Crown board backs smaller hotel A-REIT
James Packer’s Crown Resorts has taken a knife to its planned hotel REIT after pulling the soon-to-open $645 million Crown Towers Perth Hotel from the proposed listed vehicle.
The hotel trust – initially proposed in June – was endorsed on Thursday by the Crown Resorts Board ahead of its AGM in Perth, but will not include the new luxury 500-room Perth hotel at Crown Perth scheduled to open in December.
Instead the property trust will hold only four hotels: the Crown Promenade hotels in Melbourne and Perth and the Crown Metropol hotels in Melbourne and Perth. Also excluded as per the original announcement is Crown’s flagship Crown Towers Melbourne.
This potentially reduces the value of the listed portfolio from about $2 billion to less than $1.4 billion and could reduce the size of the float from about $700 million to less than $500 million, based on gearing of 30 per cent and Crown retaining a 51 per cent interest. It also cuts the number of hotel rooms in the portfolio from more than 2300 to 1805.
The exclusion of Crown Towers Perth was not noted in Thursday’s update. However, Crown chairman Robert Rankin was forced to address the issue following a question at the AGM from shareholder Barry Wilson.
“It’s a good point,” Mr Rankin conceded, before explaining that the hotel had been excluded for the same reason that Crown Towers Melbourne was not included because of the significant gaming facilities in the hotel, which meant gaming and other regulatory issues were involved.
“Crown Towers Perth will also have gaming facilities,” he said. Mr Rankin added that another factor was that the other hotels all had a track record and profit data that people can look at, while Crown Perth had neither.
While it will still be a strongly performing portfolio with occupancy above 90 per cent and an average daily room rate of about $250 a night, the decision to exclude the two flagship casino hotels may impact on its appeal to investors, whose appetite for property trusts appears to be waning, following the collapse of the $1.1 billion Charter Hall Long WALE REIT float.
The arrest of 18 Crown staff in China may also play on investors’ minds as may the growing threat posed by accommodation portal Airbnb to the hotel sector generally.
Deutsche Bank, Morgan Stanley and UBS are running the IPO effort with no details yet released about the timing of float.
A source close to the deal said “no one was ignoring” the recent Charter Hall failure or the problems in China. But they highlighted also the recent $1.5 billion float of petrol station site owner Viva Energy REIT, which had been well supported by the broader market.
Folkestone fund manager Winston Sammutt said a Crown Resorts A-REIT would likely have “better appeal” to investors than the Charter Hall REIT because more investors might want to get into the hotel sector.
But, he said, investors appeared to be a bit more wary and more discerning, which could make it harder for Crown to get its float up. “The overriding factor will be the yield,” he said.
