How Brookfield Went Into The Woods And Made A Mint On Center Parcs
In literature, journeys into the forest usually mean one of two things: Something bad and scary is about to go down, or some fairies are about to get up to some mischief. But for Brookfield, it meant making a whole bunch of money.
Brookfield bought Center Parcs from fellow private equity giant Blackstone in June 2015, paying £2.4B for the company and the five woodland-set holiday villages it owns in the UK and a development site in Ireland.
Blackstone had owned the company for almost a decade, and had set about the process of modernising the business that began in the Netherlands and arrived in the UK in 1987. It renovated existing facilities at four villages and built a new village in Woburn, 50 miles from central London.
But Brookfield has turbo charged Center Parcs, with a £350M investment programme that is now starting to bear fruit in terms of making what was already a profitable business even more profitable. Partly that is through major development projects; partly it is through innovations like tiny rubber wristbands which open up a whole world of data and potential revenue streams.
Bisnow sat down with Brookfield's European real estate managing partner, Zach Vaughan, and Center Parcs Chief Executive Martin Dalby about customer experience, its new Irish village opening later this month, investing in technology, the demise of squash and how the company is on the lookout for more sites.
The financials for Center Parcs look rosy. In the year to April 2019 it produced earnings before interest, tax, depreciation and amortisation of £232M from revenue of £480M. That is a 4% increase in revenue on the year before and a 3% increase in EBITDA. The revenue it makes from each of its existing 4,317 lodges rose 2.6%, all on a flat UK economy. Occupancy is at 97%, and in 2018 Brookfield paid itself a £298M dividend.
The numbers look even better when compared to those from when it bought the business. Revenue is up 50%, EBITDA up 57% and revenue per lodge, which strips out the impact that adding more lodges might have, is up 24%.
Dalby has been chief executive of Center Parcs for almost 20 years, having joined the company as a finance director from its former owner, brewer Scottish & Newcastle, in 1995. In that time the company has evolved hugely, as has what people like to do on their holidays: when it opened, the original UK village in Sherwood Forest had 16 squash courts. The newest UK village at Woburn has three, and across its six villages guests can undertake more than 150 leisure activities, from high ropes courses to laser tag to toddlers driving mini Jeeps around an off-road course, and of course, the huge indoor swimming pools that are the centrepiece of each village.
Racket sports are still popular: Last year the company bought 82,500 shuttlecocks for the 120,000 games of badminton played by its 2.2 million visitors. While the ethos is on healthy family activities, and the company has a fleet of 15,000 bikes, those guests also ate pancakes that required 4 tonnes of mix.
The investment from Brookfield is allowing the company to evolve again.
“We’ve got five pillars for growth,” Dalby said. “Adding new amenities, refreshing facilities, improving the quality of the restaurants and shops, investing in tech and building new parks. Brookfield came in and provided capital that allowed us to accelerate that and are investing £350M in the business.”
“What we saw was an exceptional portfolio of hospitality and leisure properties,” Vaughan said. “The assets are terrific, there are high barriers to entry, and they are extremely stable on a historical basis. We worked with our global hospitality team during due diligence and we identified several ways to develop the cash flows of the business. That was upping the density of the parks, enhancing existing and adding new activities, and investments in technology. We were also attracted to the expansion potential in Ireland, which we took advantage of by building Longford Forest, which opens this summer.”
Part of that increase in revenue comes from adding more lodges to existing parks, even before the 500-lodge village at Longford in Ireland opens at the end of July.
“Since acquiring the business, we’ve built almost 300 new units across the existing parks, and if you look at the fact that our new scheme in Ireland is 500 units, that means we’ve added more than half a park to the existing properties,” Vaughan said.
Dalby added that over time Center Parcs has added a greater number of more high-value lodges, such as its tree houses, which have a higher price.
There is a focus on staff and customer experience which, as other areas like office, retail and build-to-rent adopt the practices of the hospitality industry, the real estate sector as a whole can take a leaf from.
“There has been a massive focus on customer experience,” Dalby said. “About 12 years ago we made a switch, and changed from recruiting people with specific skills, to recruiting people with the right personality and then teaching them the skills. Rather than having prior experience, you just need to be a caring, friendly person. That makes it harder to find the right people, especially with labour shortages in the UK at the moment, but it makes for a better experience.”
Then there is technology, which is where things get interesting. Center Parc’s owners are investing £20M in technology, including a new responsive website that allows guests to book activities and plan their stay, and wristband technology that provides deeper insight into guest behaviour.
Visitors can load cash onto the wristbands to allow them to pay for goods and services, but when combined with the website activity booking system they allow Center Parcs to measure in a way that was not possible before what activities guests are choosing, where they are eating and what they are buying.
“Previously, the business didn’t have a lot of information about our customers beyond their email,” Vaughan said. “And in terms of on-park behaviour we knew very little, which when you consider that 40% of revenue comes from what people spend on the parks, there are big opportunities in this area.”
“They allow us to collect data and gather completely new information about what our guests are doing and what they want,” Dalby said. “They allow us to make your stay more seamless. If you wanted to do a rope course but it wasn’t available, we can suggest other times or activities. It helps enormously with capacity management, as does a more responsive website. We’ve got a whole team of analysts that look at data, and work out where we could add amenities or where we need more staff, and what we can do with pricing.”
Dalby said that as the technology improves, it will allow the company to have more frequent interactions with guests, and maximise the amount of revenue it can generate for activities.
“It is still early stages. As we get richer data, we can interact with people in real time. We might be able to notify people and say, you’re doing nothing now, there’s capacity in the 10-pin bowling lanes, why don’t you try that. It all enhances the customer experience.”
A big chunk of Brookfield’s investment has come in the form of funding the creation of Center Parcs’ sixth village in Longford in Ireland. The facility is estimated to be around €233M (£206M).
Dalby said the scheme has been tailored to meet the needs of the Irish market which, while similar to the UK, does have differences.
“We’ve done a lot of research to make sure it is still a Center Parcs, but appropriate to the location,” he said. “We found that Irish people don’t like chain coffee brands, so we are just going to have independents, and there is not a big tradition of Indian food, so we have more of a pan-Asian offering. And of course you have to have an Irish pub, so we’re partnering with a local family to run one there.”
The property will also have an outsized impact on the region.
“Longford County has the highest unemployment rate in Ireland,” Dalby said. “It’s a town of around 35,000 people and we are creating 1,000 new jobs.”
It seems that things will not stop there in terms of new parks. Vaughan and Dalby confirmed they are looking for new UK sites, albeit they are not easy to come by and then build on. Blackstone’s development of Center Parcs in Woburn took years longer than anticipated due to planning delays and fierce opposition from locals.
“It is something we’re constantly monitoring,” Dalby said. “When you look at the UK you see we have 98% occupancy, and that shows there is still huge demand for Center Parcs villages. It would make sense to see if there is something else in the UK.”
“It is something we are always thinking about, we think there is an opportunity here in the UK for another park,” Vaughan added. “But as I said, the barriers to entry are high. You need to find 400 acres of wooded forest with the right transport infrastructure, in a location where the local community would support a development. Then you have to build it and most importantly, run it. It’s a big commitment, different to building a typical hotel.”
With that in mind, Brookfield will be hoping there will be an opportunity to further boost those revenue and EBITDA figures. And Vaughan and Dalby are doing their bit to boost the bottom line. Dalby, as one might expect after more than two decades at the company, is a Center Parcs superfan, and his grown-up children have holidayed there all their lives. Vaughan’s children are also big fans of the business their Dad bought.
“My family are huge laser tag fans, so the kids were asking, can we get some of the laser tag guns for ourselves,” he said. “When Martin showed me what they cost, I had to let them down. I can assure anyone that this is not cheap equipment.”
Not cheap, but if the bottom line is anything to go by, it is paying for itself.