Crown Resorts’ property portfolio adds sparkle to takeover play
US private equity major Blackstone is one of the world’s top property investors, which provides a key insight into the motivation of its proposed swoop on Crown Resorts.
Blackstone, which has just lodged an $8 billion takeover bid for Crown, would be eyeing off the casino company’s $5.2 billion property portfolio just as eagerly as it is eyeing its gaming assets.
If Blackstone does win control of the company it will be picking up many key property prizes, including the Crown Sydney complex conceived by tycoon James Packer as a destination for luxury gamblers and tourism.
A successful takeover could see the assets carved off within Blackstone’s empire into separate operating company and property holdings, partly as these elements would attract different valuations and investors.
While this prospect is not certain, as the takeover has a long way to run, the value assigned to Crown’s properties will be a key factor in determining the price that investors will demand from the suitor.
They are likely to want both a premium for control and will take into account any upside that Blackstone will reap from potentially engineering a split between the operating company and the property portfolio.
Crown owns casino properties and a series of associated hotels in Melbourne, Sydney and Perth, is selling luxury apartments in Sydney and has a major development site in Melbourne.
One possibility that Blackstone is likely to consider is spinning off the passive assets into a real estate investment trust, which could either be held privately by pension funds and sovereign investors or be listed on the Australian Securities Exchange when the performance of Crown’s properties recovers.
Blackstone’s property capabilities were considered a driver for it taking a stake in Crown last year and that move reignited talk that a demerger of the casino company’s real estate would be on the cards.
Any such plan would be received very differently from Crown’s brief exploration in 2016 of setting up a listed real estate investment trust that was to own Crown’s local hotels, barring Melbourne’s Crown Towers.
That plan would have seen five freehold Crown hotels in Perth and Melbourne with more than 2300 rooms put into the trust and leased back to the casino operator.
The Crown casino in Melbourne. Picture: David Geraghty
Retail investors would still be keen for a trust that generated an attractive yield above the anaemic returns on bank deposits, but may be wary of Crown’s operational performance.
While conditions remain rocky, the most likely alternative would be Blackstone winning external backing for the property holdings from one of the large sovereign funds that dominate the hotel investment space, allowing it to put capital back into growing the company or return it to investors backing its takeover.
Crown’s hotels have also been battered by the coronavirus crisis and could take an extended period to trade well, although Blackstone has been betting globally that a vaccine rollout will drive a fast recovery.
It has just teamed with Starwood Capital Group to snap up hotel chain Extended Stay America for about $US6 billion and it has cited travel and leisure investment as key areas this year.
Hotel markets in Australia are currently beaten down ,with discounted pricing applied to most of the latest sales, although Mirvac and the NRMA appear to have attracted a premium for the $620 million Travelodge portfolio.
In the case of Crown Resorts, Blackstone would be making a number of assumptions including a full resumption of gaming and eventually a return of both local cross-border visitors and then lucrative international tourism.
Casino hotels are classically among the fullest in Australia but it is also a competitive market with rival The Star also upgrading its hotel facilities in Pyrmont providing some competition in Sydney.
The COVID-19 crisis has also showed up some surprising opportunities in Crown‘s property portfolio.
It has demonstrated the resilience of the luxury apartment market, with sales at the luxury Crown Residences at One Barangaroo site ahead of expectations and still firing as the residential property market steams ahead.
Blackstone could also advance Crown’s development plans at the One Queensbridge Street site in Melbourne’s Southbank where it once had a $2bn hotel and apartment scheme, and is now considering a tower that includes an office component.
Blackstone certainly has the property expertise to maximise the value of Crown’s assets but listed investors will want a share of that upside in the takeover price.
This article first appeared on www.theaustralian.com.au/business/property.
