Elanor launches regional hotel fund with eyes on ASX float

Peppers Cradle Mountain Lodge in Tasmania is one of 14 hotels across Australia to be included in the Elanor Hotel Accommodation Fund.

Investment house Elanor is launching a national hotel fund in a bid to capitalise on the post pandemic return to favour of regional accommodation with plans to grow it to a $500m fund and attempt an Australian Securities Exchange float.

The properties to be tipped into the fund include famed properties like Tasmania’s Cradle Mountain Lodge and Adelaide’s popular Mayfair Hotel.

While the Elanor Hotel Accommodation Fund will initially be an unlisted fund with a portfolio of 14 hotels across Australia it has already flagged its intention to expand as it bulks up ahead of a listing.

Regional hotels are still changing hands despite the pandemic and a float would be the first pure hotel trust to list for years with most listed real estate investment trusts already out of the field. GPT once owned an island portfolio and Stockland and Mirvac both had hotel operations.

The move is one of the boldest in the accommodation sector by a listed company in the sector for years and is aimed at tapping investor interest in the upswing that larger global institutions are already betting on.

The launch and eventual float will also spur the growth of the larger Elanor Investors Group, which has expanded its empire to $2bn of funds under management.

The move is partly a bet on regional tourism and smaller properties that are faring well despite the pandemic closing international borders.

All up the fund will include 14 hotels encompassing 1179 rooms across five states. The portfolio was valued at $340.75m as at the end of last December with the directors estimating this would rise to about $350m at the end of June.

Nine of the hotels operate under the Accor umbrella, with Accor operating four hotels and using franchise agreement on five hotels, that sport well-known brands including ibis Styles, Mantra and Peppers.

The Mayfair Hotel Adelaide.

The largest hotels in the portfolio by value include the Mayfair Hotel Adelaide ($84m), Peppers Cradle Mountain Lodge in Tasmania, ($72.6m), the Byron Bay Hotel & Apartments in Byron Bay in northern NSW ($32.7m) and the ibis Styles Canberra ($29.75m), which collectively account for about 64 per cent of the portfolio.

Elanor is looking to raise $92.7m by issuing units at $1 per unit and will buy four regional and luxury hotels for $179m, which will involve pulling together its existing holdings. It will combine a hotel operating company and three existing unlisted property trusts.

The three trusts being pulled together encompass separate series of the Elanor Hotel Accommodation Fund. The first includes six hotels located in the Barossa, Byron Bay, Clare, Eaglehawk, Canberra as well as the ibis Styles Albany.

The second trust holds five hotels in Mudgee, Port Macquarie, Tall Trees, Wagga Wagga, Wollongong. The third has Adabco Adelaide, Mayfair Adelaide, and Cradle Mountain Lodge.

After the deal Elanor plans to keep a 15 per cent co-investment in the fund, subject to a maximum 49.9 per cent holding.

Elanor refused to comment on the plans.

The pandemic has played a role and portfolio occupancy levels are estimated to halve in fiscal 2021, offset partially by an increase in average daily rates. But Elanor is forecasting the portfolio will deliver earnings growth over the next three years, assuming occupancy levels return to about three-quarters and room rates pick up.

Over the next three years, Elanor is looking to improve the earnings and increase the portfolio to more than $500m with a view to providing a liquidity event through a sale or ASX listing.

Distributions start at 8 per cent per annum in fiscal 2022, with Elanor providing a distribution guarantee to deliver this as a minimum this financial year. Elanor is targeting a higher internal rate of return of 20.1 per cent per annum over three years.