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Downtown's $4.4 Billion Giant-Breaking Down AEG's Local Holdings - Los Angeles Downtown News - For Everything Downtown L.A.!: News

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News Downtown's $4.4 Billion Giant-Breaking Down AEG's Local Holdings

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Posted: Monday, November 26, 2012 5:00 am

DOWNTOWN LOS ANGELES - The September announcement that Anschutz Entertainment Group is up for sale kicked up a lot of inquisitive dust: What does it mean for the Farmers Field and Convention Center expansion proposal? Why is mogul Philip Anschutz selling now? How will it affect Downtown?

Then there are the three biggest questions: How much is the company worth? Who has the financial capacity to buy it? And, what will happen to the pieces once a sale closes?

The dust is far from settled, but Forbes, citing an anonymous source with “intimate knowledge of the sports, entertainment and real estate company’s books and their appraisal,” recently reported that AEG’s price tag should be between $8 billion and $10 billion. Other estimates of the international sports and entertainment giant’s value put it closer to $7 billion. In September, company President and CEO Tim Leiweke said he didn’t have a value in mind, but referenced hearing a price of up to $15 billion.

Any way it’s sliced, a deal for the company will be huge, and a major portion of the buyer’s investment will immediately make it a Downtown power broker.

Determining the value of the company’s Downtown holdings is an inexact task — the value can only ultimately be determined after a deal closes. In other words, everything is an estimate until someone actually writes a check. After all, no one thought the Dodgers were worth $2 billion until Guggenheim Baseball Management agreed to pay that amount in May.

Still, it is possible to make an educated estimate by looking at AEG’s Downtown holdings as individual assets, and valuing them based on comparable real estate sales, prevailing market data and property tax records. Using these and other tools, including talking to numerous experts in various fields, Los Angeles Downtown News has determined that the company’s local portfolio — from its share in the Lakers to the unsold Ritz-Carlton condos to the Regal Cinemas facility and beyond — amounts to about $4.4 billion.

The estimate has caveats, chiefly that Downtown News lacked access to AEG’s books (it’s a privately held company).

Our estimate, which is as conservative as possible, does not include AEG’s holdings outside Downtown. It also doesn’t account for the synergistic value of all the assets — many if not most of AEG’s local holdings are worth more to an owner who controls the whole package, since the companies and brands leverage each other. AEG is for sale as a single entity. The firm’s assets are not being sold independently. The $4.4 billion figure also does not include the speculative value tied to the company’s entitlements (secured from the city) to build a football stadium.

Here is how the number breaks down.

Los Angeles Kings Share, $208.8 million: According to Forbes, which does an annual ranking of American professional sports teams’ valuations, the Kings were the 10th most valuable National Hockey League franchise in 2011, worth an estimated $232 million. AEG owns most of, but not the entire team. According to a source familiar with the ownership structure but not authorized to comment, AEG’s share is at least 90%, which works out to about $208.8 million based on the Forbes analysis.

Forbes’ estimate was made before the team won the Stanley Cup in June. It’s uncertain how much the championship will affect its value, if at all. Sports franchises, however, can have somewhat of a “fluid” value, said David Carter, executive director of the Sports Business Institute at USC.

The championship means more in terms of value if the team has another solid season (assuming the NHL lockout ends in time for a season), because it presents an opportunity to raise ticket prices and sell more merchandise, Carter said.

Some have speculated that AEG’s buyer will turn around and spin off various company holdings, possibly bundling assets like the sports teams and venues. When the dust settles, if the same entity owns the Kings and Staples Center (the current situation), the team value is likely higher. A buyer who takes over just the team, but pays rent to a separate entity, might place less value on the franchise, Carter said.

Los Angeles Lakers Share, $243 million: Technically, AEG doesn’t own a portion of the Los Angeles Lakers — Phil Anschutz owns a 27% stake in the franchise personally. But his share is part of the proposed AEG sale. According to Forbes, the Lakers last year were worth an estimated $900 million, giving Anschutz’s portion a value of $243 million.

Once again, a true cost could fluctuate in an open market. In the case of the Lakers, in addition to the team’s value as calculated by hard income numbers, a buyer might factor in intangibles, said Carter.

“It’s such a premium brand that someone might in their mind pay a little bit of premium, and as one of the premier franchises in all of sports that’s the kind of thing where there might be some ego involved,” Carter said.

J.W. Marriott and Ritz-Carlton Hotels, $435.2 million: The 1,001-room J.W. Marriott/Ritz-Carlton convention center hotel is a tricky property to analyze because it is essentially three assets under one roof: an 878-room J.W. Marriott, a 123-room Ritz Carlton and 224 Ritz-branded condominiums.

The hotels can be approximately valued by considering recent sales of similar venues. Hotel market experts said the J.W. Marriott/Ritz property compares to two San Diego waterfront hotels that were purchased last year. The Hilton Bayfront sold for $475 million, or $399,160 per room. The Hyatt Grand Manchester went for $418,502 per room.

Alan X. Reay, president of Atlas Hospitality Group, which specializes in California hotel sales, said the four-star J.W. Marriott is likely worth less than the San Diego hotels because the latter buildings look over the water. In Los Angeles, he said, the Westside remains the strongest hotel market (the Beverly Hilton sold last year for $516,000 per room). Still, Reay estimates that the J.W. Marriott would command about $375,000 per room.

Considered separately, Reay estimates the value of the five-star Ritz rooms at $400,000 apiece because of the prestigious brand, plus the higher quality and the size of the rooms. Based on those estimates, the Marriott clocks in at $329.2 million and the Ritz at $49.2 million, for a total of $378.4 million.

However, there are arguments for valuing the hotels higher. First, the Downtown establishments command higher room rates than the San Diego buildings. The lowest J.W. Marriott rate on three random future dates (two separate weekend nights and one mid-week date) averages about $309. That’s 80% higher than the lowest average rate at the Bayfront on the same nights and 48% higher than the Manchester.

“In hotel valuation it’s all about rate,” Reay said.

AEG will also expect a premium on the hotels for its 25-year city hotel tax break, which is worth an estimated $246 million, or about $10 million per year. If the higher room rates and the tax incentive translate to a 15% premium, the hotels’ value rises to $435.2 million.

Unsold Ritz-Carlton Residences, $154.2 million: The Ritz-Carlton Residences are 224 luxury condominiums that sit on the upper floors of the 54-story building that looms above L.A. Live. Since opening in 2009, 138 units have been sold and 14 more are in escrow, leaving 72 condos on the market. The average price per square foot of sales in the building since January is $836. Among 16 closed sales since January, the average price was $1.7 million.

Ritz and AEG representatives would not provide detailed information on the unsold units, but real estate sources familiar with the available inventory said that the remaining condos include several penthouses. So far, two penthouses have sold, for prices of $8.55 million and $5.22 million. One penthouse on the market is listed at $9.3 million. If there are six penthouses among the available units, and their average value is $7 million, collectively they would be worth $42 million. For the remaining 66 non-penthouse units, which again have traded at an average price of $1.7 million, the collective value would be $112.2 million. That puts the total value for the unsold condos at $154.2 million.

L.A. Live, Including Regal Cinemas, Club Nokia and the Nokia Theatre, $1.1 billion: A source with knowledge of AEG financial results said the sprawling entertainment and office campus has about $55 million in annual operating profits. The venues and buildings that comprise the complex include the Regal Cinemas, the adjacent West Garage, the 2,300-seat Club Nokia, the 7,100-seat Nokia Theatre and two buildings with office space over restaurants and entertainment venues. The East Garage has 774 additional parking stalls.

Revenue comes from the parking, rent paid by commercial and office tenants, and fees from advertisers to display their logos on L.A. Live’s 140,000 square feet of static and digital billboard space. If the entire campus were sold as a single package at a 5% capitalization rate (a common metric in commercial real estate that reflects earnings as a percentage of property cost or value), then the price tag would come out to $1.1 billion.

AEG never revealed the construction cost of its state-of-the-art Regal Cinemas Stadium 14. But according to the most recent appraisal conducted by the Los Angeles County Tax Assessor, the property is worth $100.3 million. The West Garage, immediately south of the Regal Cinemas, is worth $117.1 million, according to the Assessor. The nearly 1 million-square-foot facility, which serves the movie theater and other L.A. Live venues, includes 2,667 parking spaces, most of which are spread among three subterranean levels. That translates to roughly $43,907 per space.

L.A. Live also has five floors of office space in two buildings. The structure that houses ESPN’s television studios measures 117,641 square feet. The larger building, which is home to the Grammy Museum as well as AEG and Herbalife’s corporate offices, measures 415,197 square feet. Both are 100% occupied.

Farmers Field, $0-$700 million: This may be one of the most valuable AEG holdings in Downtown… or it could be worth nothing. If Farmers Field gets built, it will have a major impact in the area, and many believe it would spur significant economic development. But right now, although Leiweke said the company has spent $50 million on the project to date (everything from renderings to paying for the 10,000-page environmental impact report), AEG doesn’t own a football stadium or have a deal with an NFL team. All they own is the right to build a stadium that is estimated to cost $1.2 billion. They also have in place a $700 million naming rights deal over 30 years with Farmers Insurance. Is the naming rights deal worth $700 million to a new owner? Only if they build the stadium on the city-owned land. Given the lack of a team so far, the total estimate assumes a $0 value for the NFL deal.

Staples Center, $1.34 billion: When AEG opened Staples Center in 1999, it was widely reported that the construction cost was $375 million. The L.A. County Tax Assessor’s evaluation, however, pegged the building cost at $313 million. The Assessor’s total valuation of Staples Center is $336.3 million, a figure that accounts for the land value. That number, however, was reported in 1999 and does not reflect the arena’s market value.

According to a 2010 Forbes analysis, Staples Center was the most lucrative North American sports arena in 2009, in part because of the $300 million it did in annual sports revenue. Staples holds about 148 regular and pre-season hockey and basketball games a year between the four resident teams (Kings, Lakers, Clippers and Sparks). Then there are the playoffs.

AEG officials have repeatedly said that the arena hosts about 250 events a year. This includes everything from the sports contests to Justin Bieber concerts to the X Games.

A source familiar with AEG’s financial results said the arena last year had operating profits of $67 million. If the property were to trade at a 5% capitalization rate, Staples Center would be worth $1.34 billion.

AEG Live/Goldenvoice/AXS Ticketing, $854.7 million: AEG Live is the company’s 12-year-old concert promotion company, which is second in the industry only to Live Nation Entertainment. Live Nation, which is a public company, has a market capitalization (the total equity value of the company) of $1.62 billion. According to online financial data provider Ycharts.com, Live Nation’s enterprise value — a figure that considers debt and other factors, and is considered a better estimate of a company’s market value — is $2.59 billion.

AEG Live, which is private, is a smaller company, but it is unclear how its value compares to its chief competitor. So far this year, Live Nation has sold 18.2 million tickets to its slate of international venues, compared to the 6.7 million tickets sold by AEG Live, according to concert industry trade publication Pollstar. Whereas Live Nation sells considerably more tickets, however, AEG Live is considered by some to have a more impressive roster of venues, said Pollstar editor Gary Bongiovanni.

“I think if you look at individuals assets and say this is part of our portfolio, AEG’s are probably more impressive than what Live Nation has just from marquee standpoint,” Bongiovanni said.

Still, considering that AEG Live sells about 37% of the tickets sold by Live Nation, a ballpark estimate is that the Downtown company is about one-third the size and value of Live Nation, making it worth $854.7 million.

Olympic and Georgia Lot, $15.9 million: The company owns a 60,000-square-foot parking lot at Olympic Boulevard and Georgia Street, adjacent to where Williams/Dame Associates is building a new Marriott hotels complex (AEG sold the hotel site to Williams/Dame). Recent land deals in South Park include L&R Group’s $31 million acquisition of a 2.7-acre lot at 1220 S. Figueroa St. and the same company’s purchase with Sonny Astani of a three-acre site at Grand Avenue and 12th Street for $29 million. Those deals were for $263 per square foot and $222 per square foot, respectively. If the AEG parcel is worth as much as the 1220 S. Figueroa St. site, it would be valued at $15.9 million.

Contact Ryan Vaillancourt at ryan@downtownnews.com.

©Los Angeles Downtown News.

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