Luxury and regional listed hotel play from Elanor Investors
Elanor Investors Group has raised $75 million and is combining its two hotel funds to create a single entity worth just under $350 million that it aims to grow to $500 million and potentially list.
Managing director Glenn Willis said the longer-term opportunity fills an investment gap on the Australian Stock Exchange, which at present does not have any pure-play accommodation stocks.
“Our view is the public markets would welcome a listed hotel fund,” said Mr Willis, adding a trade sale would also be an option.
“At some stage there will be one or several hotel REITs in Australia I believe.”
He sees big opportunities in the regional and luxury hotel segment due to international border closures and a lack of supply at the upper end, where there is growing demand from wealthy consumers unable to travel overseas.
Regional accommodation businesses have been in high demand from investors, with asset prices increasing by up to 20 per cent in some markets.
However, lockdowns in NSW and Victoria over the past two months have killed accommodation earnings, particularly in NSW where many properties, including some owned by Elanor funds, have gone into hibernation.
Those that are still open have occupancies of less than 5 per cent and are only accommodating essential workers or those who were staying before the lockdowns were enforced.
Creating a single larger fund opens new earnings streams for Elanor, an ASX listed business with $2 billion in assets under management. Two of its funds are also listed – one focused on retail, the other on offices.
Elanor will make $10.5 million on selling down its share in the Elanor Metro and Prime Hotel Fund, the Elanor Luxury Hotel Fund and the Albany Hotel Syndicate to create the Elanor Hotel Accommodation Fund.
It will earn $3.9 million in transaction fees for organising the deal and reap $3.5 million in annual management charges.
The new fund, still subject to approval from shareholders, will hold a mixed bag of 14 predominantly regional properties, just three of which are classified as luxury.
Most are mid-range or lower with a third of the fund’s properties carrying Accor’s Ibis Styles economy brand.
Mr Willis said the fund was looking at several potential acquisitions north of $20 million.
“We like regional within three or four hours’ drive of capital cities and luxury because we believe those are the two sectors that can generate outsized investment returns,” he said.
“There’s a lack of luxury product in Australia and there’s growing demand.”
He said the fund would not rule out buying urban luxury properties but “at the moment we don’t believe they represent value”.
Some of Elanor’s regional properties have been closed due to lockdowns, he confirmed.
“They were performing very well prior to the operating constraints, and we expect them to trade very well when those constraints are lifted.”
