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The New Zealand hotel and tourism market underwent an unprecedented period of growth between 2013 to 2019, underpinned by strong international inbound visitation numbers, which reached a record 3.9 million in 2019.

This bumper period of international tourism represented a compounded annual growth rate of 6.2% per annum, but the global impact of Covid-19 significantly dampened demand in 2020 and 2021.

However, a recent report published by the International Monetary Fund acknowledged New Zealand’s sound management of the Covid-19 crisis – highlighted by decisive fiscal and monetary responses – was instrumental in cushioning the wider economic impact.

This included the government contracting 34 major hotels for mandatory isolation purposes, known as MIQ hotels, which provided underlying financial assistance to the sector, while ongoing domestic leisure and corporate demand also remained in play for much of this period.

With international borders progressively reopening, the Tourism Export Council of New Zealand estimates international demand will return to pre-Covid levels within approximately four years. This is supported by a recent release by the International Air Transport Association, which anticipates traveller numbers in the Asia Pacific region will reach 2019’s pre-Covid levels by 2025.

New Zealand will also see a record 58 hotels, circa 8,230 rooms, completed between 2018 to 2024, adding a wide range of quality new hotel options for overseas visitors as they return to our shores.

As border restrictions ease, a robust recovery is anticipated over the next 18 months with the medium to long-term prospects of the hotel sector remaining very positive.

Strong investment demand

Following a record year of hotel sales in New Zealand in 2021, the industry is set to take another step forward in 2022.

More than $400m of hotel deals were settled in 2021, representing a staggering 33% increase on the previous highs of 2010 and 2015, which saw $300m of sales recorded each year. The record result is nearly three times the 10-year average of $150m per annum.

The sales included high-profile assets such as the five-star Sofitel Queenstown, 280-room Rydges Wellington, and the recently completed luxury lifestyle hotel QT Auckland.

Factors contributing to the increase in activity vary but the pandemic was one of the main drivers of activity in the market. Whilst there have been very few distressed sales, some owners have been more motivated to sell, especially if a buyer presents a fair, non-distressed offer.

Over 80% of hotel transactions were to domestic purchasers, due largely to the inability of international investors to enter New Zealand due to border closures. In the five years preceding Covid-19, international buyers made up 50% of all transactions.

Existing hotel investors were the most active in the market, looking to grow existing portfolios both geographically and by segmentation.

One of the big players to emerge in the past three years is NZ Hotel Holdings, a strategic partnership between the $60bn NZ Super Fund, The Russell Property Group, and Lockwood Property Group.

This entity remained the most active investor in 2021, purchasing three strategic assets worth over $250m. Since the commencement of the partnership in 2019, the portfolio has amassed a total of seven hotels comprising close to 1,400 rooms and is now the fourth-largest hotel investor in the country by room count.

However, in 2022, we expect to see international investors re-enter and dominate the market after a two-year hiatus. A large amount of offshore capital is keen to invest in the New Zealand hotel sector as the country continues to be a highly attractive investment destination due to its transparent legal system, safe geopolitical status, and strong relationships with leading global economies. This has always helped drive strong investment demand in the property sector, including hotel and tourism assets.

Furthermore, investment demand remains highly fuelled by the limited availability of quality hotel assets available for sale and a wide range of private and institutional demand from domestic and offshore parties who are looking to secure a position in the country.

In almost all cases, these investors predict tourism will rebound strongly post-Covid-19 and so will investment returns. Hotel yields also remain above other key asset classes offering attractive post-Covid-19 stabilised returns of 6% to 8%.

This article originally appeared in the REINZ Real Estate Magazine winter 2022 issue.

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The NZX-listed property syndicating company announced today that a takeover bid by Australian company Centuria Capital had been terminated. Augusta’s share price has halved since mid-February to $1.10 this afternoon.

Mark Francis

In mid-February, Francis had announced the “postponement” of the proposed $70m tourism fund until 2021 because of difficulties in raising money for two funds at the same time – Augusta was also promoting a $90m industrial fund.

Today, Francis said there was a lot of speculation amid the global meltdown of equities.

“A number of financial commentators have said that when this is over there will be a rapid bounce-back of tourism but it’s a question of when.”

Francis said there were a number of Augusta’s property assets within various funds that were affected by lease and rental issues of tenants.

“There are lawyers looking at all the scenarios. It’s case-by-case, and it’s certainly keeping lots of lawyers busy.”

Like most other NZX companies, Augusta has cancelled its proposed third quarter dividend at this time.

The Centuria takeover bid had been at $2 a share, which was 20% higher than Augusta’s early January share price, indicating that general market sentiment had pushed it lower this week.

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The deal for an undisclosed sum sees NZFT’s previous majority owners and founders – Wanaka-based David and Kerry Kettle and Auckland’s Chris Sutton and Meagan Evans – retain just under 40% of the company.

Evergreen is using its $66m Evergreen Partners No. 3 LP fund to take a 59.51% stake in NZFT. The fund seeks to deploy between $5m-$15m into businesses and its investment in NZFT is expected to be near the higher end of that band, given NZFT said it had 15,000 customers in 2018 and generated sales of around $40m.

NZFT said the new money would be used to fund the business and support expansion as well as being partly realised by the previous majority owners. Chris Sutton and Dave and Kerry Kettle are to continue in the business.

The Wanaka-based inbound tour operator was established in 2004 and specialises in customised self-drive FIT and independent coach tours. It invested heavily in the sector three years ago when it bought Auckland-based Discover NZ and Thrifty Tours NZ from Tranzit Group and now operates eight consumer brands and a wholesale arm, nzsidekick.

Dave Kettle said NZFT had started reaching out to possible investors last year and the deal with Evergreen marked the culmination of months of due diligence.

“We were talking to a number of potential partners, including two from trade, but the team from Evergreen were head and shoulders above,” said Kettle.

He added that NZFT was interested in growing by acquisition in NZ “for the right fit” and Australia was also an obvious territory to expand in.

Evergreen’s Tony Batterton said it was the firm’s first foray into tourism and that NZFT’s systems and entrepreneurial spirit had caught its attention.

“We have a lot of confidence in New Zealand tourism longterm and NZ Fine Touring are well placed to take advantage,” he said.

Batterton and fellow Evergreen partner Simon Plowman are to join the NZFT board alongside Dave Kettle and Chris Sutton. An independent chairman is expected to be announced shortly.

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