Blackstone faces $1.5bn windfall from sale and leaseback of Crown’s casinos, says Grant Samuel

US private equity giant Blackstone has strong form with casino sales and leasebacks, with Grant Samuel revealing how much it could make from Crown Resorts.

Blackstone could reap $1.5bn from a sale and leaseback of Crown’s casinos, including its Barangaroo development. Picture: Jeremy Piper

A sale and leaseback of Crown Resorts’ casinos would generate an extra $1.5bn of value on top of Blackstone’s $8.9bn bid for the James Packer-backed group, according to an independent expert’s report on takeover.

Meanwhile, Blackstone has struck a $5.4bn debt funding agreement with Starwood Capital Group and two of non-listed real estate investment trusts – SREIT Project Silver Lender I and SREIT Project Silver Lender II – ahead of the Crown deal.

Crown Resorts real estate portfolio – which includes its $2.4bn Barangaroo casino development, flagship Melbourne casino and Perth gaming complex – has long been considered a drawcard for the suitor.

Blackstone says it “does not currently intend to pursue a sale and leaseback” for Crown.

But it has form. After buying Las Vegas’ then financially distressed Cosmopolitan casino from Deutsche Bank 2014 for $US1.73bn ($2.3bn) – and spending $500m in upgrades – the firm sold the complex for $US5.65bn last September to MGM Resorts.

But the real windfall came from the property, given that as part of that deal, MGM entered into a sale and leaseback over the Cosmopolitan’s real estate with the Cherng Family Trust, Stonepeak Partners and Blackstone Real Estate Income Trust for $US4bn.

Grant Samuel – which Crown commissioned to complete an independent expert’s report for the Blackstone bid – said a sale and leaseback of Crown’s real estate assets would generate a “potential uplift of circa $1.5bn relative to the scheme consideration”. But Grant Samuel did not include any additional value from a potential sale and leaseback in its report to Crown shareholders, despite saying it would be “quite conceivable”.

Adding to the uncertainty is Crown working to regain its suitability to run casinos in NSW, Victoria and Western Australia following three damning inquiries that found the group facilitated money laundering and other organised crime.

“(A sale and leaseback) is unlikely to be achievable in the next 2-3 years until earnings have recovered and there can be confidence in Crown’s retention of its licences,” Grant Samuel said.

A sale and leaseback of Crown Resorts’ casinos could generate an extra $1.5bn of value on top of Blackstone’s $8.9bn bid for the James Packer-backed group. Picture: Darrian Traynor/Getty Images

While Blackstone did not provide extra comment on the addition of Starwood’s REITs to the debt funding agreement, in the takeover scheme booklet it ruled out a potential sale and leaseback – for the time being.

“Blackstone … does not currently intend to pursue a sale and leaseback transaction … in respect of Crown and has advised the relevant authorities … of this intention,” the document reads.

“Blackstone BidCo will undertake a full review of Crown’s business, operations, assets and employees following implementation of the scheme to determine how best to execute Crown’s strategy and develop and grow Crown.

“Blackstone BidCo does not intend to make significant changes to Crown’s business and employees. However, final decisions on these matters will, if necessary, only be made following implementation of the scheme based on all material facts and circumstances at the relevant time.”

Additionally, Crown is betting on a fine from the financial crimes watchdog and other liabilities – including a shareholder class action – being less than $680m to ensure the Blackstone takeover proceeds smoothly.

Grant Samuel said if the Austrac fine and other liabilities totals $680m – or $1 a share – that would bring Crown’s value to as low as $11.52 a share. This compares with Blackstone’s offer of $13.10 a share.

“If contingent liabilities totalled $680m, the scheme consideration would be demonstrably fair,” Grant Samuel said.

Blackstone has some room to move under a material adverse change clause, which states that if the continent liabilities are more than $750m, it could withdraw from the deal.

Crown attempted to provide investors with some guidance about what the Austrac fine could total, noting previous penalties from the regulator of $45m against Tabcorp in 2017, $700m against Commonwealth Bank in 2018 and the record $1.3bn slapped on Westpac in 2020.

But conceded it cannot “reliably” forecast its own fine.

Austrac has accused Crown of more than 500 breaches – with each contravention attracting a fine of up to $22.2m – of anti-money laundering and counter-terrorism financing laws.

If the Blackstone deal fails, it will not only stop Mr Packer from receiving his $3.3bn payday from his 37 per cent stake, but likely trigger a share price fall for Crown and a “major”, “challenging” refinancing of the company’s debt and $89m break fee.

“In the absence of the scheme or a similar transaction, it is likely that, under current market conditions, Crown shares would trade at prices well below $13.10,” Grant Samuel said.