Star Entertainment Considers Sale-Leaseback Deal

Media reports suggest Star Entertainment is discussing a potential sale-leaseback deal with Blackstone Group in relation to Star Sydney.

Changes are afoot in the Australian casino sector with Star Entertainment considering a sale-leaseback deal. Star CEO Harry Theodore told The Australian a sale-leaseback deal will unlock value from the company’s assets. Theodore hinted Star is willing to negotiate more than a leaseback deal.

Star is currently worth approximately $2.265 billion. It was worth over a billion more, but recently revelations saw the share price plummet. Media reports claim Star facilitated money laundering and gambling by known criminals at its Sydney property. Star, of course, denies any wrongdoing, but investors dumped shares like a hot potato following the news.

Crown Resorts‘ reputation was forever tarnished by similar reports. The media investigation led to the suspension of Crown’s Sydney licence and could ultimately see Crown unable to operate a casino anywhere in Australia.

What Is A Leaseback Deal?

A leaseback deal is exactly what it sounds like. A company buys another then rents it back to the original owners. Leaseback deals are common in the casino and hotel world. Blackstone Group bought the iconic Bellagio, Las Vegas, from MGM Resorts for US$4.25 billion. MGM Resorts continues operating Bellagio while paying Blackstone US$245 million annual rent. The deal gave MGM a five per cent stake in the joint venture.

This system works particularly well for both parties. The selling party realises some value of its costly assets while raising large sums of money. The buying party acquires a new business and uses the selling company’s expertise to continue the running of that business. It benefits from a percentage of the profits the business makes.

Blackstone Favourites For Star Deal

Blackstone Group, mentioned above, is the hot favourites for the leaseback deal should it go ahead. Blackstone’s investment in Star Sydney would see it own 51% of the property. This majority holding gives it control over business decisions.

Star enlisted the services of Credit Suisse to find potential suitors for a leaseback deal. Blackstone is the only confirmed interested party.

Blackstone wanted a full takeover of Star’s main rival, Crown Resorts. It already owns 10 per cent of Crown, having purchased the stock from Lawrence Ho. The American investment company offered $8.02 billion for all Crown shares, which valued them at $11.85 each. Crown rejected the offer, stating it undervalued the company. Blackstone did not put in a revised offer. However, it is still keen to get a foothold in Australia; this could be its best chance.

Controversy Benefits Blackstone

Ongoing controversy surrounding Star Entertainment benefits Blackstone because the price it pays per share is less for the sale-leaseback. Star’s share recovered slightly from the news earlier this week, but still trade for more than 20 percent less than a week ago.

More Star-related negativity hit the Australian press on October 13. It threatens to further lower the share price. The Herald reports Star’s Mark Walker, the senior vice president of VIP gaming at Star Sydney, has a long-standing relationship with the disgraced Michael Gu.

Gu fled Australia when his property company, iProsperity, collapsed last year, owing $245 million to investors. Gu lived a lavish lifestyle complete with a fleet of supercars, traveled by private yet, and drank $3,000 bottles of wine.

Initial reports suggested Gu gambling frivolously at Crown Resorts and is thought to have misappropriated $21 million of company funds for his own use. $8 million of that was wired to Crown’s Melbourne property.

Gu knew Walker from Walker’s time at Crown. However, Gu and his associate, Harry Huang, began gambling at Star when Walker moved there. They wagered several million dollars between 2018 and 2020, wagers bearing the hallmarks of money laundering.

The disgraced businessman offer Walker a job, which he turned down. This is according to several sources The Herald refuses to name.