Australian hotel investment off to flying start.
Wednesday, 20th June 2007
Source : Jones Lang LaSalle Hotels
Hotel investment activity in Australia has increased by 69% during the first six months of 2007, when compared to the same period last year. 

Research indicates that hotel transactions worth $682 million have taken place to date this year, compared with $404 million last year. 

Several large deals are currently under negotiation around Australia however hotel owners are also enjoying some of the best trading conditions experienced, with many eager to hold on to their assets.  "Satisfying the strong investor demand for quality hotels, nationally, is proving a challenge due to a lack of major hotel stock available for sale," said Mr Mike Batchelor, Executive Vice President, Jones Lang LaSalle Hotels.

The full year result in Australia is however expected to fall short of the $1.2 billion recorded during 2006.  The 2006 total was boosted by large-scale transactions in the second half of the year – notably the Four Seasons Hotel Sydney and Carlton Hotel Group Portfolio both brokered by Jones Lang LaSalle Hotels which together totalled approximately $550 million.

Transaction volume during the first half of 2007 has been boosted by the sale of several large single assets including Swissôtel Sydney, The Avillion Hotel Sydney and more recently the sale of the Hotel Grand Chancellor Perth and Oasis Resort in Cairns.  

"Domestic players have bought 92% of the hotels sold this year whereas they have only accounted for 46% of transaction volume as sellers," said Mr Batchelor.  He added, "The remaining 54% can be attributed to the continued sell-down by Asian investors capitalising on the strong Australian dollar."  Domestic investment funds continue to amass hotel assets, acquiring 33% of transacted volume in the first half of the year.

Hotels have been bought for an average of $212,660 per room.  "Whilst this figure is inflated by the sale of the Swiss Grand Bondi for $135 million which included retail and development potential, it demonstrates the increasing value investors place on hotels," said Mr Batchelor.

Indicative of the ongoing positive outlook for hotels, the average initial yield remains at around 7.0%.

Looking to rest of the year, Mr Batchelor believes demand for well-located assets will come from Australia, Asia and United States.  "Investors continue to scour the globe for opportunities, but Asia is a focal point for many and we expect total volume forecast to hit $8 billion for the Asia Pacific region," said Mr Batchelor.  Where Australia has previously provided the lion's share of activity in this region, the recovery of the World's second largest economy – Japan – is expected to post the regional high in 2007 boosted by the US$2.3 billion ANA deal.

YTD 2007 Highlights - Major Hotel Sales

  • MFS Limited's newly acquired subsidiary Sunleisure Operations Pty Ltd sold the Oasis Resort in Cairns to a US based real estate investment fund (Broadreach).
  • The Singapore based owners of the 272 room four star Hotel Grand Chancellor Perth divested the asset for $52 million to Property Funds Australia Limited (PFA), the responsible entity of the PFA Diversified Property Trust.
  • Abacus Property Group exchanged contracts to acquire the first-class international standard Swissôtel Sydney for $85 million off its US-based owners Fairmont Raffles Holdings International. 
  • The Avillion Hotel was purchased by the Schwartz Family for $115 million and re-branded as Rydges Hotel Sydney.
  • Ascott Residence Trust completed the acquisition of the Shoan Heights Apartment freehold and business for a consideration of $11.6 million.
  • A private Singaporean investor settled his acquisition of the freehold investment of base St Kilda for $11.75 million.
Total transaction volume figures for 2007 YTD do not include the GHG management buyout completed earlier this year which valued the seven hotels at around $500 million, nor does it include the $1 billion investment in Stella Resorts Group expected to complete later this year.  "However both deals add weight to the current strength of investor interest in the hotel sector at present," said Mr Batchelor.

"The combination of the strong investor demand, lack of new supply in most markets and availability of debt capital should see 2007 exceed $1 billion in hotel sales for the fourth consecutive year," said Mr Batchelor.

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