Any agreement by Las Vegas Sands to sell its Vegas assets would likely include a real estate investment trust (REIT), allowing it to maintain a US presence while focusing its financial energies on the more lucrative Asian jurisdictions of Macau and Singapore, experts speculate.
As per a Bloomberg report early Tuesday, LVS has confirmed that it is in early talks over a possible sale of its Las Vegas Strip properties – The Venetian Las Vegas, the Palazzo and Sands Expo Convention Center – with valuation estimated at around US$6 billion.
According to analysts and industry commentators, such a deal would probably be enough to convince LVS to sell although the most likely scenario would see the company offload the assets while retaining management rights. A similar sale-leaseback arrangement saw MGM Resorts International sell MGM Grand and Mandalay Bay earlier this year.
“While we do not know at this time if there are actual potential buyers, it is possible that any acquisition may include a REIT as a purchaser (along with either a private equity buyer or a strategic),” said Bernstein analysts Vitaly Umansky, Kelsey Zhu and Tianjiao Yu.
“Further it is possible that a sale may only be a sale-leaseback to a REIT with LVS retaining the LV operations. The sale-leaseback structure has been commonplace for casinos in the US for some time … while we view such transactions as largely financing in nature (replacing debt and debt service with a lease and rental payments), investors have looked favorably upon such financial engineering. However, we are not convinced that this is a structure that LVS would like to pursue (although it could be an eventual outcome).”
On the prospect of LVS actually going ahead with such a sale, Bernstein said, “If Sands were to see a buyer at a US$6 billion valuation for its Las Vegas assets, we would expect LVS to likely agree to such a sale. The outcome would be both near term and long term beneficial to shareholders as it would allow for potentially higher ROI investment in Asia and/or faster return of capital to shareholders.”
According to Morgan Stanley’s Thomas Allen, US$6 billion appears steep at around 12x the company’s 2019 EBITDA on those assets but may be seen as more attractive under a REIT model
“We are not sure how much interest from strategic buyers there might be given the high absolute price, other reportedly available assets on the Strip, and the unique positioning of the properties,” he said. “However, given the potential for a cheaper OpCo price through a sale leaseback and historically relatively steady EBITDA, there could be other interest.”
Notably, the potential sale is widely viewed as a positive one for LVS, allowing it pay down some of its US$3.97 billion in debt, restart payment of dividends and recycle capital back into its higher ROI projects in Macau and Singapore which generated property EBITDA of US$3.2 billion and US$1.7 billion in 2019 versus just US$487 million in Vegas.
One industry commentator who asked not to be named also suggested a sale could provide some small benefit when it comes to license retendering by being viewed as a “less American company, which may be more acceptable or tolerated.”
The company’s discussions, the person said, were likely for “political reasons. It’s definitely not fun to be in a ‘storm eye’ – positioned amidst a variety of disputes/tensions, both domestic and foreign.
“What used to be ‘advantages’ during normal times can be harmful when the circumstances have changed substantially.”
Morgan Stanley’s Allen said it would be interesting to see the impact on LVS’ Macau and Singapore operations given cross-sell of high worth customers between properties.
But even as an “Asia-pure play casino company,” the Las Vegas Sands name would likely remain according to Bernstein.
“Nostalgia is strong,” it said.
