Q2 2018 Hotel Market Analysis Strategic transactions rise as asset squeeze continues
INTRODUCTION The last quarter of the 2018 financial year delivered a boom for inbound tourism numbers, delivering strong RevPAR results for the top end of the country, but limited transaction volumes increased competitive tension amongst investors keen to secure assets in the core Australian market. Australia and New Zealand recorded a strong opening quarter for inbound tourism, with record occupancy rates in Australia demonstrating the reason why it remains a highly sought after hotel investment destination. Nonetheless, continued short supply in Sydney, Melbourne, Gold Coast, Canberra, Auckland and Queenstown has dampened sales results compared to previous years. With opportunistic acquisitions subject to rising competitive tension, the focus for some turned to strategic transactions. Asia Pacific is in the midst of an unparalleled merger and acquisitions boom across the board and dealmaking from globally branded operators such as IHG, Marriott and Accor overshadowed the typical hotel real estate headlines. Mid-tier international operators Prince Hotels and Minor also came out on the acquisition trail, expanding their growing portfolios. We welcome you to this edition of the ipg Hotel Market Analysis and invite thoughts, comments and feedback as to additional insights, data points or analysis you would like to see in future editions. ipg Q2 2018 Hotel Market Analysis - 2 -
Tourism Overview Inbound Action Inbound arrivals remained strong over the quarter with China continuing to supercede New Zealand as the largest source of international visitation, and continuing a growth trend that commenced in September 2017. Economic benefits from inbound tourism were also strong with data to the end of March showing inbound visitors spending up to $42.3 billion, up $2.4 billion on the previous year. Tourist arrivals to Australia, by origin, 12-month rolling total 1 1,500,000 1,000,000 New Zealand 500,000 China 0 92 94 96 98 00 02 04 06 08 10 12 14 16 18 Year ending March 2018 VISITORS 8.3 MILLION 8% 3% 6% NIGHTS 269 MILLION SPEND $42.3 BILLION 1 ABS ipg Q2 2018 Hotel Market Analysis - 3 -
Australia Hotel STR Snapshot Year to Date 2018 Darwin 70.6% Darwin $139.51 Cairns $144.23 Cairns 80.2% Brisbane 70.4% Brisbane $152.30 Gold Coast $203.68 Gold Coast 71.3% Perth 72.8% Adelaide 79.9% Melbourne 84.7% Sydney 87.5% Canberra 77.9% Perth $166.38 Adelaide $155.84 Melbourne $205.99 Sydney $261.61 Canberra $173.24 Hobart 81.7% Hobart $181.23 Australian City Occupancy Rate (%) Australian Average Daily Rate ($) Year to Date (January - June 2018) 1 PROPERTY Occ % ADR RevPAR Percent Change from YTD 2017 2018 2017 2018 2017 2018 2017 Occ ADR RevPAR Sydney 87.5 89.2 261.61 254.58 229.02 227.06-1.8 2.8 0.9 Melbourne 84.7 85.2 205.99 205.80 174.42 175.40-0.7 0.1-0.6 Brisbane 70.4 70.5 152.30 151.46 107.16 106.72-0.1 0.6 0.4 Adelaide 79.9 79.1 155.84 154.63 124.57 122.32 1.0 0.8 1.8 Cairns 80.2 80.7 144.23 139.42 115.68 112.45-0.6 3.4 2.9 Gold Coast 71.3 69.0 203.68 184.14 145.22 126.99 3.4 10.6 14.4 Perth 72.8 72.7 166.38 172.24 121.13 125.28 0.1-3.4-3.3 Darwin 70.6 66.4 139.51 138.87 98.44 92.21 6.3 0.5 6.8 Canberra 77.9 76.0 173.24 172.11 134.90 130.78 2.5 0.7 3.2 Parramatta 83.8 76.5 187.08 182.33 156.86 139.44 9.6 2.6 12.5 Hobart 81.7 84.9 181.23 179.75 148.10 152.70-3.8 0.8-3.0 Sydney Airport 87.3 88.0 163.71 166.98 142.92 147.03-0.8-2.0-2.8 1 STR Global ipg Q2 2018 Hotel Market Analysis - 4 -
Monthly Results April: Seasonal benefits softer than expected The hotel sector performed well across the quarter, with Adelaide and the Gold Coast enjoying the windfalls of event driven numbers. For example, the XXI Commonwealth Games delivered the expected boost to the Gold Coast with a $40 spike in average daily rate (ADR). This did not translate directly into occupancy rates which were softer than expected for the month at 75%, up only 6.5% on the previous year. In South Australia, the Australian Tourism Exchange attracted 2,000 visitors to the capital, resulting in a 12.2% RevPAR increase. Performance in Sydney was dampened as a result of seasonal and school holidays across the month. Despite this, Sydney recorded the top revenue-per-available-room (RevPAR) results across the country for the month. Current Month (April 2018 vs April 2017) 1 PROPERTY Occ % ADR RevPAR Percent Change from April 2017 2018 2017 2018 2017 2018 2017 Occ ADR RevPAR Sydney 85.6 87.5 239.47 243.95 204.87 213.35-2.2-1.8-4.0 Melbourne 83.6 82.7 192.34 190.54 160.85 157.60 1.1 0.9 2.1 Brisbane 69.0 66.8 149.73 144.82 103.38 96.68 3.4 3.4 6.9 Adelaide 79.2 75.8 153.32 142.78 121.48 108.25 4.5 7.4 12.2 Cairns 79.7 82.5 141.10 140.04 112.45 115.54-3.4 0.8-2.7 Gold Coast 75.0 70.4 259.31 185.24 194.48 130.43 6.5 40.0 49.1 Perth 70.3 72.6 165.07 169.86 116.09 123.27-3.1-2.8-5.8 Darwin 70.7 66.8 129.69 128.75 91.70 86.06 5.8 0.7 6.5 Canberra 79.7 74.6 172.29 170.48 137.34 127.23 6.8 1.1 7.9 Parramatta 82.9 78.0 184.72 184.23 153.13 143.72 6.3 0.3 6.5 Hobart 81.0 86.4 176.69 171.91 143.20 148.48-6.2 2.8-3.6 Sydney Airport 86.3 87.3 157.27 164.93 135.66 143.96-1.2-4.6-5.8 1 STR Global ipg Q2 2018 Hotel Market Analysis - 5 -
May: Top End records top results The top end of the country recorded strong results across the board. For example, Cairns RevPAR landed up 9.1% on previous years. This was followed by Darwin, Canberra and Gold Coast. Darwin appears to be on the rebound recording multiple months of growth. General leisure tourism has recorded successive growth over the past few months, creating new confidence in a market softened by the slowdown and windup of construction at the Japanese Impex gas plant. Direct flights commenced between the fast growing tech-hub of Shenzhen in China and Darwin in May. Watch for positive flow on effects from the twice-weekly service offered by Donghai Airlines. The Cairns hotel market enjoyed stellar occupancy rates, second only to Sydney. Current Month (May 2018 vs May 2017) 1 PROPERTY Occ % ADR RevPAR Percent Change from May 2017 2018 2017 2018 2017 2018 2017 Occ ADR RevPAR Sydney 87.2 87.8 246.49 238.39 215.00 209.39-0.7 3.4 2.7 Melbourne 81.8 83.4 187.52 188.74 153.37 157.39-1.9-0.6-2.6 Brisbane 72.9 72.2 156.32 160.21 113.91 115.74 0.9-2.4-1.6 Adelaide 80.9 80.1 150.82 149.98 121.98 120.07 1.0 0.6 1.6 Cairns 78.8 75.2 143.13 137.45 112.84 103.40 4.8 4.1 9.1 Gold Coast 65.9 64.1 168.64 166.21 111.08 106.53 2.8 1.5 4.3 Perth 70.3 72.3 164.62 171.87 115.68 124.17-2.7-4.2-6.8 Darwin 75.2 72.9 159.29 154.53 119.78 112.68 3.1 3.1 6.3 Canberra 78.7 76.0 182.27 179.23 143.49 136.24 3.6 1.7 5.3 Parramatta 81.5 78.3 173.55 176.76 141.50 138.36 4.2-1.8 2.3 Hobart 71.1 75.4 165.49 158.38 117.70 119.49-5.7 4.5-1.5 Sydney Airport 84.5 86.7 160.00 166.17 135.17 144.00-2.5-3.7-6.1 1 STR Global ipg Q2 2018 Hotel Market Analysis - 6 -
June: Major markets flat, outliers buoyant The final month of the financial year saw customary flat results in the corporate centres of Sydney, Melbourne and Brisbane while Canberra performed well. The greater Sydney region was buoyed by Parramatta, where a 15.7% increase on RevPAR was recorded over the same period for 2017. This was driven by peak demand for office space with vacancy for Premium and A grade offices sitting at less than 1% and a surge in construction. The capital of Canberra also bucked the trend, recording double digit growth attributed to a revitalised tourism strategy positioning the city as a food and wine destination. Strong results were further underpinned by new international connections with premier carriers Singapore Airlines and Qatar Airways. Flow on effects from the Commonwealth Games continued for the Gold Coast underpinned by increased emphasis on the city s MICE (Meetings, Incentives, Conferences, Events) channels. For example, hosting events such as Logies, Dally M s and the returning RICS event, buoyed the market through the traditionally slower June month. Current Month (June 2018 vs June 2017) 1 PROPERTY Occ % ADR RevPAR Percent Change from June 2017 2018 2017 2018 2017 2018 2017 Occ ADR RevPAR Sydney 85.9 86.8 232.88 229.60 199.95 199.36-1.1 1.4 0.3 Melbourne 81.5 80.7 187.42 189.89 152.74 153.19 1.0-1.3-0.3 Brisbane 69.8 70.3 152.92 151.17 106.73 106.22-0.7 1.2 0.5 Adelaide 73.5 73.4 136.28 141.04 100.21 103.49 0.2-3.4-3.2 Cairns 78.1 82.6 152.61 148.74 119.14 122.83-5.5 2.6-3.0 Gold Coast 63.4 60.2 168.86 161.88 107.13 97.39 5.5 4.3 10.0 Perth 67.9 67.3 160.72 161.05 109.18 108.36 1.0-0.2 0.8 Darwin 78.7 84.2 179.00 182.76 140.94 153.88-6.5-2.1-8.4 Canberra 77.6 72.4 175.72 169.97 136.37 123.12 7.1 3.4 10.8 Parramatta 84.5 75.5 174.20 168.56 147.21 127.28 11.9 3.3 15.7 Hobart 69.0 69.1 167.74 161.87 115.71 111.85-0.2 3.6 3.4 Sydney Airport 85.3 87.2 151.47 159.57 129.19 139.11-2.2-5.1-7.1 1 STR Global ipg Q2 2018 Hotel Market Analysis - 7 -
3,046 rooms across 23 hotels to be divested by AccorInvest Hotel real estate and transactions Divestments Hotel transactions for the second quarter were sparse in most markets. Elanor Investors Group divested one of the largest accommodation complexes in the country, selling Mantra and Breakfree Bell City to Gaw Capital for AU$157m. Breakfree on Clarence also left the Elanor portfolio. The boutique 50-room Sydney hotel was acquired by Chinese Plantation Group in a deal valuation mooted at AU$30m. Innovation ipg s group company SB&G introduced the world s first voco Hotel, revealing the recently acquired Watermark Gold Coast hotel will market under a new lifestyle brand from IHG (Intercontinental Hotels Group). This is IHG s second brand unveiling, following the purchase of the luxury brand, Regent Hotels & Resorts. Opportunity A stronger third quarter is anticipated for transactions. Assets confirmed to be coming on to the market include the QT Port Douglas, Tanglalooma Resort in Queensland, Westin & Aloft Perth, the Paramount Hotel Sydney and Pullman on the Park Melbourne, to name a few. The Sydney and Melbourne properties are sure to be heavily contested. ADIA s (Abu Dhabi Investment Authority) is placing the highly coveted portfolio of Pullman, Novotel & Ibis Sydney Olympic Park & Novotel Canberra hotels on the block. The most significant market buzz was created with the announcement that AccorInvest will divest a portfolio of 23 hotels, including 17 freehold real estate interests and six leasehold interests, collecting a total of 3,046 rooms. Watch this space. Location: voco Gold Coast ipg Q2 2018 Hotel Market Analysis - 8 -
Hotel Operators & Brand Acquisitions Accor Appetites High On the Brand Wagon Accor s spending spree has dominated the hotel market headlines. Already the largest hotel operator in the country, Accor required and received approval from the ACCC (Australian Consumer Competition Commission) to proceed with acquisition of the Mantra suite of brands, including its namesake Mantra properties, Peppers, Breakfree and the Art Series collection. Thai group, Minor Hotels & Resorts, purchased a 25% stake in Spanish hotel group, NH Hotel Group, from Chinese conglomerate, HNA Group. HNA continues to divest its global portfolio following the tragic loss of its founder, Wang Jiang, selling its stake in Hilton, Radisson and Red Lion Hotels. This quarter was characterised by hungry operators pivoting to the acquisition of existing hotel businesses and established brands, in a market starved of hotel real estate. The Swiss branded Movenpick Hotels & Resorts, the Latin American group Atton Hoteles and the luxury lifestyle hotel collection of sbe renowned for its SLS, Mondrian and Originals brands have also been netted by the French operator, which has underpinned expansion by announcing a new sales and marketing partnership with one of China s largest online travel agent, Ctrip. The initiative will provide customers with seamless access to Accor s global network. World first for IHG in Australia The ground is settling for Japanese conglomerate, Seibu Holdings following its 2017 acquisition of the StayWell Hospitality Group. The owner of Prince Hotels & Resorts has collected the Policy and Leisure Inn and Park Regis brands, becoming the new brand house under which falls ipg s flagship Park Regis City Central Sydney. Chinese hotel operator, Artyzen joined the acquisition brand wagon and entered into a joint venture to roll out of the highly acclaimed European boutique hotel brand, CitizenM, throughout the Asia Pacific. International Hotels Group (IHG) acquired Taiwanese luxury brand, the Regent for $39USD million for a 51% stake and launched its new upscale hotel brand voco with the first such branded hotel in the world to open in Australia. Heavyweights on Point Marriott s acquisition of Starwood is nearing its two year anniversary. The heavyweight merger brand marked the occasion with the opening of two Four Points by Sheraton hotels; Docklands Melbourne and Broadway in Sydney. Location: Mondrian Doha ipg Q2 2018 Hotel Market Analysis - 9 -
Location: Crowne Plaza Sydney Operator Owned vs Managed Hotels The Chinese inbound market is gaining hotel market share in Australia as Chinese investment groups increase their acquisition profile in Australian hotels. For instance, the opening of the Primus Hotel in Sydney s mid-city precinct set the stage for Greenland and Dalian Wanda s brand Wanda Vista which will soon hit the market in Circular Quay s dress circle, flagged on the Alfred Street mixed-use hotel development site sold to the Yuhu Group earlier this year. Whilst the Chinese inbound market is making considerable gains in the Australian hotel market share, the reliance of hotels on international tourists as their primary source of business may mirror the unprofitable scenes that many international Australian hotels were afflicted with during the 1980 s to 1990 s. This experience and the lessons learned during the GFC should serve to remind hoteliers not to underestimate the scale of the Australian domestic travel market and the local demand drivers of their hotels. As numerous new hotel brands driven by the major chains penetrate the Australian market, independent hotel owners may still continue to have flexibility when borrowing the assistance of major internationally branded hotel groups. Such examples include, Accor s Franchise Plus model, which offers hotel owners an experienced local General Manager from its vast nursery of skilled management personnel, whilst maintaining owner operator status of the property. Marriott s white label solution the Luxury Collection brand offers hotel owners the flexibility of attaching their own brand to the hotel. Likewise with IHG s Kimpton brand and the TFE Collection offered by TFE Hotels. Man-chise, a hybrid solution of a management agreement and franchise, offered by Radisson and Accor, allows hotel owners to be under a fully managed package for the first 3 to 5 years of ramp up before deferring back to a franchise model, turning over the hotel back to the owner to manage on their own under the respective hotel brand. Why are these examples relevant? Foreign owned Australian hotels in need of debt financing may be asked by local banks and lenders to undertake the support of a hotel brand franchise, accompanied by an experienced hotel asset manager. This signals an element of heightened risk awareness for the major banks and lenders. This is enough to suggest this model is prudently on trend and a smart way to mitigate the risk profile of hotel owners that are new to the Australian market. ipg Q2 2018 Hotel Market Analysis - 10 -
Company Profiles Raymond Tran Hotel Investment & Asset Manager Sydney, Australia Raymond, an experienced hotelier and real estate executive has over 20 years of hotel accommodation operations and real estate experience, serving five of those years in the capacity of General Manager followed by Executive Management roles. Raymond s career span included tenures with major international hotel groups which included Starwood, Fairmont & Raffles, Delta, Stamford, Choice, Seasons, Oaks and Accor. In his time with Colliers International, Raymond specialised in hotel brokerage, asset management and advisory and had achieved approx. $307m of transaction sales across Australia, including a variety of high profile operator selections. James Weaver Head of Property Melbourne, Australia James is Head of Property for ipg, where he applies more than 25 years cross-disciplinary experience in the property sector which included tenures with institutional groups including Charter Hall, Macquarie Bank and Freehills. James versatility stems from his proficiency as a property lawyer, with his tenure extending into asset management, property capital transactions and funds management. In his time with Macquarie Bank, James total portfolio was in excess of $1 billion in capital value under his management. CONCLUSION This second quarter of the 2018 financial year demonstrated that a well balanced and diversified source of market drivers will lead to long-term sustainable growth of both the accommodation and its surrounding markets. The steady growth in the emerging markets of Adelaide and Canberra are testament to this fact, and to the efforts of the State tourism bodies in South Australia and the ACT. Brands abound but consolidation is creating a tough competitive battlefront amidst a shrinking number of major hotel groups. This will squeeze availability of management opportunities within key markets for smaller sized and new entrant owner operators. A keen eye from fast paced advisors will help hotel owners monitor their opportunities closely over the near short term horizon. ipg Q2 2018 Hotel Market Analysis - 11 -
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