30th May 2018 /

Hotels with room for improvement proving the preference for hoteliers

In March 2018, White & Partners sold the Padstow Park Hotel at public auction. Whilst the auction did not have the same level of interest as the Tennyson Hotel Mascot, 4 bidders provided sufficient competitive tension to ensure a strong sale price.

The Padstow Park Hotel sold on a passing yield of 8.5%, representing a 90% premium to the purchase price of $13.7 million in December 2014. The hotel’s strong financial performance, with targets achieved ahead of schedule, also allowed the asset to be sold 18 months earlier than planned. The temptation to capitalise on market conditions with historically low yields was strong and prudent.

As highlighted above, when compared to the sale of the Tennyson Hotel, an inner Sydney unrenovated gaming hotel with significant upside, the Padstow Park Hotel (which at the time of sale, was renovated and traded at close to its full potential) attracted less enquiries and fewer bidders on auction day. A brief statistical comparison of the two assets is provided below.

Whilst the above is a small sample size, throughout 2017 and even during 2018, there have been numerous evidence of hotels with clear upside transacting at yields sub 8.5%. This observation highlights either:

  1. Publicans are strategic buyers who attribute value from their ability to extract upside in unrenovated/poorly managed hotels; or
  2. There is strong belief amongst publicans that the high price paid is reflective of their ability to create greater value than the previous owners and other operators.

Whatever the reasons, investors in the Padstow Park Hotel achieved a strong result. JDA Hotels again proved their ability to enhance the income and capital value of an underutilised asset. And most importantly, the Padstow Park Hotel has been transformed into an attractive community destination, especially compared to its former days when it was known as the Barking Dog.