Center Parcs is expensive, but does it really worth £4bn?

The indoor water park at Center Parcs, Woburn Forest in Bedfordshire, is a blast of heat and humid air the moment you step inside. Last Wednesday, inside the “subtropical paradise”, screaming boys jostled under a waterfall while a wave machine swept children along a palm tree-lined pool. Center Parcs was as usual fully booked, even though the school holidays for many children had yet to begin.

When Brookfield, Center Parcs owner, started to consider selling the business last year, after averaging almost £1 billion of dividends in eight fruitful years, the Canadian private equity giant would have been entitled to be confident that it could fetch well over £4billion. Parents who are willing to pay a lot for guaranteed family fun at the five UK locations will find it hard not to be tempted by the guarantee of fun.

A series of setbacks have cast a shadow on the auction of an important asset. Brookfield was forced to abandon plans for a new development site south of Gatwick Airport in February due to environmental concerns. In addition, rising interest rates are increasing the cost of borrowing for potential buyers and the mortgage payments for middle-class families who flock to Center Parcs every year.

The formal launch of the putative sale in May has turned into a health test for the British consumer. It is now up to the three remaining bidders to decide if they still think that one of the most resilient companies in the leisure industry can continue to attract punters.

Center Parcs customers are known to be wealthy. The abundance of Audis and BMWs at Woburn Forest is a good indication of this. Many people have become obsessed with visiting. People stretch their finances to go and then tell everyone that they’ve been. Former executive: “It’s a good way to say, ‘I made it. I’m a middle-class person, with middle-class children.'” It appeals to all types of people… plumbers that have done well for themselves live in villas with City lawyers.”

Center Parcs is busy year-round, thanks to a mix of indoor and outdoors activities. However, prices increase dramatically during school holidays. A two-bedroom lodge that costs £97 per night during the off-season can reach £437 in August. Four-bedroom luxury treehouses with a games room and sauna can cost as much as £1,625 per night.

Center Parcs made a profit of £275m on sales of £593.8m last year. Around a third is usually made by charging for the 150 activities available on site, as well as food and beverage sales.

One source familiar with the industry said, “They get you in the door and then they work you.”

Families spend hundreds of pounds per day. A family of four can rent bikes for £101 per day to explore the 400-acre park. A day of fun can easily cost more than £400 if you add in tenpin-bowling, an aerial adventure course similar to Go Ape, which ends with the children jumping out of the tree onto a giant, inflatable cushion, and a meal at Cafe Rouge. Those on a tighter budget can still opt to spend their time at the water park which is free. They can also bring their bikes and food to cook themselves in the lodge.

Six out of ten Center Parcs guests have been there before, despite the cost. Neal Sutton is 37 and has visited Woburn Forest every year since 2020. He is renting an executive lodge at Center Parcs Elveden Forest, Norfolk with his extended family this year. He said that there are few places in the UK you can spend as much money on a holiday as Center Parcs. But it is still worth it. “Everyone is free to do what they like and can meet up whenever it suits them. We leave our kids with grandma while we go and do rapids.”

Piet Derksen is a Dutch businessman who founded a chain sporting goods stores. Derksen opened a holiday resort in 1968 to capitalize on the popularity camping equipment in his stores. The first UK location opened in Sherwood Forest in Nottinghamshire in 1987.

The water park is free for those who are on a budget.

Derksen then sold to Scottish & Newcastle in 2002. The brewer split the company in two, and then sold the UK division to Deutsche Bank Capital Partners in 2003, who floated the stock.

Blackstone acquired the real estate and operating businesses of Center Parcs in 2006 through a series of deals worth £1.1 billion. Private equity giant Blackstone developed the Woburn Forest site, which attracted wealthy professionals from North London. This helped to support the £2.4 billion valuation of Center Parcs when it sold Center Parks to Brookfield.

Brookfield’s dividends totaled £983.7m, but it also spent £530m on upgrading its sites. Another £225m was spent to support the business during the pandemic.

Unfulfilled is the goal of securing a site to serve south London, Surrey, and Kent. Center Parcs traditionally developed its sites on commercially-owned woodland. However, it has been forced to reconsider this approach due to more stringent environmental regulations.

Center Parcs’ chief executive Colin McKinlay has been searching for locations outside of woodland areas where it could plant thousands trees to create a signature forested area. Also, the possibility of opening smaller sites is being considered.

McKinlay is “super confident’ of finding a site. Even if a site is found, the difficulties of the planning system and the building of the village from the ground up mean that there are few chances of a Center Parcs opening within the next five to ten years.

Buyers are left to decide if Center Parcs will be able to sustain its growth without any new projects.

To increase rents, the company builds hundreds of new lodges and adds hot tubs in existing lodges. The company is also using more sophisticated methods to get guests to spend even more. Center Parcs has been able to collect more data on its customers with the help of new systems. This information is used to target pottery painting sessions at families with small children before they arrive.

Center Parcs also began applying the same dynamic pricing that it uses on rooms to its activities. For example, guests pay £35 for a lane of tenpin before lunch and £39 for the same lane after lunch.

Brookfield received six offers for Center Parcs in the first round. Three bidders are left in the running, who have been told to submit their second bids by the end the month. These include the infrastructure arm for Swedish investor EQT, France’s Antin Infrastructure Partners, and a joint offer from Singapore’s sovereign fund GIC and private equity firm KSL Capital.

Barclays has worked to ease concerns about the impact of rising mortgage rates on Center Parcs’ customers.

The bank crunched anonymised Barclaycard Data to determine the percentage of people who don’t have a mortgage or have already refinanced.

To ease the burden on bidders of higher financing costs, Brookfield has restructured the debt behind Center Parcs to make it so that nearly £2.5 billion is portable.

Center Parcs’ growth will not be sustainable without a new location, but the concern remains. Nick Leslau, a property tycoon, said that the park was “perfectly run” but had probably reached its maximum expansion potential. “Is it a sellable property? Yes, of course. It’s a difficult market, and the price will depend on what they are willing accept.”

Brookfield could find that investors at Woburn are more cautious with their money than Woburn Forest punters.