Salter Brothers is embarking upon a Japan investment strategy. As part of our commitment to communicating with our investors, Salter Brothers Research shares highlights from their market study.

An Active Market

The 4^th largest commercial real estate market in the world, and the 5^th largest recipient of global cross-border investment in 2023, Japan offers an active and accommodating environment for foreign investors.

A Diverse Opportunity

Average quarterly volume over the last five years has exceeded US$1 billion in all sectors. Long-term returns have also been strong, exceeding 5% per annum on average across all sectors over the last 15 years.

An Ideal Moment?

Abundant investment has been supported by a favourable macroeconomic environment, with low interest rates and an historically weak yen providing an ideal opportunity. Conditions should continue to remain favourable in the near term despite changes in Japan’s monetary policy.

Oncoming Headwinds

Japan’s population is aging and in decline, forecast to fall 20 million by 2050. Urban centres should remain attractive, with the burden of decline expected to be more keenly felt in the regions.

Sector Spotlight: Hotels

Hotels have delivered the best returns of any sector since 2021, attracting record investment in 2023Q3 and 2024Q2. Despite opening its borders relatively late, Japan is on track to break its 2019 tourist record in 2024.

By Christopher Caillavet    |   Aug 22, 2024

Read full article at Mingtiandi online

A partnership formed by Melbourne-based Salter Brothers and a Japanese property firm has seen the Australian fund manager take over asset management for a five-star resort in the southern island of Kyushu.

Hospitality-focused Salter Brothers joined forces with Tokyo Century Group, the developer of ANA InterContinental Beppu Resort and Spa, on the newly launched strategic partnership, according to a Wednesday announcement.

The Aussie firm has assumed asset management duties for the 89-room luxury resort, which opened in 2019 and has been managed by Tokyo Century and IHG ANA Hotels Group Japan since that time. Salter Brothers said it aims to bring to the Japanese market its experience in refurbishing, rebranding and repositioning existing assets with international operators.

“Salter Brothers is proud to be working with Tokyo Century in this new and exciting venture, partnering on hospitality opportunities in the Japanese market,” said managing director Paul Salter. “In Japan, we are strongly focused on working with best-in-class ownership and management to unlock operational value-add, leveraging our pan-Asia hospitality investment experience and relationships with operating partners.”

Global Platform

Salter Brothers previously made headlines when it teamed up with Singapore sovereign fund GIC and Swiss private equity firm Partners Group to acquire a portfolio of 11 Travelodge hotels in Australia with a gross asset value of A$620 million ($457 million).

That 2021 deal, said to be the largest of its kind ever transacted in Australia, involved more than 2,000 rooms in key cities like Sydney, Melbourne and Brisbane. The sellers were real estate group Mirvac and travel association NRMA.

Salter Brothers formed in 2015 and now owns and manages a portfolio of more than 5,000 rooms across 41 hotels in Australia, Asia and the US. Tokyo Century is the platform’s first Japanese partner in an asset management agreement.

“Partnering with Salter Brothers brings together exceptional capital, reach and operational capability, providing our partnership a competitive advantage in this market,” said Tokyo Century deputy president and executive officer Yoichiro Nakai.

Tall Order at Torch Tower

TSE-listed Tokyo Century’s biggest shareholders include conglomerate Itochu Corp, real estate firm Chuo-Nittochi and telecom giant NTT.

The group has managed Hotel Indigo Karuizawa in Nagano since 2022 with IHG Japan Management and is co-developing a luxury hotel within Torch Tower — the skyscraper under construction near Tokyo Station that is set to become the tallest building in Japan — alongside property giant Mitsubishi Estate.

Located on the upper floors of the 63-storey Torch Tower, the hotel will open in 2028 as the first in Asia Pacific to be operated by Brunei-owned luxury brand Dorchester Collection, Tokyo Century said Wednesday in a separate announcement.

Best known as an equipment leaser, Tokyo Century joined Mitsubishi Estate in a venture to build data centres in the Washington DC area and has also invested in NTT’s India data centre business.

By Isobel Lee  Aug 14, 2024

Read full interview online

Salter Brothers, an alternative investment manager headquartered in Australia, is one of the country’s few Investment houses focusing on hospitality real estate. While it also specialises in equities and credit, hotels form the core of its vertically integrated property business. And after investing in Australian hotels for 10 years since its inception, the firm is now growing its pan-Asia hospitality and broader living strategy.

Rahul Ghai, managing director and head of Asia says: “The push into Asia is a natural next step for us as a firm and off the back of growing appetite for investment by institutional investors in the hospitality and broader living sector.

“We mostly invest institutional capital in the region, with small but increasingly fast-growing family office investors. Our expertise lies in value-add deals, which starts with effective buying, developing and implementing a value creation strategy, including potential rebranding and repositioning of hotels to deliver performance for our clients.”

Founded by brothers Paul and Rob Salter, both who had long careers in financial services,  Salter Brothers started investing into hotels in 2014 with Paul bringing expertise in hotels and hospitality, corporate advisory and transactions, and Rob focusing on investment advisory and asset allocation. Fast forward to the present day, and the firm has nearly AUD$4 billion under management, of which some 85 percent is in real estate, comprising 44 hotels.

Asia expansion plans

Seven months ago, the firm hired Ghai, a former head of real estate Europe for Partners Group, to spearhead a broader push into Asia. He brought over 15 years of experience working in Asia for Partners Group and as head of investments real estate Asia for DWS. Ghai says that thanks to its prior experience, Salter Brothers has hit the ground running in Asia with a clear strategy. The team, which is currently based in Singapore and Tokyo, is focusing primarily on Japan, South Korea, Singapore and Thailand. He notes that due to geopolitical reasons, there is limited appetite from the firm’s investors to invest in China, Hong Kong and Taiwan.

To understand the firm’s plans for Japan, it is worth looking at a few investments they have made in Australia. “During the pandemic, we started negotiating on a portfolio of 11 Travelodge hotels, finally closing the deal in 2021,” Ghai says adding, “Since being rebranded to Accor flags including Novotel, Mercure and Ibis, this portfolio has brought us into the business hotel space in Australia. Post-Covid, the properties have benefitted enormously from pent-up demand.”

Ghai sees a strong case for business hotels in Asia, forming part of a two-pronged strategy for Japan. “In Japan, our primary focus will be in executing and building a portfolio of business hotels in key cities such as Tokyo, Osaka and Kyoto. We see a lot of value-creation opportunities in this segment and have deep relationships with the operators.” The firm is currently in due diligence on a couple of deals, pursuing properties with 100-200 keys and small room sizes of 12-14 square metres, typical for Japan.

Ghai notes: “The mid-market space constitutes about 70 percent of the hotel supply in Japan.” In terms of a branding strategy, Ghai says that they will work with international operators like IHG and Marriott, the two largest hotel operators in the region, who have created suitable and well-recognised business brands, namely Garnar and Four Points Express respectively.

Moving into retreats

Salter Brothers is also exploring a more luxurious, leisure route into Japan. For Ghai, the country’s ryokan properties – largely rural retreats – chime with the firm’s expertise in a similar space in Australia. “We identified a key white space in the market for 20-80 room hotels in idyllic locations within a two to three hour driving distance of large cities. Prior to the pandemic, we saw limited focus and investment in this space but since pandemic experiential spending has been on the rise and hence demand in retreat assets.”

In Australia, the firm acquired the Spicers Retreats portfolio in 2022, including the Spicers brand and six of the ten Spicers Retreats located in Queensland and New South Wales. The firm is now adding to its retreats holdings in the country with single acquisitions which will be flagged with a couple of different brands, to distinguish luxury from upper upscale options. The plan in Japan is seeing the business strike single deals – half a dozen so far – to painstakingly build a portfolio of rural, luxury stays near the cities of Tokyo, Osaka and Kyoto.

“We see a long-term trend emerging for these kinds of stays,” he says, noting that the opportunities in the space fit with the firm’s value-add approach. “In the past, typically these hotels have been managed by small groups or families. We have often found properties that were constantly underperforming on the back of limited experience and a high-cost base, putting a lot of financial pressures on their owners.”

In Japan, the group will work with local operators and brands to grow further. “We will look to work with strong domestic and international brands and bring further efficiencies in terms of clustering and centralising operations. This allows us to improve performance and manage costs.”

Challenges and strengths

Ghai acknowledges the risks related with luxury stays in Japan, chiefly the significant labour shortages. “For many reasons, including extremely low immigration, staffing is a challenge in some parts of Japan.”

Beyond Japan, Ghai is interesting in pursuing both business and luxury hotels in South Korea but notes that the market remains tightly held with limited transactions.

He says that one of Salter Brothers’ major strengths remains the fact that the firm is both an investor/owner and a manager of hotel assets. “Our manager role is highly active and engaged in relation to our major hotel assets (where we ‘manage the manager’) and when it comes to our retreats, of course, we are the manager.

“This gives us very deep knowledge and expertise at a management level that feeds into our investment business, and the selection of partners and assets to invest in. Our management team also gets involved in the due diligence of potential investment assets and this brings a great deal of value to the investment process,” he says.

Small Cap Report JULY 2024.pdf

As seen in HM Magazine

by Ruth Hogan |  July 11, 2024

Mercure Sydney Manly Warringah is set to become the first women’s-only partner of the Sea Eagles in a collaboration that will bring significant benefits to the club, community and the travel industry.

Together with its owner Salter Brothers, Mercure Sydney Manly Warringah has signed a partnership with the Sea Eagles’ new Harvey Norman NSW Women’s Premiership rugby league team.

The Harvey Norman NSW Women’s Premiership is NSWRL’s premier women’s open-age competition, developing female players for the national stage.

The partnership will see the hotel provide accommodation to players and coaching staff when travelling for games and training, accommodation discounts for players, staff and members and employment opportunities for players under the game’s ‘no work, no play’ policy.

“We are extremely excited to be investing in the rapid rise of women’s sport,” said Mercure Sydney Manly Warringah General Manager, Scott Bear.

“We hope this partnership can help to raise its profile, not only on the Northern Beaches, but across Australia and provide support for the growth of women’s sport.

“It is an honour to have our name associated with such a great program. We look forward to working closely with the Sea Eagles and their passionate community, creating unforgettable experiences for players, officials, fans and guests alike.”

The Mercure brand will be prominently featured on the front right of the women’s playing shorts, during game day announcements, and across the team’s digital content on the website and social media platforms.

“This partnership will have a huge impact on and off the field for our female athletes in our Harvey Norman NSW Women’s Premiership team,” said Manly Warringah Sea Eagles Chief Executive Officer, Tony Mestrov.

“One of the most exciting aspects of this new deal is that our female players will have the opportunity to work in various roles and develop a wide range of new skills off the field throughout the Mercure network across NSW.

“Mercure Sydney Manly Warringah is also just a short stroll to our home ground at 4 Pines Park, making it an ideal base for travelling Sea Eagles fans to attend our games,’’ he said.

Accor also has existing partnerships with the NRL, NRLW, AFL, AFLW, New Zealand Cricket and New Zealand Rugby.

Accor Pacific Chief Operating Officer PM&E, Adrian Williams, said “sport plays a crucial role in Australian culture and, by tourism and sporting organisations working together, both consumers and our industries enjoy great experiences and rewards”.

“The new Sea Eagles women’s team will no doubt become an unstoppable force in women’s sport and we are so proud to support them in their journey to success,” he added.

As seen in the Australian Financial Review

Sarah Thompson, Kanika Sood and Emma Rapaport   |  Jun 30, 2024

Four months after putting Prospa investors out of their misery with a take-private, Melbourne fund manager Salter Brothers has ruled off an investment in Marketboomer, the software as a service business making hospitality procurement more hospitable.[https://www.afr.com/chanticleer/prospa-started-asx-life-with-a-bang-it-s-ending-with-a-whimper- 20240227-p5f885]

It is understood the Salter Brothers Tech Fund has tipped in $4.9 million in exchange for a 20 per cent stake in the proptech business, which was established almost 30-years ago in Sydney and has a presence across 23 countries.

Marketboomer’s platform allows hotels to source the hundreds of items they need every day from suppliers—all with paperless invoicing. It has over 10,000 active monthly users who can tap into some 20,000 suppliers on its network. The company claims to save customers 7-12 per cent on purchasing and operations.

Salter Brothers’ equities team originated and structured the transaction, while theTech Fund led the investment. The fresh funds would be funnelled into ramping up customer and sales resources in Australia; expansion into South East Asia and theUnited Kingdom; and to allow existing investors to take money off the table.

“The business has achieved impressive historical organic revenue growth recently with less than one per cent churn,” Salter’s head of equities, Gregg Taylor, said.

The new capital will allow an acceleration ofthis growth rate and further global expansion.”

Marketboomer’s customer base includes IHG, Accor, Marriott, Capella and Qantas,and hotels owned by the Salter Hotel Group.

“Salter Brothers’ team has a deep understanding of the hotel ecosystem … and access to economies of scale and revenue diversification through utilising their global network,” Malcolm Jull, chief executive of Marketboomer, said.

Read article on-line here