Salters bank $1b hotel fund with Next deal


Australian Financial Review

22 May 2019

 

High-flying hotel tycoons Paul and Robert Salter have moved a step closer to floating a $1 billion hotel trust on the Australian Stock Exchange after buying Brisbane’s 304-room Next Hotel from Challenger for $150 million.

The brothers, who originally set up their SB&G Hotel Group investment platform in 2014 in partnership with Michael Gu’s advisory firm iProsperity, set $1 billion of assets under management as the benchmark for a potential float back in 2015.

This was a time when they had joined forces with Lorenz Grollo’s Equiset to acquire a $500 million portfolio of hotels including the Intercontinental Hotel in Melbourne from Eureka Funds Management.

The latest acquisition of the Next Hotel plus two levels of retail on Brisbane’s busy Queen Street Mall is due to settle at the end of July.

The luxury hotel is operated by Singapore’s Next Story Group. It opened in 2014 following a $50 million refurbishment of the former Chifley at Lennons hotel.

Tom Gibson and Simon Rooney from JLL Hotels brokered the off market deal on behalf of Challenger.

Once settled, it will grow the value of the Australian portfolio to more than $1 billion with Salter Brothers (as the group is now known following a parting of the ways with Michael Gu) holding seven Australian hotel, including three Crowne Plaza hotels in Coogee, Melbourne and Canberra.

The speed at which Salter Brothers have built up their fund, backed by high net worth local and offshore investors, highlights how attractive the Australian hotel market has become amid a tourism boom, historically high occupancy rates and a record development pipeline.

Alongside its latest acquisition, Salter Brothers announced a $100 million capital raising through Cedit Suisse and UBS to de-gear the balance sheet and provide scope for further acquisitions and to fund its development of two hotels in Canberra and Melbourne.

Second capital raising

Speaking to The Australian Financial Review, managing director Paul Salter said the group planned to undertake a second capital raising of between $120 million and $150 million later in the year, aimed at bringing in cornerstone institutional investors as it worked towards a potential float.

“We’ve got a few assets we first want to build and open, and then, if the market conditions are right, we’ll look at doing an IPO” Mr Salter said.

“We don’t want to have any assets in development [when we go public].”

If successful, it would mark the return of hotels REITS to Australia. Globally, there are many including in Singapore, Hong Kong and the US.

The last Australian hotel REIT, managed by Thakral Holdings, was taken private in 2012.

Plans by James Packer’s Crown to float a $2 billion hotel portfolio were abandoned in 2017.

Mr Salter said the unlisted fund was now delivering internal rates of return of more than 12 per cent.

Market bouncing back

Commenting on the decision to buy its first Brisbane hotel, Mr Salter said he took the view that the Brisbane market was coming back after absorbing a lot of new supply.

More broadly, he said the corporate hotel market where Salter is focused was not impacted much by Airbnb and the “shadow” accommodation sector.

“Melbourne has always stepped up to absorb new supply and Sydney is still a cracking market,” he said.