The Abu Dhabi Investment Authority, the Middle East’s largest sovereign wealth fund, is "shaking up" its $1 billion portfolio in Australia and entering talks with AccorHotels to restructure its holdings. The move, sources say, could see some hotels and resorts sold off and others redeveloped.
Three years ago, ADIA acquired Australia's biggest hotel group, Tourism Asset Holdings (TAHL) in the country’s largest hotel purchase three years ago, paying about $800 million for 31 hotels under AccorHotels' Pullman, Novotel, Mercure and ibis brands. At the time of the deal, 29 of the properties were leased while two were managed by Accor Asia Pacific on a long-term basis.
Thanks to a major increase in visitor numbers to Australia, the company is poised for significant gains, and is looking to take advantage of optimal trading conditions. AccorHotels maintains long-term leases on the portfolio, but ADIA could break those leases to upgrade the hotels or put them to other uses, such as residential real estate. Some non-core properties could also be vacated by the hotelier, making them more attractive to potential buyers who assign a higher value to properties available without an operator in place.
The deal will probably see the landlord, ADIA, pay AccorHotels to break the leases as many of the hotels are outperforming in their markets and are considered "under-rented" in the face of rising rates.
The restructure effectively breaks up longer-term financing structures set up about 14 years ago when TAHL was taken over by private investment bank Babcock & Brown, corporate raider Guinness Peat Group, as well as interests associated with Melbourne businessman Boris Liberman and Accor.
Analysts told the Australian that the landlord would rather "benefit from reaping a higher income and having greater flexibility than from receiving a guaranteed but capped fixed long-term income stream from a well-rated corporate name"—like the Paris-based AccorHotels. "The primary focus is on unlocking the value by resetting the leases."
The deal is being kept internal and it is unlikely that external capital would be bought into the portfolio.
ADIA’s Australian hotel empire covers about 4,096 rooms, ahead of Meriton’s serviced apartment empire with 3,621 rooms, and hotel tycoon Jerry Schwartz with 2,781 rooms, according to JLL. Major ADIA properties include Novotel and Ibis Darling Harbour in central Sydney, Novotel and Ibis at Sydney Olympic Park, and Novotel Canberra.
Before ADIA bought the portfolio, the consortium that owned it previously had sold off about 18 properties, which left it with a weighting to strongly performing eastern seaboard cities.