This week I've been considering the prospects of hotel operator Mantra Group Ltd (ASX: MTR) as a potential dividend investment.
The business doesn't actually own the properties it operates, but it does have features that make it an attractive dividend prospect;
- strong, growing operating cash flows
- an attractive portfolio of management rights/leases
- very conservative debt levels, so fewer claims to the cash flows
Mantra Group has started to build a nice history of paying dividends since listing in 2014, loosely paying out between 70% and 80% of reported Net Profit After Tax (NPAT).
The elephant in the (spare) room
Good. Fine. But what I really want to know is if the business is about to be crushed by use of Airbnb over the coming years. In a very short period Airbnb has brought tens of thousands of new rooms online around the country, capacity that was previously untapped.
Mantra Group is a pure accommodation play, so compared to diversified companies like Event Hospitality and Entertainment Ltd (ASX: EVT) and Crown Resorts Ltd (ASX: CWN) the risk potential is much higher.
Straight away I have two clear observations:
Observation 1: Leisure demand is most at risk
The first is that the leisure segment, rather than the business segment, is at most immediate risk because the 'sharing' nature of Airbnb makes the product more inconsistent.
A recent article in The Australian supports this idea, noting: "the majority of [Airbnb] guest arrivals are now outside the metro areas".
Leisure stays make up at least 40% of Mantra Group's revenue so it would be disturbing to see this fall. So… is it falling? Well, no.
The average revenue per available room (a product of both average room rate and occupancy rate), for the 'Resorts' portfolio was up 13% for the six months to December 2016 . Total revenue per available room was up 6%. Hmmmm…
Observation 2: The total market is growing
My second, admittedly anecdotal, observation then is that Airbnb appears to be growing the whole market rather than just outright stealing market share from Mantra Group.
I'm going partly off my own experience here, but here's a valid example: I recently booked a cheap Airbnb close to a flash restaurant I was eating at. After seven rounds of incredible wine matching the alternative was a long and equally expensive taxi home.
The option of a hotel was never on the table and our stay was purely incremental demand.
This is true for many other people too, they would not otherwise be travelling.
Clearly, Airbnb does remain a risk especially if the economy goes soft and wallets start snapping shut. Bloomberg has reported research by Morgan Stanley that suggests share shift from traditional hotels to Airbnb could gather pace so I wouldn't risk being complacent.
Foolish Takeaway
I think the short term risk to Mantra Group's dividend from Airbnb is low given the current strength in demand for accommodation, Airbnb's likely market stimulation and Mantra Group's financial position.
Longer term I will be closely watching the trend in "average revenue per available room". If this starts to fall, so too could cash flow.
