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Trinnex Workshop - VanuatuTrinnex Workshop - Vanuatu
Tourism InvestmentTourism InvestmentTurning Opportunities into InvestmentTurning Opportunities into Investment
John Perrottet29-31 August 2010
The ApproachKnow the market
Know the product
Know the opportunity
Know the investors
Know their investment strategies
Target the investors
Take the opportunities to the investment market
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PACIFIC REGION PACIFIC REGION TOURISM TOURISM
INVESTMENT INVESTMENT VEHICLEVEHICLE
What’s the Problem?
Shortage of real equityShortage of real equityRegion is characterised by low levels of investment in tourism as a % of GDP
High demand for Capital where Demand exceeds Supply
This limits growth & places assets at riskTourism requires long term “patient” moneyThe Pacific tourism industry is fragmented
Nature of the Study
The TaskThe TaskFeasibility Study for the Establishment of an Investment Vehicle in the SME Hotel sector of the South Pacific
The ClientThe Client
Our ApproachSTAGE 1 STAGE 2
Increasing Commitment to the Concept
Project Initialization
Establish Expert Panel
Desk Research
Market Consultation Program
Expert Panel Review
Stage 1 Reporting
Presentation of Stage 1 Report
Discussion with PATA
Decision to proceed
Supplementary Consultation Program
Analysis and Consolidation
Expert Panel Review
Stage 2 Reporting
Presentation and review with PATA
Assess Demand
Review Facility Scoping
The MarketResearch conducted in 18 countries.Research conducted in 18 countries.
These countries attract almost 1.6 Million visitors per year.
Average Annual Year on Year growth has consistently been over 3%.
Fiji + French Polynesia account for 50% of visitors.
The MarketFiji Long Term Visitor Arrivals Growth
The MarketSamoa Long Term Visitor Arrivals Growth
The MarketPNG Long Term Visitor Arrivals Growth
The MarketCook Islands Long Term Visitor Arrivals Growth
The MarketVanuatu Long Term Visitor Arrivals Growth
The MarketTonga Long Term Visitor Arrivals Growth
The MarketCombined Long Term Visitor Arrivals Growth
The Market1,940 properties that represent 331,940 properties that represent 33,884 ,884 rooms.rooms.
4% offer greater than 100 rooms (75 properties).
26% offer between 20 – 100 rooms (510 properties).
70% offer less than 20 rooms (1,355 properties).
The Market
The Market
The MarketThere are three distinct segmentsThere are three distinct segments
Upper Market – 4% properties; 1/3 rooms
Relatively large (> 100 rooms)Formal businessesCommercially financedMore likely to be foreign ownedUsually professional managementCan raise and package own capitalSound businesses with growth potential
NEED – Equity (risk capital)
The MarketThere are three distinct segmentsThere are three distinct segments
Middle market – 26% properties; 1/3 rooms
Mid sized (up to 100 rooms but generally 20-50)Formal businesses, many still family ownedSome foreign ownershipCommercially financedGenerally undercapitalisedSound businesses but undermanagedMany have good growth potentialOften sub-optimal profitability
NEED – Equity and Management
The MarketThere are three distinct segmentsThere are three distinct segments
Lower End – 70% properties; 1/3 rooms
Small (usually < 20 rooms but not always)Family owned and managedAll local ownershipIndependently financedOften informal businessesCan be highly profitableSound businesses but undermanaged
NEED – Security and Skills in order to raise debt
The OpportunityLower EndLower End
Multi-country guarantee scheme to enable access to local financial market (mainly development and commercial banks)
Combined with a skills building program focusing on financial management, marketing, training delivered by specialist advisers
Probably donor funded or underwritten
Cash backing (DFI) may be required in some countries
The OpportunityThe RestThe Rest
Commercial Investment Vehicle specialising in equity financing for tourism assets
Creates a platform to enable essembly of investment rather than single assett purchase
Consolidation opportunities
Distribution of risk
Ease of entry and exit
The OpportunityThe primary target for the IV is:The primary target for the IV is:
650 hotels representing 10,000 – 20,000 rooms
40 – 100 rooms each, some larger
Properties generating less than potential returns
High growth potential businesses
Values are USD$2.0M to USD$10.0M each
Six priority countries
The OpportunityThe funds would be used for:The funds would be used for:
Financial restructuring of profitable properties
Refurbishment of quality properties
Expand & upgrade properties to meet international expectations
Reposition properties to international branding
Partial or full take-out of institutional investors
Selected startups
Tourism support businesses including transport
The OpportunityScale of the Investment VehicleScale of the Investment Vehicle
Average room value of USD$100,000
1,000 rooms = USD$100 Million
500 rooms = USD$50 Million
This suggests an Investment Vehicle value of
USD$50M to USD$100M
Who Would Invest…….and Why?
Regional Provident Funds
Investment Funds
Commercial Banks
Corporate Investors
Development Finance Institutions
Existing owners
Private Individuals
Now Now
Who Would Invest…….and Why?
Opportunity to engage in the Pacific region’s most important industry without the detailed planning & due diligence required for a direct investment
Spread of risk by country & asset class
Provides regional banks with access to new lending leads and risk sharing in projects that are thinly capitalised
Who Would Invest…….and Why?
Investment Managers see the need for longer term finance being invested in businesses with good underlying capital bases which are not making good Equity returns.
With both $s + Management these businesses can deliver higher yields and generate capital growth.
A 15% return on funds invested is proposed as a realistic target – higher returns are possible
Who Would Invest…….and Why?
An Investment Vehicle of a sufficient scale would eventually attract investment funds from AUS/NZ/ASIA/EU
No other platform for accessing these sources of funds
These generally have a minimum investment threshold of USD$10M
At present only development institutions can consider this level of funds
Later Later
Type of Investment VehicleAn Unlisted Limited Liability Company [ULLC] is preferred structure
It should be Open Ended – no fixed termination date
It should be established in the most tax-effective location that is not subject to foreign investment regulations affecting the flow of Dividends
Needs access to professional management with strong knowledge of the tourism sector across the region
Managing the Investment Vehicle
Oversight from a Board of Directors consisting of eminent leaders of the region’s tourism sector with private sector, investment, advisory, and regulatory experience
A specialist firm to manage/advise the Investment Vehicle and with performance related remuneration
$s + Management = Unlocked Value$s + Management = Unlocked Value
Structure Issues
Domicile – costs, regulations, tax status, blanket approvals
Currency of investment
Risk exposure – guarantees?
Exit – from investments (trade sales, earn out)
Subscription and exit – for investors (trading in units/shares, dilution)
Relationship of advisory team to Board
Need for local representation
Possible Structures
A Fund ?
An Unlisted Limited Liability Company [ULLC] ?
A Trust ?
A combination
Possible Structure
InvestmentCountry 1
InvestmentCompany
Trust
AdvisoryCompany
FoundingShareholders
ExternalShareholders
InvestmentCountry 2
InvestmentCountry 3
InvestmentCountry 4
Mobilisation Strategy
Establish target level of funds
Secure one or two key income generating assets to take to founding shareholders
Obtain overall commitment (say USD$50m) with initial call of USD$5-10m
Subsequent calls to founders over 5 year period as pipeline builds
Introduction of additional investors as portfolio expands
Next Steps
Consolidate responses and complete reportMobilise support for Information Memorandum
Preparation of Investment MemorandumCapital raising programCommitment of FundsEstablish VehicleSelect Management/Advisory FirmCommence operations
The InvestorsWho owns hotels/tourism assets in your market?
Why are they investors - motivations?
What is the structure of their participation?
How do they invest – their investment strategy?
What is the competition for your destination among the investment market?
The role of brands – international, regional, local
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The Investment StrategyExpansion of local brands
Expansion of regional brands
Long term vs short term positions
Appetite for risk
Strategic partnerships
Property accumulation
Job creation
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The PitchDevelop skills
Thorough research
Careful targeting
Understand the business proposition
Professional documentation
Develop relationships
Formal presentation
Attention to detail
Closing and after care
The BarriersDestination
Investor protectionForeign ownershipCapital and profit repatriationConsistency
ProjectRegularity of cash flowCapital – Equity, DebtSecurity
InvestorReputationBusiness modelMarketingFinancial skills
Contact us
John Perrottet Australia
Dain SimpsonNew Zealand
Neil UnderhillFiji
