Folkestone Limited (ASX: FLK) Eyes Acquisition of Mercure Sydney Hotel for $76.4 Million

KEY TAKEAWAYS:

• Folkestone Funds Management Limited to acquire Mercure Sydney International Airport Hotel for $76.4 million.
• The Folkestone Sydney Airport Hotel Fund needs $31.9 million for the acquisition of the hotel. Folkestone has committed to underwrite $15 million of this.
• Folkestone eyes a 14.4% equity IRR per annum throughout the life of the Fund after the refurbishment is completed.

Folkestone Funds Management Limited (FFM), a real estate funds management subsidiary of Folkstone’s, is eyeing the acquisition of Mercure Sydney International Airport Hotel through the Folkestone Sydney Airport Hotel Fund.

“We are delighted to be able to secure a quality hotel opportunity in Sydney and near the Sydney International Airport precinct, which we can renovate and reposition. The Sydney hotel market remains strong, driven by both domestic and inbound tourism, growing corporate travel and a buoyant conference and exhibitions market which has been enhanced following the opening of Sydney’s new International Convention Centre. We believe there continues to be strong demand from investors for quality hotel investments in Sydney,” Folkestone Managing Director Greg Paramor said.

Folkestone seeks to raise $50 million through an Offer which will start during the third week of October 2017. It has committed to underwrite $15 million to contribute to the $31.9 million funding requirement of the Folkestone Sydney Airport Hotel Fund for the hotel’s acquisition. The company is known for investing in attractive opportunities such as this to fund the management platform. The Fund has also secured a debt facility worth $49.4 million from a major Australian Bank to provide the funding required for the hotel’s acquisition.

Folkestone plans to refurbish the 271-room hotel to boost its occupancy rate and revenues. The hotel, which is being operated under the Mercure brand of the Accor Group, caters to a diverse market including airline crews, corporate and leisure clients from local and overseas. It is strategically located near the Sydney Airport International Terminal and the Sydney Airport Domestic Terminal and is nine kilometres from the Sydney CBD.

Aside from improving the hotel’s facade and external features, Folkstone also plans to refurbish the guest rooms, function and conference rooms, bar and restaurant at the ground floor. There is also need to upgrade its plant and equipment to improve the efficiency of operations.

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