Blackstone is betting on a global travel boom with an Australian resort offering

Blackstone Inc. is increasing its stakes in the global travel and leisure market by buying an Australian resort and casino operator for $6.3 billion.

The giant investment firm closed last month after acquiring Crown Resorts Ltd., a company that owns gaming resorts in Perth, Melbourne and Sydney. His business has suffered over the past three years due to the pandemic and Crown's money laundering investigations by Australian financial and casino regulators.

Australia's resorts are slower to recover from the pandemic than resorts in the US. By the summer of 2020, the U.S. market began to show signs of strength as people locked up for months sought refuge on beaches and other open spaces within reach.

Recently, as the number of Covid-19 cases has declined and international air travel has increased, more resorts are benefiting. In May, the average daily fare for resorts worldwide was $212.78, up from $161.82 in May 2019, data from STR showed.

The slower pace of recovery of the Australian market is particularly relevant for resorts in major cities such as Melbourne, which have spent more than 260 days lockdown since the pandemic. Blackstone believes that these markets are now in recovery mode, leading to increased demand at Crown casino resorts.

"There is a collective sense of wanting to go back there," said Chris Head of Blackstone Real Estate Asia.

Blackstone hopes to replicate the success it had by deploying the Cosmopolitan Casino and Hotel on the Las Vegas Strip, the firm's most lucrative single-asset deal to date. He purchased the property in 2014 for about $1.8 billion and spent another $500 million on upgrades. Blackstone sold Cosmopolitan last year in a deal that valued it at $5.65 billion.

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Luxury resorts have been a hot item around the world over the past year. In the U.S., investors are paying near-record prices for luxury resorts in deals like four Seasons in Napa Valley last year, which was valued at more than $2 million for a hotel room key.

While more resort owners are putting their properties up for sale to take advantage of a strong market, the recent stock market sell-off and rising interest rates threaten to undermine investor demand.

"There are concerns about a potential economic downturn," said Kevin Davis, chief executive of JLL's hotels and hospitality division.

In Australia, resort prices are also rising overall, though major cities are lagging behind the rest of the country, according to Matthew Burke, STR's director for the region. Productivity "improves every week that passes," he said. "It gives people a lot of confidence."

Investors began circling around Crown in the spring of 2019 when Wynn Resorts Ltd. applied for the company. Wynn refused that bet. But Blackstone's interest has grown, and the firm acquired about a 10% stake about two years ago.

Blackstone selects the company at a reduced price. The firm acquired its 10% stake for $8.15 per share and has now gone private for about $13.10 per share. "It needs quite a lot of repair work," Mr. Headey said.

Blackstone plans to invest in hotel rooms and improve the quality of its food and beverages, as it did with Cosmopolitan. The firm is trying to remedy regulators by focusing in part more on the mass audience than on the overseas high rollers crown used for the trial.

Investigations by the Western Australian Gambling and Betting Commission and other regulatory bodies found that bank accounts at Crown were used for money laundering and that the company improperly worked with janquette operators to attract high-expense players to Australia. Under the management of Blackstone, Crown will no longer work with such operators, Mr. Headey said.

The launch of Crown Casino Sydney, which has been delayed by more than a year as it has been working on regulatory issues, has received approval from Australia's casino regulators to open soon, Mr Headey said.

Crown still faces other risks. Australia suffers from inflation and labor shortages, which increase costs and limit business expansion plans. Travel for leisure and play is likely to suffer from the recession that some analysts predict.

Hotels can adjust for inflation because they can reset their rates every night, Mr. Headey noted, adding that "our view is that we are buying high-quality assets at a discount to the replacement cost in an opening market."