How to grab a share of Monaco property

Thanks to its glamorous casinos and a personal income-tax rate of 0%, Monaco has become one of the world's most expensive property markets, says Sven Lorenz in the International Living newsletter.

Apartments in prime locations cost $1,869 to $2,243 per square foot, and supply is scarce. But even if you have only a few thousand pounds to invest, there is a way to claim a stake in this thriving city-state - via the French stockmarket.

The five casinos of Monaco belong to the Socit des Bains de Mer et Du Cercle des Etrangers Monaco SA (BAIN), a public company loosely translated as the Sea-Bathing Society and Foreigners' Circle of Monaco. Shares in SBM are traded on the Premier March in Paris. The ruling Grimaldi clan - headed by 81-year-old Prince Rainier - owns 69.6%, and US fund manager Fidelity has held a 5.41% stake for years. In addition to casinos, SBM has an enormous property portfolio. It owns four luxury hotels, 26 high-end restaurants, the open-air nightclub Jimmy'z (one of the world's most expensive), the only private beach in Monaco, the Monaco Golf Club, the opera, the spa, the tennis club, and the world's largest private wine cellar. On top of that, the company is one of the biggest landlords in Monaco, having spent decades accumulating rental apartments and commercial properties with the profits from its casino interests. SBM has practically zero debt and, at last count, sat on $128m cash - and that's after the company spent $137m on refurbishing and building activities last year. Its rental properties are worth approximately $744m, and its hotels would fetch some $992m if sold.

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Adding to the attraction, rumour in Monaco has it that SBM plans to redevelop its headquarters, possibly turning it from a five-storey building into a 20 to 25-storey office and apartment development. Profits from selling off apartments in such a prime location would likely be two to three times the company's current market capitalisation - and it's a good guess that other SBM properties are suitable for redevelopment, too. In addition, the firm's gaming concession, based on gambling market research conducted by Deutsche Bank, is estimated to be worth $1.24bn to $2.48bn.

Adding it all up, the company's net asset value is at least $1,892 to $2,500 per share, compared to a current share price of just $454. With minimal media attention in France, the shares have possibly been overlooked. Investment banks aren't interested in analyst coverage either, because they couldn't expect business from SBM - the last time the company had to raise capital was in 1963! Yet despite the seeming lack of interest, the share price has recently started rising, going from $202 in June 2003 to $454 today.

Its price has been boosted in part by a new strategic partnership with Las Vegas casino impressario Seve Wynn, signed in June 2003. Wynn Resorts, his Nasdaq-listed casino outfit, will open the world's most expensive casino property, the $2.4bn Wynn Las Vegas, in April 2005. Officially, Wynn and SBM will work together only on marketing projects, but rumours abound that the two parties are about to form a joint venture to build a mega casino on the sea. That really would get SBM's share price moving.

For the International Living newsletter, see www.internationalliving.com.