Salter Brothers hits $1B target with $150 million acquisition of NEXT Hotel Brisbane and gears up for future growth strategy

Melbourne-based property investment firm Salter Brothers (formerly SB&G Group) has now met its stated target of $1 billion of hotel assets, with the acquisition of the NEXT Hotel in Brisbane’s Queen Street Mall. The acquisition from Challenger Group, marks the first Brisbane-based property to be acquired by Salter Brothers, adding further scale and geographic diversification to their Australian hotels portfolio. NEXT Hotel is Salter Brothers’ first Brisbane property and the 7th Australian hotel acquired in 3.5 years.

This latest acquisition and firm’s re-positioning toSalter Brothersfrom SB&G Groupis aligned with the firm’s future growth strategy towards a planned IPO and the recent formalised independence from iProsperity Group (IPG) and its founder Michael Gu.

Further strengthening the growth and expansion strategy is Salter Brothers’ appointment of UBS and Credit Suisse as joint lead managers (JLMs) to raise capital for the NEXT Hotel acquisition and planned developments in Canberra and Melbourne

Further detail on each of the three key announcements is outlined below:

Salter Brothers acquires NEXT Hotel in Brisbane

Speaking on the acquisition of the NEXT Hotel Brisbane, Salter Brothers Managing Director, Mr. Paul Salter, said, “We are delighted to have secured thishotel on behalf of our investors in the Salter Brothers Hotel Group.The transaction represents a strong opportunity for us to enter the Brisbane market at this point in the cycle, as we expect the market to continue to recover in the coming years as new supply is absorbed”.

The recently developed upscale hotel, which features 304 rooms, restaurant, outdoor pool and gymnasium, is located in the Brisbane CBD’s prime retail strip, Queen Street Mall. The hotel is leased to an entity of NEXT Story Group, which operates the NEXT Hotels brand. The property also includes two levels of prime retail space, part of which is leased to Westpac Banking Corporation.

Commenting further on the financial rationale of the acquisition, Mr. Salter added, “This property will provide Salter Brothers Hotel Group with long-term exposure to the improving Brisbane hotel market, underpinned by secure leases to high quality tenants, delivering an attractive initial yield and ongoing steady cashflows. The acquisition provides further income diversification, with the introduction of a new operator and the first leased asset of this nature in our portfolio. The hotel is also attractively priced on a dollar per room basis.”

Following settlement of the acquisition, the hotel will continue to operate under the NEXT Hotels brand, with Mr. Salter noting, “Salter Brothers Hotel Group is pleased to welcome a new, high quality hotel operator to our platform and we look forward to working closely with the NEXT Story Group on this asset, with the potential for more NEXT Hotels branded hotels going forward.”

The acquisition is currently expected to settle by 31 July 2019.

Advising the Salter Brothers Hotel Group on the NEXT Hotel acquisition are MAP Capital as corporate and debt adviser, and MinterEllison as legal adviser.

UBS and Credit Suissepartnership

Salter Brothers Hotel Group has appointed investment banks, Credit Suisse (Australia) Limited and UBS AG, Australia Branch, as joint lead managers and joint placement agents (“JLMs”) in relation to a capital raising to fund attractive expansion and development opportunities within the Salter Brothers Hotel Group. The private capital raising will enable the next phase of growth in the Salter Brothers Hotel Group, which has continued to deliver strong total returns to investors since its inception in 2015 and is expected to appeal to domestic and foreign institutional and sophisticated investors. Salter Brothers Hotel Group may seek an IPO of the portfolio in the future.

In conjunction with UBS AG, Australia Branch and Credit Suisse (Australia) Limited as JLMs, MinterEllison is acting as legal adviser on the capital raising.

Australian hotel market update

There continues to be strong domestic and international institutional investor interest in accessing hotel real estate investment opportunities in Australia, given the hotel sector’s positive macro tailwinds, including:

  • Constrained supply: Even with the supply increases that are forecast for some CBD markets, CBD hotels are still trading at amongst the highest occupancy rates in the world;
  • Increasing consumer demand: a subdued Australian dollar should see increasing demand for Australia as an international tourist destination as well as encouraging more local travel by Australian residents; and
  • Increasing international tourism, especially from mainland China, which according to the ABS now delivers more than 1 in 8 visitors to Australia.

These factors all support an upwards trajectory in hotel RevPAR (being the multiple of occupancy rates and average daily room rates), in Australia’s main CBD markets.

Salter Brothers – a leading, independent platform

Salter Brothers Hotel Group, along with the broader Salter Brothers operations (collectively, “Salter Brothers”), also announces the formal separation of Salter Brothers and the iProsperity Group (“IPG”). While Salter Brothers has always operated independently from IPG and its founder Michael Gu, with the proposed institutional investment in the Salter Brothers Hotel Group, it was considered appropriate that this independence be formalised. As a result, IPG and Michael Gu no longer have any formal business relationship with Salter Brothers.

Mr. Salter said, “This formal separation reflects the reality of recent years as Mr. Gu has primarily been focused on IPG, and operated independently from Salter Brothers.