Blackstone targets real estate jackpot with Crown Resorts buy

You only need to look at Blackstone’s track record in the casino industry to know that Crown’s real ­estate portfolio would be the major drawcard in launching a bid for the business.

Crown last valued its property, plant and equipment at about $4.3bn. It owns the real estate at its Barangaroo casino development in Sydney, its casino and two ­hotels in Perth along with a golf course, and its Melbourne casino and land next door. Picture: NCA NewsWire/Dylan Coker

You only need to look at Blackstone’s track record in the casino industry to know that the real ­estate portfolio of Crown Resorts would be the major drawcard for the private equity firm in launching a bid for the business.

As Crown announced on Monday that it had entered into an agreement to sell the company for almost $8.9bn, or $13.10 a share, to Blackstone, many in the market were wondering what the game plan would be for the high-profile buyout fund.

The widely held view around the market in the past year has been that the real drawcard for Blackstone when it came to bidding for Crown, advised by UBS and Gresham, was its lucrative property portfolio, which many in November believed accounted for about $8 of its $9.88 share price.

And you only need to look at its track record around the world to believe that is the case.

In September, Blackstone, advised by Morgan Stanley, sold its Cosmopolitan casino and hotel on the Las Vegas Strip for $US5.65bn to MGM Resorts International after buying the asset more than seven years ago for $US1.8bn from Deutsche Bank.

Deutsche wound up with the asset after it fell into distress during the global financial crisis and Blackstone spent $US500m on upgrades in what is the company’s most profitable sale of a single asset ever.

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.

Crown last valued its property, plant and equipment at about $4.3bn. It owns the real estate at its Barangaroo casino development in Sydney, its casino and two ­hotels in Perth along with a golf course, and its Melbourne casino and land next door.

In a similar way to the Cosmopolitan, Blackstone will be picking up Crown at an opportunistic time.

Crown’s share price has collapsed in recent years due to allegations of money laundering at its casinos that sparked regulatory inquiries. Compounding that has been the impact on performance from the pandemic.

Some believe Blackstone would place Crown’s real estate in a separate property fund, which then might be sold in the medium to long term.

The buyout fund may choose to sell at least part of the casino operations to a partner, probably a major industry powerhouse out of the US such as Las Vegas Sands, MGM Resorts or Wynn Resorts.

But this would all probably happen sometime down the track, given its greatest challenge right now is gaining regulatory approval, which is likely to be subject to Blackstone remaining as at least the majority owner.

While Blackstone could sell the properties for a big price, the challenge is that the new real estate owner would need to undergo probity checks and regulatory scrutiny.

Still, Blackstone’s aspirations to repeat its overseas success here in Australia seems strong, given that its latest offer for Crown is at a 32 per cent premium to the group’s November 18 share price of $9.90 and $845m more than its first offer on March 21 of $11.85 a share.

While Blackstone is known to operate casinos globally, it has strong expertise in property and that is where the real money is to be made. The further evidence of this is with the flurry of real estate deals on the Las Vegas Strip of late, including real estate investor Vici Properties buying MGM Growth Properties in a deal that valued the casino real estate owner at $US17.2bn ($24bn), including debt.

Early last year, Las Vegas Sands Corp agreed to sell its Las Vegas properties to Apollo Global Management and a real estate investment trust for about $US6.25bn.

In 2020, Blackstone and MGM purchased the real estate assets of the MGM Grand and Mandalay Bay for $US4.6bn from MGM ­Resorts, whose Las Vegas properties include Mandalay Bay, Luxor and MGM Grand Las Vegas.

Last year, MGM also entered into a sale and leaseback deal with Blackstone on its Aria and Vdara properties for $US3.89bn.

It also purchased the Bellagio casino in Las Vegas, which it snapped up for $US4.25bn in 2019.

Blackstone also has 66 casinos in Colombia, 34 in Panama and 29 in Peru – with another eight in Costa Rica and six in the Dominican Republic.