Hotel & Licensed Trade
Transactions and Trends
David Martin looks at the high profile hotel transactions occurring in Ireland against the backdrop of the continuing positive economic landscape and the strong activity in the hotel and licenses trade sector in the state.
The last twelve months have seen a number of high profile hotel transactions occur in Ireland. These transactions have been dominated by overseas investors, Irish high net worth individuals and Irish hotel groups. More recently the licensed trade sector has seen a number of transactions through both asset and loan sales.
Demand for hotels is being driven by the general improvement in the Irish economy and strong recovery in tourism. Central Statistics Office figures show a fourteen per cent increase to 1.53 million visitors for the first quarter of 2015 in the number of overseas trips to Ireland. The number of trips taken by Irish residents within Ireland in 2014 reached 7.35 million.
From late 2008 onwards, the hotel industry was badly hit by the recession, it is estimated that at least a third of all Irish hotels were in some sort of financial difficulty by 2012. A large number of hotels were put into receivership between 2009 and 2012.
Whilst transaction numbers were limited between 2011 and 2013 some high profile transactions took place during those years including the purchase of the Burlington Hotel by Blackstone for €67 million in December 2012 and London 2 Regional’s acquisition of 4 Seasons in December 2011 for €13.5 million.
The number of transactions has steadily increased over the last five years from only three hotel deals in 2010, to 57 in 2014 with a total value of €440 million.
2015 – Where does the hotel industry stand now?
2015 has seen domestic investors, specifically Dalata becoming increasingly active accounting for seventy two percent of the total spend in the quarter, while demand from international investors was strongest among US buyers.
Whilst overall hotel visitors are approximately sixty five percent domestic, in Dublin the international visitor accounts for fifty percent of the market. The UK and US markets continue to be key external markets with passenger numbers in Dublin Airport growing by eight percent in 2014 to 21.7 million visitors.
The growth in demand for hotel rooms in Dublin since 2010 has been largely driven by:
1. The influx of ICT and social media companies;
2. The Convention centre;
3. Bord Gais theatre;
4. The opening of the Aviva stadium;
5. The new terminal at Dublin Airport; and
6. The enlarged 3 Arena.
This had led to revenue increases of approximately ten percent per annum. The positive news continues for 2015. Irish tourism has improved significantly, with a fourteen percent increase in international visitors in the first quarter of 2015, totaling 1.53 million.This recovery in Irish tourism has stimulated the demand for hotels, resulting in increased activity in this market. 2015 has seen a number of high profile hotel transactions such as:
Date: Q1 2015
Hotel: Jurys Inn Group 6/31 hotels are Irish
Acquirer: Lone Star
Date: Q1 2015
Hotel: Morans Brewery Hotel 5/9 are Irish
Acquirer: Dalata Hotel Group Plc
Date: Q2 2015
Hotel: InterContental (Formely Four Seasons) Dublin
Acquirer: John Malone
Date: Q2 2015
Hotel: Adare Manor Hotel and Golf Resourt, Limerick
Acquirer: JP McManus
Dalata have been the most active over the last year in the Irish hotel sectors and are now the largest hotel group in the country owning more than ten percent of total hotel beds in Ireland.
The positive news in the sector looks set to continue with a number of high profile assets set to trade over the next few months. Which will likely attract a mix of international and domestic buyers, for example:
Property: Project Trinity
Guiding Price: €120m
Detail: Clyde Court and Ballsbridge Hotel, Ballsbridge, Dublin 4 - with potential development
Many pubs fell into difficult trading situations after 2007, when the economy collapsed and discretionary spending reduced significantly. Transactions were limited with most activity in the sector revolving around Bank appointed receivers to non-performing premises.
2015 has seen the pub sector experiencing an increase in transactional activity, despite the effects of changing market conditions. The largest transaction to occur for a number of years in the pub sector has been the recent acquisition by Sankaty Advisors (part of Bain & Co.) of Project Coney, which consists of several non-performing Ulster Bank loans secured on pubs and hotels asset. In addition, we have seen a number of individual pub sales since the beginning of the year including:-
1. Solas Bar, Wexford Street, Dublin, sold for €2,400,000,
2. The Tuning Fork, Co Dublin sold for €600,000,
3. Ely HQ bar, Dublin sold for €3,500,000,and
4. O’Sheas in Clonskeagh, Co Dublin sold to a developer, Next Generation homes for €900,000.
Pubs are currently being valued on their EBITDA (earnings before interest tax depreciation and amortisation). We have seen pub values trade from anywhere between 4x EBITDA up to 6-7x EBITDA for better located “trophy pubs.” An alternative approach is to value a premises on multiple of turnover with buyers paying between 1 to 1.25 x turnover in good locations. However, valuations need to take account of the multi profit nature of pubs including wet sales, food and possibly off-license sales and entertainment.
Provincial pub sales still appear to be sold for alternative uses where many areas are seen as “over-pubbed and under populated”. Provincial pub sales have also tended to take a year or more to sell, twice the length of a city pub.
The continuing positive economic story in Ireland is contributing to a strong pipeline of activity in both hotels and the licensed trade sector. In our experience many of the domestic banks including AIB, BOI and Ulster Bank and Alternative Funders are keen to support acquirers as they transact on well located cash generative hotels. Many borrowers require assistance in dealing with their existing and prospective banks and obtaining the right advice is important in the short, medium and long term.