CDL Hospitality Trust acquires Pullman Hotel Munich for EUR99 million

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Singapore-listed CDL Hospitality Trust is acquiring Pullman Hotel Munich, and its office and retail components, for EUR98.9 million (USD110 million).

The four-star hotel, which sits on two freehold land plots located in Munich, Germany, consists predominantly of a purpose-built hotel and secondary spaces currently let out to four retail, and seven office tenants.

The property, which features 337 guest rooms, opened in 1986 but underwent refurbishment between 2012 and 2016.

The acquisition is expected to be accretive, with a projected net property income yield of 5.6% for FY 2016, said the trust.

Once inducted into its portfolio, Pullman Hotel Munich will be leased based on a management lease agreement for 20 years commencing from the date that the acquisition is completed.

The lease structure provides rental income at about 90% of net operating profit of the hotel, subject to a guaranteed fixed rent of EUR3.6 million.

“Munich is a compelling destination for our first acquisition in continental Europe, allowing [CDL Hospitality Trust] to benefit from a potential economic recovery in the region through exposure to the largest economy in Europe”, said Vincent Yeo, CEO of the trust’s managers, in a statement on the acquisition.

The acquisition will be fully funded by debt financing, but in order to realign its capital structure, CDL Hospitality Trust has launched a rights issue exercise to raise SGD255.4 million.

20 rights units are being offered for every 100 existing unit in CDL Hospitality Trust for the exercise.

“This is expected to enhance [CDL Hospitality Trust’s] financial flexibility through reduced gearing and increased debt headroom”, the trust said, adding that the partial repayment of existing higher interest-bearing borrowings will also lower its weighted average cost of debt.

Upon completion of the acquisition, CDL Hospitality Trust’s gearing is expected to increase from 36.8% as at 31 March 2017 to 42.6%, if not including effects of the rights issue.

However including the rights issue, the trust’s gearing will be approximately 33.6%, with an enlarged regulatory debt headroom of SGD577.2 million, said CDL Hospitality Trust.

Rights issue books closure date has been set for 5 July 2017 at 5.00 p.m. while closing date has been scheduled for 24 July.

The rights units are expected to start trading on the Singapore Exchange (SGX) on 2 August.

Units of CDL Hospitality Trust are currently listed on the SGX at SGD1.68.

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Ridzwan Rahmat has been analysing Singapore-listed REITs and business trusts, since 2008. For disclosure purposes, Ridzwan is currently vested in Mapletree Greater China Commercial Trust, Mapletree Industrial REIT and Mapletree Logistics Trust.

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