Irish Hotel Market - Sherry FitzGerald

Irish Hotel Market
Q1 2015
Introduction
The opening quarter of 2015 saw a very
robust level of activity recorded in the
Irish hotel market, with a total of €126
million worth of hotels transacted during
the three months to March 2015.
The largest transaction in quarter one was the
purchase of the 5 star Adare Manor Hotel & Golf
Resort in Limerick by JP McManus for €31.5 million.
Demand for Irish hotels was strongest in Dublin,
accounting for 26% of hotel sales in the three
month period, however, this compares to 50% in the
comparable period the year previous.
Domestic buyers have become increasingly active,
accounting for 72% of the total spend in the quarter,
while demand from international investors was
strongest among US buyers.
Transaction activity was dominated by smaller size
deals, with 69% of overall sales sub €10 million in
value.
Activity in the Irish hotel market is expected to
strengthen, with approximately €80 million of hotels
sale agreed at the end of the first quarter of 2015.
2 Q1 2015 | Irish Hotel Market Review
Economic Overview and Tourism Performance
Performance in the Irish economy is positive, with economic growth in 2014 the strongest recorded
in the European Union. The most recent national accounts data available reveals that GDP grew by
4.8% in 2014 in line with expectations, while GNP grew by 5.2% annually.
Notably, domestic demand returned to growth for the first time
since the financial crisis, with personal consumption up 1.1% in
the year and capital investment up 11.3%.
The Department of Finance projects GDP and GNP growth for
2015 will reach 3.9% and 3.6% respectively, with the volume
of GDP on course to exceed the
Unemployment peak of €185 billion in 2007.
Consumption levels are projected
rate fell to single
to increase by up to 3% in 2015,
digits in Q1 2015
while investment is forecast to rise
by up to 13%.
That said, inflation levels remain low, both within Ireland and
in the Euro zone area. However, following commencement of
the large-scale quantitative easing (QE) programme, designed
to kick-start growth in the euro zone economy and lift it out of
negative territory, the ECB forecasts inflation to come in at zero
this year. Moreover, the Department of Finance forecasts that
inflation in Ireland will come in at 1.1% this year and will rise to
1.4% in 2016.
Unemployment levels are continuing on a downward trend; the
CSO Quarterly National Household Survey for quarter one of
2015 saw the seasonally adjusted standardised unemployment
rate drop to single digits for the first time since the financial
crisis, falling notably to 9.9%, from 10.4% the previous quarter.
This compares favourably with the crisis-high unemployment
rate of 15.1% in 2012.
3 Q1 2015 | Irish Hotel Market Review
Tourism in Ireland continues to support the overall economic
recovery; according to the CSO, the total number of overseas
trips to Ireland during the period January to March 2015
increased by 14.1% to 1.53 million visitors compared with the
same period in 2014. The UK accounted for 47% of the overall
visitors in the quarter, while residents of Europe accounted for
34% and the USA and Canada, 13%. The remaining 6% of visitors
came from other areas. On an annual basis, trips by residents of
Europe increased by 17.6% while trips by UK residents increased
by 14.2%. This highlights the strengthening confidence in Ireland
as tourism destination, stimulated further by an appealing
exchange rate at present for UK and USA tourists.
Domestically, trips taken by Irish residents within Ireland in 2014
reached 7.35 million, a rise of 3.4% when compared with 2013.
Furthermore, 41% of all domestic visitors in 2014 stayed in hotel
accommodation.
In terms of tourism revenue for 2014, revenue from overseas
tourists in Ireland reached €4.7 billion, an increase of 10.4%
when compared with 2013. Domestically, spending by Irish people
on trips within Ireland reached €1.46 billion in 2014, an annual
rise of 6.6%.
Irish Hotel Market
Following a noteworthy year 2014 for the Irish hotel market which saw the recovery gaining
momentum and investor appetite strengthening, 2015 commenced on an extremely high note with a
very robust level of activity recorded in the opening quarter.
During the first quarter of 2015, approximately €126 million
worth of hotels transacted, representing a notable 37% uplift
on the comparable period in 2014. Activity in the quarter was
boosted by a handful of significant deals, notably the top five
hotel transactions accounting for 80% of the overall spend in the
three month period.
Interestingly, the largest hotel deal in the quarter took place
outside of the Capital which consisted of the sale of luxury
5 star Adare Manor Hotel & Golf Resort in Co. Limerick to
Limerick multimillionaire JP McManus for €31.5 million, which
was significantly above the asking price of €25 million. This was
closely followed by the high profile sale of the 3 star Temple Bar
Hotel, Dublin 2, for approximately €27.5 million to a consortium
of investors including US hotel group Pyramid, Irish firm
Windward Management and Real Estate private equity group
Angelo Gordon & Co. This deal marks Pyramid’s debut hotel
transaction in Ireland.
Other notable deals in the three months to March 2015 included
the 4 star Waterford Castle Hotel & Golf Resort, which sold
for €6.3 million, while the 5 star Muckross Park Hotel & Spa,
Killarney, Co. Kerry was acquired by iNua Hospitality for €6.25
million which includes adjoining apartments. Furthermore, in
Cork, the 4 star Charleville Park Hotel & Leisure Club was sold to
Pat McDonagh for €4 million in quarter one.
Other developments in the market were two company
transactions which took place in early 2015. Lone Star purchased
Jurys Inn Group, which operates 31 hotels across Ireland, the
UK and Prague, for over €900 million. Furthermore, Dalata
completed its purchase of most of Moran Bewleys Hotel
Group for a reported €455 million, comprising five hotels in
Ireland namely Silver Springs in Cork and the Bewleys hotels in
Ballsbridge, Dublin Airport, Leopardstown and Newlands Cross.
Five hotels in the UK were also included in the deal.
Contrary to the trends witnessed over the course of 2014
whereby demand was predominately focussed in Dublin, just two
hotels transacted in Dublin in the three months to March 2015.
In addition to the sale of Temple Bar Hotel, the 3 star Ardmore
Hotel in Dublin 11 sold for approximately €5 million with a plan for
a conversion to a nursing home.
Dalata Hotel Group have cemented their presence in the Irish
hotel market with the acquisitions of the 4 star Clayton Hotel, Co.
Galway and the 4 star Whites of Wexford, which closed in quarter
one for a combined value in excess of €31 million as part of Ulster
Bank’s “Project Nadal”, while the 4 star Pillo Hotel & Spa, Co.
Galway, was also snapped up by Dalata for approximately €10.5
million in the opening quarter.
Table 1
Top 5 Hotel Transactions (Sold), Q1 2015
Hotel
County
Star Rating
Price
(Approx.)
Price per
Room
(Approx.)
Purchaser
Origin
Type of Sale
Adare Manor Hotel & Golf Resort
Limerick
5 Star
€31.5m
€379,518
Irish
Trading Asset
Temple Bar Hotel
Dublin
3 Star
€27.5m
€211,538
US
Trading Asset
Clayton Hotel
Galway
4 Star
€17m
€61,538
Irish
Trading Asset
Whites Of Wexford
Wexford
4 Star
€14.5m
€63,694
Irish
Trading Asset
Pillo Hotel & Spa
Galway
4 Star
€10.5m
€100,966
Irish
Trading Asset
Source: DTZ Sherry FitzGerald Research
4 Q1 2015 | Irish Hotel Market Review
Irish Hotel Market
Dublin continues to lead the way for hotel transaction activity
by location, with 26% of the value of sales comprising the two
Dublin hotel deals combined. However, this compares to a 50%
share in the same period in 2014. Quarter one of 2015 saw a
more balanced quarter in terms of the location of hotels, with a
further 25% of transactions closed in the Shannon region, 22%
in the West, while the South East accounted for 17% of the overall
spend.
Figure 2
Hotel Sales Value by Star Rating, Q1 2015
The profile of transactions in the opening quarter was dominated
by smaller size deals; 68% of the number of hotels sold were sub
€10 million in value, while 19% were €10 - €20 million and 13%
were in the €20 - €50 million bracket. There were no hotels in
excess of €50 million sold in the three month period.
An analysis of the star ratings of the hotels transacted in the
opening quarter of 2015 reveals a mix in the quality of hotels
sold; of the €126 million in hotel transactions, approximately
71% comprised 5 star or 4 star hotels combined, indicating that
demand was strongest for top quality hotels. A further 27% of
the value were 3 star, while the remaining 2% were unopened
hotels where the star rating is not known.
An analysis of the profile of purchasers reveals that domestic
buyers are dominating the market at present, purchasing 13
of the 16 hotels sold in the opening quarter which equates to
72% of the value of hotel transactions; notably this compares
with 37% in quarter one of 2014. This reflects the strength of
domestic confidence within the Irish market with buyers fully
optimising the available opportunities within Irish hotels. US
investors accounted for a further 22% of hotel transactions and
the majority of the foreign spend, while other overseas investors
represented 5%, and the UK, 1%.
An analysis of the type of assets sold in quarter one of 2015
reveals that trading asset sales were by far the most prevalent,
94%, similar to the comparable quarter last year whereby 91%
of hotels sold were trading assets. The remaining 6% of hotels
sold in first quarter of 2015 were asset sales, while there were no
investment sales in the period.
Source: DTZ Sherry FitzGerald Research
Figure 3
Buyer Origin by Value, Q1 2015
Figure 1
Hotel Sales Value by Location, Q1 2015
Source: DTZ Sherry FitzGerald Research
Source: DTZ Sherry FitzGerald Research
5 Q1 2015 | Irish Hotel Market Review
Pipeline Activity
The remainder of 2015 will certainly be active for the Irish hotel
market, with approximately €80 million worth of hotels sale
agreed at the end of the first quarter and due to close in the
coming months, while investor appetite is showing no sign of
easing. Top hotels sale agreed include the 5 star InterContinental
(formerly the Four Seasons Hotel) in Ballsbridge, a reported off
market transaction due to close shortly; the 3 star Premier Inn
Dublin Airport, an investment sale agreed for in excess of €10
million; the 3 star Metro Hotel Dublin Airport, sale agreed for
a reported €5.5 million; and the 3 star Maldron Hotel Wexford,
which is also marked as an investment and was sale agreed for
approximately €3.5 million at the end of quarter one.
6 Q1 2015 | Irish Hotel Market Review
NAMA’s “Project Crystal”, comprising seven hotels throughout
Ireland, is a key portfolio on the market for 2015 guiding
approximately €35 million and hotels are at advanced stages of
negotiations. Hotels in the portfolio include the 3 star Glenroyal
Hotel, Co. Kildare, the 4 star Johnstown House Hotel & Spa, Co.
Meath, the 3 star Gresham Metropole in Cork, the 4 star Killeshin
Hotel, Co. Laois, the 3 star South Court Hotel in Limerick and the
4 star Fels Point Hotel in Tralee, Co. Kerry.
More recently, “Project Trinity” was brought to the market, a 6.8
acre development site in Ballsbridge which includes two prime
Dublin 4 hotels - the 4 star Clyde Court Hotel and the 4 star
Ballsbridge Hotel.
Outlook for the Future
Following a notable year in the Irish hotel market in 2014, momentum in hotel transaction activity
grew at speed in the opening quarter of the year with a substantial level of activity recorded in the
three months to March 2015.
It appears that the removal of the Capital Gains Tax (CGT)
exemption at the end of 2014 has not moderated demand and
activity in the hotel sector in the opening months of 2015, with
sales achieving a 40% quarterly uplift and investor interest
continuing to strengthen each quarter.
The market is expected to remain strong for the year ahead with
a large number of hotels sale agreed and many more available
for sale. Hotel portfolios combined with a significant number of
individual hotels expected to come to the market should drive
activity in the coming months.
Strong performance in 2015 will be underpinned by positive
economic growth in Ireland, while the weaker euro should
drive an uplift in non-euro zone tourists travelling to Ireland
throughout 2015.
Investor appetite in the hotel sector continues
unabated. There are new buyers entering the
market on an ongoing basis. Purchasers are pricing in
growth in trading over the coming years, resulting in high
multipliers on current EBITDA levels.
Kirsty Rothwell, Head of Hotel Solutions
DTZ Sherry FitzGerald
7 Q1 2015 | Irish Hotel Market Review
Authors
Marian Finnegan
Chief Economist, Director
Research
+353 (0) 1 237 6341
marian.finnegan@dtz.ie
Deirdre O’Reilly
Researcher
+353 (0) 1 237 6365
deirdre.oreilly@sherryfitz.ie
Kirsty Rothwell
Head of Hotel Solutions, Director
+353 (0) 1 639 9386
kirsty.rothwell@dtz.ie
About DTZ Sherry FitzGerald
DTZ Sherry FitzGerald is the sole Irish affiliate of DTZ, a global leader
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© 2015
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