SYDNEY—Mantra Group’s entrance into the public markets two years ago has coincided with a growth strategy that served as a springboard into new markets and opportunities as it seeks to maintain its role as Australia’s largest hotel operator.
“Clearly it’s a journey that’s been very good for the company,” CEO Bob East said during an interview held in conjunction with the HotelsWorld event in Sydney in late July. “As we’ve gone about our acquisitions, having a willing shareholder base and a potential for new investors to be involved as we raise capital, it’s been a very positive move for the group.”
Mantra trades under the symbol “MTR” on the Australian Securities Exchange. It became public on 20 June 2014 with an initial public offering price of 1.80 Australian dollars ($1.37) per share. It closed Thursday’s trading at AU$3.17 ($2.41) per share.
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Bob East, Mantra Group |
Mantra’s operating business model hasn’t changed as a result of becoming publicly traded, according to East.
“The approach of our asset management, our service delivery and the product we provide, that has been consistent,” he said. “We haven’t really changed anything in the business but clearly it’s opening up our horizon in terms of where we will look for deals, the size of the deals we’ll look for and how we participate in those deals. That is the biggest change for us. For us it’s been a very positive move and one I wish we’d done beforehand, to be honest.”
Based in Surfers Paradise, Queensland, the Australian company’s 127-property portfolio—which comprises more than 20,000 units—includes business hotels, resorts and serviced apartments. East described the company’s hotel portfolio as a simplified approach to branding:
- The premium Peppers Retreats, Resorts & Hotels brand is offered in central business districts and resort locations. Mantra assumed control of the 30-year-old brand 10 years ago.
- The Mantra Hotels, Resorts & Apartments brand is designed for business and leisure locations and comprises approximately half of Mantra’s overall portfolio (67 properties).
- The value-proposition BreakFree Hotels, Resorts & Apartments brand has been in market for about 20 years—the last 10 of which have been under Mantra’s control.
“These are domestic brands that are well-known in our market, and as we’ve moved offshore, we’ve introduced these brands up to Asia because we have so many Australians looking for our brand offering in that market,” East said. “We are branching out offshore with these brands.”
The company’s approach to branding is straightforward: It doesn’t manage any hotel that doesn’t carry one of its three brand flags, nor does it allow any other management company to manage its branded properties, East said.
Looking elsewhere in the region
The branching out philosophy includes the July addition of the Ala Moana Hotel in Honolulu, Hawaii, and Southport Central project in the Gold Coast of Australia.
The 1,086-room Ala Moana Hotel is the largest property in Mantra’s portfolio and could serve as the gateway for the company into the North Pacific region, East said. MG Hotels North Pacific, an affiliate of Mantra Group, acquired the condo-hotel in May from Outrigger Enterprises Group for $52.5 million.
“That’s a good example of how we put our capital to work,” he said.
East said the acquisition leaves the door open for more expansion in Hawaii.
“We may well consolidate in Hawaii and pick up a few more deals before we branch elsewhere, but we leave our options open—and really it’s somewhat dependent on where the opportunities arise,” East said.
Notwithstanding the Ala Moana deal’s financial details, Mantra’s usual acquisition model includes having a 10% to 20% stake in a deal.
“We are known to be a capital-light, fee-earning business—we don’t really want to burden our balance sheet with too much freehold asset, although we do have the capacity and the shareholders to purchase outright,” East said. “The best utilization of our funds is to continue recycling and only participating in a portion, and then recycling that through to grow our pipeline.
“We’re not looking to build a strategic holding in hotels ownership,” he added. “What we’re looking to do is increase the portfolio from management.”
Mantra has 23 management agreements that don’t include an ownership stake, according to East. The company will continue looking for both options going forward.
“Where you apply capital, you have to be very discerning,” East said. “We’re happy to pick up management agreements. We’re equally happy to use a part of our balance sheet. We think we get better strategic alignment.”
Strategic growth is essential
The company’s pipeline remains strong, as its fiscal year 2016 report shows. During the year, Mantra Group secured a number of properties in various stages of construction or pre-construction, including:
- The Mantra Sydney Airport Hotel, which is expected to be completed in the second half of 2017;
- Peppers Kings Square Hotel, the company’s first Peppers property in Western Australia and Perth’s central business district, which is scheduled to open in late 2016;
- Tribe West Perth, a high-end modular construction project, due to open toward the end of 2017; and
- The Wallaroo Shores Resort in South Australia, Mantra’s first property in the region, scheduled to be completed in early 2018.
Mantra is equally dedicated to expanding in city locations and in resort areas, and is open to adding hotels or serviced-apartment assets to its lineup, East said.
“We’re trying to enter those markets that we think have stability, that have a history and a very strong track record of being desirable locations, so immediately that makes places like Bali, like Phuket and Thailand, like Hawaii,” East said, adding that Singapore and Hong Kong are also targeted for expansion. “We will focus slightly more on the resort locations because that’s where we think we can provide the greatest value proposition.
“We’re clearly not trying to spread the globe,” he added. “We’re trying to penetrate markets with some meaning, with some critical mass and make our brand and distribution meaningful in that market.”
Mantra also is open to looking for more than one-off deals, East said.
“When we can find a platform, we’ll do a multiportfolio takeover or acquisition,” he said.
The overall landscape looks positive—East said he doesn’t see too many headwinds but expects the slow growth of the global economy to continue. Growing its footprint in Australia is important to Mantra’s future, and that means finding the right people to add to an employee base that already numbers more than 5,000.
“Particularly in Australia, where we’ve got low unemployment, you really need to separate yourselves from other offerings,” East said. “Ultimately, I believe it comes down to a company culture in which we engage with our teams and present good career prospects for the people that join us and good training and development programs.
“We’re not immune to some of the difficulties, particularly in remote locations where it might be more difficult to find a skilled workforce, but we are very, very blessed with a very strong team and a good culture that we’ve forged over a number of years.”