Singapore’s CapitaLand Ascott Trust (CLAS) is divesting two hotels in Sydney to an unrelated third party for AU$109 million ($70.88 million) as part of its “portfolio reconstitution strategy.” The two hotels are Courtyard by Marriott Sydney-North Ryde and Novotel Sydney Paramatta.
Both located outside of central Sydney, the sales are expected to be completed in Q1 2024 and Q3 2024, respectively.
Since additional capital will be required to upgrade the matured properties, the divestment will help CLAS utilize the proceeds of the sale for other uses but will not be limited to paying down debt and financing other asset enhancement initiatives (AEI), the Singapore-based company said in a release.
According to a media report, the hotels are being acquired by Chinese group Silversea Investment. The transaction was brokered by CBRE.
The hotels will be divested at around 5% higher than the book value. Proceeds of the sale are likely to be AU$98 million ($68.73 million). The exit yield is 4.4%, with CLAS posting a net gain of AU$14.2 million ($9.23 million).
“The exit yield is also at an attractive level that compares favorably 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%,” said Serena Tao, CEO of CLAS and CapitaLand Ascott Business Trust Management Trust Pte. Ltd.
A part of the sale proceeds will also be used to partially finance CLAS’ purchase of three lodging assets in London, Dublin and Jakarta at a higher yield of 6.2%.
“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. 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,” Tao said.
In the third quarter of 2023, RevPAU for the company’s assets in Australia increased 18% YOY to AU$152 ($98.85), surpassing Q3 2019 pro forma RevPAU by 13%.
After selling the two properties, CLAS will have 12 serviced residences and hotels across Australia in locations such as Melbourne, Brisbane, Sydney and Perth.
This includes Novotel Sydney Central, one of the eight properties in CLAS’ AEI pipeline. The hotel is expected to undergo extensive renovations, which will see the brownfield extension add another eight floors and 72 more rooms, representing a 28% jump in the inventory. The hotel’s gross floor area is also set to increase by 10%.
After the renovations, the hotel’s value will improve by around AU$173.3 million ($112.7 million), compared to the latest valuation as of December 31, 2022 of AU$166.5 million ($108.28 million). According to valuation by Colliers, the hotel’s EBITDA will increase by AU$10.1 million ($6.56 million) on a stabilized basis, with an 11.3% yield on AEI cost.