Las Vegas Sands: Unlocking Value Could Be a REIT Idea

Tickers in this article: LVS

Clearly, many other companies are aiming their sites on REIT-dom. Who wouldn't? With REIT multiples two times the size LVS.

LVS is known for its exceptional gaming and lodging brand, but the company's value proposition is centered on three integrated business models: malls, lodging and gaming. Collectively, the three platforms provide tremendous value, and individually, the pieces appear to be worth more than the whole (or $43.65 per share of LVS).

Jonathan Litt, Founder and CEO of hedge fund Land and Buildings (and investor in LVS) explains, "Las Vegas Sands integrated resort developments would be ideally suited and financed through the separate mall, lodging and casino companies as each entity will have the most cheapest cost of capital for their respective property types as investors interested in each individually would bid the shares to the private market value or beyond."

Las Vegas Sands: Malls

Malls: LVS Mall REIT would be the highest quality, most productive public portfolio of mall assets in the world with sales of approximately $1,600 per square foot (double that of its peer group) and revenue growing at 15% annually. LVS malls enjoy a list of some of the most enviable retailers including HERMES, CANALI, BOSS, De Beers, kate spade, Dior, GUCCI, Lacoste, Tumi, Cartier, Calvin Klein, Louis Vuitton, Coach, Burberry, and Bvlgari.

$11 Mall Value per Share: Private and public market comps support that these assets should be valued at 4% to 4.5% cap rates; using the current share price, the implied cap rate is 10% to 50% discount. Sands Mall REIT would have no leverage post spin-out, which would allow for substantially accretive external development and acquisition activities.

Las Vegas Sands: Lodging

Lodging: LVS Lodging REIT would have the highest occupancy public portfolio in the hotel industry at approximately 90% to 15% growth -- and located in markets with demand growth far outpacing supply.

LVS Lodging has stronger growth prospects given rapid growth of gaming revenues, higher occupancy (90%), higher margins and less cyclical characteristics. LVS will be the leading owner of 4 star and 5 star hotels with 40% of the Macao room supply by 2013.

$25 lodging value per share: Given strong 15% growth prospects of Singapore/Macao, limited supply, less cyclicality and the substantial discount to replacement cost, these assets should be valued at EBITDA multiples of 14 times to 16 times based in private and public market comps, yet trade at a 40% discount.

Las Vegas Sands: Gaming

Gaming: LVS Gaming would be the most profitable casino company in the world with internal and external growth likely to exceed 20% per year.

$48 Gaming Value per Share: Implied value at approximately twice 2013 EBITDA ($8 per share), after adjusting for the fair value of the malls and lodging, is severely penalizing what will likely be a 20% plus growth company that has traded on average since 2004 IPO at 18x forward EBITDA.