Macau casino operator Sands China Ltd is “considering” the idea of spinning off its shopping mall assets in Macau into a real estate investment trust (REIT), said Sheldon Adelson, chairman and chief executive of the firm.
Mr Adelson was asked by a stockholder speaking during the annual meeting of Las Vegas Sands Corp, parent firm of Sands China, whether such a move was being looked at. The investor suggested Las Vegas Sands’ current share price was low relative in particular to its Macau real estate base, and that a REIT would have U.S. tax advantages for shareholder value.
The company chairman said: “We are considering it, but it will take a while to get all the land leases… You can’t own fee simple in China. They won’t sell a piece of the motherland. So our leases would have to be changed. And it would take a little while to do that.”
Mr Adelson added during Thursday’s meeting in Las Vegas: “We probably have anywhere between US$8 billion to US$12 billion worth of retail [mall] assets in Macau… we have net debt – that is gross debt minus cash in hand – down to about US$6 billion.”
Sands China’s current land leases in Macau – granting it exclusive use and negotiated at differing dates with the territory’s government – last longer than its current Macau gaming rights.
According to Sands China’s annual report for 2014, published in March, the firm’s land concessions for its Sands Macao, Venetian Macao, Plaza Macao and Sands Cotai Central properties – and for its under-construction Parisian Macao site on Cotai – run in each case for a period of 25 years. They are also “renewable at the group’s option, in accordance with Macau law,” according to that filing.
The same report states that Sands China’s gaming licence expires on June 26, 2022.
As of December 31, the firm’s Macau real estate consisted of 9,277 hotel rooms and suites, 125 restaurants, 1.5 million square feet (139,355 sq metres) of retail capacity, 1.5 million square feet of meeting space, permanent theatres, and a 15,000-seat arena as well as a portfolio of some of the world’s largest casinos, according to the annual report.
Vitaly Umansky, senior research analyst for global gaming at Sanford C. Bernstein Hong Kong Ltd, said during the Global Gaming Expo (G2E) Asia 2015 conference in May that in theory any of Macau’s six current gaming operators could be excluded from the market by the government at the expiry of their current rights. He added however in comments to GGRAsia on the sidelines of the conference that – based on publicly available information relating to the various concession contracts – in most cases the buildings the operators have constructed during their current concessions would remain in the hands of the incumbents.
A Daiwa Securities Group Inc team led by analyst Jamie Soo, head of Hong Kong-China gaming research, on May 29 issued a 40-page report outlining what the institution said were potential advantages for Sands China spinning off its mall and hotel assets into a REIT.
“A REIT spin-off would limit share-price downside by crystallising the value of Sands China Ltd’s assets at a time of increasing political and regulatory uncertainties in Macau and China,” said the Daiwa report.
It added: “A REIT spin-off would attract interest from new investors and could capitalise on the structural changes we believe are taking place in Hong Kong’s stock market, which could see an SCL-REIT trading at valuations more like those of a U.S. REIT than a Hong Kong REIT.”
Mr Adelson had added during the annual meeting, referring to the parent’s Marina Bay Sands casino property in Singapore: “We can’t put our Singapore mall in a REIT yet. We can’t transfer anything or sell anything off before 2017.” Though he added: “That’s not too far away.”
MGM Resorts International – majority owner of Macau casino operator MGM China Holdings Ltd – has recently been under investor pressure to spin off its U.S. real estate assets into a REIT. In the U.S. as long as a REIT earns 75 percent of its income from rent or sale of real property and distributes 90 percent of its earnings to shareholders, it is generally exempt from corporate tax.
In March it was announced that a bankruptcy exit plan for Caesars Entertainment Operating Co Inc – a unit of the Caesars gaming empire – might involve splitting that unit into two parts. One part would run 38 Caesars casinos across the United States, while the other portion would be a property company controlled by a REIT.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China