CapitaLand Ascott Trust divests two hotels in Australia for A$109.0 mil

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CapitaLand Ascott Trust (CLAS) is set to divest two hotels in Sydney, Australia for a total of A$109 million ($95.6 million). The two properties, Courtyard by Marriott Sydney-North Ryde and Novotel Sydney Paramatta will be divested at about 5% above book value and are expected to be completed by 1Q2024 and 3Q2024 respectively.

Post-divestment, CLAS will receive net proceeds of A$98 million and will recognise a net gain of A$14.2 million. This exit yield is 4.4%, based on its FY2022 ebitda.

Serena Teo, CEO of the managers, explains that “the divestment of these two properties outside of central Sydney is part of our active portfolio reconstitution strategy. 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 CLAS to redeploy proceeds into other uses such as paying down debt and funding its other asset enhancement initiatives (AEI). Furthermore, its exit yield is highly attractive when compared to the current cost of borrowing in Australia.

The development is also known for its green environment, with several green spaces spread throughout, as well as its proximity to nature and easy access to public transport. Residents also get to enjoy various amenities, including a fitness centre, swimming pool, clubhouse, and a rooftop communal terrace. With its convenient location, modern facilities, and environmentally friendly features, Tengah Plantation Close EC is an ideal place to come home to in the city.

Commenting on the market, Teo states that Australia remains a key market for CLAS, citing the high demand from both corporate and leisure guests as well as large-scale sporting events. Post-divestment, the trust’s seven serviced residences and hotels under management contracts will capture the travel demand while its five serviced residences under master leases will offer stable income.

In the 3QFY2023 ended Sept 30, revenue per available unit (RevPAU) for CLAS’s properties in Australia rose by 18% y-o-y to A$152. This exceeds CLAS’s 3QFY2019 pro forma RevPAU by 13%.

Divesting these two properties will be beneficial to stapled securityholders as the proceeds can partially fund the acquisition of three prime lodging assets in London, Dublin and Jakarta at a higher yield of 6.2%, further enhancing their returns.

CLAS’s active portfolio reconstitution strategy allows it to maintain focus on assets that offer better yields, thereby continuing to uplift the value for its portfolio. Furthermore, the divestment will enable it to redeploy proceeds to other uses such as debt reduction and AEI, as well as partially finance the acquisition of prime lodging assets in other key markets, providing stapled securityholders with further returns.