Folkestone’s real estate funds management subsidiary, Folkestone Funds Management has acquired the Mercure Sydney International Airport Hotel in a deal worth $74.6 million.
The 271 room hotel, operated by the Accor Group under their Mercure brand, is located approximately one kilometre from the Sydney Airport International Terminal, three kilometres from the Sydney Airport Domestic Terminal and nine kilometres from the Sydney CBD.
Folkestone plans to undertake an extensive refurbishment and repositioning of the hotel to drive revenue and occupancy.
Planned works include refurbishment of function areas, guest rooms, and the ground level bar and restaurant.
The works will also include improvements to the hotel’s façade and external features to enhance its appearance, and an upgrade of plant and equipment to improve operational efficiency.
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“We are delighted to be able to secure a quality hotel opportunity in Sydney and in close proximity to the Sydney International Airport precinct, which we can renovate and reposition.
Folkestone’s managing director Greg Paramor said that the Sydney hotel market remains strong, driven by tourism, growing corporate travel and a “buoyant conference and exhibitions market”.
“We believe there continues to be strong demand from investors for quality hotel investments in Sydney.”
To assist with the acquisition of the hotel, the fund has secured underwriting commitments totalling $31.9 million, $15 million of which will be provided by Folkestone, which is consistent with Folkestone’s strategy to utilise its balance sheet to secure attractive investment opportunities for its funds management platform.
The fund has also secured a $49.4 million debt facility from a major Australian bank which will provide the balance of funds required to acquire the hotel and is inclusive of a $15 million short term debt facility whilst Folkestone Funds Management completes fund raising activities.
Folkestone will be seeking to raise $50 million for the offer. Folkestone is forecasting an equity IRR of 14.4 per cent per annum (post fees, pre-tax) over the life of the fund, and a 7 per cent annualised yield following the refurbishment, which will be undertaken in 2018.
“We expect strong interest in the fund’s capital raising from our investor base given the attractive forecast returns,” Paramor said.
The hotel is expected to settle mid-November 2017.
Image source: Mercure