The booming Australian hotel market has attracted the interest of a number of foreign investors.
Australia registered over 4.2 million international visitors during the first half of 2017, a 7.2% increase on the prior year, according to the Australia Bureau of Statistics.
Furthermore, visits from Chinese tourists - who tend to take longer trips and spend more - jumped 10% over the year to end June 2017 and visitor numbers from Europe and the US also rose.
This increase in arrivals helped the country’s hotels to reach record performance levels during the first half of 2017, as occupancy rose to 74.5% - up 0.5% year-on-year, ADR reached A$184.97- up 1.5% and RevPAR hit A$147.81 – up 2.0%.
Over the first six month of 2017, hotel demand was mainly driven by transient business (+3.7% year-on-year), while group demand was up 2.5% following a decline in the prior year period.
Tourism Research Australia expects that a decline in Australian outbound travel, due to the weakening Australian dollar, should also stimulate hotel demand, as domestic travel increases.
Accor snags Mantra
The prospect of continuing strong growth in hotel demand has prompted Europe's number one chain, AccorHotels, already the leading hotelier in Australia, to further consolidate its leading position in the market.
In early October 2017, AccorHotels agreed to acquire Mantra Group, the country's biggest domestic hotel chain.
The purchase price was A$3.96 a share, which was a 23% premium to Mantra’s closing price on 6 October, immediately before the offer, for a total purchase price of A$1.18 billion (€920 million).
The purchase price implies an EV (enterprise value) / 2018 est. EBITDA (earnings before interest, taxes, depreciation and amortisation) multiple of 12.4x.
The acquisition will boost AccorHotels' earnings per share in the first year of ownership, according to the company.
300 hotels and 50’000 rooms
Together, Accor and Mantra would own over 300 hotels and about 50’000 rooms, which would give the combined portfolio roughly an 11% share of the Australian hotel market, according to IBISWorld statistics.
Thus, logically the fusion could be scrutinised by the Australian Competition and Consumer Commission (ACCC), who apparently have yet to determine whether they will pass judgment on the deal. The transaction is also subject to approval by the Australian Foreign Investment Review Board and the Federal Court of Australia, as well as the approval of Mantra shareholders.
It is anticipated that the transaction should be completed by the end of the first quarter 2018.
The combined geographic footprint of the two chains, together with enhanced distribution and systems, provides AccorHotels with a solid base for further expansion in the region.
Mantra’s expertise in apartment management, in particular offers a new opportunity for growth.
Mantra is strong in resorts
Mantra is one of Australia’s largest hotel and resort operators with 127 properties and over 20’000 rooms in hotels, resorts and serviced apartments across Australia, New Zealand, Indonesia and Hawaii.
The group's portfolio is particularly concentrated on Australia's Gold Coast south of Brisbane where almost a quarter (23.5%) of room capacity is located.
Mantra's strong presence in resort locations is largely complementary to AccorHotels operations in Australia and New Zealand, which are centred in major urban areas.
Mantra also manages core accommodation services including guest relations and reception areas, restaurants and bars, conference and function centres, pool and entertainment facilities and offices.
Otherwise, Mantra has more than 5’500 employees.
Properties in Mantra’s portfolio range from luxury accommodations and coastal resorts to serviced apartments in city and key leisure destinations and operate under three brands: Peppers (28 properties), Mantra (75 properties) and BreakFree (24 properties).
Peppers Retreats, Resorts and Hotels offers 4.5 to 5-star accommodation in destinations, ranging from country estates, to beach resorts and urban locations and include golf resorts, private villas and vineyard retreats.
Mantra Hotels, Resorts and Apartments, the group's core brand, offers 4 to 4.5-star accommodation targeting business and leisure guests.
Mantra is present in all the states of Australia, as well as in New Zealand and now in Bali.
BreakFree Hotels, Resorts and Apartments is the group's midscale flag offering 3 to 3.5-star accommodation in beach and urban locations throughout Australia and New Zealand.
Mantra has a flexible approach to the operating structures of its portfolio, which include freeholds, leases and several types of management and marketing agreements.
Almost two-thirds (64.3%) of rooms capacity operates under management and letting rights (MLR) agreements whereby Mantra purchases the exclusive right to operate the property’s letting business and to provide caretaking duties.
In addition, the company also buys any ancillary real estate required to run the business, e.g. reception areas, restaurants, etc. Typically, MLR agreements are used for properties offering at least 100 rooms.
Otherwise, there are management agreements (MA), whereby Mantra manages the property and earns a fee from the owner, as well as marketing services agreement (MSA), which are basically franchise agreements.
Under this licensing option, the owner operates the property directly under one of Mantra's three brands and benefits from the chain's distribution and marketing platforms.
Since Mantra is trusting a third partner to maintain its brand standards, the group takes a selective approach to engaging in MSAs.