Frasers pays $237m for Novotel Melbourne on Collins
The Singapore-listed Frasers Hospitality Trust has forged into the Melbourne hotel market with the purchase of the Novotel Melbourne on Collins from US giant LaSalle Investment Management for $237 million.
The sale is the first leg of a play that could see LaSalle, which put the refurbished St Collins Lane fashion and dining precinct on Collins St as well as the Novotel on the market in April, reap about $500 million.
JP Morgan Asset Management is now close to tying up the purchase of the retail component for about $250 million in a second big-ticket purchase in Melbourne, following its acquisition of a Southbank office tower for $286 million last month.
The 380-room hotel and retail development were offered separately or in one line through JLL agents Craig Collins and Simon Rooney.
The Singapore-listed Frasers Hospitality Trust has been circling the Melbourne hotel for some time as part of its plans to grow its $2 billion hotel portfolio. The Australian revealed its interest in the hotel in July as it accelerated plans to expand locally.
Frasers Centrepoint outlaid $201 million for the Sofitel Sydney Wentworth in 2014 and it was put into the group’s specialist hotel fund in a $224 million deal last year. Apart from the Sofitel Sydney Wentworth, Frasers Hospitality Trust owns the Novotel Rockford Darling Harbour and Fraser Suites Sydney.
This transaction will strengthen our balance sheet and increase our financial flexibility, providing a stronger platform for future growth
On the weekend the Frasers fund unveiled a $S266.3 million underwritten renounceable rights issue to fund the purchase of the 4.5-star Melbourne hotel.
Both Frasers and its billionaire backer, Thailand’s Charoen Sirivadhanabhakdi, will subscribe for about 69.7% of the issue in a show of their confidence in the deal.
“This transaction will strengthen our balance sheet and increase our financial flexibility, providing a stronger platform for future growth,” chief executive of the REIT manager, Eu Chin Fen sas.
She adds that buying the hotel enhances the trust’s income diversification and mitigates the yield dilution arising from the rights issue.
French group Accor will continue running the hotel, which Frasers says has the potential to capture higher-yielding business with no major capital expenditure. It is also expected to benefit from the adjoining, newly redeveloped St Collins Lane.
Hotels in Melbourne have experienced rising occupancy, with hotels recording healthy levels of 83.3% in April, and revenue per available room, an industry measure of profitability, rising to $155.45, Frasers says.
The city’s hospitality sector is growing strongly, driven by the completion of Melbourne Airport Terminal 4, the expansion of Melbourne Convention and Exhibition Centre and the development of Federation Square East. The average daily rate of hotel rooms in Melbourne is projected to increase 3% annually for 2016 and 2017, Frasers said.
The LaSalle Asian Opportunity Fund III bought the hotel and Collins Street mall, previously called Australia on Collins, for $204 million five years ago from Thakral Holdings, and undertook a major redevelopment.
In the overhaul of the centre more than 60 retail stores were added, with brands including American handbags group Coach, French fashion label Sandro, and the British fashion brand REISS opening.
– with Lisa Allen
This article originally appeared on www.theaustralian.com.au/property.
