KKR snaps up Sofitel Sydney Wentworth Hotel for $315 million

Private equity giant Kohlberg Kravis Roberts (KKR) has snapped up the Sofitel Sydney Wentworth hotel, the favoured haunt for the Liberal Party on election nights, for $315 million at a time when the beleaguered tourism sector is set for a revival.

It was sold by the Singapore-based Frasers Hospitality Trust (FHT) which had been looking for a buyer last year but took it off the market after receiving what it said were low offer prices.

Operated by Accor Hotels, the well-known five-star heritage-listed hotel sits in the heart of Sydney’s financial district and has been used for the past year as a quarantine hotel. There are 436 guest rooms and suites over a gross floor area of 33,589 square metres spread over 17 floors.

Sydney’s first ever five-star hotel: the Sofitel Wentworth has been sold for $315 million.Credit:Brook Mitchell

During the pandemic, occupancy rates at hotels slumped to under 10 per cent and many smaller operators were forced to close. However, with restrictions easing and a high vaccination rate, the sector is preparing for a resurgence in demand.

The off-market sale advised by CBRE was at a 12.1 per cent premium to the independent valuation of $281.0 million as at September 30 on a freehold basis.

In a release to the Singapore Stock Exchange, late on Friday Eu Chin Fen, chief executive of FHT Trust, said the divestment was in line with its active portfolio management strategy to periodically evaluate divestment opportunities to recycle capital for better returns.

She said despite the ongoing COVID-19 pandemic, FHT had achieved an attractive sale price for the asset. “Our title restructuring has enabled the unlocking of a value greater than if Sofitel Sydney Wentworth had been sold as a leasehold property,” she said.

“By doing so, we are unlocking the underlying value of Sofitel Sydney Wentworth at an optimal stage of the property’s life cycle and enhancing returns for our stapled security holders.”

She said Sydney was expected to be facing a significant increase in room supply, particularly in the upscale and luxury segments which will be direct competition for the property just as the market is gradually recovering from the COVID-19 pandemic.

Against the backdrop of the global pandemic which caused the closure of domestic and international borders, demand for hotel assets has remained strong, according to agents.

CBRE’s latest report on the sector said despite the COVID-19 challenges, transaction activity has remained buoyant with more than $1 billion sales for the year to date, characterised by firm yields, unsatisfied capital and a scarcity of quality purchase opportunities.

Michael Simpson, managing director, capital markets at CBRE said combined with a very successful vaccine rollout, it augurs well for improved conditions as the lockdowns and travel restrictions are progressively wound back.

“We expect that domestic leisure will return to key city destinations to experience new hotel inventory in many of our key markets and that investment activity will continue to gather pace,” he said.

The sale also augurs well for the other hotels currently up for sale, including the Rydges in North Sydney and at Sydney airport.

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