2000-room hotel portfolio on offer in $600m COVID sale

Mirvac and NRMA have just appointed Credit Suisse and hotel broker McVay Real Estate to sell the portfolio of more than 2000 rooms after years of intense negotiations.

The joint decision to sell the entire unlisted portfolio follows the collapse of Mirvac’s plan to sell its interest in the Tucker Box Hotel Group last year.

Mirvac said in a statement on Friday that it had received a number of unsolicited offers for the Tucker Box Hotels Trust and had decided to commence “an off market process for the disposal of 100%”.

“All properties are currently leased and managed by Value Lodging Pty Limited, a subsidiary of Toga Far East Hotels and also have the option for vacant possession upon sale,” Mirvac said.

“Given the expected demand for affordable accommodation and the forecast improvement in domestic travel, both NRMA and Mirvac have elected to commence a process to explore the interest in this portfolio, from both domestic and international investors and operators given the prime locations, weighting toward the attractive Sydney market and scale of the platform.”

Mirvac’s annual report last month revealed the Tucker Box Hotel Group, the joint venture which invests in the hotels across Australia, had been severely affected by the COVID-19 pandemic, with a significant reduction in cash flow and valuations of the hotel investment properties.

But mandatory hotel quarantine contracts with some state governments had offered some reprieve to tide the portfolio over before tourists return once state borders re-open.

By the end of June, 72% of the Tucker Box portfolio was independently valued with adjusted assumptions for the impact of the COVID-19 pandemic. The valuers assumed hotel trading had been significantly impacted by softer tourism and broader economic conditions, with a ban on international tourism and state border closures.

Mirvac’s valuers do not believe room rates will return to normal for at least three to four years.

The value of the properties fell from about $583m to $520m, according to the accounts. They said the COVID-19 pandemic had had a severe impact on occupancy of the hotels and the profit of the venture decreased substantially with operating profit falling from $34m in fiscal 2019 to $20m last year.

At the end of June, the Tucker Box joint venture was in compliance with all borrowing covenants.

“However, based on estimates made at 30 June 2020, it is considered likely that due to the impact of COVID-19, the Tucker Box Hotel Group will breach a lending covenant within the next 12 months,” the accounts said.

But they said the potential breach did not impact any of the group’s banking covenants and it was in talks with lenders. The unitholders of the joint venture have also provided a Letter of Support of up to $1.5m each up to the end of September 2021.

The group owns three Travelodges in the Sydney central business district as well as hotels in the Sydney suburbs of Manly, Macquarie Park, Bankstown and Blacktown. The portfolio is also represented in Newcastle, Melbourne, Brisbane and Perth.

The Tucker Box Hotel Group was set up in March 2005 and ­focuses on the limited-service hotel market in Australia.

Mirvac had the properties in the venture valued at $614m when it had 12 hotels with 2027 rooms before selling the Rockhampton property last year.

The AccorInvest hotel portfolio is also back on the market after its buyer iProsperity Group’s Michael Gu failed to complete the transaction which was shaping as last year’s biggest hotel deal.

JLL’s Peter Harper is selling the portfolio of around 23 hotels which at one stage was worth around $300m and encompassed more than 3000 rooms nationally.

Around 15 of the AccorInvest hotels were acquired from the Abu Dhabi Investment Authority for $200m around four years ago.

– with Ben Wilmot

This article originally appeared on www.theaustralian.com.au/property.