Folkestone has launched a new fund that will help to acquire a hotel asset within the $13 billion, 278 hectare Green Square Urban Regeneration Area.
Through the Folkestone Green Square Hotel Fund, Folkestone will look to raise $23.2 million, together with borrowings of $21.75 million, in order to acquire a 144-room hotel to be constructed at 18 O’Riordan Street, Alexandria, New South Wales.
The fund has agreed to acquire the hotel for $43.5 million on a fund-through basis from the developer, GS Hotel Development Pty Ltd, a joint venture between Folkestone Limited and Furnished Property, an associated party of Veriu Hotels & Suites.
[Related reading: Mercure Sydney International Airport Hotel Changes Hands]Having already acquired the land for $9.4 million, Folkestone's fund will pay the developer $34.1 million when they finish with the construction of the hotel, while Veriu Hotels & Suites have signed an agreement for lease to operate the hotel for 10 years.
Folkestone managing director Greg Paramor said this was Folkestone’s second hotel investment opportunity following the successful acquisition of the Mercure Sydney International Airport Hotel by the Folkestone Sydney Airport Hotel Fund.
"The Sydney hotel market is experiencing strong trading conditions and we believe the outlook is positive.
"Inbound and domestic tourism is expected to continue to grow, buoyed by the opening of the International Convention Centre, a lower Australian dollar and Sydney continuing to rate as a major tourism destination,” Paramor said.
[Related reading: Folkestone Set To Acquire Second Asset At Sydney Olympic Park]The hotel is expected to open for trade in July 2019.
The forecast annualised distribution yield to unit-holders is 7.0 per cent in 2018 and 2019. The fund’s forecast return on equity is 82.3 per cent with an IRR of 12.6 per cent per annum over the life of the fund.
“We expect strong interest in the fund’s capital raising from our investor base given the attractive forecast returns and the fact the Folkestone Sydney Airport Hotel Fund, which raised $50 million last week, was significantly oversubscribed," Paramor said.