is ramping up its bet on the global travel and leisure market with a $6.3 billion purchase of an Australian resort and casino operator.
The giant investment firm closed last month on its acquisition of Crown Resorts Ltd., a company that owns gaming resorts in Perth, Melbourne and Sydney. Its business has suffered over the past three years due to the pandemic and money laundering investigations into
by Australian financial and casino regulators.
Australia’s resorts have been slower to recover from the pandemic than those in the U.S. By the summer of 2020, the U.S. market started showing signs of strength as people cooped up for months sought the refuge of beaches and other open spaces within driving distance.
More recently, as Covid-19 cases have fallen and international air travel has increased, more resorts are benefiting. In May, the average daily rate for resorts globally was $212.78, compared with $161.82 in May of 2019, according to data firm STR.
The slower recovery speed of the Australian market is particularly true for resorts in larger cities like Melbourne, which spent over 260 days in lockdown since the pandemic hit. Blackstone believes those markets are now in a recovery mode, resulting in higher demand at Crown’s casino resorts.
“There’s a collective sense of wanting-to-get back out there,” said Chris Heady, Blackstone’s head of Real Estate Asia.
Blackstone is hoping to repeat the success it had turning around the
casino and hotel on the Las Vegas Strip, the firm’s most profitable single asset deal to date. It purchased the property in 2014 for about $1.8 billion and spent another $500 million on upgrades. Blackstone sold the Cosmopolitan last year in a deal that valued it at $5.65 billion.
Luxury resorts have been a hot item globally over the past year. In the U.S., investors have been paying near record prices for luxury resorts in deals like the Four Seasons in Napa Valley last year, which was valued at more than $2 million per hotel room key.
While more resort owners have been listing their properties for sale to take advantage of a strong market, the recent stock-market selloff and rising interest rates threaten to undercut investor demand.
“There’s concern about a potential economic slowdown,” said Kevin Davis, chief executive of
hotels and hospitality division.
In Australia, resort rates are also up overall, though the big cities have been lagging behind the rest of the country, according to Matthew Burke, STR’s director for that region. Performance is “improving each week that passes,” he said. “That gives people a lot of confidence.”
Investors began circling Crown in the spring of 2019 when
Wynn Resorts Ltd.
bid for the company. Wynn dropped that bid. But Blackstone’s interest grew, with the firm acquiring close to a 10% stake about two years ago.
Blackstone is picking the company up at a discounted price. The firm purchased its 10% stake for $8.15 a share and now has taken it private for about $13.10 a share. “It is in need of a pretty big fixup job,” Mr. Heady said.
Blackstone plans to invest in the hotel’s rooms and improve the quality of its food and beverage offerings, as it did with the Cosmopolitan. The firm has been trying to make things right with regulators partly by focusing more on a mass audience than the high rollers from overseas that Crown used to court.
Investigations by the Western Australia Gaming and Wagering Commission and other regulators found that bank accounts at Crown were used to launder money and that the company improperly worked with junket operators to bring high-spending gamblers to Australia. Under Blackstone’s ownership, Crown will no longer work with such operators, Mr. Heady said.
Crown’s Sydney casino launch, which has been delayed for more than a year as it worked through regulatory issues, has been given permission by Australia’s casino regulators to open imminently, Mr. Heady said.
Crown still faces other risks. Australia is suffering inflation and labor shortages that are driving up costs and limiting businesses’ expansion plans. Leisure travel and gaming would likely be hurt by the recession some analysts are predicting.
Hotels can adjust for inflation because they can reset their rates nightly, Mr. Heady noted, adding “our view is we’re buying high-quality assets at a discount to replacement cost in a market that’s opening.”
Write to Peter Grant at [email protected]
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