CDL Hospitality Trusts sells Brisbane hotel at slight premium, exiting market as challenges loom

4.5-star hotel Novotel Brisbane comprises 296 guest rooms and suites with a gross floor area of 28,049 square metres.
4.5-star hotel Novotel Brisbane comprises 296 guest rooms and suites with a gross floor area of 28,049 square metres.PHOTO: NOVOTELBRISBANE.COM.AU

SINGAPORE (THE BUSINESS TIMES) - CDL Hospitality Trusts (CDLHT) is selling its 4.5-star hotel Novotel Brisbane in Australia for A$67.9 million (S$66.4 million) to an independent third-party buyer, ADFA Brisbane, its managers said on Wednesday (Oct 21).

The sale price is 6.9 per cent higher than the original purchase price of A$63.5 million on Feb 18, 2010, and represents a 0.6 per cent premium to the independent valuation of A$67.5 million as at Aug 31, 2020.

It is also at a 7 per cent discount to the property's book value as at Dec 31, 2019 of A$73 million, which did not take into account the impact of the coronavirus outbreak on the hotel's trading performance and outlook.

After the hotel's master lease expires in April 2021, CDLHT will likely be exposed to the underlying trading conditions, noted Vincent Yeo, chief executive of the stapled group's managers.

"Hence, the divestment is an opportunity for us to exit the market as Brisbane is facing near-term challenges stemming from the Covid-19 pandemic and more hotel supply coming on stream in the coming years," Mr Yeo said.

The divestment "represents a good result" as it strengthens CDLHT's balance sheet while selling an asset amid the current uncertain global tourism environment at a price that is at a slight premium to the independent valuation, he added.

The managers noted that the deal is in line with CDLHT's strategy of evaluating divestment opportunities periodically to recycle capital for better return and greater financial flexibility.

With the essentially fixed rent structure of the property, CDLHT has achieved a recurring rental yield of at least 7.8 per cent per annum during its holding period. This was computed based on fixed rent of A$4.9 million per year and the original purchase price of the property.

CDLHT on Wednesday inked an agreement with the purchaser for the sale, and ADFA will pay a deposit of A$3.5 million on the same day.

The property is operated under the Novotel brand and comprises 296 guest rooms and suites with a gross floor area of 28,049 square metres (301,917 square feet) across 15 levels, situated on a strata volumetric freehold title.

Located in the central business district of Brisbane city, it is within walking distance to the Central Station, Queen Street Mall, Eagle Street Pier and the Howard Smith Wharves precinct.

The hotel has conference facilities for up to 400 delegates, and is popular among multinational corporations, government bodies and leisure guests over major event periods and weekends.

The CDLHT managers plan to use the sale proceeds mainly to repay existing borrowings. Part of the proceeds may also be used to make distributions to stapled securityholders to mitigate the net effect of the divestment on CDLHT's distributable income.

The divestment is expected to complete on Oct 30.

CDLHT stapled securities were trading flat at $1.07 as at 9.33am on Wednesday.