Asia Pacific’s largest lodging trust CapitaLand Ascott Trust (CLAS) is parting with two of its mature Sydney hotels as it focuses on higher yielding properties.
Courtyard by Marriott Sydney-North Ryde and Novotel Sydney Paramatta will be sold to an unrelated third party for a total of AU$109.0 million – about 5% above book value, with net proceeds expected to be AU$98.0 million and net gain equating to AU$14.2 million.
The divestment of Courtyard by Marriott Sydney-North Ryde and Novotel Sydney Paramatta is expected to be completed in Q1 2024 and Q3 2024 respectively.
CapitaLand Ascott Trust Management Limited and CapitaLand Ascott Business Trust Management Pte. Ltd (the Managers of CLAS) Chief Executive Officer, Serena Teo, said the funds that would be required to upgrade both properties will be used to pay down debt.
“The divestment of these two properties outside of central Sydney is part of our active portfolio reconstitution strategy,” Teo said.
“CLAS remains focused on assets that offer better yields and will further uplift the value for our portfolio. 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).
“The exit yield is also at an attractive level that compares favourably against the current cost of borrowing in Australia. We recently divested four mature serviced residences in regional France at an exit yield of about 4%.
“Part of the divestment proceeds will also be used to partially finance our acquisition of three prime lodging assets in London, Dublin and Jakarta at a higher yield of 6.2% further enhancing our returns to Stapled Securityholders.”
After the divestment of these properties, CLAS will have 12 remaining serviced residences and hotels in Australia, in cities such as Brisbane, Melbourne, Perth and Sydney.
Teo said Australia remains “a key market” for CLAS.
“We continue to see strong demand from corporate and leisure guests for our serviced residences and hotels in Australia, boosted by large scale sporting events,” she said.
“Post-divestment, our remaining seven serviced residences and hotels under management contracts will enable us to capture the travel demand while our five serviced residences under master leases will continue to provide us with stable income.”
In 3Q 2023, revenue per available unit (RevPAU) for CLAS’ properties in Australia was 18% higher year-on-year at AU$152, exceeding 3Q 2019 pro forma RevPAU by 13%.
Novotel Sydney Central is one of eight properties in the portfolio set to undergo an extensive renovation. Enhancements will include a brownfield extension to add eight more floors and 72 more rooms, increasing inventory by 28% and gross floor area by 10%.
The property, which was valued at AU$166.5 million as of 31 December 2022, is expected to increase in value by about AU$173.3 million on completion of the project.
According to Colliers valuation, EBITDA is expected to increase by AU$10.1 million on a stabilised basis, with an 11.3% yield on the costs.