€153 per room when national average was €65
2020 WAS not a good year to be in the hotel business – unless you happened to own Citywest.
Before the pandemic, in 2019, hotel room occupancy in Ireland was close to 90%. And on average operators were earning €117 in revenue for every available room.
But the pandemic changed all that. In 2020, occupancy plummeted to 30% with many hotels closing.
For most of the year, those remaining open were only allowed to cater to essential workers.
Average revenue per available room plunged to €65 in 2020, according to the Irish Hotels Federation. But Citywest did not have any such problems.
Under its March 2020 deal with the HSE, it obtained the holy grail of hotel management – 100% occupancy, no matter what.
Even in the event of no-shows, the hotel would be paid by the State.
According to Department of Health files, the negotiated price per room came to €153 a night.
This price included VAT and daily meal fees of approximately €30 – but excluded clinical cleaning fees.
Separately, the deal included a €1.9m fee for Citywest’s conference centre, which could be used for additional step-down beds.
Looking at the deal, Department of Health economist Evan Walker immediately saw the HSE’s negotiation had not been good to the taxpayer.
The HSE was proposing to pay €907 per square meter for the conference centre, when the Society of Chartered Surveyors said commercial rates ranged between €308 and €608 in 2019.
‘Given that the market has collapsed… and the State has complete monopolistic power in this deal, the unit price per night does not represent value for money,’ Mr Walker advised.
The HSE should have had Citywest over a barrel but somehow things turned out the other way around.
That was good news for businessmen Michael McElligott, James Byrne and Stephen Peat, whose investment firm Tetrarch Capital bought Citywest in 2018.
The hotel achieved revenue of €28.2m in 2020. This was down from €30m in 2019, but €3m above 2018 revenues and way above anyone else in 2020. Across the rest of the sector, room occupancy levels stood at 30% in 2020 and revenues dropped by 60%.
Also, the number of staff needed dropped substantially.
With no bars or restaurants or leisure facilities open it could be run with far fewer employees.
Employee numbers dropped from 392 in 2019 to 170 in 2020.
They dropped again to 99 in 2021 under a second deal with the HSE.
Wage bills dropped from €9.8m in 2019 to €6.2m in 2020 – a 36% decrease – and to €3.1m in 2021. According to the accounts for the business, ‘cost of sales’ dropped from €16m in 2019 to €8.4m in 2020 and to €5m in 2021.
This all resulted in a whopping 1,386% increase in operating profits which rose to €3.3m in 2020. All of this was bad news for the taxpayer in more ways than one. Firstly, value for money was not achieved as the State paid nearly €25m for a largely empty facility – that is was subsequently able to rent for 71% less than that.
All 222 Citywest employees let go will have been entitled to the €350 a week Pandemic Unemployment Payment. If each of those former Citywest employees let go in 2020 received this benefit, the State will have spent more than €2m that year supporting them.