CDL Hospitality Trusts (CDLHT) has been garnering appeal among investors in recent months as a proxy for an expected tourism boom in Singapore from the opening of the integrated resorts.
Now the group is seeking to boost its appeal with another proxy story, exposure to Australia’s resource boom.
The trust has inked a A$175 million (S$221 million) deal to buy a portfolio of five freehold hotels in Brisbane and Perth with a total of 1,139 rooms from Tourism Asset Holdings Ltd (TAHL). This takes the total number of hotel rooms owned by CDLHT to 3,942.
Brisbane and Perth are the capital cities of the resource rich states of Queensland and Western Australia, CDLHT said yesterday. The purchase will be funded entirely through debt.
These properties are leased and managed by international hotel chain Accor Group through long- term lease arrangements expiring in April 2021 under the Novotel, Mercure and Ibis brands.
Accor, which is also a minority investor in seller TAHL, has undertaken to pay CDLHT an annual base rent of A$13.7 million, reflecting a guaranteed yield of 7.8 per cent of the purchase price, as well as a variable rent computed as 10 per cent of net operating profit in excess of base rent, which for the year ended Dec 31, 2009, would be about A$1 million.
The total annual rental of A$14.7 million for FY2009 reflects a net property yield of 8.4 per cent, which is significantly higher than the 5.2 per cent implied property yield of CDLHT’s current portfolio. Had the acquisition taken place on Jan 1, 2009, CDLHT’s income available for distribution (before income retained for working capital) per unit would have been 0.87 of a cent or 9.6 per cent higher last year.
No outgoings are expected of CDLHT including capex funding for the Australian portfolio, except that the trust will have to buy the lessee’s fixed assets at the tax written down value at expiry of the lease.
The transaction is expected to be completed by the end of next month.
The yield-accretive acquisition will also provide geographical diversification to the trust, reducing its dependence on Singapore, where it owns five hotels. The purchase consideration, which works out to about A$153,600 per key, is at a discount of 59 to 66 per cent to the portfolio’s current replacement cost, estimated at A$376,000 to A$449,000 per key.
Vincent Yeo, the CEO of CDLHT’s manager, also highlighted that the total lease rentals for the five Australian hotels would make up only about 61 per cent of their earnings before interest, tax, depreciation and amortisation (after deducting operator fees and provision for furniture fixtures and equipment) last year.
Hence, CDLHT can expect to reap significant earnings reversionary upside once the current leases expire and it gets the full benefit of the portfolio cashflows. However, that will be about 11.3 years away.
CDLHT expects to fund the purchase entirely through debt via a combination of Australian dollar and Singapore dollar debt. The effective A$ borrowings are estimated to be fixed at 50 per cent of the total acquisition cost. The blended cost of the total debt is expected to be just under 4 per cent.
Assuming 100 per cent debt financing, CDLHT’s gearing ratio would rise to about 30 per cent from 19.1 per cent at end-2009.
Jones Lang LaSalle Hotels Australia brokered the transaction through a private off-market tender which closed late last year. ‘There’s practically no new supply of hotels under construction in Brisbane and Perth; and as the economy and hotel market improve, that represents strong growth forces,’ notes JLL Hotels Asia managing director (investments) Mike Batchelor.
‘A combination of very limited land availability in gateway cities and high construction costs has made construction of new hotels prohibitive. That’s why the supply outlook is so flat. And that’s part of the attraction to counter cyclical investors of the Australian hotels market.’
Source : Business Times – 29 Jan 2010
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