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

Village Roadshow Ltd (ASX:VRL) looks towards asset sale to reduce debt levels.

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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.

Our team of experts have identified the four best shares to buy right now and Village Roadshow was not one of them. Find out which companies made the list in the report below.

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned. You can find Kevin on Twitter @KevinGandiya. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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