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 (
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
Toll Brothers (
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
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 (
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
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
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