JLL Hotel & Hospitality Group presents the first in a series of interviews with stakeholders in the accommodation industry. Mandala Asset Solutions have been active across a wide range of Australian geography for many years and continue to expand their portfolio, JLL Hotel & Hospitality group’s Senior Vice President, Andrew Langsford, sat down with John Zeckendorf, to discuss their business and future growth plans.

Andrew: “Mandala Asset Solutions has been growing steadily over the past few years, through both direct investments and with strategic partnerships. Can you provide an overview of the business’s current direction?”

John:  Mandala Hospitality Group has roughly doubled in size each 18-24 months (from a small base) since 2015. We now own and/or operate 30 properties in 20 towns in 4 states. We are about to complete our first WA acquisitions in Bunbury and Albany. Delivering profitable quality offerings in remote locations scattered across the size of Europe is one of our unique selling points, and we continue to expand the value that we can bring to a regional property. Being regional specialists, we have tended to focus on regional towns and mostly acquired via our own fund TARHF Fund III. Building our Fund III is a key focus for Mandala with an aim of providing superior returns to our investors. A possible future wholesale exit is a possibility.

While we have been managing similar assets for external Owners, such as MA Financial Group for a few years, we have been approached by several owners of regional owners who are now asking if we can manage for them. Under certain circumstances, we are happy to do this and we expect this will be an increasing part of our business moving forward. Under this model, we may also move into the larger cities as we find that our approach works well there also, and we have some great high-end experience. 

Andrew: “The pandemic and subsequent rebound has created a range of opportunities around the country. What investment opportunities do you see emerging this year, and are you targeting any specific locations or market segments?”

John:  Mandala had a quiet year in 2022; our only year without an acquisition since 2015. We saw that interest rates were going to rise and accordingly, pricing would decompress, and vendors were making more money (post Covid revenge travel) than they ever had so had very high expectations for pricing. Often, we were apart on pricing by more than 20% so were happy to pass and remain patient. In hindsight, this was a great call - many deals didn’t complete at the higher pricing and the rates rose far faster than we (or most) expected exacerbating the problems.

We have a shopping list of 100 non-capital towns around Australia that meet our preferred positive biases to government services, agriculture, domestic tourism and mining. We will also consider other towns not on our shopping list. Typically, we can make fast decisions and be remarkably agile. We are looking strongly at future maintainable income levels, exposure to known cost input increases (power, insurance and wages) and where we can add value through our core team. We have around 2,000 possible targets and only need to buy 20-40 properties, so we are happy to be selective and do the right deal.

Andrew: “There are several considerable headwinds upon us at the start of 2023, potential for further interest rate increases, high construction costs, difficulty finding staff and increases in operating costs. How are you helping your partners navigate these market challenges?”

John:  We are probably less fussed about interest rates now than we were 16 months ago. We are conservatively geared and have hedges in place. We have already factored the decompression of yields (and revenue) into our buying and have very little “decompression overhang” in our existing properties. Our ability to add value means that we can keep up with inflation. Staffing remains a massive issue for most hospitality and I suspect will get worse as aged care pay increases remove staff from the industry. Mandala have excellent connections overseas from former businesses and can directly source staff to overcome some of this problem. Power pricing will be a large and so far, unrecognised issue moving forward, especially in the regions. Current contract prices are ~5-10c/kwh and the futures market is expecting >50c/kwh. No amount of solar will help with this sadly and I think we are in for a big shock. We are seeing many deals fall over on availability of bank finance. We have done more than 40 deals with two banks and so have excellent long-term relationships to fall back on.

Andrew: “The white label and asset management space is increasingly competitive. How does Mandala differentiate itself from others in the market, and what is the key to your success?”

John:  White labels are interesting, but we take a fundamentally different approach. There are two things most Owners are looking for - management (they are sick of running it or not very well) and distribution. Most white labels can’t manage small regional properties. We actually do this for some brands who can’t do it themselves as they don’t have the set up to allow this. We have great relationships with multiple brands so can bring a franchise to the table if and when it adds value. For many of our regional properties, branding or distribution is not the problem. Mandala are getting big enough to have direct relationships with key travel groups which puts us ahead of most other regional properties. We are investing in this and other revenue enhancement strategies to keep adding value to our properties. Finally, as Mandala grows to critical mass, we can offer our external management owners the chance to exit alongside us on a wholesale basis. They don’t have to but they will get a great payday if they can join in.

Andrew: “Finally, what are your personal goals for Mandala Asset Solutions over the next few years? What initiatives are you most excited about, and how do you see the company evolving over time?

John:  Mandala has always been about having fun and doing what we enjoy and with who we enjoy working. Ryan and I have worked together for ~25 years and have done many interesting things in very interesting places. We prefer to do things differently, are not afraid of hard work and love to solve complex problems. Mandala Asset Solutions is our vehicle for doing this and Mandala Hospitality Group is our main activity. We want to keep growing the group both in terms of numbers of properties but also profitability for our investors and owners. A Mandala is based on the harmony of the elements working together to create a whole that is bigger than the sum of the parts. For Mandala Hospitality Group, we focus on the “4P” of People (staff), Partners (investors, owners), Patrons (customers) and Planet (environment and communities). These elements are like the legs of a stool - short-change any of these and you fall over. Ryan and I both love the challenge of succeeding where others find it difficult and delighting our stakeholders. We invest heavily back into our local communities and love what we do. It doesn’t feel like work if you love it.

Related Reading: 

JLL Hotels & Hospitality Group ‘Check-In’ with Best Western MD Graham Perry