Singapore’s CapitaLand Ascott Trust Selling Pair of Sydney Hotels for $71M

CapitaLand Ascott Trust has agreed to sell two Sydney hotels for A$109 million ($71 million), as part of what the trust’s manager describes as a portfolio restructuring effort, following its September deal to sell four French assets.

Located outside of the city centre, Novotel Sydney Parramatta and Courtyard by Marriott Sydney-North Ryde will be sold at 5 percent above book value, the REIT’s manager said in a statement to the Singapore stock exchange, which referred to the hotels as “mature” and in need of fixing up.

“As additional capital will be required to upgrade these two mature properties, the divestment will enable us to redeploy the proceeds into more optimal uses such as but not limited to paying down debt and funding our other asset enhancement initiatives (AEI),” said Serena.

Michael Simpson, a managing director at CBRE Hotels in Sydney, which advised on the transaction, described the buyer as a long term owner of hotels in Australia which previously acquired the Holiday Inn Sydney Airport, the Mercure Parramatta and the Royal Pacific Hotel Sydney. An account in The Australian described that company as Silversea Investments, a local firm controlled by Chinese investors Frank and Wade Huang.

Tuning Up the Portfolio

The divestments of the Sydney hotels are expected to generate net proceeds of A$98 million, with the sale to be completed by the third quarter next year. Ascott Trust will achieve a net gain of A$14.2 million from the transaction and is selling the properties at a combined exit yield of 4.4 percent based on the trust’s 2022 financials, according to the statement on Monday.

According to the REIT’s website, a December 2022 valuation by Colliers appraised the 196-room North Ryde and 194-room Parramatta at S$49.8 million and S$44.1 million, respectively.

In September, the trust divested four French apartment assets to an unrelated third party for €44.4 million, which represented a 63 percent premium over the properties’ book value, to book a net gain of €1.2 million.

The two sets of asset sales will finance upgrades of the trust’s other properties and fund its portfolio diversification, including its $393 million August acquisition of three lodging assets in London, Dublin, and Jakarta in a deal expected to be completed by the end of the year, according to Serena Teo, chief executive officer of CapitaLand Ascott Trust Management.

“The divestment of these two properties outside of central Sydney is part of our active portfolio reconstitution strategy. Ascott Trust remains focused on assets that offer better yields and will further uplift the value for our portfolio,” Teo said

Ascott Trust reported in its third quarter results that the trust saw gross profit expand by 23 percent in the first nine months of the year when compared to the same period in 2022. The trust’s revenue per available unit (RevPAU) also climbed to S$154 in the third quarter, surpassing pre-covid levels.

Brokered by CBRE, the transaction marks the latest addition to the portfolio of Silversea Investments, a firm owned by Chinese-born Wade and Frank Huang.

The family-owned entity has three other hotels in Australia, including the 250-room Holiday Inn at Sydney Airport which was purchased for A$53 million in 2014 from local hotelier Jerry Schwartz. The mainland investors also purchased the four-star 165-room Mercure Parramatta in 2016 for A$40 million.

Paying Down Debt

Along with funding its August acquisitions and upgrading existing assets, Ascott Trust is also using proceeds of the asset sales to pay down debt after the REIT lowered its gearing ratio from 38.6 percent in June to 35.2 percent in September, allowing for a debt headroom of around S$2.3 billion.

Despite that debt reduction, during the first half of 2023 Ascott Trust saw its finance costs jump 26 percent to S$37.8 million from S$27.9 million in the same period last year, according to its first half financials.

As the sales of the North Ryde and Parramatta hotels reach completion next year, the trust will also need to refinance S$496 million worth of loans, accounting for 18 percent of their total debt.

Ascott Trust describes itself as the largest lodging trust in Asia Pacific, with Australian real estate accounting for 14 of the 103 assets in its S$8.1 billion portfolio, prior to divestment of the two Sydney hotels.