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Why Village Roadshow Ltd (ASX:VRL) is selling Wet’n’Wild Sydney for $40 million

Village Roadshow Ltd (ASX: VRL) has announced that it has agreed to sell the Wet’n’Wild Water Park in Western Sydney for $40 million plus a variable compensation that will depend on the park’s revenue performance up to 30 June 2020.

The sale price results in a pre-tax loss of $25 million which will be disclosed as a material item in the company’s FY 2018 results.

The sale was made to Parques Reunidos a leading leisure park operator that is based in Madrid and is listed on the Spanish Stock Exchange (BME). Parques Reunidos has a portfolio of over 60 entertainment assets around the world.

The transaction is expected to be completed in the first quarter of 2019. Shares in Village Roadshow were up 1.3% at the time of writing.

Use of proceeds

The proceeds from the sale will be used to reduce Village Roadshow’s debt levels. This has been a focus area for the company with proceeds from the sale of its 50% shareholding in a Singapore cinema exhibition business and proceeds from the sale and leaseback of land that it owned in Oxenford being used for the same purpose.

Foolish Takeaway

Wet’n’Wild Sydney delivered a half year December 2018 EBITDA loss of $1.6 million and the sale suggests that Village Roadshow is not optimistic about its prospects going forward. That is not surprising given that the Australian theme park industry is in a downturn following the tragedy at Dreamworld which is owned by Ardent Leisure Group (ASX: AAD).

Personally, my pick in the broader ASX leisure and entertainment category would be high growth gaming company Aristocrat Leisure Limited (ASX: ALL). It has a high EBITDA margin of 39% and is expecting double digit profit growth.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can find Kevin on Twitter @KevinGandiya.

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