Crown creates $2 billion hotel property trust
Crown has plans to spin off five hotels into a new $2 billion.
This is significant because it create a vehicle offering investors exposure to the strongly performing hotel market.
Five freehold Crown hotels in Perth and Melbourne with just over 2300 rooms, all leased back to the casino operator on long-term deals, would be placed in the proposed new A-REIT.
Based on what’s happening in the market at the moment, the trust could deliver investors a good yield of between 5.6 per cent and 6.5 per cent.
Gearing is expected to be around 30 per cent, giving the trust a net value of $1.4 billion.
Investors would get half of that. Crown plans to hang on to 51 per cent interest in the hotels which means investors will be offered around $700 million of equity.
All this is part of Crown’s plans to spin off its international businesses, including the casino in Macau. The scheme, which has the backing of Crown’s majority shareholder, casino tycoon James Packer, is designed to boost Crown’s flagging share price which has been hampered by the poor earnings coming out of Crown’s Chinese gambling hub.
It’s also part of a world-wide trend.
Crown is in effect following in the footsteps of hotel operators like AccorHotels, Marriott International and Hilton which have hived off their properties into separate investment vehicles. All this is designed to create an "asset-light" model to unlock value in the properties and focus on the operational side of the business.
"It's an eminently sensible idea," leading hotel analyst Dean Dransfield, who heads up consultants Dransfield Hotels and Resorts told the Australian Financial Review. "Separating the operating business from the property assets makes a lot of sense.
"People who invest in operating businesses have a different view on risk profile and growth than those who invest in property," he said "It's nearly always true that investors discount property assets held in other businesses."
by Leon Gettler, June 17th 2016
