James Packer’s Crown could spin off property assets, say analysts

James Packer’s long-held dream of owning a permanent place in Sydney’s harbourside skyline could be sold just as it is being realised.

An artist’s impression of the completed Barangaroo project that will home to Crown Resorts’ Sydney casino. Picture: Supplied.

James Packer’s long-held dream of owning a permanent place in Sydney’s harbourside skyline with his towering Crown Sydney resort development could be sold off just as it is being realised.

Blackstone’s newly acquired 10 per cent stake in Mr Packer’s Crown Resorts has heighted speculation that the US private equity giant will move to spin off the casino group’s $5.6bn property portfolio.

While the Sydney building may be sold, Mr Packer would still own an apartment in the Barangaroo complex and Crown would continue to operate the property under a potential sale and leaseback model.

Lawrence Ho’s Melco sold its 9.9 per stake in Crown to a Blackstone entity known as Midnight Acacia Holdings for $8.15 per share, or $552m, on Wednesday.

Blackstone is already a casino investor, owning the Cosmopolitan casino and the property assets of MGM Resort’s Bellagio casino, both on Las Vegas’s famed strip.

Citi analyst Bryan Ramond said Blackstone’s appearance on Crown’s shareholder register has increased the likelihood of a property demerger, based on the private equity group’s recent US transactions with MGM and its listed REIT.

“Should Blackstone gain control of Crown, subject to regulatory approvals, we would expect the value of its property to be realised potentially through a sale and leaseback transaction,” Mr Raymond wrote in a note to investors.

“While Blackstone’s intentions remain to be seen, the recent US experience and press reports indicating that the real estate team is handling the purchase seem to support our view. If a similar structure is proposed to Crown’s mooted demerger in 2016, then the operating company will remain listed as is, with Crown potentially holding a minority stake in the property company.”

James Packer at the $2.4bn Sydney casino project being built by his company Crown Resorts. Picture Rohan Kelly

In June 2016, Crown outlined plans to split itself up by creating a separate listed entity to hold its international operations, including its 27 per cent stake in casino business Melco Crown, which operates in the struggling Macau market. It also flagged creating a listed property trust that would own Crown’s Australian hotels, excluding its Melbourne flagship Crown Towers.

But Crown ditched those plans in December 2016, as well as pulling the pin on its planned Las Vegas development and trimming its multibillion-dollar holding in Melco Crown, which operates casinos in Macau.

Then chief executive Rowen Craigie said the sale of its Melco shares would inject $1.6bn into Crown’s coffers and was a “a prudent alternative to the proposed demerger”.

On Wednesday, Citi valued Crown’s property portfolio, which includes its flagship Melbourne gaming precinct and soon to be opened Sydney casino in Barangaroo, at $5.6bn, based on a 7.35 per cent capitalisation rate and base rent of $410m.

James Packer tours Crown Resorts development site at Barangaroo in Sydney. Picture: Supplied.

“This rent as a proportion of revenue is in line with comparable transactions, while our cap rate is adjusted for Crown’s market position and current market conditions,” Mr Raymond said, adding he rated the company a buy.

“ Private equity interest reflects the quality of the assets and balance sheet of Crown at a reasonable valuation. The intentions of Blackstone remain unclear at this early stage; however, we expect the underlying value of the property to be more clearly represented in the share price.”