Hospitality Property Fund purchases 100% of Radisson Blu Gautrain

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Hospitality Property Fund Limited, the JSE-listed property loan stock company that owns a portfolio of 26 select hotel and leisure properties throughout South Africa announced on 17 April 2013 that it has entered into a revised agreement whereby it is acquiring 100% of the Radisson Blu Gautrain hotel for a total purchase consideration of R443.385 million. The Fund had initially announced an agreement to acquire a 78.2% share of the hotel on 18 December 2012.
The acquisition of Radisson Blu Gautrain is in line with the strategy of the Fund to improve the quality of its property portfolio through the acquisition of large hotel properties in major metropolitan areas with diverse source markets and strong brands. The latest addition to the portfolio location is highly visible, directly across from the Sandton Gautrain Station on Rivonia Road, which is the main transport hub in the Sandton CBD.
 
Radisson Blu Gautrain is made up of various sections of the sectional title scheme known as Sandton Eye and comprises 216 rooms, 8 conference facilities, the Central One Restaurant and Bar, an outdoor bar and swimming pool, as well as a fitness centre. 
Based on its anticipated trading performance and cost of funding, the property is expected to be earnings enhancing for the Fund. The property is projected to yield approximately 8.15% in year one with growth in rental for year two expected to be approximately 15%. This growth is underpinned by a limited rental guarantee from the seller for the first two years of trading following registration of transfer.
The purchase consideration of R443.385 million, will be settled through a combination of linked units and debt:
  • The equity portion, amounting to R275 million, will comprise of a vendor consideration placement of 12 476 139 HPA and 12 476 139 HPB linked units.
  • The remainder will be funded using debt capital raised through the recently launched Domestic Medium-Term Note programme (“DMTN”), comprising of R150 million secured notes and a private placement of R120 million unsecured notes into the market.
 
Commenting on the acquisition, Gerald Nelson, CEO, Hospitality Property Fund stated that: “The Radisson Blu Gautrain acquisition supports our strategy of adding strategically located large hotel properties to our portfolio in order to improve its overall quality. This property is located on one of the busiest arterial routes in the Sandton CBD and we anticipate that it will be earnings enhancing for the Fund from outset. Having completed the acquisition of the Westin Cape Town some two years ago, we have now added two high quality properties with a book value exceeding R1 billion to our portfolio, with long term sustainable benefits for our unit holders.”
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