LVS gave another hint this week of how important real estate could be in rebuilding the fortunes of the battered company. It has appointed Jeff Schwartz, a former CEO of ProLogis Inc., to its board of directors.
ProLogis is one of the world’s largest owners of distribution centres, with more than 475 million square feet of space in North America, Europe and Asia.
“As a company with an already significant and still growing presence in Asia, Jeff’s insights [on behalf of LVS] will certainly be valuable as we continue to execute our development plans in the region, specifically the opening of the Marina Bay Sands in Singapore,” said Sheldon Adelson, Las Vegas Sands Corp.’s Chairman and CEO, in a statement.
After leaving ProLogis last November, Mr Schwartz co-founded and became chairman of Global Logistics Properties (GLP) of Singapore. GLP is the new name for a ProLogis company formerly called ProLogis Asian Operations. It has teamed up with GIC Real Estate Pte. Ltd. of Singapore to operate ProLogis’ Chinese holdings and part of its Japanese holdings.
Property may be a face card (if not an ace card) in LVS’s pack during its current challenges. Assets, including real estate, are of course only worth what people are prepared to pay for them, as has been painfully proven by the present global crisis. A large and diversified property portfolio does though arguably offer some kind of hedge against falling casino revenue. It has the potential of providing security for any future lenders, and in the case of Macau at least, sales should provide profits even in a depressed market, because of the cheap terms on which the Macau government leased land to foreign casino investors.
Given that LVS has spent or is still committed to spending (excluding the suspended and undeveloped plots on Cotai) around USD7.6 billion on infrastructure for its Asian schemes, the trick will be to find creative ways of maximise returns on that capital investment.
The company has already outlined some methods for this. At the completed Four Seasons plot on Cotai for example, LVS has identified a co-operative system of the sort used to market units in Manhattan apartment buildings as a way of selling on title to smaller investors.
In October last year, LVS said it had been given permission by the Macau government to use the cooperative system to sell apartments in the Four Seasons tower and to monetise cash flow generated by The Shoppes at Four Seasons, its 200,000 square foot luxury retail mall located on the same plot.
Last week in an interview with Newsweek magazine, Mr Adelson continued the real estate theme.
“We make more money these days on hotel rooms than we do on the casinos,” he was quoted as saying.
Neither Mr Adelson nor the magazine clarified whether he was referring to LVS’ global operations or a specific market, or how ‘making money’ should be defined in this context (for example, net profit, revenue or yield on investment).
Mr Adelson added in comments to an investment forum in New York City last week that 19 investors had come forward as possible buyers of space in LVS’s two Cotai malls in Macau. AGI understands monetisation of real estate may also be an option at LVS’s Marina Bay Sands project in Singapore, which is due to have its first phase opening at the end of this year.
There is though an important issue regarding monetisation of LVS’s real estate. The market is currently very focused on hard evidence rather than warm words. Back in the autumn of 2007, one or two investment analysts were bandying around figures of USD17 billion being realised by monetisation of LVS real estate in North America and Asia as if it were already money in the bank.
If LVS is able to convince investors it can ‘show them the money’ from monetisation in the coming weeks and months, then no doubt the market will respond accordingly in pushing up LVS’s stock price. That has the potential to help in returning the company to the kind of virtuous circle of investor value it enjoyed in the heady days before the escalation of the credit crisis.
