Shares of bowling center chain Bowlero (BOWL 5.59%) popped on Friday after the company completed a massive sale-leaseback deal with real estate investment trust (REIT) Vici Properties (VICI -0.37%). The deal puts tons of cash in Bowlero’s back pocket — a company with large needs for capital. As of 10 a.m. ET, Bowlero stock was up 8% but had been up 10% earlier in the trading session. For its part, Vici Properties stock was largely unchanged.
Here’s the deal
Bowlero sold 38 bowling centers to Vici Properties for a whopping $432.9 million. The company will now lease these properties back from Vici Properties. For Bowlero, it unlocks the value trapped in its properties, giving it greater access to capital. For Vici Properties, it gets a stable tenant that it can grow with (more on that in a moment).
At the end of its fiscal 2023, which ended on July 2, Bowlero only owned 42 of its bowling centers. The rest were leased. Since the end of its fiscal 2023, Bowlero completed its acquisition of bowling company Lucky Strike, which controlled 14 properties.
It’s possible that some of the Bowlero properties sold to Vici Properties were under the Lucky Strike brand. This leaves a few properties at Bowlero’s disposal should it decide to do more sale-leaseback transactions in the future.
If Bowlero sells more down the line, Vici Properties has the right of first refusal. It seems today’s transaction is the start of a longer-term plan to grow together.
What to do with all that cash
Bowlero’s management has ample uses for its new cash haul. Management mentioned four specific uses for the proceeds: growth via new locations, rehabbing old locations, giving money back to shareholders, and paying down debt.
Following its acquisition of Lucky Strike, Bowlero had 345 locations. Long-term it believes it can acquire between 500 and 1,000 additional locations as well as build out around 200 locations on its own. These growth plans alone will be capital-intensive and its $432.9 million will certainly help it achieve its goals.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.
