The Rusty Anchor Motel in Gladstone, Queensland Source: Supplied
- From: The Australian
- November 20, 2010
JOHN Sheppard practises what he preaches. The chairman of Golden Chain Motels, the biggest owner of motels in Australia, has also been a personal investor since 1992.
Sheppard brought his first motel in the Nambucca Valley 17 years ago and sold it last year for double what he originally paid.
"I have been continually investing in the motel industry and currently own three and am looking to purchase a fourth in the Hunter Valley," Sheppard says.
"I suppose I am in a unique position as a chairman and a personal investor, but I love the industry and think that it is ideal for mum and dad investors."
Sheppard says any potential investors need to consider a range of factors such as location, the state of the motel and any impending state government or local council infrastructure changes.
"Mum and dad investors also need to consider whether to buy freehold, where you have total control over the land and motel or (take) a leasing agreement where you can run into difficulties with the landlord.
Golden Chain Motels own 345 motels in Australia and another 100 in New Zealand and has expanded into the South Pacific to Vanuatu, Fiji and Norfolk Island.
Sheppard says the motel industry remains strong in Australia, especially in the mining towns.
"In the Mackay region, for example, mining companies have taken the contract to lease whole motels for a year or two. While that is great in boom times, you have to be prepared for when it starts to go the other way too," he says.
Sheppard says the average motel occupancy rate is about 60 per cent, but it can be as high as 80 per cent in some areas. It can go lower, too.
"If your occupancy rate falls below 40 per cent you are in trouble because you will just be working for wages and no profit."
One person who knows how that feels is Ian Matheson, the owner-operator of the Swag Motel in Middlemount, Queensland.
"I bought the land in May 2006 and built the property, which opened up in November, 2008," Matheson says.
"When the GFC hit, our earnings went down from $50,000 a week to $17,000 a week and that lasted for about 15 weeks. With break-even at about $27,000, we went through a lot of money. Let me tell you that was very hard work.
"It wasn't until February this year that things started to pick up and now we are taking in about $60,000 a week."
Matheson, who has owned retail outlets in both Queensland and Victoria, believes the key to a successful motel is the location, standards, services on offer and staff.
"At the moment my wife and adult children help out, which is great, but it is difficult in times of high employment around the mining areas to get quality staff," he says.
The Swag Motel has 48 rooms and a full bar and restaurant that does very well.
"On average, we serve about 85 meals a night in the restaurant at an average of $57 a head," he said.
"This year we will turn over $1 million in our restaurant alone. That is better than some top restaurants around Australia."
Matheson is looking at buying other motels across Australia in what he sees as good times ahead.
Certainly, both Sheppard and Matheson's optimism for the future is backed up by the latest figures from an IBISWorld industry report completed in August.
But the industry does face some challenging issues.
The IBIS report states that the industry overall is expected to generate $2.664 billion in revenue this financial year, which represents growth of 3 per cent as the economy rebounds.
Of that income, $474.2m is expected to be profit.
The report also states that while annual growth in the motel industry is expected to be 3.4 per cent between next year and 2016, it will have shrunk between 2006-2011 by an annual real rate of 0.6 per cent.
The motel industry, however, is subject to changes in household disposable income, which is related to employment growth combined with any changes in personal tax, and any escalation in fuel and food prices.