Star Entertainment Considering Sale-Leaseback of Star Sydney

Star Entertainment might be looking to make a deal for its Star Sydney casino. Sale-leaseback arrangements have become hugely popular in the casino industry around the globe, and the Australian casino operator is reportedly considering a deal that would make investment management firm Blackstone very happy. It doesn’t, however, sit very well with Star’s investors.

Star Sydney Could Go to Blackstone

Star Sydney is reportedly worth around $1.68 billion, and Star Entertainment believes it can gain more value if it sells the property and then leases it back. It is rumored to be discussing such a deal with Blackstone, with the investment management company possibly purchasing a 51% interest. Star Entertainment CEO Harry Theodore told The Australian that the move, or something similar, would “unlock value” from the company’s assets. The hint that something other than a sell-leaseback option might be on the table could mean Star is willing to negotiate for more than just a leaseback arrangement.

Star is currently in the hot seat after media reports surfaced that the company facilitated money laundering and gambling by known criminals at the Star Sydney and possibly other venues. An investigation into the company’s actions was already announced in New South Wales (NSW), and the new revelations could prove damaging to the company’s future. Crown Resorts was found to have violated a number of gaming regulations for several years, which has already led to its license being suspended in NSW. Additional suspensions are possible in other Australian states.

Star Already on the Path toward a Deal

Star is doing more than just feeling out the market. Credit Suisse has reportedly been brought in to find potential suitors for a sale-leaseback arrangement; however, only Blackstone has been confirmed as a potential candidate. The firm has repeatedly tried to gain additional ground in the Australian gaming market and was one of three companies that tried to convince Crown, of which it already holds 10%, to let go of a greater percentage of its stake. That, however, fell through, but didn’t stop Blackstone from continuing to target the land down under.

The announcement about a possible deal between Star and Blackstone had mixed results. Analysts see it as a potentially smart move and one that would give investors more value. The Australian provided input from E&P Financial Group, which stated, “We estimate the sale and leaseback of the Sydney casino could generate $1.25 a share of incremental value, assuming a 5 per cent cap rate, a premium to US REITs given the market position of Australian casinos.”

Investors weren’t as enthusiastic, however. After the news broke, although possibly not as a result of the announcement, Star’s shares took a $740 million loss in market capitalization. That drop could have also been, and likely were, influenced by the news of the possible investigation into the company’s activities. Last Friday afternoon, Star was trading on the Australia Securities Exchange at AUD$4.27 ($3.14) and, by Tuesday afternoon, local time, it was down to $3.21 ($2.36).