BLACKBEE HOSPITALITY SECTOR - INSIGHTS / MAY 2021 - BLACKBEE INVESTMENTS
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BlackBee Hospitality Sector Insights / May 2021
Hospitality Sector Insights
The scale 2020 RevPARs highlight the scale of the COVID 19 impact
of COVID 19 The hotel sector has experienced its fair share of volatility over the past twenty years from
the 9/11 terrorist attacks to Ireland’s economic collapse to now the COVID 19 pandemic.
However, it has also always demonstrated considerable resilience in recovering from such
often severe downturns. The COVID 19 pandemic was the most recent blow to the sector
last year. Chart 1 really illustrates the severity of the downturn with national and provincial
National and provincial RevPARs (Revenue per available room) collapsing by 66% and 54% respectively. Provincial
RevPARs collapsed by hotels outperformed as the sector yo-yoed in and out of lockdown mainly thanks to a
66% and 54% respectively. greater exposure to domestic economic conditions (rather than international leisure and
business spending) as well as the trend towards ‘staycations’ in Q3 in particular. Given the
slow roll back of government restrictions, international travel is likely to remain dormant
this year meaning that the more domestically oriented provincial hotel sector will probably
again outperform in 2021.
Chart 1: Irish Hotel RevPAR (Rebased to 100)
Chart 1: Irish Hotel RevPAR (Rebased to 100)
160
140
120
100
80
60
40
20
0
2014 2015 2016 2017 2018 2019 2020
Source: STR, March 2021 Provincial Hotels National Hotels
In the short-term government restriction levels
This all points to a slow remain the ‘only game in town’
rollback of government
restrictions and the Last quarter we produced projections for COVID-19 case numbers on a 30-60 day time
probability that it may be horizon using a Long Short Term Memory Model, a machine learning model which used
June or July before we historical time series data to predict short term COVID case numbers. At the time of writing
see a marked reduction the 30 day model is still indicating case numbers averaging around 300 over the next month
in restrictions. (Chart 2), well down from the average numbers of cases during lockdowns but still above
the average case numbers that applied during periods of level 3 and level 4 restrictions in
2020. This all points to a slow rollback of government restrictions and the probability that
it may be June or July before we see a marked reduction in restrictions, just in time for the
crucial summer holiday season.
2
Hospitality Sector Insights
The other key factor that will drive the pace of easing of restrictions is how quickly the The impact of
majority of the Irish population can be vaccinated against COVID 19. Chart 3 shows that at
present approximately 10% of the Irish population has been fully vaccinated (i.e. received a vaccinations
second dose) while close to double that percentage has received a first dose. The rollout in
Europe has been much slower versus the US but a significant acceleration in vaccine supply
is expected this quarter which should boost the efforts to open up the sector from this
summer onwards.
A significant acceleration
in vaccine supply is
Chart 2: Daily COVIDChart
Case Forecast
2: Daily COVID Case from
Forecast30
fromDay
30 DayLong Short
Long Short Term Term Memory Model
Memory Model
expected this quarter
which should boost the
efforts to open up the
9,000 sector from summer on.
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
20
1
21
20
20
0
20
1
20
0
21
0
0
20
20
1
2
-2
-2
t- 2
l-2
-2
-2
b-
b-
n-
n-
g-
p-
c-
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r-
r-
ay
ay
ar
ar
Ju
Ap
Ap
Oc
De
Au
Ja
Fe
Fe
No
Ju
Se
M
M
M
M
Source: Blackbee, May 2021 Historical Cases Forecasted Cases
Chart 3: Percentage of Population Fully Vaccinated
Chart 3: Percentage of Population Fully Vaccinated
35%
30%
25%
20%
15%
10%
5%
0%
27-Dec-2020
30-Dec-2020
01-Feb-2021
04-Feb-2021
07-Feb-2021
10-Feb-2021
13-Feb-2021
16-Feb-2021
19-Feb-2021
22-Feb-2021
25-Feb-2021
28-Feb-2021
03-Mar-2021
06-Mar-2021
09-Mar-2021
12-Mar-2021
15-Mar-2021
18-Mar-2021
21-Mar-2021
24-Mar-2021
27-Mar-2021
30-Mar-2021
02-Apr-2021
05-Apr-2021
08-Apr-2021
11-Apr-2021
14-Apr-2021
17-Apr-2021
20-Apr-2021
23-Apr-2021
26-Apr-2021
29-Apr-2021
02-May-2021
05-May-2021
02-Jan-2021
05-Jan-2021
08-Jan-2021
11-Jan-2021
14-Jan-2021
17-Jan-2021
20-Jan-2021
23-Jan-2021
26-Jan-2021
29-Jan-2021
Asia France Germany Ireland Italy Spain United Kingdom United States
Source: ourworldindata.org, May 2021
3
Hospitality Sector Insights
Recovery Realistic prospects for full recovery by 2024
prospects Forecasting the recovery path back to pre-COVID trading levels is complicated by the
very nature of the downturn. Since 2020’s collapse in trading was caused by a ‘shutdown’
it stands to reason that a lot of the rebound or recovery will occur when the sector can
take advantage of being fully ‘reopened’. Medium term improvements in the economy
(specifically employment and wage growth as well as credit/debit card spending
Provincial hotels are on accommodation and socialising) will also play a vital part in contributing to the
capable of recovering sector’s recovery, as will the latent consumer spending potential for hospitality that has
back to 2019 performance accumulated as Irish savings climbed over the past year.
levels by the end of 2024.
Chart 4 shows our projections that provincial hotels (which are more dependent on the
domestic economy) are capable of recovering back to 2019 performance levels by the end
of 2024. At this early juncture our view is that the recovery may take slightly longer for those
hotel groups more heavily dependent on international leisure and business travel but that
too could change. Current projections for the recovery in international travel tend to vary
between 2023 (bull case) and 2025 (bear case).
Chart 4: Irish Provincial Hotel RevPaR (€)
Chart 4: Irish Provincial Hotel RevPaR (€)
90
80
70
60
50
40
30
Our projections indicate domestically
focused hotels could recover back to
20 2019 performance levels by 2024
10
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021f 2022f 2023f 2024f
Source: STR data up to 2020, 2021-24 projections source Blackbee
The vast majority of inbound international travellers into Ireland come from the UK and
North America so data on this will be a major swing factor for the medium-term recovery.
For the moment however, it is heartening to see that US sentiment surveys regarding
international travel appear to be improving. Chart 5 illustrates a gradual advance in
international travel sentiment among US travellers from the Longwoods International US
travel sentiment survey.
4Hospitality Sector Insights
Chart 5: Responses* to Statement
Chart
"I feel safe travelling outside my5:community"
Responses* to Statement
"I feel safe travelling outside my community"
60%
50%
40%
30%
0
20
0
0
1
0
0
0
0
1
21
l- 2
2
2
2
-2
-2
-2
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-2
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an
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-N
-A
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06
06
06
06
06
06
06
06
06
06
06
Source: Longwoods International Travel Survey, April 2021
*Agree or Strongly Agree responses
Anecdotal evidence of 10-20% fall in hotel values because of pandemic Drop in hotel
Since the onset of the pandemic there hasn’t been a significant amount of transactional valuation rates
activity from which to gauge how much COVID 19 has impacted hotel valuations. The value
of Irish hotel transactions fell by 75% in 2020 compared to a global fall of 50-60% (source:
Savills and Jones Lang Lasalle). Generally the guidance from Irish estate agents points to
potential falls of 10-20% in hotel values as a result of the pandemic. But this will vary from
asset to asset.
As an example, chart 5 shows the prime yields for Dublin hotels since 2014 and how they The value of Irish hotel
tightened as the sector strengthened in recent years. At present most hotel assets are being transactions fell by 75%
sold off market but as ‘on market’ sales occur through the rest of the year we should get in 2020 compared to a
a clearer sense of where prime hotel yields settle following the sector’s dislocation. In our global fall of 50-60%
view we could see prime Dublin yields gap back up to around 5% over the next few quarters.
Chart 6: Prime Dublin Hotel Yields
Chart 6: Prime Dublin Hotel Yields
0.08
0.07
0.06
0.05
0.04
0.03
41883
41974
42064
42156
42248
42339
42430
42522
42614
42705
42795
42887
42979
43070
43160
43252
43344
43435
43525
43617
43709
43800
43891
43983
44013
44044
44075
44105
44136
44166
44197
Source: CBRE, March 2021 Hotel Lease Management Agreement
5Hospitality Sector Insights
Signs Transaction Activity - Signs of life returning
of life There have been a limited number of hotel transactions since the onset of the pandemic
but one of the most significant has been Dalata’s sale and leaseback of its Charlemont Hotel
in Dublin 2 for c.€65 million in April 2020. Dalata will pay just over €3m a year in rent on a
35 year lease to German fund Deka indicating a yield of 4.62% today. Some more regional
hotel transactions that have closed in recent months include the sale of The Blarney
5 hotel transactions Hotel & Golf Resort to the HSE for €3m and the sale of Liss Ard Estate in Cork for €3.5m to
closed in the first 3 US investors. According to CBRE, 5 hotel transactions closed in the first 3 months of 2021
months of 2021. while negotiations are underway on several other hotel assets.. The five sales compared to
just 10 sales for the whole of 2020, offering further hope that confidence in the hospitality
sector is returning. Interestingly, the HSE intend to convert The Blarney Hotel into a public
residential care facility for older people. The conversion potential of hotels to nursing
homes is something that we could see more of in the coming months as the usual large size
of hotel bedrooms makes them an ideal fit for conversion to HIQA standards.
Several licensed premises traded hands in Dublin in 2020, despite the uncertainty
surrounding the hospitality sector. However, the largest transaction, the c.€15m sale of
The Old Storehouse in Temple Bar closed pre Covid-19. Since then, a number of large sales
have transacted, however signifying where the licensed premises market was in 2020,
many were purchased for alternative uses. The Magic Carpet pub in Cornelscourt, Dublin
18 was sold for €9m to Dunnes Store as it came with the benefit of a large development
site next door. The Ruin bar in Dublin 2 was purchased by Marlet for c.€8m off market as
a development site, given its proximity to Marlet’s existing development of the former
Apollo House. A quick scan of Daft.ie and Agent’s websites found that there are around 20
hospitality premises currently for sale in Ireland with a price tag greater than €1m. Within
Cork, the three premises for sale all offer guest accommodation and are situated along
The Wild Atlantic Way, a popular destination for both domestic and international tourists
and include entire holiday complexes such as the Berehaven Lodge in Castletownbere for
€3.5m. Further inland, as reported in The Irish Times recently, The Celbridge Manor Hotel is
for sale at €6.5m (€100k per room).
There has been some mixed reviews from locals and council members to planning
applications for hotels in Dublin with Dublin’s Lord Mayor Hazel Chu stating that Dublin City
Council needs to restrict the development of further hotels to prevent “over-concentration”
in the city. The sitting Lord Mayor has said Dublin City Council should introduce clear
thresholds that measure hotel and aparthotel “over-concentration“ in given geographical
areas. Since 2015, Dublin City Council has approved plans for more than 10,000 hotel or
aparthotel rooms to be built in Dublin. Despite these comments from the Lord Mayor, a
number of hotels have been granted permission in recent months including a 60-bedroom
5 star hotel at Hatch Hall, Dublin 2 and a 76 bedroom hotel in Rathmines, Dublin 6.
Encouragingly, several developers have submitted planning applications for hotels in both
Cork and Dublin in recent months, including for a 194-bedroom hotel on Camden Place in
Cork City.
Whilst transaction activity in the hospitality sector has increased from the lows experienced
in 2020, until the vaccination programme has been rolled out extensively we will not see
activity return to normal with the majority of licensed premises continuing to be purchased
for alternative uses.
6Hospitality Sector Insights
Overall - Hotel sector recovery should begin in H2 Pace of Sector
and gather pace through 2022 Recovery
The hotel sector in Ireland came into the COVID 19 crisis in reasonably good shape having
rehabilitated itself following the collapse in the Irish economy during the Global Financial
crisis. The COVID 19 crisis is a fresh blow but one which we believe the sector can recover
from over the medium term. The dominant theme for the sector in the next few months will
be the rollback of government restrictions which we believe will happen in time for the key We see a full recovery
summer season. The likely pickup in vaccination pace over the next few months should then in the sector by 2024
provide a platform for 2022 to represent the year where the hotel recovery really gathers or early 2025
pace. We see this culminating in a full recovery in the sector by 2024 or early 2025.
Disclaimer:
Certain statements contained within this document may be statements of future This document is for information purposes only and shall not be treated as giving any
expectations and other forward-looking statements, which are based on management’s investment advice and/or recommendation whatsoever.
current views and assumptions, and involve known and unknown risks and
uncertainties that could cause actual results, performance or events to differ materially These materials are directed only at relevant persons and must not be acted upon or
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“predicts”, “potential”, or “continue” and similar expressions typically identify forward-
looking statements. Figures in this document may have been rounded, this could result in percentage
changes differing slightly from those provided in such reports. We have exercised
By their nature forward-looking statements involve known and unknown risks and utmost diligence in the preparation of this document. However, rounding, transmission,
uncertainties because they relate to events and depend on circumstances that may or printing and typographical errors cannot be ruled out. We are not responsible or liable
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