NOL Newsletter: Intrawest Resorts Holdings (SNOW) by Arquitos Capital Management

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Intrawest Resorts Holdings (SNOW)

Summary

Intrawest Resorts Holdings (SNOW) operates six ski mountains, a heli-ski business, and a time share operation. The company was taken private by Fortress Investment Group in 2006 and became public again in 2014. It has significant federal and Canadian Net Operating Losses (NOLs), strong real estate development potential, and an improving ski business. The low stock float and significant, but safe, leverage provides a unique opportunity for new shareholders.

Net Operating Losses

SNOW has $942 million of federal NOLs and $629 million of Canadian NOLs. These NOLs primarily expire after 2024.

Background

Fortress acquired Intrawest in October 2006 for a total investment of $3.1 billion. While SNOW’s assets are different than what they were at that time, Fortress is still sitting on a significant loss on the investment. Fortress took SNOW public again in January 2014. The expected IPO range was $15-$17, but it ended up being priced at $12. Shares have dropped as low as $8.25 since then.

Fortress still owns approximately 60% of the company. They brought on CEO Tom Marano in November 2014 to take the place of Bill Jensen. Marano brought finance experience to the company and is clearly focused on monetizing assets.

Jensen was a ski guy. Marano is focused on return on investment. He received 2.7 million options with an average strike price of $11.25 as well as “25% of the value created as a direct result of any new business created” by the company. As part of the leadership change, ski veteran Sky Foulkes was promoted to COO.

Just from the last few conference calls it’s clear that Marano is looking to develop the real estate SNOW owns, specifically at Steamboat and Winter Park.

These two markets make up approximately half of the $144 million of developable real estate on the company’s books. They also are looking to strategically upgrade existing facilities related to food and beverage.

Segments

SNOW has three segments: Mountain, Adventure, and Real Estate. In the Mountain segment, SNOW owns four mountains and leases two mountains. Mountains include Steamboat (Colorado), Winter Park (Colorado), Stratton (Vermont), Snowshoe (West Virginia), Mont Tremblant (Quebec), and Blue Mountain (Ontario). Revenue is generated from lift sales, lodging, ski schools, retail, and food and beverage.

In the Adventure segment, SNOW has provided heli-skiing trips for more than 50 years. The company owns 39 helicopters and operates out of 11 lodges (nine owned) in British Columbia. In the offseason they lease the helicopters to fire suppression teams.

The Real Estate segment is essentially a time share business. SNOW sells and finances vacation club points, and manages SNOW’s nine properties and private exchanges for its 21,900 members.

Financials

Below is an overview of SNOW’s financials from fiscal Q3 2015 (calendar Q1 2015), which is the busiest quarter for the company. Comparisons to the previous year are instructive.

Intrawest Resorts Holdings (SNOW)

The company has guided to calendar 2015 total revenue of $552 million - $577 million and adjusted EBITDA of $103 million - $108 million. CapEx is expected to be between $41 million - $46 million.

At quarter-end SNOW had $133 million of unrestricted cash and $569 million of long term debt. This debt was recently refinanced and will save the company 75 basis points annually. Only $7 million is due over the next year.

Valuation

At the low end of the price target range we take the low end of the company’s EBITDA guidance, apply a seven multiple, and give no credit to the pending real estate development. This leads to a target share price of $15.96. We apply a seven multiple since this was the multiple paid by SNOW for the completion of the Blue Mountain acquisition in September 2014.

At the high end, we take the high end of this company’s EBITDA guidance, apply a multiple of eight, and add $144 million of developable real estate at book value. This gives us a target share price of $22.31. This high end multiple is still conservative as Fortress paid at least 10x EBITDA for the original acquisition of SNOW and the Steamboat acquisition. A 10x multiple would push shares above $27.

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