The Country Freehold Hotel market place has broken into a number of
sub-markets with each having their own determinants of price.
These markets can be roughly described as follows:
a)Hotels without gaming machines
b)Freehold hotels to $2.5m with Poker Machine entitlements underpinning
the value. (property = asset value NOT business value)
c)Freehold Hotels to $4.5m where value is directly related to Business
Profitability. (Gaming machine numbers are still important yet price is
determined by overall hotel profitability)
d)Premium freehold properties (generally in excess of $5m) sought after
by corporate style purchasers.
During the last 18 months there have been a number of properties placed
on the market at levels above their achievable price. The market place is
rejecting these properties and in fact damaging the perception of these
properties even when a price reduction has occurred.
Hotels with no gaming are proving difficult to sell (Category A) -
certainly price is the major marketing tool. A purchaser who has the
opportunity to compare a "hotel with gaming" V a "hotel without pokies"
where the price is within $50,000 - invariably selects the hotel with
Demand for hotels in the (b) and (c) markets has slowed from a rush in
2007 to a trickle in 2008. Many purchasers are waiting to see the effect
of the No-Smoking Legislation and feel that other factors such as local
economy will provide for "bargain" properties.
Few properties have been genuinely placed on the market in the Premium
Country Hotel sector. Demand appears to have slowed with most corporate
purchasers ensuring positive trade results for hotels currently contained
in their portfolio's.
The country leasehold market appears to have fallen away from the
thoughts of many in the industry. The traditional entry level for many
career hoteliers the leasehold market has seen some major changes of
It is difficult to pin-point a "standard" lease setup today as recent
years have seen premium, rental and terms experimented with as investors
attempted to gain traditional returns for their property.
The introduction of gaming income and subsequent reduction in
Capitalisation Rates has resulted in a mathematical impossibility for the
creating of "traditional standard leases".
For leasehold properties that are close to the tradition: I.e. Rental
within 10% of sales and Term approx. 10 yrs to 15 yrs - price appears to
be calculated by a return on the (EBITDA - Earnings before income tax and
depreciation) income. Based on these lease terms returns indicate approx
2 to 3 times earnings.
For properties outside these parameters - sales are difficult.
Overall the hotel market appears to be entering a new phase.
We have seen the first few "Receivership" sales (freeholds selling -
leaseholds not) and whilst only a trickle of properties offered for sale
appear forced, many industry watchers are nervous.