RHCD Funds see strong investment opportunity in the attractive asset class of regional motels. Accordingly, RedHill and RHCD have invested in 10 regional accommodation properties across NSW, VIC and QLD to date, totalling more than 500 rooms, with another property and additional 40 rooms under exclusivity. Our third regional accommodation fund is expected to take total rooms under ownership and management to 800. We have seen asset values increasing meaningfully at a time other asset classes such as office, shopping centres and industrial are under pressure with evidence of valuation declines.
Regional tourism has grown consistently for the past decade. Post COVID lockdowns, hotel and motels have recorded very strobg daily room rate . RedHill Hospitality have extensive track record in the ownership and management of motels. This hands on in-house motel management expertise is a key point of differentiation vs other investors and owners of motels.
Motels are a typically non institutionally owned asset class due largely to their small individual investment size. A similar factor previously occurred with caravan and tourist parks (lifestyle parks) however this has changed in the past decade through the aggregation of large institutional portfolios which in some cases are now listed on the ASX. We see a similar opportunity in the highly fragmented regional accommodation space. The directors of RHCD Funds have decades worth of deep experience in institutional real estate which they bring to the planning and operations of RHCD’s accommodation portfolio.
Motels tend to sell for high yields and for well below replacement cost, protecting them from new supply. They also have typically been under managed by their previous owners who often have become unengaged, have not properly invested in the property upgrades, and have failed to understand the importance of keeping pace with technology which drives bookings and occupancy.
Consequently, the motels we target for investment are often owned and run by under capitalised and unsophisticated managers. There is strong profit leverage potential from increasing occupancy or increasing room rates. Increasing occupancy is a key target, and as such we tend to focus on motel opportunities which are underperforming but which can benefit from light upgrades to rooms, and the adoption of on line booking strategies.
Key investment focus points include;
- Targeting of markets with stable or increasing demand and limited new motels supply
- Underperforming assets which can quickly benefit from improvements
- Focused Value Creation Plan
- Compelling Consolidation Opportunity
- Attractive yield and meaningful discount to replacement value to limit downside risk
Sophisticated and detailed due diligence of assets is a core capability. We have reviewed and assessed many assets throughout NSW, QLD, VIC, SA and WA and maintain a deep list of opportunities.