Sale of Eastern Suburbs Flagship Hotel Tipped to Continue Strong Market Momentum
Following a veritable raft of significant sales of A-grade Sydney freehold hotels over the past 6 months, including the record setting auction of the Tennyson Hotel in Mascot for $37.05m in December 2016 and sale of the Lidcombe Hotel for $36m reported last week in the AFR; the CEO of listed hotels company Lantern Hotels has announced the sale of the 4 level Crown Hotel in Surry Hills.
Lantern Hotels CEO John Osborne advised that the proposed sale of the Crown Hotel is consistent with the mandate the Board and Management of the Company enjoyed following its AGM in October of 2016; and which provided the Company with the ability to offer assets to the market. Following receipt of shareholder consent to sell down Lantern Hotel’s assets individually or in-one-line, Management of the Company have prosecuted a faultless divestment program which has seen more than 12 hotels sold in seamless succession including most recently The Five Dock Hotel, sold for $28.5m, and the Waterworks in Botany sold for $17.228m.
“Following a detailed review, we first identified the appropriate strategy to maximise shareholder value, and having sought approval of the Company’s stakeholders have both devised and delivered upon a strategic asset sell down program” commented CEO John Osborne. “One which, based upon any fair measure, we are very happy with in terms of the results achieved on behalf of the Company’s shareholders and the timeframe in which the sale program has been conducted” he concluded.
Preferred agents for the sale program, Andrew Jolliffe of Ray White Hotels Australia and Daniel Dragicevich of CBRE believe the market depth for A-grade freehold hotel assets remains strong.
“We’ve been fortunate to be engaged to sell a number of the more significant hospitality transactions over the past 12 months, and without exception, each campaign has been actively pursued by multiple experienced and well credentialled hospitality investors” advised Jolliffe.
“The strategic sequencing of assets has been an important feature of the success of the A-grade hotel sale program over the past 6 months” added Dragicevic.
Kicking off the well timed strategic sale process for the group, Lantern Hotels brought the popular Dolphin Hotel in Surry Hills to market in late 2015; which was quickly snapped up by hospitality impresario and Icebergs owner Maurice Terzini and his business partner significant property investor Deke Miskin; with the hotel now reportedly trading at near capacity most days of the week. The second of the group’s Surry Hills properties and one of only two left in the group, The Crown Hotel on the corner of Cleveland and Crown Sts is a different proposition however; given its scale, prominence and 30 very valuable gaming machines which proudly position the business at #144 in the latest OLGR State based rankings.
“The Crown Hotel enjoys considerable visual prominence given its corner position opposite the Coles anchored Surry Hills shopping centre and planned high density residential development of some 250 dwellings; as well as a seriously robust trading platform given the multiple revenue generation centres including gaming, accommodation and bars” said Jolliffe.
“Importantly, the hotel is situated outside Sydney’s Lock-Out area; and in addition, holds a valuable 24hr liquor licence with an even rarer feature of the licence being a minimal 3hr daily shut down period for the powerful gaming room” commented Dragicevich.
“The hotel’s proximity to the fast approaching light rail system and walking distance from the Moore Park Sports complex is another feature underwriting future revenue opportunities” he added.
Speaking to the considerable transaction activity of the past 12 months, Asia Pacific Director of Hotels Andrew Jolliffe is confident of a continuation of the positive theme. “In terms of transaction trends, the key market indicator we view as continuing is yield contraction for A-Grade freehold hotel assets. We participated in numerous transactions during the back half of 2016 at yields averaging 8.5% for hospitality properties of this nature, and subject to the continued availability of well-priced senior debt, we can see an argument for a further 50 to 100 basis point yield contraction for irreplaceable freehold assets” Jolliffe advised.
“Petrol prices at the pump sub $1.50 per litre, the $AUD sub 75 US cents per dollar, senior debt priced at/or below 4.5% including margin and industry indexed consumer spending at existing levels all suggests to us some continuity and reliability around the current internal and external investor sentiment regarding the asset class. Fundamentally, the majority of assets are underpinned by property, gaming inventory or both; and whilst-ever high level market receptors such as those referred to above maintain a tight band width regarding recent trends, we are confident astute investors and operators will assess the opportunity as, if not more positively, than has been the case over the past 24 months” proffered Jolliffe.
Like multiple other successful Lantern Hotels sales, the Crown Hotel is being marketed for sale via an international EOI program concluding 15 February 2017, if, like numerous other Lantern Hotels properties, the asset isn’t sold beforehand.
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