Blackstone rumoured to be interested in sale-leaseback of Star Sydney

By Charlotte Lee Updated
Blackstone rumoured to be interested in sale-leaseback of Star Sydney

Private equity firm Blackstone has its eyes set on another Australian casino operator after its failed attempts to buy in to Crown Resorts.

The private equity behemoth is rumoured to be mulling a sale-leaseback transaction involving Star Entertainment’s Sydney integrated resort.

That rumour surfaced on the day that the casino operator’s share price tumbled after allegations that it facilitated money laundering at its Sydney and Gold Coast casinos came to light.

The slide in Star Entertainment stock led to $740 million in evaporated market capitalisation.

Regarding the Star Sydney, the operator sees an avenue to create value for shareholders by potentially selling a majority stake in the $1.68 billion venue and leasing back the remainder.

The company could be looking to sell a 51 per cent interest in the property, while retaining 49 per cent.

“We see the potential to unlock value from our property assets via a sale and leaseback or similar transaction,” Star Entertainment chief executive Harry Theodore said.

SLBs are a win-win for companies and real estate firms

Credit Suisse is working on sale-leaseback leads for the gaming company.

Sale-leasedback deals, or SLBs, are commonplace in the industry and often viewed as win-wins for casino operators and real estate companies.

Through these agreements, a gaming company can monetise land assets, often garnering large, upfront sums of cash to use for anything, including more acquisitions, shareholder rewards, such as buybacks and dividends, or to reduce debt.

Likewise, the real estate firm that leases the land back to the operator gets the benefit of long-term tenant agreements that often include gradually increasing rates without having to be financially responsible for building enhancements.

For now, Blackstone’s possible involvement in a sale-leaseback for Star Sydney remains a point of speculation, not confirmation.

However, the private equity firm has an established track record of involvement in gaming SLBs.

In 2019, Blackstone acquired the property assets of the Bellagio on the Las Vegas Strip and leased that venue back to MGM Resorts International.

A few months later, it took a minority stake in a deal with MGM Growth Properties in the real estate of the MGM Grand and Mandalay Bay.

Blackstone a key player in the casino industry

In July, the private equity giant announced the purchase of Aria and Vdara on the Strip, and that those venues are being leased back to MGM.

Even with the recently announced sale of the Cosmopolitan to MGM, Blackstone remains one of the largest landlords on the Strip.

There’s another angle to a possible Blackstone/Star collaboration.

The latter was previously a suitor for rival Crown Resorts, which also landed in hot regulatory waters.

However, Star withdrew its $6.64 billion takeover offer in July.

Blackstone owns about 10 per cent of Crown shares and Star left the door open to making another bid for its rival.

One thing is for certain, Star’s new regulatory controversy notwithstanding, analysts like the idea of the company monetising its Sydney integrated resort.

We estimate the sale and leaseback of the Sydney casino could generate $1.25 a share of incremental value, assuming a five per cent cap rate, a premium to US REITs given the market position of Australian casinos,” a note for E&P Financial Group said.

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