Star Entertainment is considering sale and leaseback of Star Sydney

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Posted: Oct 11, 2021, 11:58 p.m.

Last update on: October 11, 2021, 01:31 a.m.

Private equity giant Blackstone (NYSE: BX) is rumored to be considering a sale-leaseback transaction involving Star Entertainment Group’s integrated Star Sydney resort.

Starry black stone
Star Sydney from Star Entertainment. Blackstone is rumored to be considering a leaseback of the location. (Picture: News.Com.Au)

The rumor surfaced ahead of today’s drop in the Australian casino operator’s shares amid allegations it facilitated money laundering in Sydney and the Gold Coast. The fall in shares of Star Entertainment led to an evaporated market cap of $ 740 million.

As for the Star Sydney, the operator sees a way to create shareholder value by potentially selling a controlling stake in the $ 1.68 billion site and leasing the rest. The company could look to sell a 51% stake in the property while retaining 49%.

We see the potential to unlock the value of our real estate assets through a sale-leaseback or similar transaction, ”said Harry Theodore, CEO of Star Entertainment, in an interview with the australian.

Credit Suisse is working on sale-leaseback leads for the gaming company. Sale-leaseback agreements, or PLS, are common in the industry and often seen as a win-win for casino operators and real estate companies. Through these deals, a gaming company can monetize real estate assets, often raising large initial sums of money to use for anything including more acquisitions, rewards for shareholders, such as buyouts and dividends, or to reduce debt.

Likewise, the real estate company that leases the land to the operator benefits from long-term leases that often include progressively increasing rates without having to be financially responsible for building improvements.

Blackstone’s logical partner for Star

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 real estate assets of Bellagio on the Las Vegas Strip and leased this location to MGM Resorts International. A few months later, she took a minority stake in a deal with MGM Growth Properties in real estate at MGM Grand and Mandalay Bay. In July, the private equity giant announced the purchase of Aria and Vdara on the Strip, and that those sites are being re-leased to MGM.

Even with the recently announced sale of the Cosmopolitan to MGM, Blackstone remains one of the Strip’s biggest owners.

Another reason the Blackstone / Star partnership makes sense

There is another angle for a possible Blackstone / Star collaboration. The latter was previously a contender for rival Crown Resorts, which also landed in warm regulatory waters. However, Star withdrew its $ 6.64 billion takeover offer in July.

Blackstone owns around 10 percent of Crown’s shares, and Star has left the door open for another bid for his rival. One thing is for sure, despite Star’s new regulatory controversy, analysts like the idea of ​​the company monetizing its integrated Sydney resort.

“We estimate that the sale and leaseback of the Sydney Casino could generate $ 1.25 per share of additional value, assuming a 5% cap rate, a premium over US REITs given the position in the Australian casino market, ”according to a note from E&P Financial Group. Quoted by the australian.


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