Frasers Centrepoint in A$464m sale, leaseback of Sydney hotel

Singapore

MAINBOARD-LISTED Frasers Centrepoint Limited (FCL) has announced its proposed A$464 million (S$488 million) sale-and-leaseback arrangement of Sofitel Sydney Wentworth, the iconic heritage-listed hotel in Sydney, Australia.

Frasers Sydney Wentworth Trust, an indirect wholly owned trust of FCL, will grant a 75-year leasehold interest in the 436-room hotel to FHT Sydney Trust 3, an Australian sub-trust wholly owned by Frasers Hospitality Real Estate Investment Trust (FH-Reit), for A$224 million, which will be funded by a combination of equity and debt financing.

Upon the expiry of FH-Reit's leasehold interest, the title to the hotel will revert back to the FCL Group.

The initial term of the master lease is for 20 years. It comes with an option to renew for a further 20 years. A fixed rent of A$6.0 million per annum is payable, plus a variable component.

"The proceeds will allow the FCL Group to reduce its borrowings and gearing. Based on the proforma financial effects of the proposed sale and leaseback arrangement, assuming this has taken place on 30 September 2014, the gearing of the FCL Group is estimated to decrease from 95 per cent to 91 per cent," FCL said.

It added that the arrangement would strengthen the FCL Group's balance sheet and provide additional debt capacity for future growth. FCL also said the arrangement is in line with its strategy to optimise capital productivity through its Reit platforms.

"FCL believes that FHT serves as an efficient platform for holding hospitality properties which FCL may divest, subject to mutual agreement and necessary approvals. Such disposals have the potential to realise the capital appreciation in such properties."

On Monday, Frasers Hospitality Trust (FHT), comprising FH-Reit and Frasers Hospitality Business Trust, said this is its first acquisition since its initial public offering last July. It is also FHT's third hospitality asset in Sydney.

FHT said the proposed acquisition is expected to be yield accretive to the distribution per stapled security of FHT.

Following the proposed acquisition, Australian assets will comprise 22.4 per cent by valuation of FHT's property portfolio. This reduces reliance of its income stream on any single asset within its existing portfolio and also allows for a more balanced enlarged portfolio that is better spread across the regions, it said.

FHT's existing portfolio of about S$1.66 billion will swell to an estimated S$1.9 billion after the proposed acquisition.

Eu Chin Fen, chief executive officer of FH-Reit's manager, said: "Sydney was one of the strongest performing hospitality markets in Australia in 2014 and outlook remains positive in 2015. The acquisition of Sofitel Sydney Wentworth is a rare opportunity to acquire a prime asset in a tightly held market."

She added that the addition of Sofitel Sydney Wentworth complements the existing Fraser Suites Sydney and the Novotel Rockford Darling Harbour.

"All three properties are located in strategic catchment areas in Sydney and enable us to benefit from the strong hospitality market in Sydney going forward," said Ms Eu.

Shares of FCL slid half a Singapore cent to S$1.83 while FHT's counter remained unchanged at 87.5 Singapore cents, after the announcements were made before markets opened.