Folkestone pays $76.4 million for Mercure hotel at Sydney airport

Folkestone is planning an extensive refurbishment for its new Mercure Sydney International Airport Hotel.

Greg Paramor, chief executive of Folkstone.

Folkestone Funds Management is taking an interest in hotels, paying $76.4 million plus transaction costs to buy the Mercure Sydney International Airport Hotel for a new fund.

Folkestone, led by Greg Paramor a former head of Mirvac, recently bought into the fledgling Veriu hotel brand that opened for business in Sydney’s Broadway ­offering boutique-style accommodation with free bicycles.

At Sydney airport, Folkestone has acquired a 271-room hotel that derives its revenue from airline crews and international tourists, as well as local, corporate and leisure business. The property was bought from Winten Property Group.

Folkestone plans a major renovation of the hotel, saying it planned to ‘‘reposition’’ the hotel to drive greater revenues and occupancies. It is not known whether it will seek to lift the branding from Mercure to Novotel or Sofitel.

In a statement yesterday, Folkestone said it planned to refurbish the guest rooms, along with the function and conference centres, bars and restaurants.

It will improve the hotel’s facade and external features as well as up­grading plant and equipment.

“We are delighted to be able to secure a quality hotel opportunity in Sydney and in close proximity to the Sydney International Airport precinct, which we can renovate and reposition,” said Mr Paramor, managing director of Folkestone.

“The Sydney hotel market remains strong, driven by both domestic and inbound tourism, growing corporate travel and a buoyant conference and exhibitions market which has been enhanced following the opening of Sydney’s new International Convention Centre.”

FFM is seeking to raise $50m for the Folkestone Sydney Airport Hotel Fund, with the offer opening on October 23.

Folkestone forecasts an equity internal rate of return of 14.4 per cent a year over the life of the fund and a 7 per cent annualised yield following the refurbishment next year.

The fund has underwriting commitments of nearly $32m, $15m of which will be provided by Folkestone.

The new fund has also secured a $49.4m debt facility to provide the balance of capital required to buy the hotel including a $15m short-term debt facility whilst FFM completes the fund raising.