THE CHECK IN The Latest in Hotels, Motels and Holiday Parks
ISSUE NO 01
Before you consider investing in an accommodation asset, you need to look carefully at which type of business will suit your needs and objectives and, most importantly, which operating model will deliver your desired results. There are basically four main operating models that dominate the accommodation sector – Hotel Management Agreements, Leases, Management Rights and Serviced Apartments. We’ve been in business for 35 years and what that means is we are focussed on helping buyers, sellers, operators, developers and investors navigate the various options. When choosing which operating model is best suited to your needs, you need to ask some key questions such as “what are you trying to achieve?”, “are you self-funded or do you need finance?” and “what type of returns are you looking to achieve?”. When it comes to operating models, ResortBrokers is entirely neutral – that means we don’t advise which model is ‘best’, but rather we try and nominate a model that is ‘best for you’ based on your own circumstances. HOTEL MANAGEMENT AGREEMENTS Also known as HMAs, this is the traditional arrangement favoured by most major hotel brands. Under this model, the operator manages a freehold owner’s property on their behalf, typically for a period of 10–15 years. Terms of the agreement are negotiated, stipulating detailed arrangements between the owner and operator. The operator’s remuneration is by way of fees, generally made up of a guaranteed base amount, calculated as a percentage of revenue from the hotel business, and a performance incentive element paid if gross operating profit exceeds an agreed threshold. The owner's obligations to provide working capital or otherwise finance the operation of the hotel (including
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according to accepted industry formulas based on projected net profit, with stipulated CPI increases and rent reviews. Rent is generally paid calendar monthly in advance.
We understand all accommodation models fitting out the property to the operator’s required brand standards) should be clearly addressed in the agreement. HMAs generally provide the best potential to attract interest from hotel groups which gives you a wider choice of operators to choose from. THE LEASEHOLD MODEL This is one that ResortBrokers pioneered in Australia in the 1980s and, as we mentioned in our article on the back page “Splitting a Property”, it allows for properties to be split into two components – a freehold asset for passive investors or landlords and a leasehold asset for
the business operator. A leasehold is sold by a landlord to an operator (lessee) who conducts the day-to-day management of the business and often lives onsite. As their own boss, they aim to build occupancy and tariffs for maximum net profit. They’re responsible for all operating costs and pay the property owner an annual rent for the use of their land and buildings. While lease documents vary, generally the leasehold operator is responsible for the supply and upkeep of all ‘chattels’ needed to run the motel. Typically a lease is struck on a term of 25 to 30 years. Rent is set
MANAGEMENT RIGHTS Born out of the high rise towers of Queensland’s coastal resorts, management rights is now gaining popularity across Australia, especially with big hotel operators as it affords them a lot of keys for a relatively small outlay. This operating structure is also very low risk. Management rights typically include the ability for an onsite manager to earn fees from letting out apartments in a strata titled building as well as earning a salary for managing day-to-day duties such as cleaning. The value of a management rights business is generally calculated by applying a multiplier to its annual net profit. We deal with a lot of experienced operators who are very keen to buy management rights especially for offthe-plan developments. SERVICED APARTMENTS These are typically found in purposebuilt complexes with professional onsite management. Most of the major operators offer a mix of studio, one, two and three-bedroom units, all with one or more bathrooms, living area, kitchen and laundry. According to an IBISWorld March 2020 report, the serviced apartment industry in Australia has a 25 percent market share and is worth $4 billion a year. These can be operated under a variety of models including leasehold, franchise agreements and management rights and are one of Australia’s best performing commercial property investments. When it comes to operating models, choosing the right one can be an overwhelming task. At ResortBrokers, we are here to help you understand which model best suits your particular needs, based on your unique circumstances. END
CASE STUDIES
freehold going concern on one of Mackay’s leading properties was sold for nearly $10 million.
The sale of Moama on Murray Resort was completed by private treaty. The freehold sale attracted a high quality field of potential buyers who were attracted to its accommodations for up to 500 people.
After being approached by Mantra, Art Series Hotels founder, the Deague Group, engaged ResortBrokers exclusively to negotiate the offmarket deal of seven luxury hotels by Mantra Group for $52.5 million.
The sale of the 79-suite Mackay Marina Hotel, with views overlooking the Coral Sea, was completed by ResortBrokers and included an adjoining site, which has DA approval for a further 120 rooms.
The Quest for business success
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MACKAY: The
ResortBrokers also completed one of the highest profile deals in Australia with the sale of the Art Series Hotel Group.
As Australia’s longest established and most experienced specialist agency operating in the accommodation sector, we are reporting rapidly increasing demand for hotels, motels and caravan parks.
For the past 20 years, ResortBrokers has been working with Quest Apartment Hotels to deliver outstanding business opportunities to all accommodation investors and in 2014 we solidified our relationship by becoming their ‘preferred broker’. It’s a business relationship that has gone from strength to strength and we’ve decided to appoint representatives in each state, rather than having one national account manager. This will provide prospective franchisees and developers with a more personalised service and will also allow our specialist team to keep in touch regularly with clients and develop their own quality buyer’s list. ResortBrokers has sold more than 50 Quest franchises since FY15 and over the past 18 months 10 properties have changed hands through ResortBrokers with a total value of more than $20 million.
ART SERIES:
MOAMA: After 15 years of being owned and operated by its developer, ResortBrokers took this asset to market for the first time.
There is also another eight under offer worth a combined $26 million. “We understand their business model better than anyone else and we have a genuine belief in the systems they’ve developed to help investors, individuals and syndicates to establish successful accommodation businesses,” Ms Crooks says. Quest Apartment Hotels operate under a unique model where franchisees purchase long-term leases and trade under the powerful Quest brand. As Australasia’s largest serviced apartment operator, Quest has created a highly recognisable and successful brand that business travellers have come to rely on for more than 30 years. It's also now recognised as an outstanding business investment for hands-on operators and for passive investors to go into partnership with these operators. END
YEARS IN BUSINESS
What will a domestic tourism bounce-back look like? TESTIMONIAL
Remember the days when you packed the family sedan with an assortment of useful, and useless, holiday items and you hit the trail for a road trip? Recall waiting for a straight stretch of road to overtake the slow tourist buses, caravans and wobbly RVs? The good ol’ fashioned Aussie road trip is set to make a comeback as various governments and tourism bodies band together to encourage domestic tourism, especially as international borders remain closed or restricted. As local travel restrictions are lifted and interstate travel bans start to relax or end, this anticipated domestic tourism boom has the experienced and astute accommodation operators looking for quality assets in regional and country locations. “Remember that just 10 to 15 years
ago, we had the grey nomads sell up their RVs and caravans and move into the cruise market which hit boom times,” ResortBrokers MD Trudy Crooks said. “The fallout from coronavirus, particularly with the controversy surrounding Ruby Princess, will likely hit the cruise industry for at least a decade or more and I have no doubt this will spark a return to the good old fashioned road trip.” ResortBrokers is reporting that enquiry levels really started picking up towards end of FY 19/20 and a high proportion of these are focussed on these regional areas that are set to benefit from this expected bounceback in domestic tourism. “Places like Townsville and Cairns, which are fantastic lifestyle destinations, have accommodation businesses offering yields of 30
percent and up. Show me any other investment with this ROI,” Trudy Crooks said. Tourism Australia managing director Pip Harrison has confirmed marketing and funding will be heavily focussed on domestic tourism ahead of the expected surge in road trip travel across Australia. “Our focus will most likely start with domestic travel. We’ll be strongly encouraging Australians to holiday at home,” she said. Australian Tourism Industry Council executive director Simon Westaway believes the health crisis could ‘kick off’ of drive tourism. “The caravanning industry, I know, are planning for some pretty big take-ups of vans,” he said. “I think we're going to see a bit of a change, like it was in the '80s. We'll see a return to that type of travel.” END
A F F I L I AT E S
The group benefited from ResortBrokers’ expertise on several major accommodation deals including its sale of the Oaks Lagoons at Port Douglas to the luxury brand Silkari.
Thank you Trudy Crooks from ResortBrokers for all the work that went into selling our hotel the Sebel Launceston. From our initial meeting to the final sale process you were professional, diligent and willing to work to get the deal over the line. We were impressed with the approach you suggested and the efficiency with which you managed the sale. Finally for anyone thinking of using your company I obviously recommend you and confirm that our final price that ResortBrokers achieved was far greater than any of the larger companies stated they could obtain for us.
Tom Derichs The Sebel Launceston
TESTIMONIAL
Choice is one of the largest and most successful accommodation franchisors in the world. It currently franchises more than 7,000 hotels in more than 40 countries and territories.
This French multinational hospitality company owns, manages and franchises hotels, resorts, and vacation properties. It operates in 100 countries, with more than 4,800 hotels.
ResortBrokers is the leading hotel and resorts sales agency in Australia and New Zealand. In our opinion, it is critical that a specialised agency is used to buy and sell accommodation businesses because of its unique nature. It is for this reason we have bought assets through ResortBrokers as well as used them to sell assets for us.
Lachlan Hoswell Minor Hotel Group
Mantra was recently acquired by Accor Asia Pacific and has turned to ResortBrokers for advice and sales acumen including their purchase of the luxury Soul Surfers Paradise.
Best Western now offers a large portfolio of hotel brands to meet the unique travel needs of guests around the world. It’s an awardwinning global network of hotels located in over 100 countries.
Australasia’s largest service apartment operator has created a brand that travellers have come to rely on for more than 30 years. ResortBrokers is proudly Quest’s preferred broker.
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ABOUT US
35yr ResortBrokers has delivered unrivalled quality service and results in the accommodation industry
780
the number of Managment Rights we have sold in the past 10 years
$2.5 BILLION total value of accommodation businesses sold in the past 10 years
650 the number of Motels we have sold in the past 10 years
Why splitting a property is an innovative win-win model that works Since motels emerged in the 1950s, they’ve been the backbone of the accommodation sector in Australia and they remain vital, lucrative business and property investments. Today, more than 80 percent of Australian motels are ‘split in two’ into leasehold and freehold components and, as such, these types of deals are very different to other forms of commercial property leasing. Quite simply, this means you need to engage experts in the field to ensure the agreements are fair to both parties. These days, developers along with investment syndicates and established accommodation businesses have joined the ranks of the traditional owner/operators who are chasing the strong passive returns which can be between 25 and 35 percent. What very few people realise is that ResortBrokers has played a pivotal role in the evolution of the accommodation industry in Australia with founder and now-Chairman Ian Crooks devising and pioneering the ‘split’ model in 1985. Unlike commercial leases which are calculated on square metreage, in
motels and hotels the leases are made up of chattels and the goodwill of the business. The leases are also usually longer with an average length of around 30 years. So how does this actually work, and what are the benefits of each? THE LEASEHOLD MODEL The motel lease is sold to an operator (lessee) who conducts the day-to- day management of the business and often lives onsite. As their own boss, they aim to build occupancy and tariffs for maximum net profit. They’re responsible for all operating costs and pay the property owner or landlord an annual rent for the use of their land and buildings. While lease documents vary, generally the leasehold operator is responsible for the supply and upkeep of all ‘chattels’ needed to run the motel. So for the lessee, they buy into a home and a business and can improve the value of the business by increasing revenue and net profit. Generally, a lease would be struck on a term of 25–30 years. Rent is set according to accepted
industry formulae, typically based on projected net profit with stipulated CPI increases and rent reviews. It is important to ensure the terms of the lease, including rent and defined responsibilities, are structured to achieve the optimal outcome. The rent should be set at a reasonable level to support business viability which is why this is often called a “win-win” financial scenario for both parties. Remember, leases in the accommodation industry are different to other commercial leases as they enjoy a longer tenure and are very unique as the goodwill of the business has significant value and is tied to real estate. This means that both lessee and landlord have a common and shared goal in ensuring their business remains profitable. FREEHOLD PASSIVE INVESTMENT When a motel is ‘split’, the land and buildings are owned as a passive investment by a commercial property investor (the landlord). They are responsible for all structural repairs and are expected to maintain the standard of the property for the duration of the lease. They receive an annual rent from the lessee, but have no involvement in the business. Depending on lease terms, rent generally increases annually by CPI, or may be subject to a rent review clause. For a landlord, they have a tenant who has ‘skin in the game’ and is therefore motivated to run the business to its full potential. FREEHOLD IN ONE LINE If a lease hasn’t been split, it’s considered to be a ‘freehold in one line’ or a 'going concern'. These are in high demand from the many different buying groups including syndicates, larger accommodation investment companies and hands-on operators. All of these models have major positives which can deliver the desired result and can provide a good investment for all types of investors. As pioneers in this industry, we are perfectly placed to help both sellers and buyers in this sector to navigate the legal and financial complexities involved in negotiating and closing these deals. END
C O N TA C T U S
30 BROKERS NATIONWIDE licensed in all states and territories
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Queensland PO Box 5004 West End, QLD 4101 (07) 3878 3999
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