September 16, 2015 Volume XLI, Issue VII & VIII SeaWorld Entertainment, Inc. NYSE: SEAS

Dow Jones Indus: 16,739.95 S&P 500: 1,995.31 Russell 2000: 1,175.20 Trigger: No Index Component: NA Type of Situation: Broken IPO, Business Value

Price: $ 18.11 Shares Outstanding (MM): 86.2 Fully Diluted (MM) (% Increase): 86.3(0%) Average Daily Volume (MM): 1.7 Market Cap (MM): $ 1,560 Enterprise Value (MM): $ 3,161 Percentage Closely Held: Blackstone 22% 52-Week High/Low: $ 21.82/15.43 Trailing Twelve Months

Price/Earnings: 65 .2 x Price/Stated Book Value: 3.2x Introduction Net Debt (MM): $ 1,548 SeaWorld (“SEAS” or the “Company”) was Upside to Estimate of brought public in April 2013, approximately three and a Intrinsic Value: 53% half years after Blackstone acquired the theme park Dividend: $0.84 business from Anheuser-Busch. SeaWorld operates 11 parks in the U.S. including three eponymous marine Payout NA parks and several amusement parks. SeaWorld fits the Yield 4.6% category of a “broken IPO”, with shares currently Net Revenue Per Share: trading 33% below its $27/share IPO price. This reflects TTM $ 15.86 the recent tarnishing of the Company’s brand by animal 201 4 $ 15.75 rights activists (particularly criticizing the Company’s 2013 $ 16.57 policy of keeping killer whales in captivity) as well as competitive pressures in Orlando, which combined to Earnings Per Share: send attendance down 4% in each of the past two years TTM $ 0.28 and earnings to plummet by 16% in 2014. 201 4 $ 0.57 201 3 $ 0.59 In our view, the drastic selloff in SeaWorld shares is far beyond what is justified by fundamentals. The Company’s assets are relatively unique and of high Fiscal Year Ends: December 3 1 quality (including 5 of the top 25 amusement parks in Company Address: 9205 South Park Center Loop North America based on attendance as well as two of Orlando, FL 32819 the most attended water parks), and SeaWorld Telephone: Phone: 407-226-5011 continues to invest heavily to improve its slate of CEO/President: Joel K. Manby attractions. While SeaWorld San Diego is still feeling an Clients of Boyar Asset Management, Inc. do not own shares of impact from the negative press, the level of controversy SeaWorld Entertainment, Inc. common stock. has dissipated materially and most parks were Analysts employed by Boyar’s Intrinsic Value Research LLC do not unaffected to begin with. Overall attendance is actually own shares of SeaWorld Entertainment, Inc. common stock. up modestly in 2015 to date across SeaWorld’s portfolio.

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The Company has also already taken several major steps to improve its long-term position, led by the hiring of a new, well-regarded CEO in April 2015. SeaWorld has implemented a $50 million cost savings program and earnings are expected to rise sharply in 2H 2015. This comes despite making major marketing investments to help restore the SeaWorld brand name. The Company will also invest an estimated $300 million over the coming years to double the size of its killer whale tanks and reposition the attractions as more educationally oriented viewing environments. The new management team may unveil even more drastic changes at a conference scheduled for November 2015 where they will present their “strategic vision and long term goals.”

After the recent declines, SEAS shares currently trade at only ~8x 2015E EV/EBITDA and less than 15x 2014 free cash flow. By contrast, shares traded at a low-to-mid double digit EV/EBITDA multiple in 2013 and industry comps also support double digit multiples. Looking out to 2017, we conservatively project earnings remain modestly below prior peak levels (FY 2013) and apply a still-discounted 9x EV/EBITDA multiple. This implies SeaWorld’s intrinsic value could approach $28/share or over 60% above current levels inclusive of dividends. In our view, the recent management overhaul and upcoming conference in November could help catalyze a change in investor opinion toward SeaWorld, as could the expected improvement in profitability in 2H 2015. With 28% of SeaWorld’s share float sold short, the effects of a reversal of sentiment could be magnified. Even if change takes longer than expected to materialize, in the interim SeaWorld offers a strong free cash flow profile which supports an outsized dividend (4.6% current yield). Blackstone’s remaining 22% stake may also be creating an overhang on SEAS shares, but the firm is highly motivated to return the share price to its former levels in order to exit in the coming years

History & Recent Developments In 1959, Anheuser-Busch expanded their Tampa brewery into a full fledged park (Cypress Gardens) featuring exotic gardens, a bird sanctuary, and later, various zoological attractions and even rides and roller coasters. Separately, private investors opened SeaWorld San Diego in 1964 on 21 acres in Mission Bay. The attraction featured several dolphins, sea lions, two aquariums, and an “underwater” restaurant. In 1965, SeaWorld brought to the park the first killer whale (orca) to be intentionally captured from the wild (named Shamu). SeaWorld San Diego aggressively expanded its offerings over the ensuing years and today occupies 190 acres at the same site. Supported by an initial public offering in 1968, the SeaWorld concept was brought to Ohio in 1970 (the park was sold to Six Flags in 2001 for $110 million), Orlando in 1973, and eventually to San Antonio in 1988. The publisher Harcourt acquired SeaWorld for $46 million in 1976, and later sold the business to Anheuser-Busch for $1.1 billion in 1989. By this time Anheuser-Busch already operated 4 theme parks, and with the acquisition Anheuser-Busch became the second largest theme park operator in the U.S. behind Disney.

In December 2009, Blackstone completed the acquisition of SeaWorld from Anheuser-Busch for $2.3 billion plus up to $400 million in deferred payment (none of which remains a liability for SEAS today). Blackstone already owned Europe’s leading theme park operator Merlin Entertainments (since divested; recently featured in Boyar’s European Focus ) as well as a 50% stake in Universal Orlando (subsequently reacquired by NBCUniversal/Comcast). The price tag was well below the rumored $4 billion-plus figure before the financial crisis froze the credit markets, and Busch was a motivated seller of sorts as it was in the midst of integrating the mega-merger with InBev. Blackstone began to exit the investment in April 2013, bringing SeaWorld public again with an IPO. SeaWorld issued 10 million shares at $27/share, raising $254 million in net proceeds. Blackstone also sold 19.9 million shares in the offering. Blackstone sold 18 million more shares in a secondary offering in December 2013 ($30/share), taking its equity stake below 50%. Blackstone sold another 17.25 million shares in April 2014 (again at $30/share), but still retains a 22% stake. The timing of Blackstone’s sales has proved somewhat fortuitous. SeaWorld stock declined from post-IPO highs near $40 in mid-2013 to the upper $20s by late 2013 due to mediocre summer attendance results combined with the negative headline press surrounding CNN’s airing in October 2013 of a documentary ( Blackfish ) that was highly critical of the Company’s animal rights record. The controversy as well as competitive challenges in Orlando caused SeaWorld’s attendance to decline and earnings to plunge in 2014 (EBITDA declined 16%). SEAS shares were further punished, falling to as low as $15/share last winter before settling in the current range. As detailed in the following sections, these issued led to a wholesale management change and the implementation of strict cost saving measures in 2015, both of which we believe will go a long way toward restoring SeaWorld to its former health.

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New Management Team In January 2015, facing ongoing pressure from shareholders and the media, 5-year CEO and longtime SeaWorld executive James Atchison (age 49) resigned. Mr. Atchison entered into a 3 year consulting arrangement and continues to serve on the board as vice chairman. Chairman David D’Alessandro assumed the interim CEO position until Joel Manby (age 55) was hired as CEO effective April 2015. Mr. Manby also joined the board and David D’Alessandro remains chairman. Mr. Manby came to SeaWorld from amusement park operator Herschend Entertainment, a global top-10 theme park operator with 26 properties and attendance of 14 million in 2014. He previously served in the auto industry including as CEO of Saab Automobile USA from 1996 to 2000. Mr. Manby is widely recognized for his “servant leadership” philosophy, which he presents in his book Love Works . These leadership skills could be valuable at SeaWorld, where the Company faces a brand/culture crisis to some extent. Perhaps more importantly, Mr. Manby also built a track record of success at Herschend. During a decade as CEO at Herschend, Mr. Manby led the expansion from 6 to 26 properties and more than doubled EBITDA and free cash flow. We would also note that Mr. Manby received approximately 1.1 million restricted stock units that vest over 4 years beginning in April 2016. Priced at $20/share, this should provide plenty of incentive for Mr. Manby to lead SEAS shares higher over the next 5 years.

The Company has continued to institute a major organizational reshuffle throughout this year. In February 2015, SeaWorld appointed Daniel Brown Chief Parks Operations Officer. At the same time, the former COO of Busch Gardens & Sesame Place, Donald Mills Jr., was reassigned to lead the turnaround efforts at the Orlando parks cluster as Orlando Park President. In August, the Company appointed a new CFO in Peter Crage (age 53), who previously held the same position at amusement park operator Cedar Fair and more recently at Extended Stay America. The Company also replaced Chief Creative Officer Scott Helmstedter with Anthony Esparaza (age 54). Mr. Esparza previously served under Mr. Manby at Herschend Enterprises as SVP, Guest Experiences, Design and Development.

Finally, it is worth highlighting Blackstone’s relationship with the Company. Blackstone continues to hold a ~22% stake in SeaWorld. Blackstone’s stockholders’ agreement authorizes the firm to appoint a number of directors approximately proportional to its stake in the Company, and Blackstone appointed two of its executives to the ten member board in 2015. Given the recent underperformance at SEAS and considering its investment is nearing six years old, we anticipate Blackstone to be highly motivated shareholders who are unlikely to look to exit so long as the stock remains anywhere near the current price.

Business Description SeaWorld operates 11 regional and destination theme parks in 6 U.S. markets. The Company operates three SeaWorld-branded marine wildlife theme parks in San Diego, San Antonio, and Orlando. SeaWorld parks feature aquariums, various naturalistic animal habitats, live shows, roller coasters and other rides, and retail and dining offerings. SeaWorld Orlando is the Company’s largest park based on attendance and revenue and is situated on 279 acres. SeaWorld San Diego, located on 190 acres of waterfront property in Mission Bay, is a close second and SeaWorld San Antonio is one of the world’s largest marine parks at 415 acres. Each SeaWorld is clustered near an Aquatica water park. The San Antonio Aquatica is located within the SeaWorld park and sold as a “second gate” (i.e. at an additional fee). Aquatica Orlando is located on 81 acres adjacent to the SeaWorld park. Aquatica San Diego was recently launched in June 2013 on a 66 acre site that previously held the Knott’s Soak City Chula Vista water park. SeaWorld acquired the park from Cedar Fair for $12 million in November 2012 and renovated it, adding new rides and rebranding it. SeaWorld’s Orlando theme park cluster also includes the 58 acre, attendance-restricted (1,300 guest per day maximum) Discovery Cove marine park which offers the opportunity to swim with dolphins.

Busch Gardens parks are family-oriented parks known for their landscaping and gardens that invoke a foreign setting while also offering roller coasters, rides, zoological animals, live theatre, shopping and dining. The original Busch Gardens Tampa opened in 1959 and is located on 306 acres featuring renowned African- themed gardens, four large roller coasters, and the recently opened (3Q 2014) ride Fortune’s Fury—which is the tallest freestanding drop in the U.S. at 335 feet. Busch Gardens Williamsburg, opened in 1975, is located on 422 acres in Virginia featuring award-winning European themed landscapes, three top rated steel roller coasters, and the London Rocks musical show. Adventure Island, a 56 acre Key West-themed water park, is located adjacent to Busch Gardens Tampa, while Water Country USA (Virginia’s largest water park at 222 acres) is located next to the Williamsburg Busch Gardens. SeaWorld’s final theme park is Sesame Place, the only

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Sesame Street themed park in the U.S. Located in Langhorne, Pennsylvania, the 55 acre park draws approximately 1 million visitors annually.

SeaWorld Theme Parks

SeaWorld generates ~62% of revenue from admissions, with average admissions per capita of $38.37 in 2014. The rest of SeaWorld’s revenue comes from high margin (79% gross margin) in-park spending on food, merchandise, and other ancillary sources—which averaged $23.14 per capita in 2014. Approximately 18.8 million of 22.4 million guests (84%) across its parks in 2014 were domestic, with a mix of regional visitors and “destination” tourists. The business is seasonally weighted toward the holidays and the summertime, but 5 of 11 parks (all Florida parks plus SeaWorld San Diego) are open year round. The Florida parks contributed 56% of combined revenue in 2014, compared to 19% from California and 14% from Virginia.

SeaWorld Parks Attendance and Revenue 2010 2011 2012 2013 2014 Total attendance 22,433 23,631 24,391 23,391 22,399 Admissions per capita $ 32.56 $ 34.91 $ 36.26 $ 39.37 $ 38.37 In-park spending per capita $ 20.76 $ 21.41 $ 22.11 $ 23.05 $ 23.14 Total revenue per capita $ 53.32 $ 56.31 $ 58.37 $ 62.43 $ 61.51

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Competitive Position SeaWorld’s portfolio includes 4 of the top 20 parks in North America based on attendance, as illustrated below. SeaWorld Orlando and San Diego rank #10 and #11, respectively, among all theme parks in attendance while SeaWorld San Antonio falls just outside the top 20. Additionally, Aquatica Orlando was the #3 highest attendance water park in North America and #6 worldwide in 2014 with 1.6 million visitors (up 1.0%), and Water Country USA was the #6 most attended water park in North America according to TEA/AECOM data. The SeaWorld and Discovery Cove branded theme parks are widely regarded as the best marine wildlife parks in the U.S. As the Company references, its parks have held industry publication Amusement Today’s top 3 spots for Best Marine Life Park every year since the award’s inception in 2006. SeaWorld hosts a zoological collection of approximately 89,000 marine and terrestrial animals across its parks. This is almost un-replicable in the U.S. given both the expertise required as well as regulatory barriers. SeaWorld employs over 1,500 individuals with highly trained skills in animal husbandry, training, and veterinary care. Over 80% of SeaWorld’s animals were born in human care and the Company’s breeding programs for species such as whales, dolphins, and sea lions are both highly specialized and restricted. Across its portfolio, SeaWorld also features over 600 rides and attractions including 8 of the top 50 rated steel roller coasters globally according to Amusement Today .

Top 20 N.A. Amusement/Theme Parks by Attendance Rank Park and Location % change 2014 2013 1 MAGIC KINGDOM at Walt Disney World, 4.0% 19,332,000 18,588,000 Lake Buena Vista, FL 2 DISNEYLAND, Anaheim, CA 3.5% 16,769,000 16,202,000 3 EPCOT at Walt Disney World, Lake Buena Vista, FL 2.0% 11,454,000 11,229,000 4 DISNEY'S ANIMAL KINGDOM at Walt Disney World, 2.0% 10,402,000 10,198,000 Lake Buena Vista, FL 5 DISNEY'S HOLLYWOOD STUDIOS at Walt Disney World, 2.0% 10,312,000 10,110,000 Lake Buena Vista, FL 6 DISNEY'S CA ADVENTURE, Anaheim, CA 3.0% 8,769,000 8,514,000 7 ISLANDS OF ADVENTURE at Universal Orlando, FL 0.0% 8,141,000 8,141,000 8 UNIVERSAL STUDIOS at Universal Orlando, FL 17.0% 8,263,000 7,062,000 9 UNIVERSAL STUDIOS HOLLYWOOD, Universal City, CA 11.0% 6,824,000 6,148,000 10 SEAWORLD FL, Orlando, FL -8.0% 4,683,000 5,090,000 11 BUSCH GARDENS TAMPA BAY, Tampa, FL 1.0% 4,128,000 4,087,000 12 SEAWORLD CA, San Diego, CA -12.0% 3,794,000 4,311,000 13 KNOTT'S BERRY FARM, Buena Park, CA 0.0% 3,683,000 3,683,000 14 CANADA'S WONDERLAND, Maple, ON -1.0% 3,546,000 3,582,000 15 CEDAR POINT, Sandusky, OH -4.0% 3,247,000 3,382,000 16 KINGS ISLAND, Kings Island, OH 1.0% 3,238,000 3,206,000 17 HERSHEY PARK, Hershey, PA 1.0% 3,212,000 3,180,000 18 SIX FLAGS MAGIC MOUNTAIN, Valencia, CA -2.0% 2,848,000 2,906,000 19 SIX FLAGS GREAT ADVENTURE, Jackson, NJ 0.0% 2,800,000 2,800,000 20 BUSCH GARDENS WILLIAMSBURG, Williamsburg, VA -1.0% 2,699,000 2,726,000 TOTAL 2.2% 138,144,000 135,145,000 Source: Themed Entertainment Association/AECOM

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Top 20 N.A. Water Parks by Attendance Rank Park and Location % change 2014 2013 1 TYPHOON LAGOON AT DISNEY WORLD, Orlando, FL 2.0% 2,185,000 2,142,000 2 BLIZZARD BEACH AT DISNEY WORLD, Orlando, FL 2.0% 2,007,000 1,968,000 3 AQUATICA, Orlando, FL 1.0% 1,569,000 1,553,000 4 WET 'N WILD, Orlando, FL 2.0% 1,284,000 1,259,000 5 SCHLITTERBAHN, New Braunfels, TX 1.0% 1,037,000 1,027,000 6 WATER COUNTRY USA, Williamsburg, VA 0.0% 726,000 726,000 7 ADVENTURE ISLAND, Tampa, FL 0.9% 644,000 638,000 8 SCHLITTERBAHN, Galveston, TX 0.9% 551,000 546,000 9 HYLAND HILLS WATER WORLD, Denver, CO -2.0% 527,000 538,000 10 SIX FLAGS-HURRICANE HARBOR, Arlington, TX 1.0% 523,000 518,000 11 SIX FLAGS-WHITE WATER, Marietta, GA 1.0% 510,000 505,000 12 WET N' WILD, Phoenix, AZ -1.1% 467,000 472,000 13 RAGING WATERS, San Dimas, CA 1.4% 429,000 423,000 14 SIX FLAGS HURRICANE HARBOR, Jackson, NJ -2.1% 423,000 432,000 15 SPLISH-SPASH, Calverton, NY 2.4% 421,000 411,000 16 ZOOMBEZI BAY, Powell, OH 15.6% 416,000 360,000 17 DOLLYWOOD'S SPLASH COUNTRY, Pigeon Ford, TN 2.0% 408,000 400,000 18 WET N' WILD EMERALD POINT, Greensboro, NC 0.0% 398,000 398,000 19 KNOTT'S SOAK CITY USA, Buena Park, CA 1.1% 372,000 368,000 20 SOAK CITY CEDAR POINT, Sandusky, OH -2.1% 371,000 379,000 TOTAL 1.6% 15,268,000 15,030,000 Source: Themed Entertainment Association/AECOM

Of course, this does not mean SeaWorld faces no competition. In particular, the Company faces steep competition in the key Orlando market. Disney and Universal dominate the theme park markets there, and both companies have been producing record results on the backs of strong investment. Additionally, Aquatica Orlando ranks behind two other Orlando water parks from Disney: Typhoon Lagoon (2.2 million visitors in 2014, up 2.0%) and Blizzard Beach (2.0 million visitors, up 2.0%). Nonetheless, the Company benefits from the extensive infrastructure in Orlando that supports millions of visitors annually. Furthermore, SeaWorld’s aquatic/marine life themed parks are unique and the destination nature of Orlando means that SeaWorld can piggy-back off the traffic its competitors drive; for many visitors, attending SeaWorld parks is not an either/or proposition versus Disney/Universal. The entry price at SeaWorld Orlando is also substantially lower ($70-$87 per day prior to discounting and multi-day/multi-destination options). In fact, competition with various Disney expansions in Orlando and the arrival (in 1990) and expansion of Universal has been an ongoing story for SeaWorld for decades but has never amounted to an existential threat. Outside of Orlando, SeaWorld features the leading amusement properties in their respective markets.

SeaWorld also continually reinvests in rides and ancillary services in order to maintain the competitive position of its parks. The Company opened major new attractions at 9 of its 11 theme parks in 2014. At SeaWorld San Antonio, the Company will introduce a much more expansive, immersive dolphin swim environment named Discovery Point, scheduled to open in May 2016. SEAS is also investing to improve its competitive position in Orlando, which faces the looming debut of a Harry Potter themed expansion at Universal in late 2015/early 2016. In response, SeaWorld Orlando will debut the new rollercoaster Mako in summer 2016, which will be the tallest and fastest rollercoaster in Orlando. The Company will also create a “shark realm” themed environment built around the coaster. Both SeaWorld Orlando and SeaWorld San Antonio are also introducing new sea lion habitats/shows.

Analyzing the Blackfish Orca Scandal and its Long Term Impact SeaWorld’s animal rights record first became a point of controversy in early 2013 following the debut of the documentary Blackfish at the Sundance Film Festival in January. The film documented allegations of animal abuse in the Company’s operations including the capture, breeding, close confinement and training of - 76 - SeaWorld Entertainment, Inc.

SeaWorld’s orcas (killer whales). The documentary also highlighted unsafe working conditions including the death of trainer Dawn Brancheau in 2010 by SeaWorld Orlando orca Tilikum. As illustrated in the following chart, the topic gained wider discussion during 2013 and then exploded onto national headlines once CNN began heavily airing the documentary in October 2013. While SeaWorld has disputed nearly all of the sometimes exaggerated allegations made in the documentary, it clearly put the Company’s practices into question and cast a long shadow over the SeaWorld brand’s most recognizable attraction, its killer whale shows. Protests from the likes of PETA further inflamed the debate. In March 2014, California State Assemblyman Richard Bloom introduced a bill to ban the use of orcas in performances as well as any further breeding or trade of whales in California, seemingly putting the San Diego park’s viability into question. The bill failed to make it out of committee, but nonetheless it garnered additional negative attention for SeaWorld in the state. While the headlines have dissipated, intermittent protests have continued, particularly in California. Most recently, One Direction singer Harry Styles called on fans to boycott SeaWorld at a concert in San Diego in July, which prompted a measurable renewed uptick in negative publicity online and even a published response from SeaWorld. In July it also surfaced that a SeaWorld employee had infiltrated PETA protests, forcing CEO Manby to issue a public apology.

Google Search Trends: Blackfish

SeaWorld Brand—and Stock—Punished SeaWorld stock declined from post-IPO highs near $40 to the upper $20s by late 2013 due to mediocre summer results combined with the negative headline press surrounding CNN’s airing of Blackfish in October. However, at least initially the impact of the orca scandal on the SeaWorld brand appeared to be minimal. Extreme summer weather conditions were blamed for much of the attendance declines in Florida and Virginia in 2013 (captured in the following table) and SeaWorld-branded parks actually posted record attendance in 4Q 2013. In addition to weather, the Company attributed the 4.1% overall attendance decline in 2013 to a new yield management strategy that reduced excessive discounting; Company-wide admissions per capita increased 8.6% in 2013 and SeaWorld produced record revenue and EBITDA for the full year.

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Key SeaWorld Parks Attendance (Estimates) 2010 2011 2012 2013 2014 SeaWorld Florida 5,100,000 5,202,000 5,358,000 5,090,000 4,683,000 SeaWorld California 3,800,000 4,294,000 4,444,000 4,311,000 3,794,000 Busch Gardens Tampa Bay 4,200,000 4,284,000 4,348,000 4,087,000 4,128,000 SeaWorld San Antonio 2,600,000 2,600,000 2,678,000 NA NA Busch Gardens Williamsburg 2,800,000 2,744,000 2,854,000 2,726,000 2,699,000 Aquatica Orlando 1,500,000 1,500,000 1,538,000 1,553,000 1,569,000 Source: TEA/AECOM annual Global Attractions Attendance Report

Despite the Blackfish saga, SeaWorld management remained optimistic through early 2014, even affirming their outlook for another year of growth in revenue (2%-4%) and EBITDA (3%-6%) in conjunction with the Company’s 1Q 2015 announcement in May. However, the negative headlines continued to snowball and ultimately proved to have a more serious impact on attendance at SeaWorld parks than widely anticipated. On August 13, 2014, SeaWorld announced weaker than expected financial results and ran from their full-year outlook. This sent shares crashing by 33% in a single day to under $19. As illustrated in the prior table, the impact on SeaWorld was drastic—based on park-by-park estimates from TETAF, attendance dropped by a cumulative ~13% at SeaWorld Florida and ~15% at SeaWorld Orlando between 2012 and 2014. The impact of Blackfish was particularly strong in 2014 in California, where most of the protests have taken place. SeaWorld California attendance declined by 12% in 2014 versus 8% in Florida. The Company also had to return to selective discounting and greater promotional activity to drive traffic at SeaWorld, sending Company-wide admissions per capita down 2.6% in 2014. Revenue ultimately declined by 5.7% and Adj. EBITDA declined by a hefty 15.7% (excluding $10 million in costs related to SeaWorld’s 50 th Anniversary celebration) to $370 million.

Early Signs of Stabilization While 2014 was clearly a disaster for SeaWorld, there are signs that the worst may be behind the Company. As illustrated previously, using Google Trends as an index, Blackfish search activity has declined ~95% from the peak in late 2013. SeaWorld’s 2014 financial results ultimately met the revised guidance provided by management in August 2014. Overall attendance has stabilized in 2015 to date, with the 1.6% Y/Y decline in 2Q 2015 negatively impacted by the earlier timing of Easter and record rainfall in Texas. Attendance actually increased slightly (0.7%) over the first six months of 2015 to just under 9.7 million despite the calendar effects. The Company has cited continued “brand challenges” in California, but, encouragingly, improvements in attendance at Florida parks. Revenue declined 2% in 1H 2015 attributable to the lower attendance in California and greater use of promotional pricing. Earnings were more pressured, with adjusted EBITDA down 13% to $96 million in 1H 2015. However, this largely reflects higher SG&A expenses (up 20% in 1H 2015) related to marketing and consulting costs as the Company has invested to repair its brand image. In August, management reaffirmed a more positive outlook for the remainder of the year, helped by cost cutting measures and calendar effects. The Company still believes it can post flat to 3% growth in adj. EBITDA for the full year. Deferred revenue was up 8% to $146.5 million at June 30, which provides some additional confidence that SeaWorld can meet its guidance.

Long-Term Steps to Repair Image The more important question is whether SeaWorld’s business is permanently damaged. Firstly, it should be emphasized that the orca controversy only meaningfully impacts the three SeaWorld parks amongst a much broader portfolio—albeit these are 3 of the Company’s top 5 parks based on visitors and presumably profitability. Further, the lingering effects at SeaWorld parks appear to be largely isolated to San Diego while Florida and San Antonio have shown stability/improvement. History to date suggests PETA is not leaving the issue alone and intermittent protests are likely to continue—particularly in California. There are some long term risks that changing cultural attitudes impact the broader zoological industry, and calls for boycotts and complete release of animals is likely to persist at least from the most militant anti-captivity voices such as PETA. But we believe these risks are limited and the Company should be able to mollify mass audience concerns and improve its brand image over time. It should also be noted that in addition to its employment base, the Company also has a major economic impact in San Diego as one of its flagship tourist destinations. SeaWorld San Diego generates ~$10 million in minimum annual rent to the City of San Diego plus another ~$5 million per year in

- 78 - SeaWorld Entertainment, Inc. property taxes, and additional property lease and revenue share agreements may bring the total even higher. Although there is ongoing legislative wrangling, the path toward shutting down SeaWorld’s orca exhibit in California appears quite daunting.

Under new leadership, the Company appears to be taking more drastic steps to repair its reputation. SeaWorld is scheduled to discuss the Company’s “strategic vision and long term goals” in a conference on November 9, 2015, which may provide details on a radical plan to improve the SeaWorld image. But the Company has already unveiled numerous initiatives. SEAS established a separate website at seaworldcares.com featuring news and information including videos and extensive content that attempts to debunk the Blackfish film one allegation at a time. Across its stepped-up marketing campaigns, SeaWorld is emphasizing the positive work it does including animal husbandry, rescue/care, and research. For example, the Company notes its rescue team has taken in over 26,000 animals of need including over 480 whales and dolphins. SeaWorld has also pledged to invest $10 million toward animal research including protecting killer whales in the wild.

Long-term, the animal-related SeaWorld theme park experience should evolve into one more focused on education while cutting out the more unseemly/showmanship aspects of the shows and improving the habitat for its animals. This includes the Company’s plan to reposition the use of orcas into more of an exhibit than a show, improving the whales’ conditions, and emphasizing the educational aspects of the experience. To that end, in August 2014, the Company announced a “Blue World Project” to improve the habitat for its killer whales including nearly doubling the size of the tanks, adding a water current section (akin to an underwater treadmill) allowing the whales to be more active, and creating a four-story viewing zone. The first new environment is expected to debut in San Diego in 2018 with Orlando and San Antonio to follow. The redesign will not be cheap, with an estimated price tag of a whopping $100 million per park.

SeaWorld Under-Earning; Restructuring Program to Boost Long Term Profitability In December 2014, SeaWorld implemented a major restructuring program in order to respond to the Company’s lower revenue base. SeaWorld eliminated 300 positions across its parks and headquarters, closed underperforming but high maintenance rides, implemented new leveraged buying efforts, and removed duplicative costs. The Company has incurred $11 million in expenses in 2015 to date, but SEAS expects to generate $50 million in annual cost savings. The Company also initiated additional spending constraints during 2Q 2015 to further reduce costs. Despite the $50 million-plus in cost savings SeaWorld expects only modestly lower total expenses in 2015 as the Company has incurred significant incremental costs for its new marketing and reputation-building campaigns. Reflecting these factors, operating expenses declined by $12 million or 3% in 1H15 but SG&A expense increased 20% or $21 million. Combined with SEAS’s flat to 3% EBITDA growth forecast for the year, this translates to flattish revenue growth in 2015. With the incremental costs now substantially complete, SeaWorld’s guidance implies ~$15-$20 million or greater Y/Y improvement in adjusted EBITDA in 2H 2015.

Looking out to 2016, the easy comps in 1H 2015 and the implied improvement in profitability in 2H 2015 put SeaWorld in a strong position to post further profit growth. Beyond 2016, real earnings leverage could come from a firmer ticket pricing environment. Following on the footsteps of a 2.6% decline in admissions per capita in 2014, the Company has continued to rely on heavy promotional pricing in 2015 to date. The introduction of new rides in Florida and San Antonio in 2016 and any easing of the challenges in California, plus ongoing favorable macroeconomic tailwinds, could allow SeaWorld to cut back on promotions and/or implement modest base price increases during the 2016-2017 timeframe. Price increases flow directly to the bottom line (holding attendance steady), so for example, a 3% real price increase (above expense growth) across admissions and in-park spending in 2017 could translate to a hefty ~10% boost to EBITDA. By comparison, SeaWorld successfully raised prices (admissions per capita) by an average of 7% per year over the 3 years from 2011-2013.

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SeaWorld Historical Financial Performance ($ thousands) 2010 2011 2012 2013 2014 1H 2014 1H 2015 Revenue $ 1,196,103 $ 1,330,774 $ 1,423,752 $ 1,460,250 $ 1,377,812 $ 617,441 $ 606,208 Growth 11.3% 7.0% 2.6% (5.6)% (1.8)% Adj. EBITDA 343276 382059 415206 439128 370100 $ 111,022 $ 96,326 Margin 28.7% 28.7% 29.2% 30.1% 26.9% 18.0% 15.9%

Long-Term International Growth Opportunity SeaWorld remains an entirely U.S. based company today, but this does not preclude the Company from expanding abroad over the longer term. The SeaWorld brand name still has global recognition, and the Company’s expertise, large audience base and marketing scale could be of value to potential international partners. The international expansion opportunity has moved to the backburner somewhat as SEAS had its hands full at home, but the Company has taken some concrete steps. Last year, SeaWorld signed a Letter of Intent with Village Roadshow Theme Parks to co-develop theme parks in Pan-Asia, India, and Russia. SEAS also reached a Memorandum of Understanding with a prospective partner in the Middle East. CEO Manby recently confirmed that the Company remains in discussions with international partners, but the process is a long term one. Any concrete plans could provide upside to our long term projections.

Balance Sheet and Cash Flow SeaWorld came public with net debt of $1.6 billion or 3.9x EBITDA at the IPO based on pro forma year- end 2012 figures. The Company has roughly maintained this debt level in the public markets, with $1.55 billion net debt currently outstanding—although this now represents 4.4x TTM Adj. EBITDA given the recent profit declines. In our view, despite the recent hiccups, SeaWorld’s still-strong free cash flow profile should easily support a moderately leveraged balance sheet such as the current one—especially in the current interest rate environment. During 2Q 2015, SeaWorld retired $260 million of high cost (11% interest rate) senior notes due 2016 and replaced the notes with an additional $280 million of term loans due 2020 (current interest rate of 4.3%). This will save ~$14 million/year and brings the Company’s effective interest rate well below 4%. All of SeaWorld’s current debt is floating rate and matures in May 2020, giving the Company five years of breathing room to reduce/refinance the debt.

From a free cash flow perspective, high quality theme park assets typically produce relatively predictable, high margin revenue streams that support leverage. SeaWorld’s EBITDA margins were just under 27% in 2014 but were 30% as recently as 2013. The theme park industry is relatively capex-intensive, and this adds some variability to SeaWorld’s annual free cash flow. Importantly, we believe the Company should not be constrained by under-investment during its years under private equity ownership; in fact, SeaWorld has consistently invested in its parks over the past 5 years to maintain their appeal to consumers. Capex actually increased prior to the IPO as the Company invested in new rides and attractions, with capex growing from $120 million or 10% of revenue in 2010 to $225 million (16.9%) in 2011 and $192 million (13.5%) in 2012. Capex moderated back to $166 million (11.4%) in 2013 and $155 million (11.2%) in 2014. Even with the above- average capital expenditures and operational challenges, SeaWorld managed to produce free cash flow (excluding a one-time $46 million cash advisory fee termination payment to Blackstone in 2013) averaging $127 million (nearly $1.50/share) over the past 3 years. SeaWorld’s free cash flow has also benefited by ~$20-$30 million per year from tax deferrals over this timeframe. The Company held a remaining ~$650 million in federal net operating loss carryforwards (NOLs) plus another $970 million in various state NOLs at the end of 2014, meaning SeaWorld should not be a significant cash tax payer for the foreseeable future.

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SeaWorld Historical Free Cash Flow ($ thousands) 2010 2011 2012 2013 2014 OCF $ 202,281 $ 268,249 $ 299,440 $ 286,461 $ 261,532 Capex $ (120,196) $ (225,316) $ (191,745) $ (166,258) $ (154,641) Capex % rev. 10.0% 16.9% 13.5% 11.4% 11.2% FCF $ 82,085 $ 42,933 $ 107,695 $ 166,203* $ 106,891 FCF/Share $ 1.02 $ 0.52 $ 1.29 $ 1.89 $ 1.22 *Adjusted to exclude cash payment to Blackstone

Prior to the recent SeaWorld parks' challenges, SeaWorld’s management team had professed long term capex run-rate expectations of ~10% of revenue. We conservatively project this to run significantly higher going forward given the cost of the proposed Blue World Project (~2% of revenue per annum assuming $300 million over 10 years) and expectations the new management team will be more aggressive in investing to boost the Company’s competitive offerings, especially in the critical Orlando market. The Company is currently forecasting $180-$190 million in capex for 2015, or approximately 13-14% of revenues. Even assuming capital expenditures remain elevated at 14% of revenues through 2015-2017, we estimate SeaWorld can generate ~$86 million ($1/share) in free cash flow this year and growing to ~$150 million by 2017 just assuming revenues return to 2013 levels—which translates to a 9% 2017E free cash flow yield at the current stock price. If the Company can return to a normalized growth rate in 2018 and capex moderates slightly to 13% of revenues, we project free cash flow could expand to ~$210 million or nearly $2.40/share. Assuming SeaWorld holds its current dividend rate constant and applies all incremental free cash flow toward debt repayment, we estimate net leverage could fall to under 3.3x EBITDA by the close of 2017 and just 2.6x a year later.

SeaWorld Maintains Strong Capital Return Program SeaWorld has also maintained a fairly robust return of capital program since coming public despite the bumpy financial performance. SEAS instituted a $0.20/share quarterly dividend policy following the IPO and raised the quarterly payment 5% in 2Q 2014—translating to a healthy 4.6% current yield. The Company has also spent $110 million on share repurchases, although its timing leaves much to be desired. SEAS purchased 1.5 million shares in December 2013 and 1.75 million shares in April 2014 (all at $30/share) as part of Blackstone’s secondary offerings—which proved much more advantageous to Blackstone than to public shareholders. SEAS maintains an additional $250 million share repurchase program, but the Company has only repurchased approximately 1 million additional shares ($17.50/share) since the stock’s sharp decline in August 2014. The Company is somewhat restricted by covenants contained in its is credit facilities, and at the June 30, 2015 calculated leverage ratio of 4.4x SEAS is limited to $120 million in restricted payments in 2015 which includes dividends and share repurchases. Nonetheless, despite the lack of purchases to date, the current covenant restrictions and the Company’s underlying cash flow still leave room for meaningful share repurchases without increasing the debt load. If the Company can achieve the aforementioned free cash flow levels going forward, this should allow further room for return of capital while simultaneously reducing the leverage ratio in the years ahead.

Real Estate Assets Asset Analysis Focus would be remiss not to mention SeaWorld’s real estate position in our Balance Sheet & Cash Flow analysis. As illustrated in the following table, SeaWorld owns the real estate at each of its parks except for San Diego. In total, the Company owns approximately 2,000 acres—much of it in relatively prime locations. At the minimum, this protects the Company against escalating rent payments and boosts its profit margins. And while most of this real estate is essential for the Company’s operations, it also includes close to 400 acres of land available for future development. This gives SEAS room to expand its parks in the future as demand dictates. Beyond additional rides and attractions, accommodations may also be feasible at some parks.

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SeaWorld Property Portfolio

Valuation and Conclusion SeaWorld shares have been punished alongside the recent market pullback, declining by 17% from just under $22/share in late May. Looking longer term, SEAS shares sit 33% below their April 2013 IPO price and a hefty ~55% below their all-time high set in summer 2013. As detailed, the large decline in SEAS shares reflects a mix of competitive pressures impacting the Company’s key Orlando parks and an unanticipated broadside from animal rights activists beginning in fall 2013 that drove attendees from SeaWorld parks and at least temporarily tarnished the brand. The impact on SEAS shares was likely exacerbated by the wholesale exit of growth-oriented investors who had participated in the IPO.

These challenges are real, and it will take time and investment if SeaWorld is to return to its former glory. However, we believe that by any measure SEAS shares have been overly punished for their recent sins. The 38% share price decline just since August 2014 far exceeds the 16% decline in adjusted EBITDA in 2014; SeaWorld’s EV/EBITDA multiple has fallen from an average of 12x-13x EBITDA pre-crisis to just 8.5x 2015E EBITDA currently. Including the estimated net present value of SeaWorld’s NOLs ($650 million in federal NOLs heading into 2015), we estimate the Company trades at only 8.0x 2015E EBITDA. By comparison, publicly traded theme park peers are valued at average multiples of 12x forward EBITDA. Furthermore, most of SeaWorld’s 11 amusement parks have not been impacted by the aforementioned issues, and the Company has already taken several major steps toward righting the ship at SeaWorld-branded parks. SeaWorld brought in a highly regarded outsider as CEO (Joel Manby) this April, among other executive changes. The Company is implementing a $50 million cost savings program (plus additional cost savings implemented in 2Q 2015) and is investing heavily in new marketing and brand-building campaigns to restore the SeaWorld image. Importantly, attendance has actually increased modestly in 2015 to date and early indications (deferred revenue as of June 30, 2015 and management’s outlook provided in August) indicate this trend likely held through the key summer season. The Company expects adjusted EBITDA this year to come in at least on par with 2014.

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SeaWorld Comparable Company Analysis EV/Sales EV/Sales EV/EBITDA EV/EBITDA EV/EBITDA Name Ticker TTM FY2 TTM FY1 FY2 CEDAR FAIR, L.P. FUN 4.0x 3.7x 13.8x 10.7x 10.0x MERLIN ENTERTAINMENTS PLC MERL-LN 3.8x 3.5x 12.8x 12.3x 10.9x SIX FLAGS ENTERTAINMENT SIX 5.2x 4.8x 19.5x 13.4x 12.3x Mean 4.3x 4.0x 15.4x 12.1x 11.1x

SEAWORLD ENTERTAINMENT SEAS 2.3x 2.2x 10.7x 8.5x 8.2x Source: Thomson Reuters. Unadjusted.

SeaWorld is also taking steps to better position the Company over the long term. SeaWorld will invest ~$300 million over the next decade or so to double the size of its killer whale tanks, and make the exhibits more focused on viewing and education rather than unseemly shows. While these steps will not appease everyone, they should help. Recent attendance and online search trends suggest the negative publicity has already largely dissipated. This November, CEO Manby and the new management team will host a conference call to reveal their “strategic vision and long term goals” which could include more radical changes. Overall, SeaWorld plans to invest 13%-14% of revenue in capital expenditures in 2015. This includes several investments to boost the Company’s competitive position in Orlando, including the introduction of a record-breaking rollercoaster in 2016.

Looking beyond 2015, we conservatively project the Company continues to invest 13%-14% of annual revenue in capital expenditures (versus prior guidance for normalized capex of 10% of revenues). In terms of normalized earnings power, we project revenue only grows 2% in 2016 as the Company maintains the discounted pricing strategy implemented in 2014. Nonetheless the recent cost cutting measures should lead to increased earnings, and even a return to modest revenue growth in 2017 (5% versus 2011-2013 average of 7%) implies EBITDA could return closer to 2013 levels by 2017. Applying a still-discounted 9x EV/EBITDA multiple in light of the uncertainties, we derive a forward-looking intrinsic value estimate of approximately $28 per share. This implies 64% upside to intrinsic value inclusive of dividends over a 2-3 year timeframe. We also give SEAS no additional credit for any NOLs that remain available beyond 2017 (estimated undiscounted value of ~$100 million at year-end 2017), which could be viewed as providing an incremental valuation buffer.

SeaWorld Estimate of Intrinsic Value ($ MM) 2017E EBITDA (inc. stock comp. expense) $ 431 assumed multiple 9.0x Enterprise Value $ 3,875 less Net Debt, 2017E $(1,410) Equity Value $ 2,465

Diluted Shares, 2017E 89.0

Intrinsic Value per Share, 2017E $27.70

Implied Upside to Intrinsic Value 53%

Implied Total Return inc. Dividends 64%

Given the current share price and investor bearishness (28% of float sold short), we see even modest signs of a return to earnings growth as potential catalysts for SeaWorld shares to move closer to intrinsic value. Additionally, SeaWorld’s strong free cash flow profile provides both downside support and an attractive current yield (4.6%). Shielded by NOLs, we estimate free cash flow will total ~$1/share in 2015 and could swell to almost $2.40/share by 2018—even with our cautious capex outlook. This should give SeaWorld ample room to de-lever while continuing to pay the current dividend and even opening room for meaningful share repurchases in the coming years. Finally, we would note that Blackstone’s 22% stake is likely another overhang on the stock, - 83 - SeaWorld Entertainment, Inc. but the Company is highly incented to boost the stock price and an eventual exit should bode well for long term shareholders.

Risks Risks that SeaWorld may not achieve our estimate of the Company’s intrinsic value include, but are not limited to, additional headline or legislative pressure regarding animal rights issues; failure to improve the SeaWorld brand image; changes to the SeaWorld killer whale exhibits negatively impacting attendance; exacerbated competitive challenges in Orlando; a general failure to halt declines in attendance at SeaWorld parks (especially San Diego); macroeconomic factors negatively impacting tourism; unanticipated accidents or mechanical failures at SeaWorld’s theme parks; debt covenants further restricting SeaWorld’s ability to return capital to shareholders if leverage rises; rising interest rates increasing SeaWorld’s cost of debt (all floating); and loss of key personnel. We detail additional legal risks below:

Legal Risks: SeaWorld faces both stockholder class action lawsuits and consumer class action lawsuits related to the failure to disclose the Blackfish impact (in the case of the shareholder lawsuit) and misrepresentation of the treatment and care of its orcas (consumer lawsuit). All cases are in the preliminary stage and will face a high hurdle in proving that SeaWorld actively deceived investors or consumers. However, it is possible that SeaWorld will ultimately suffer some financial cost from settlements or adverse rulings.

Analyst Certification Asset Analysis Focus certifies that the views expressed in this report accurately reflect the personal views of our analysts about the subject securities and issuers mentioned. We also certify that no part of our analysts’ compensation was, is, or will be, directly or indirectly, related to the specific views expressed in this report.

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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)

ASSETS June 30, 2015 Dec . 31, 2014 Current assets: Cash and cash equivalents $ 52,931 $ 43,906 Accounts receivable, net 56,094 37,002 Inventories 38,749 33,134 Prepaid expenses and other current assets 20,562 20,894 Deferred tax assets, net 7,268 7,268 Total current assets 175,604 142,204 Property and equipment, at cost 2,678,128 2,612,052 Accumulated depreciation (953,082) (867,421) Property and equipment, net 1,725,046 1,744,631 Goodwill 335,610 335,610 Trade names/trademarks, net 163,457 164,188 Other intangible assets, net 22,866 24,525 Other assets 13,220 11,313 TOTAL ASSETS $ 2,435,803 $ 2,422,471

LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 108,313 $ 88,279 Current maturities on long-term debt 16,850 14,050 Accrued salaries, wages and benefits 23,678 19,068 Deferred revenue 146,458 79,367 Dividends payable 18,391 172 Other accrued expenses 16,883 20,149 Total current liabilities 330,573 221,085 Long-term debt , 1,584,365 1,569,400 Deferred tax liabilities, net 4,600 31,760 Other liabilities 31,206 20,691 TOTAL LIABILITIES 1,950,744 1,842,936 Stockholders’ Equity: Preferred stock, $0.01 par value — — Common stock, $0.01 par value 903 902 Additional paid-in capital 621,497 655,471 Accumulated other comprehensive loss (5,103) (483) (Accumulated deficit) retained earnings (22,367) 33,516 Treasury stock, at cost (109,871) (109,871) TOTAL STOCKHOLDERS’ EQUITY 485,059 579,535 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,435,803 $ 2,422,471

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Asset Analysis Focus is not an investment advisory bulletin, recommending the purchase or sale of any security. Rather it should be used as a guide in aiding the investment community to better understand the intrinsic worth of a corporation. The service is not intended to replace fundamental research, but should be used in conjunction with it. Additional information is available on request. The statistical and other information contained in this document has been obtained from official reports, current manuals and other sources which we believe reliable. While we cannot guarantee its entire accuracy or completeness, we believe it may be accepted as substantially correct. Boyar's Intrinsic Value Research LLC, its officers, directors and employees may at times have a position in any security mentioned herein. Boyar's Intrinsic Value Research LLC Copyright 2015.

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