KKR to Acquire Sofitel Sydney Wentworth From Frasers Hospitality Trust for $236M

KKR’s new head of Australia real estate is already having an impact, as the US private equity giant has struck a deal to buy the landmark Sofitel Sydney Wentworth from Frasers Hospitality Trust for A$315 million ($236.7 million).

Singapore-listed FHT announced Friday in a release that it had entered into an agreement to offload the 17-storey, 436-room hotel in downtown Sydney at a 34.3 percent premium to the trust’s purchase price of A$234.55 million and a 12.1 percent premium to the independent valuation of A$281 million made by Savills.

In a LinkedIn post, broker CBRE said it represented FHT in the sale of the hotel to a joint venture made up of two Sydney-based firms, Futuro Capital and Marprop Real Estate Investors, and KKR, whose property team Down Under has been led by former Logos CEO Tom Lee since May.

“The divestment is in line with our active portfolio management strategy to periodically evaluate divestment opportunities to recycle capital for better returns,” said Eu Chin Fen, chief executive of FHT’s managers. “Despite the ongoing COVID-19 pandemic, we have achieved an attractive sale price for the asset.”

Eye-Catching Property

The five-star Sofitel Sydney Wentworth, notable for its sweeping concave facade, sits on freehold land at 61-101 Phillip Street near the Martin Place underground railway station in the heart of the city’s central business district. The hotel trades under Accor Group’s Sofitel brand through a management agreement that expires in 2026. The master lease runs until 2035.

The property spans 33,589 square metres (361,549 square feet) of gross floor area, meaning KKR and its allies are paying roughly A$9,378 ($7,048) per square metre of GFA for their prize.

Private equity major KKR, better known for its record-setting buyouts of large US companies than for its Asia Pacific property investments, announced in March that Lee would be coming aboard to play a critical role in expanding the firm’s real estate strategies across the region.

Most recently the head of Sydney-based industrial developer Logos, Lee’s experience also includes senior roles at BlackRock, MGPA and Lendlease.

KKR has deployed more than $1.5 billion of equity in APAC across 20 real estate transactions since 2011 and has invested or committed more than $7 billion in Australia across asset classes, including real estate, private equity and credit, since 2006.

Michael Simpson, managing director for CBRE Hotels in Australia, said the sale of the Sofitel Sydney Wentworth serves as an excellent gauge of the current interest in institutional-grade hotel opportunities.

“Already this year, circa $1.95 billion (including the Sofitel) in Australian hotel assets have changed hands — the highest sales tally in five years — amid forecasts that the Sydney CBD hotel market will return to 2019 performance levels in three years as lockdowns end and international travel recommences with effect from 1 November,” Simpson told Mingtiandi.

Timing the Market

The sale of Sofitel Sydney Wentworth will unlock the underlying value of the asset at an optimal stage of the property’s life cycle and enhance returns for unit holders, according to FHT, which noted that Australia’s largest city faces rising room supply, particularly in the upscale and luxury segments, just as the market is gradually recovering from the pandemic.

“The transaction will also enhance FHT’s financial flexibility if the net proceeds from the divestment were used to repay outstanding loans,” Eu said. “The enhanced debt headroom post-divestment could help fund future acquisitions when the opportunity arises.”

Eu took over the top spot at the trust’s managers in April after chief executive Colin Low departed to become head of the Singapore Land Authority. She has been with FHT’s sponsor, Frasers Property, controlled by Thai billionaire Charoen Sirivadhanabhakdi, since 2011, after previously serving as senior vice president of the asset-backed securitisation team at Singapore financial titan DBS Bank.

FHT, a stapled group comprising Frasers Hospitality REIT and Frasers Hospitality Business Trust, has a portfolio of 15 assets across APAC and Europe. In Australia, these include the Sofitel Sydney Wentworth, the Novotel Melbourne on Collins and the Novotel Sydney Darling Square.