[+] Salter Brothers Sharpens Focus on Asian Hotels

Paul Salter has just returned to Australia after opening the company’s first Singapore office, marking a major move by Salter Brothers in the chess game that is the hotel industry. The Melbourne-based firm is a advisor and private wealth and funds management business with diverse assets that range from equities and private credit to residential and childcare real estate. But most important for Salter Brothers is hotels—it has 35 in Australia, worth an estimated $2 billion, and manages more than $3 billion in assets overall. “From a positioning perspective, we’re playing in the living space, whether that is a one-night rental of a hotel room or a 12-month lease from a build-to-rent perspective, to everything else in the middle,” managing director Paul Salter says. “But our core focus is still hospitality and hotels. Across multiple funds, we cover everything from CBD mid-market and upscale and luxury through to boutique luxury retreats, and we work with most of the operators in Australia.” With so much on, you’d be forgiven for thinking that Paul Salter and his team would want to steady the course but the next move will take Salter Brothers into the murky waters but mammoth opportunities of Asian markets. Asia: the new frontier Salter Brothers is in the process of getting licensed and employing staff in Singapore with expectations the office will be operational by the end of the year. It marks a major departure from Salter’s pre-Covid plans, under which it invested in its first US asset, in Washington, as well as the site for an InterContinental-branded, 252-room luxury hotel in Charlotte, North Carolina. “The US move was a pre-Covid move,” explains Salter. “We had some high-net-worth Asian clients who wanted US exposure, so the logical thing was to do hotels in the US.” “We developed a strategy in that direction but Covid made life incredibly tough. “The US presents a lot of challenges with capital markets, particularly on the debt side of the equation, as raising debt is difficult.” “We refurbished and rebranded the hotel in the US and it’s going fairly well, so the strategy worked, but when we looked at where we should prioritise our efforts, we realised we could manage a whole lot of things in this time zone for pan-Asian markets. “It made sense for us to focus on that region from a capital partners perspective as well, where our platform has the most leverage.” ▲ Salter Brothers managing director Paul Salter had an extensive career in funds management before moving into hotels. CBRE’s Asia Pacific market outlook in 2022 found that international arrivals were still at 20 per cent of pre-Covid levels, with a full recovery expected in 2024. “The Asian market from a hospitality perspective is strong. Markets such as Japan have good tailwinds for tourism growth, as they are opening up visa channels and flights to different markets are increasing,” Salter says. In fact, according to CBRE, many market average daily rates (ADR) and revenue per available room are already above 2019 levels. “We’re bullish on hospitality in Asia. It has weathered the storm a bit better for real estate, full stop—even offices in a number of Asian markets have remained more buoyant because work-from-home is not as prevalent.” But there are other ways in which Asian markets differ from those in Australia. “The major difference in terms of how to run hotels in Australia versus Asia is that the cost of labour is materially different. Here, you have to optimise service levels around process and technology more so than in Asia. “This means that there is opportunity in some of the more developed markets there to optimise processes and use technology to get better outcomes but still be able to deliver fantastic service.” ▲ Spicers Guesthouse in the Hunter Valley was in the portfolio acquired by Salter last year. Technology is a major focus of Salter Brothers, which has just launched its hospitality management platform for its own hotels, Salter Brothers Hospitality, slimming down and amalgamating operational functions under the direction of new chief executive Tash Tobias. As for what it will target, Salter Brothers is bringing its tried-and-tested methods in Australia to the Asian markets. “From an Asian perspective we’re focused on value-add opportunities where we can take an existing product and improve it,” Salter says. The Asian hotel markets are not without headwinds, however. “The current challenge for the hospitality market probably on a global basis is international travel hasn’t returned to pre-Covid levels, with China the one major market still below pre-Covid levels. “How long that will take to come back is the million-dollar question. Our expectation is that the Chinese visitor numbers won’t rebound until mid-next year.” Market positioning and strategy The move into Asia follows a trend of acquisitive behaviour from Salter Brothers. According to MSCI, the company acquired 22 properties and sold none in the past two years, making it a highly active investor. “The value-add repositioning play for us is the core strategy—finding an asset that hasn’t been renovated for a while, in a good location with good bones which warrants being refurbished and potentially repositioned as a better brand,” Salter says. ▲ Lilianfels Resort &amp; Spa in the Blue Mountains was one of the luxury retreats Salter Brothers acquired in its Escarpment Group deal. After acquiring the Travelodge hotel portfolio from Mirvac and the NRMA in 2021 for a record $620 million, alongside GIC and Swiss private equity firm Partners Group, for instance, Salter rebranded its flagship Wynyard hotel into a Mercure. “We’re doing a refurbishment which finishes in December when it will become a Novotel,” says Salter. “That materially lifts that proposition so we’re able to charge a better ADR but even just moving it to Mercure had a positive impact, and we’ve seen that strategy work in other assets in our portfolios.” Salter Brothers also has a core hospitality fund which is focused on new assets in CBD locations and its focus on the luxury end of the market led to the development of its Ardour Hotels &amp; Estates brands. The first Ardour properties is slated to open in the second quarter of 2024. “[These assets] tend to be more luxury. The first acquisition we did for that was Sofitel in Adelaide [ Salter splashed $154 million on Adelaide’s five-star Sofitel Hotel ] which we expect will complete in the next few months. “In Australia we have our retreat strategy, which is buying what we consider to be assets in ‘unrepeatable’ locations that can be quite experiential, then again doing some capex and positioning those as luxury lifestyle type products.” ▲ Boutique luxury hotels such as The Convent in the Hunter are a staple of the Salter Brothers portfolio. This approach was underlined after the acquisition of the Spicers Retreats business at the end of 2022, which included hotels in regional Queensland and NSW, and there are further opportunities in geographic locations across the country, Salter says. “There are one or two markets that have had a lot of supply [previously] and are coming out of that with not as much supply: Brisbane and Perth, and we would probably pick Brisbane, with the Olympics on the horizon.” Salter highlighted the Queen’s Wharf development as being one of the future standouts of the Brisbane hotel market but the lack of supply following its completion could prove to be a new opportunity for Salter Brothers. “There is some fantastic product up there, but apart from the casino, there’s not a lot in the pipeline.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Salter Brothers Sharpens Focus on Asian Hotels

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