In early 2015, two large hotel deals were completed, totalling 9,000 bedrooms across Ireland & the UK: Lone Star purchased the Jurys Inn Group of 31 hotels for €900m.
Six of these are in Ireland, including one in Belfast, with the balance mainly in the UK, where three London properties trade under Hilton brands. The average price per bedroom, for the 31 freehold and leasehold hotels, was €120,000.
Dalata Hotel Group Plc. completed its purchase of nine Moran Bewley hotels, four of which are in Dublin, one in Cork and four in the UK. The €453m price translates to €180,000 per bedroom, with the majority held freehold and located in Dublin or London. Eight of these nine hotels are being rebranded under the new Clayton brand, by Dalata.
Individual hotel deals in 2015 are also significant, with €250m of sales completed. Many of these properties were marketed in the second half of 2014, such as Adare Manor, Temple Bar Hotel Dublin, Clayton Hotel Galway and Whites of Wexford. There were two substantial, off-market transactions — the InterContinental Hotel, in Ballsbridge, Dublin 4 (acquired by John Malone) and the Holiday Inn Belfast (another Dalata acquisition).
In addition to these property sales, the loans/debt on many Irish hotels traded in the last 12 months through increasingly common loan sales. Ulster Bank ran two hotel-focused loan sales, Project Nadal and Project Coney, which included loans related to hotels such as the 150-bedroom Radisson in Dublin 2, through to small rural hotels and pubs. Nama, Lloyds/BOSI and IBRC also sold the debt on many Irish hotels.
In counties Cork and Limerick, 50% of hotel stock (in terms of bedrooms) has changed ownership in the last three years. This percentage is higher than most other counties, driven by the significant number of large hotels developed in the 2000s. The majority of these hotels were in or close to urban areas and were trading well, with strong prospects and were very attractive to purchasers.
These hotels included the Strand, George and Savoy hotels, in Limerick and Fota, and the River Lee and Kingsley hotels, in Cork. By comparison, less than 20% of hotel stock in western counties, such as Donegal to Kerry, has changed ownership. This lower percentage relates to the relatively high number of longer established hotels in these counties.
Recent sales include the Carlton Kinsale and Metropole Cork, with Castlemartyr Resort, in east Cork, currently for sale (see pic above.) In Dublin, the Ballsbridge and Clyde Court Hotels, with a total of 585 bedrooms, are also in a sale process. Savills expect several resort properties will come to market in the coming months.
Seven years ago, in March, 2008, the demise of Bear Sterns and the collapse of the Anglo Irish Bank share price marked the start of a rapid fall in Irish hotel values. The collapse was severe, due to the multiple impacts of excess supply, reduced demand and profitability, poor market sentiment and lack of finance. Combining lower valuation multiples and smaller profits had an exponential impact on value. In a hypothetical regional hotel example, value could have reduced from €15m, in 2007, to €2m, in 2010, when equity and debt markets were closed (see accompanying table, left).
Value recovery since 2010 has been steady, but the total 2015 value for regional hotels might be just over 50% of the 2007 peak. In Dublin, with a stronger recovery in trade, value might be back to about 70% of the peak.
With good four-star central Dublin hotels selling for about €250,000 a bedroom, and a shortage of hotels, development in Dublin has recommenced. However, development of all types — office, residential and hotels — is slow and significant equity is required. Outside of Dublin, transaction values per bedroom are always below replacement cost, so we predict very selective development.
In Cork City, we expect one new hotel opening in the next year or two. This is supported by strong city occupancy of almost 80% and average room rates that grew by 7% last year.
It is also expected that the Cork convention centre will be developed and will deliver a huge boost to the market, as happened in Dublin when the CCD opened, underpinning the large and important hospitality industry.
* Tom Barrett is director of hotels and leisure with Savills; www.savills.ie