How Real Estate Plays a Role in a Gaming Company s Valuation and Strategy. Global Gaming Group 1

Transcription

1 How Real Estate Plays a Role in a Gaming Company s Valuation and Strategy Global Gaming Group 1

2 Carlton L. Geer Senior Vice President, Global Gaming Group (a dedicated business unit of CB Richard Ellis Worldwide) Global Gaming Group 2

3 Calculating Enterprise Value **** EXAMPLE **** MGM MIRAGE Enterprise Value = Long Term Debt Cash + Market Cap Long Term Debt as of 2Q05 = $12.27 billion Cash on Hand as of 2Q05 = $306.4 million Market Cap as of 9/6/05 ($42.72 stock price) = $12.32 billion EV = billion million billion = $24.90 billion EV / 2004 EBITDA = $24.90 billion / $2.19 billion = 11.3X 2004 EBITDA Multiple (Note: 2004 EBITDA includes Mandalay Resort Group in whole) Global Gaming Group 3

4 Land Prices Can Impact Gaming Company Valuation **** EXAMPLE **** RIVIERA HOLDINGS Enterprise Valuation (based on EBITDA Multiple) EBITDA $44.4 million EBITDA Multiple 9.1x Enterprise Value $403.9 million Current Enterprise Value Market Cap (Stock Price $25.57) $319.6 million Cash and Cash Equivalents $20.7 million Long Term Debt $214.8 million Enterprise Value = $319.6-$20.7+$214.8 = $513.7 million The market is valuing Riviera LV land at $109.8 million more than the business opportunity of the property Global Gaming Group 4

5 Riviera Example (continued) How Riviera Las Vegas land is being valued Enterprise Value = $513.7 million Less Riviera Black Hawk $16.4 million X 8* = ($131.2) million Equals Riviera Las Vegas Value = $382.5 million Divided by Riviera Las Vegas Number of Acres = 26 Equals Riviera Las Vegas Value Per Acre = $14.7 million * Note: 8x multiple is comparable for similar asset sales Global Gaming Group 5

6 Gaming Company EV/EBITDA Multiples Boyd Gaming 10.0x Station Casinos 13.5x Ameristar Casinos 8.0x Aztar Corporation 9.2x Pinnacle Entertainment 8.9x Riviera 11.6x Source: Deutsche Bank Securities 9/6/05 (Based on 2005E EBITDA) Riviera data is based Global on LTM Gaming EBITDA Group 6

7 Convergence of Gaming and Real Estate GGG has always viewed gaming companies as the biggest real estate developers in the world. 16 of the 20 largest hotels in the world are located in Las Vegas. Gaming appears to be the highest and best use for land However, largest Las Vegas gaming floors are only 150,000 square feet forcing operators to look for other ways to maximize the rest of the land value on their property. Developers are now building vertically. Global Gaming Group 7

8 Las Vegas Land Supply/Demand What has driven gaming-land prices in Las Vegas Top-Shelf Development MGM MIRAGE, Steve Wynn, Sheldon Adelson have been biggest drivers in increasing land value in Las Vegas as their developments have increased visitation to over 40 million per year. Scarcity of Strip land Consolidation Fewer owners means fewer sellers and higher prices. Senate Bill 208 Off-Strip land has become more scarce meaning gaming-zoned land in the LV Valley has increased in price. Global Gaming Group 8

9 The Old Model vs. The New Model Global Gaming Group 9

10 The Old Model In Las Vegas, Bellagio was an example of a development that had a low land cost basis The Dunes was purchased for only $70 million in 1993 (164 acres total with Bellagio accounting for 80 of the acreage). Our estimates indicate Bellagio uses only 55 of its 80 acres for revenue generation. Large surface parking for employees, guest parking garage with no revenue generation on roof, and an eight-acre lake are a product of low land prices. Global Gaming Group 10

11 The New Model Land prices have risen in Las Vegas resulting in operators creating urban developments. Future project densities will have to increase. Operators will look for the best utilization of land and employ yield management techniques to find these best uses. Global Gaming Group 11

12 The New Model Sheldon Adelson was ahead of his time with the retail space known as the Grand Canal Shoppes (located on the second floor) at The Venetian, which he sold in June 2004 for $766 million. Although the development of The Grand Canal Shoppes was viewed as innovative in the gaming industry, Mr. Adelson used a traditional real estate development model. Global Gaming Group 12

13 The New Model Project City Center MGM MIRAGE s newest development to open 2009/10 Located on approximately 66 acres (Bellagio has 80 acres). 4,000-room hotel (Bellagio has 3,933 rooms). 1,650 residential/condo-hotel units (Bellagio has 0). Two 400-room boutique hotels (Bellagio has 0). 550,000 square feet of retail space (Bellagio has approximately 100,000 square feet). Global Gaming Group 13

14 Source: GGG Global Gaming Group 14

15 The New Model Other Locations Crown Casino located in Melbourne, Australia Opened in Located on approximately 21 acres along Yarra River. 5.5 million square feet of constructed density (25% more than Bellagio at opening). Casino with 2,500 slots and 300 tables. Underground parking. 952 hotel rooms and serviced apartments. Global Gaming Group 15

16 Crown Casino Melbourne, Australia Source: Global Gaming Group 16

17 The New Model Other Locations City of Dreams (Melco/PBL JV) located on Cotai Strip (Macau) Expected to open in Located on approximately 25 acres. Constructed density of approx. 4.8 million square feet (Bellagio originally had 4.2 million square feet of development on 80 acres when it opened in 1998). 450,000+ square feet of gaming space including 450 tables and 3,000 slots. 2,000 hotel rooms (500 of which are 5 Star). Approx. 1.5 million square feet of area for serviced apartments. Approx. 100,000 square feet of retail, which offer traditional development returns through leasing. Global Gaming Group 17

18 In Las Vegas, You Can t Have $2 Blackjack Tables on $20 Million Dirt To get the appropriate ROI on projects, gaming companies will concentrate high-end play on the Strip. Use Macau and other high gaming tax markets to drive play to LV. Develop using yield management techniques to maximize projects. Use condo-hotels and high-rise projects to finance construction in an environment of high land and construction costs. Hotel rates and restaurant prices on the Strip will continue to rise as developers will have to embark upon high-end projects to get an appropriate return on investment. Global Gaming Group 18

19 Laughlin Baby, Laughlin With $20 million per acre land costs, the four corners approach may not make sense much longer. For example, the owners of a fictitious 25-acre property that generates $25 million in EBITDA would be better off selling it for $15-$20 million an acre or redeveloping than continuing the status quo. Look for destinations like Laughlin, Reno and Downtown LV to be marketed as more than just regional destinations and more as destinations for value oriented travelers from all over the country -- LV will become too expensive for many people. Global Gaming Group 19

20 Multiples of Gaming Companies May Continue to Expand As more non-gaming real estate components become part of projects, look for multiples to increase to reflect the less-risky nature of those sorts of assets and their traditional returns. Our analysis indicates gaming assets have sold at an average of 9.1x 9.4x trailing EBITDA over the last two years. Felcor Lodging REIT stock is trading at 11.2x Enterprise Value / 2004 EBITDA. Las Vegas Sands selling the Grand Canal Shoppes II retail space at the Palazzo for a 6% to 8% cap rate (or 12.5x to 16.5x EBITDA). Global Gaming Group 20

21 Amount ($Millions) Trailing EBITDA Multiple (1) Year Acquirer Acquired 2004 MGM MIRAGE Mandalay Resort Group 7, x Harrah's Entertainment Caesars Entertainment 9, x Penn National Gaming Argosy Gaming 2, x Herbst Gaming Lakeside Casino, St. Joseph Frontier, x Mark Twain Casino Opbiz LLC Aladdin Casino LV x Columbia Sussex Bally's New Orleans x Ameristar Casinos Mountain High Casino x Colony Capital AC Hilton, Bally's Tunica, Harrah's E. 1, x Chicago, Harrah's Tunica Barrick Gaming Plaza, Vegas Club, Gold Spike, x Western Legends Gaming LLC Fitzgerald's Black Hawk x Station Casinos Castaways 34 NA Golden Gaming Mardi Gras Casino - Colorado 37 NA 2004 Total 22, x 2005 (2) Columbia Sussex Caesars Tahoe x Grand Sierra Resort Group Reno Hilton x Landry's Restaurants Golden Nugget LV and Laughlin x Marian Ilitch Motor City Detroit (53.5%) x Broadwater Development LLC President Biloxi 82 NA Henry Brent Company Lady Luck LV 10 NA Columbia Sussex President Admiral x Columbia Sussex Argosy Baton Rouge x El Dorado Hollywood Shreveport x Harrah's Entertainment Imperial Palace LV x 2005 Total 1, x (1) EBITDA based on the twelve months following the transaction (2) Transactions in 2005 have not closed Source: GGG/SG Americas Securities (Transactions in 2002 and 2003 available upon request) 21

22 Our Conclusions Gaming companies are in the real estate business. With the rising land prices, gaming companies have to maximize density, which means more traditional real estate development approaches such as retail and residential must be woven into an integrated resort. Consequently, gaming company multiples may increase as total project returns increase while becoming less risky. Global Gaming Group 22

23 Our Prediction In the next ten years, we would not be surprised to see the lake in front of Bellagio cease to exist in its present form and substituted with a higher density, more profitable use. Global Gaming Group 23

24 Thank You Contact Information: Carlton L. Geer CB Richard Ellis 3993 Howard Hughes Pkwy, Suite 700 Las Vegas, NV Global Gaming Group 24