Elanor Investors Group is expanding its accommodation hotel funds offering with the merger of its Metro and Prime Regional Hotel Fund (EMPR) with its Luxury Hotel Fund (ELHF) to form a new $350m investment vehicle, the Elanor Hotel Accommodation Fund (EHAF or Fund), as it looks to grow the Fund to over $500m in the near term.
Elanor is raising $92.7M of new equity to merge four regional and luxury hotels (in bold below) valued at an anticipated $179M (independent valuations in progress), with EMPR’s portfolio of regional accommodation hotels, which will be renamed to the Elanor Hotel Accommodation Fund. Following the capital raise the new stapled security fund structure will consist of 14 hotel accommodation businesses. Currently, Elanor Investors Group has a 42.9% interest in EMPR, as well as a 100% interest in the entities owning the four regional and luxury hotels. Following the transaction, Elanor intends to maintain a minimum 15% co-investment in the Fund.
The proposed Elanor Hotel Accommodation Fund will consist of;
- Adabco Boutique Hotel, Adelaide
- Byron Bay Hotel & Apartments
- Barossa Weintal Resort
- Clare Country Club
- ibis Styles Albany
- ibis Styles Canberra
- ibis Styles Canberra Eaglehawk
- ibis Styles Port Macquarie
- ibis Styles Canberra Tall Trees
- Mayfair Hotel, Adelaide
- Mantra Pavilion Wagga Wagga
- Mantra Wollongong
- Peppers Cradle Mountain Lodge
- Parklands Resort Mudgee
The Cradle Mountain Lodge asset is to be acquired by the new Fund for an anticipated $75M (independent valuation in progress), after an $8m refurbishment whilst owned by ELHF. The Mayfair Hotel in Adelaide, the Adabco Boutique Hotel also in Adelaide and the ibis Styles Albany are being acquired by the Fund for an anticipated $104m (independent valuations in progress).
The portfolio was valued at $340.75M as at 31 December 2020. Elanor expects the portfolio to be valued at $350.0M at 30 June 2021 and are in the process of undertaking independent valuations on all properties for the purposes of determining a fair and accurate value for investors.
Elanor have advised that the portfolio typically operates at an average occupancy in the 70% – 80% range to ensure profitability is maximised across the seasons. For the 12 months to June 2019 (pre COVID-19), the portfolio occupancy was 73.6% across the 14 hotels, with individual hotels reporting occupancy levels in the range of 57% – 85%. During 2020, occupancy levels fell materially as a result of COVID-19, particularly in the June 2020 quarter. Portfolio occupancy fell to 57.9% for the 12 months to June 2020, with individual hotels reporting occupancy levels in the range of 40% – 75%. As the impact of COVID-19 continued into the FY21 period (July 2020 to June 2021), the portfolio occupancy fell to 50.3% with individual hotels reporting a range of 20% – 84%. Since January 2021, occupancy has been recovering with most hotels now above pre-pandemic levels.
Elanor has forecast Distributions to start at 8.0% p.a. in FY22, and will provide a Distribution Guarantee to deliver this as a minimum for FY22. Elanor has then forecast Distributions will increase to 10.2% p.a. in FY23 and 11.4% p.a. in FY24 on the basis that portfolio occupancy returns to approximately 75%.
Elanor is targeting an IRR of 20% p.a. over three-years based on its assumptions for earnings growth.
Fund Details
| Trustee | Elanor Funds Management Limited |
| Fund Manager | Elanor Asset Services Pty Limited |
| Fund Size Target | $92.7m |
| Fund Raising Close | 30 June 2021 |
| Fund Term | 3 to 5 Years |
| Target Return | Equity IRR 20% pa |
| Liquidity | Illiquid |
| Investor Type | Wholesale |
| Target Assets | Hotels – 6 hotels from Elanor Hotel Accommodation Fund I (Barossa, Byron Bay, Clare, Eaglehawk, Canberra as well as the acquisition of ibis Styles Albany) – 5 hotels from Elanor Hotel Accommodation Fund II (Mudgee, Port Macquarie, Tall Trees, Wagga Wagga, Wollongong) – 3 hotels from Elanor Luxury Hotel Fund (Adabco Adelaide, Mayfair Adelaide, Cradle Mountain Lodge) |
Investment Strategy
The Fund aims to provide income and capital growth from a diversified portfolio of hotel accommodation assets and exposure to the earnings of the hotels from hotel room bookings, food and beverage and other ancillary income. Elanor is targeting earnings growth via margin improvement (from its integrated hotel operations platform) combined with recovering occupancy levels and revenue following the impacts of COVID-19. Elanor is expecting to grow the portfolio to over $500M (from $350M currently) to pursue a liquidity event in three years, which may include a portfolio sale or potential IPO.
Fund Fees
Elanor are entitled to receive fees in consideration for establishment and management of the Fund including;
- A 2.0% equity raising fee on the amount of new equity raised
- A Property Acquisition Fee of 1.00% of the Acquisition Price of the properties being acquired and any future acquisitions.
- Management Fees based on 1.0% of the Gross Asset Value (GAV) of the Fund.
- A Performance Fee of 20% of the Fund’s performance above an IRR of 15%.
The above fees generally align with market practice
Recommendation
The Fund is recommended for further consideration by investors seeking an above average distribution yield with FY22 guaranteed at 8.0% p.a. Revenues and Capital growth from the assets in the fund can be volatile and create a higher risk than traditional assets which are subject to more predictable cash flow from leasing activities. Potential investors are advised to review the key risks in the product documentation.
Disclaimer: The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
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