It is worth noting that almost all of the original capital provided by the SPAC investors was redeemed, so the capital presumably lost is that of the PIPE investors, including affiliates of the Company’s principals. The potential of the Melia’ joint venture is obviously affected but that will be reflected in the valuation of FBYD from this point forward, and there is lots of room for optimism.
We look forward to the Annual Report currently being prepared, likely along with a revised business plan, and expect to report accordingly.
Roger Lipton