Colonial in Final Sale Talks on Hotels, Seeks Retail Asset Swaps

Colonial First State Global Asset Management Ltd. is in final talks with two groups to sell its three Marriott hotels and is seeking to swap interests in shopping malls in one of its listed property trusts.

Colonial is in due diligence with the two parties and expects to arrive at final bids for the five-star Marriott hotels in Sydney, Brisbane and Melbourne by the end of May, according to Angus McNaughton, who oversees A$18 billion ($18.8 billion) as managing director for property at the Sydney-based asset manager. He declined to identify the bidders.

The Abu Dhabi Investment Authority and Malaysia’s YTL Corp. are contenders, the Australian Financial Review reported in April without saying where it got the information. A group comprising a Middle Eastern party, U.S.-based Host Hotels & Resorts Inc. and the Government of Singapore Investment Corp. may be among bidders for the hotels worth a combined A$450 million, the Australian newspaper said in February without naming its sources. Colonial’s property unit is selling the hotels as its unlisted Commonwealth Property Hotel Fund’s term draws to a close.

“We’re selling the hotels into a rising market, and there’s been a lot of offshore interest,” McNaughton said. “We’re focusing now on our core strengths: retail and office.”

Hotel revenues per available room will grow by 7.2 percent this year, and capital values will rise between 5 percent and 10 percent, according to figures from broker Jones Lang LaSalle Inc. Retail property rents will rise 2.7 percent this year, and offices will climb 4 percent, it said.

Listed Trusts

The group, which manages three listed property trusts, including CFS Retail Property Trust and Commonwealth Property Office Fund in Australia, is seeking to scale back its holdings of some properties in both funds to finance their share-repurchase programs and to invest in developments and better-quality assets, McNaughton said.

CFS Retail is seeking buyers for interests in its fully owned malls and is open to swapping stakes in these centers for others, McNaughton said. The trust in March sold 50 percent of its Myer Centre in Brisbane to the Industry Superannuation Property Trust for A$366 million.

“If we can swap some assets for other assets that have got better opportunities to grow, and also improve the portfolio quality, those are the opportunities we’re looking for,” McNaughton said. “We’re looking for largely regional assets with some development or expansion capabilities.”

The group is also raising capital for a new unlisted fund that will invest in shopping centers worth between A$25 million and A$125 million, he said. Colonial, which will complete the raising in the next two months with as much as A$300 million, has received interest from both domestic and international investors, he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE