| 18.4°C Dublin

Investors find there's room at the inn, as hotel sales take off


Clarion IFSC

Clarion IFSC

Clarion IFSC

Only two months into 2014 and the value of hotels sold or sale agreed is close to €225m, which is already more than the €200m figure notched up for the whole 12 months of 2013.

If this trend continues, the full year figures could reach €400m, says Tom Barrett of Savills who estimates that 39 hotels changed hands in 2013.

Expectations of increased activity this year are underpinned by news that Pat McCann's Irish hotels group Dalata may seek to raise €100m through the stock market to finance the acquisition of more hotels, not all of them from the part of the portfolio it currently manages for banks and receivers.

John Hughes of CBRE says several large hotels and many high profile pub properties are likely to be brought to the market this year as NAMA, financial institutions and loan buyers continue to deleverage.

On the demand side, those international investors and operators which have already bought are expected to add more Irish outlets to their chains in order to achieve economies of scale.

This year's €225m. worth of hotels include a number of deals which were agreed last year but only got over the line in recent weeks.

The figure also reflects stronger prices being bid and the quality of the hotels that are being sold.

Among the deals which have closed or gone sale agreed since the start of the year are the Shelbourne Hotel's loans which were bought by Kennedy Wilson for around €111m; The Hilton Hotel on Charlemont Place which was purchased by a US buyer for €30m; the late Jim Mansfield's CityWest hotel, conference venue and one of its golf courses also sold for €30m, to a UK buyer. While in County. Clare – US billionaire Donald Trump is buying Doonbeg hotel and golf course for €15m.

An improved tourist market and trading performance in the hotel trade last year has boosted turnover and profits so the more profitable ones are generating even higher multiples of their profit in terms of the values being bid for the properties and or loans.

Take for example a hotel which had been generating €1m a year in profits. In 2011 it might have sold for a multiple of 10 times its profits or €10m. Say in 2013 it pushed profits up to €1.3m. Now following increased bidding, it could sell this year for 12 times its profits or around €15m. As a business its value has increased by 20pc over two years but as a property this suggests its value has increased by 50pc.

An alternative valuation method could be based on the price actually achieved per bedroom for two Dublin City hotels which have sold. Their values appear to have increased by about one third over the last 18 months. For instance the Morrison sold in Q2 2012 for €150,000 per bedroom whereas more recently the Clarion IFSC sold for €200,000 per bedroom although the latter had the advantage of a swimming pool and leisure club.

Among the hotels which are expected to come to the market in the near future are The Westin in Westmoreland St. Agents Knight Frank are not yet quoting an asking price on it but there has been speculation that, as it is let to the Westin /Starwood hotel chain, it may suit an international investment fund which could be willing to bid up to €65m.

Supply also seems set to improve - at least in Dublin City. Plans are under way for new hotels in Camden St and Harcourt St with Paddy McKillen scheduled to open the Dean Hotel in Harcourt St this autumn. Plans to re-develop the Ormonde Hotel as a budget hotel on the North Quays have been delayed by the planners but new plans are expected in order to avail of demand.

Barrett also points to improved bank lending conditions and capital investment: "After some time, AIB and Bank of Ireland are now demonstrating a willingness to lend to domestic and international buyers of hotel assets."

Business Newsletter

Read the leading stories from the world of business.

This field is required

"Demand for hotels is underpinned by their improved trading performance especially in the Dublin market which is considered one of the best performing capital cities in Europe.

RevPAR (revenue per available room) witnessed growth of 8pc to €71 per room in 2013, according to STR Global research. Regional cities also experienced positive RevPAR growth with Cork up 10pc to €52, Galway up 9pc to €53, Kilkenny up 12pc to €50 and Limerick up 7pc to €30, according to Trending.ie.

Outside of the cities a recovery has begun, albeit at a slower pace," according to Barrett.

Compared to the values and speed of activity in the hotels market, the pubs market seems more subdued.

Nevertheless agents CBRE, Morrisseys and John P. Younge are looking forward to increased activity in 2014.

CBRE's John Hughes says that this will be due to a combination of deleveraging and demand from a range of sources including UK pub chains, such as Wetherspoons which has already bought Tonic in Blackrock, Co Dublin.

Demand for pubs with generous car parks sites is also being helped by the developers and speculators purchasing properties with a view to their longer term development potential. This was reflected last year in Morrisseys sales of The Belgard Inn in Tallaght and Rosie O'Grady's in Harold's Cross, Dublin 8 both of which came with generous sites.

Bill Morrissey says that prices will remain stable for those pubs which enjoy a healthy trade which can be sustained over the short to medium term.

"Fresh demand is also emerging from purchasers with both personal funding and financial institutional support who are now looking for quality."

This was reflected in a 67pc increase in Dublin pub property activity in 2013 compared to 2012 as the capital value of transactions increased by 57pc to €15.09m. Leasehold interest transactions accounted for 5pc of total transactions in 2013, a reduction of 4pc on 2012's activity.

The average sales price in 2013 dropped to €0.76m compared to €0.8m in 2012, reflecting a greater number of licensed premises that had ceased trading compared to 2012.

However he says the challenging conditions experienced by the trade over the past five years continued in 2013 and this was reflected in the "decline in the valuation of licensed premises on the whole together with activity in the market."

Since 2007 the number of licensed premises nationally has dropped 11pc to 7,400 and this trend looks set to continue in the future over the short to medium term as there is not enough demand to sustain so many pubs.

In Dublin the number has dropped by 5.8pc to 730.

Most Watched