Microsoft Word - Barrons - A Mountain of Money.docx

Co ontact Kenton Hopkins MRE E, CRS, GRI oor David McHugh M e-PRO O for Addition nal Information n (970) 8445-8053 - (9700) 376-7171 - khopkins@slife k er.net & dmch hugh@slifer.neet

Mon nday, Februaryy 4, 2008

M ntainss of Money Moun M y

By ROBIN GOL LDWYN BLUM MENTHAL

TH HE SHARES S OF VAIL RESORTS S, AMERICA'S LARGE EST ski areaa, have beenn going downnhill faster thann you can saay "schuss." With fears of o a recessionn gripping thhe lodging sector, Vail's stock has drropped somee 28% % in the pastt three month hs, to about 47.

Waall Street mayy have taken n a wrong tuurn on the traail: The outloook for Vail, and its stocck (ticker: MTN), M is actuually quite promising. p Thee company's clientele -- the surging ranks of the world's weaalthy -- is rellatively insulated from economic e slum mps. Heavy snowfall in the past twoo months, meeanwhile, haas been whettting the apppetites of botth skiers andd a new w breed of yooung visitors: snowboarrders.

Perrhaps most im mportant, a number n of promising ressidential devvelopments by b Vail are starting s to coome to fruiition. The coompany is deeveloping huundreds of toownhouses and a condos inn its area, annd demand is proving rem markably stroong.

"Vaail properties are selling for $2,000 a square foott -- it's gettinng to be like Dubai," sayys Ron Baronn, whose Barron Capital Management M t owns 12% of Vail Resorts.

Thee company, the t only pub blicly traded ski area, hass been operaating since 1962, when Vail V Mountain opened inn Collorado underr the ownersship of Vail Associates.

A V Vail, which was bought out of bankrruptcy by Appollo Partnerrs

and Leon L Black, went public in 1997, aftter it mergedd with Ralstoon Resorts, a spinoff of Ralston R Purinna.

In thee next few years, y the com mpany acquiired hotels inn mountain villages v and bought Wyooming's Grannd Teton Lodgge, created inn the 1920s by b John D. Rockefeller, R gaining a soource of reveenue during the t skiing offf-season. It also owns o luxuryy-hotel manaager RockReesorts, and recently r has been b addingg to those prooperties.

Vail, which has a market valu ue of $1.8 biillion and geets more thann 70% of its revenue from its mounttain-skiing businness, is hard to compare with other companies. But B Jeffrey J. Donnelly, who w followss the companny at Wachhovia, figurees the stock is i way underrvalued.

Basedd on the norm ms for the lo odging indusstry and the price p that annother ski moountain, Intrrawest, fetchhed in a buyout, Donnellyy thinks that Vail shouldd trade at a raatio of enterpprise value, or o market vaalue plus nett debt, to e Ebitdaa, a measure of cash flow w, is earninggs before inteerest, taxes, Ebitdda of 10 exclluding real estate. depreeciation and amortization n.

A 10 Ebitda multtiple would be b below thee average off any hotel coompany, andd even furtheer below the 11.5 that somee luxury-hoteel chains com mmand -- noonetheless, itt would valuue the shares at about 53,, or 13% aboove the curreent level. Add to that the present valuue of Vail's real-estate r prrojects throuugh 2012 -- some s $14 a share s by Donnnelly's calcullations -- and d the stock would w be tradding at $67, a 42% prem mium to its cuurrent price..

Cory Gilchrist, portfolio man nager of Marrsico 21st Ceentury and Marsico M Globbal Fund, Vaail's largest shareholder, s has a similar pricce target, bassed on his view of the real estate's vaalue and his expectation that the resoort business' Ebitdda will grow a hefty 12% % to 14% in the t next few w years.

"Baseed on globall currency movements, m thhis is an on-sale real-esttate asset," saays Gilchristt, noting thatt Europeans have been drawnn to Vail after facing pooor snowfall inn their own countries c lasst season; annd the weak dollar d certaiinly adds to its appeal. "Ski properties are like beachfront b prroperties, and there are significantly s fewer ski acress than beachffront acres," he adds.

Vail has h several hundred h new w residential units in the works, and the first ones coming onnline are fetcching prices as loffty as the neaarby summitts.

For example, e pricces at One Ski S Hill Placee at Breckennridge, a luxuury-condominium resideence that was just launcched, were raaised more than 20% froom those at Crystal C Peakk, a project soold in the saame area a yeear ago, accorrding to Jefff Jones, Vail''s chief finanncial officer..

"The pricing wass done with a full awarenness of what was going on o in the gloobal real-estaate market," he says.

With a limited nuumber of ressidences beinng sold -- a total t of 90 inn the first buiilding -- "buuyers are connfident they'rre getting soomething thaat may neverr be availablee again," he adds.

The 67 6 condos att another Vail project, thhe Arabelle at a Vail Squarre, a European- style villlage, have been sold outt for tw wo years; thee project hass already seeen its first cloosings. The hotel h portionn, the crown jewel of thee devellopment, com mmands ratees for suites at the heightt of the ski season s of as much m as $3,079 a night.

That shouldn't bee too dauntin ng for some of o Vail's cusstomers, whoose average household h inncome is $1775,000.

That average inclludes both destination d viisitors, who come from far f away to vacation v andd represent more m than 60% of skier visiits, and the 36% 3 of thosee from locations near its four Coloraddo mountainns -- Vail, Keeystone, Breckkenridge andd Beaver Creeek -- and Heavenly, H its Lake Tahoee, Calif., mouuntain.

VAIIL'S CLIEN NTELE IN THE T 2007 fiscal fi year, ennded July 311, helped it achieve a the most m skier viisits of any ski area a in the U.S. U last seaso on, 6.2 million. Vail doeesn't report monthly m trafffic numbers,, but near-reccord snow wfall in Deceember and eaarly Januaryy in the Westt bodes well for the wintter season. Heavenly H moountain in Lakee Tahoe, wheere snowfalll last year waas poor, experienced 10 feet of snow w in early Jannuary. As a result r of whitte stuff like that, t all of Vail's V resort mountains m arre 100% opeen.

Haylley Wolff, ann analyst at Rochdale Reesearch, preddicts a 5% too 6% increasse this year in i visits from m destinationn guessts, who on average a spen nd as much as a four timess a day more than the loccal visitor's $107 $ typical outlay on lodgging, food, eqquipment an nd skiing lesssons. She addds that Vail is also startiing to attractt many moree young adultts by marketting to snow wboarders.

Wolff projects thhat Vail willl rack up neaarly $1 billioon in real-esttate cash flow w over the next n six or seeven years, and she sees the resort busin ness alone geenerating enoough cash flow to buy back 40% of its common stock by ybacks, withh 1.8 millionn shares availlable under an a existing repurchase r p plan.)

The 20111. (It continuues stock buy comppany's balannce sheet is strong, s with long-term deebt at about $534 millionn, or 29% off capitalizatiion.

And what happeens to all thesse premier assets a if the economy e goees south? Ovver the yearss, Vail's real estate has show wn little to no correlation n to the econnomic cycle, says Wachoovia's Donneelly. Plus, Doonnelly's anaalysis showss that in Summit County, C Colo o., where maany of Vail'ss new projectts are located, average sale prices roose 15% t since 1991, average prices in thaat county decclined only once, o in 20003, by 1.4%. throuugh Octoberr 2007, and that The Bottom Lin ne l poised to t climb by 40% or morre.

The shares, whicch have falleen sharply inn the past thrree months, look "Eveen in soft yeaars for the co ountry, they keep growinng," he says, mainly beccause of the limited l suppply and grow wing global demand. d "It'ss surprising to me how many m peoplee will buy a $2 $ million vacation hom me and use it for thhree weeks out o of the yeear."

Donnnelly also foound little to no correlatiion between economic chhanges and skier s visits at a Vail Resorrts, incluuding incom me growth forr the top 20% % of the U.S S. populationn. That is, evven when inccomes of the affluent slip, they still maanage to gett away on ski vacations.

Wolff of Rochdaale notes thaat Vail has otther advantaages to traditional lodginng companiess, including a stable source of incomee from local skiers, manny of whom buy b season passes p well before b the seeason opens, as well as solidd pricing pow wer and limiited competittion. She figgures that Vaail will be raaising its effeective ticket price at leastt 5.5% this year. y In fiscal 2008, Vail's V reporteed resort cashh flow is exppected to risee by as muchh as 11%, buut with the addition a of real--estate cash flow, f net inccome could nearly n doublle to $3 a shaare. Now thaat's an exhilaarating mounntain high.

T learn more about To a the availlable real estatee opportunitiees here in the Vail V Valley pleaase contact Beaver Creek’s #1 Real Esttate Brokeragee Team with Slifer Smith & Frampton F Reall Estate

K Kenton Ho opkins MRE, M CRSS, GRI an nd David McHugh h e-PRO (970) 845-8053 - (9700) 376-7171 - khopkins@sliffer.net & dmchugh@slifer.neet