Circular – 9 December 2020
In July 2020, the RSL NSW Board agreed with the Executive’s recommendation to divest the Hyde Park Inn and 262 Castlereagh Street together and invest the proceeds of sale into a diverse asset portfolio to provide a strong-performing and reliable income stream for the future.
After careful consideration, RSL NSW has entered into agreements for the sale of the properties. The properties were sold to Central Element after a very competitive process.
The financial sustainability of the organisation is pivotal to ensuring we can achieve our charitable purpose of supporting veterans and their families.
The Hyde Park Inn revenue is an undiversified revenue source and considering the increase in accommodation competition, the significant impacts on income due to COVID-19, and the capital improvement requirements, a divestment strategy was essential to support RSL NSW’s future. Selling the assets together has allowed RSL NSW to maximise the value of the site.
The tourism industry does not anticipate recovery to pre-COVID levels before early 2025. Therefore, the future net profit forecast from the Hyde Park Inn is uncertain but within the ranges of $1m – $3m annually. By divesting the properties and investing the sale proceeds into a diversified investment portfolio, ANZAC House anticipates returns of between $3m – $6m annually. The investment portfolio will be aligned to the RSL NSW Investment Policy and Plan and the intention is to preserve the capital in real terms.
The arrangement of the sale allows RSL NSW to continue to operate the Hyde Park Inn until settlement and removes any development risk, although enabling RSL NSW to participate in the upside in value from the development application (DA) process through collaboration with Central Element.
The sale includes a base minimum sale price of $95 million, to be paid at settlement of not earlier than 30 months and not later than 60 months. Following the achievement of a Stage 2 development consent, RSL NSW will share in the uplift in the value obtained through the DA.
Any member questions should be directed to RSL NSW support.
How did the RSL NSW Board arrive at this decision?
- COVID 19 highlighted the risks associated with most of the income of the State Branch is being sourced from a single income-producing asset, the Hyde Park Inn. The outlook on the recovery of the tourism and hospitality industry to pre-COVID levels is 2025.
- The outstanding loan and holding costs associated with trying to maintain the neighbouring site at 262 Castlereagh Street, which was purchased in 2014 with a view to expanding the Hyde Park Inn, were unsustainable. Selling both assets together has created greater value than selling 262 Castlereagh Street on its own.
- RSL NSW appointed Touchstone Partners, expert property advisors, to consult, assess, negotiate and execute the transaction and were supported by Lawyers, Corrs Chambers Westgarth.
- The Hyde Park Inn, despite minor upgrades, required a major refurbishment to remain competitive in the hotel market. RSL NSW did not have the capital, nor income to support the expenditure associated with an upgrade.
- The Board took into consideration a detailed analysis of the market and the advantages of approaching the sale via an off-market campaign. The Executive team reported monthly to the Board. A detailed risk assessment was conducted as part of the analysis.
How many offers did RSL NSW receive?
Nine offers were submitted to RSL NSW. The sale was negotiated between the top two proponents.
What are the risks associated with this transaction and have these been mitigated?
RSL NSW has conducted a risk assessment and the sale of the assets is within its appetite. RSL NSW will not undertake any development risk as the assets remain the ownership of RSL NSW until settlement and all costs associated with the development application will be borne by Central Element.
The commercial terms of the deal also protect the interests of RSL NSW against market risk and financial risk.
How is this aligned to the RSL NSW Strategic Plan 2021 -2026?
One of the key success measurements of the Strategic Plan is that by 2026 RSL NSW is financially sustainable without significant reliance on public fundraising from the community. By making strategic investments such as this, RSL NSW will be well established to ensure its financial sustainability into the future, which is pivotal to ensuring we can achieve our charitable purpose.
Can RSL NSW members stay at the Hyde Park Inn?
Yes. The Hyde Park Inn will operate without disruption until settlement and Peter and his team will continue to provide a first-class service to guests. RSL NSW members can join the Defence Family Loyalty Club to receive a preferred rate.