Profit From The Most Exclusive Real-Estate Investment In The World

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Real estate is one of the hottestinvestment stories on the Street. That's because for the first time in six years, home prices logged an annualgain in 2012. That momentum has carried into 2013, with the S&P/Case Schiller House PriceIndex showing prices on the upswing.

But while there is consensus that real estate is rebounding, how toprofit is a different story.

My colleague Carla Pasternak has covered a few of these, mentioning private-equity firms such as the Blackstone Group ( BX ) as popular destinations because the group has been making hugeinvestments in commercial and residential real estate. Homebuilders have also been popular, with industry leaders such as Lennar ( LEN ) and Toll Brothers ( TOL ) each up more than 50% in the past six months.

[Related: Renter Nation: The Incredible Housing Story Nobody Is Talking About]

Although these are great ways tocash in on the real-estate rebound, I have discovered an opportunity that exposes investors to one of the most exclusive real-estate investments in the world.

The Madison Square Garden Co. (Nasdaq: MSG) is an integrated sports media and entertainment company that provides investors with exposure to a one-of-a-kind real-estate asset: New York City's Madison Square Garden.

The company has three segments. Its media division operates the MSG and MSG+ regional sports networks. Its entertainment segment is powered by the Fuse Music Network, which produces concerts and shows. Its sports division owns the New York Knicks (NBA), New York Rangers (NHL) and New York Liberty (WNBA).

Madison Square Garden has seen biggains in the pastyear , but there are a number of reasons why the company is in position to build on that trend.

The company offers a unique mix of assets operates in the largest mediamarket in the country. Its ownership of athletic franchises is a virtualmonopoly because the creation of new franchises is tightly controlled by the leagues and almost exclusively limited to one team per city. This creates high barriers to entrance for any upstart franchise.

The same can be said for the company's other two divisions, media and entertainment. Madison Square Garden maintains exclusive broadcast rights for all of its athletic events, while its entertainment division offers an unparalleled concert experience in one of the highest-income ZIP codes in the country.

But Madison Square Garden isn't content with its basket of highly exclusive assets. The company is maximizing value and expanding margins with a $1 billion renovation project wrapping up this fall thatwill enhance fans and performers' experiences. That includes upgraded seating, more bathrooms, retail space and a wider selection of food. Thefacility will also receive upgraded lighting, sound and video systems.

Madison Square Garden is also pursuing higher-end corporate clients, with 58 lower-level suites that will be 40% larger and half the viewing distance to games and shows. The New York Post projects costs up to $600,000 per suite, 50% higher than some estimates of $400,000 per suite.

Based on recent broadcast deals in the industry, Madison Square Garden looksundervalued . In 2011, Time Warner Cable ( TWC ) paid $3 billion for a 20-year TV license for the Los Angeles Lakers and $7 billion for a 25-year deal with the LA Dodgers. With the New York franchises considered more valuable than their LA counterparts, Madison Square Garden'senterprise value of $4.7 billion is only half of these recent broadcast deals. That implies hugeupside potential for the company's value.

The company's underlevered financial profile will help it pursue additional growth and unlock value, with cash and equivalents of $233 million and nolong-term debt on thebalance sheet .

Risks to Consider: Madison Square Garden's ticket and concertsales can be sensitive to fluctuations in the economic cycle and consumer spending.

Action to Take --> The Madison Square Garden Co. owns an incredibly unique and diverse basket of assets and operates in industries with high barriers to entrance. That will help insulate the company from new competition while it works to unlock more value with a $1 billion renovation project scheduled for completion this fall. But despite the good news, Madison Square Garden looks undervalued compared with recent broadcast deals in the industry.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: BX , LEN , TOL , TWC

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