Hotels: Jurys Doyle has exercised its option to buy two hotel properties it operates on financed leases for €9m and €11m. More are to follow, Jurys chief executive Pat McCann tells Gretchen Friemann

Jurys Doyle hotel group has exercised its option to buy its budget Inn in Dublin's Christchurch for €9 million and will spend a further €11 million acquiring the Galway Inn later this year.

The properties were both operated on financed leases where there is a guaranteed right to buy once the lease period has terminated.

According to Mr Pat McCann, the group's chief executive, the 185-bedroom Christchurch property was transferred to freehold last month while the 128-bedroom Galway Inn will be bought sometime in "the middle of this year". Three other Inns operating under similar deals in Dublin's IFSC, Cork and Limerick are likely to be transferred to full ownership within the next two to three years.

Describing the acquisition of the Christchurch Inn as "remarkable value" in the current environment, Mr McCann said: "Would you build a 185-bedroom building in Dublin for €9 million today? It's remarkable value. The whole point about that deal is that it was done at the cost of construction at the time." Property experts believe the capital appreciation surges on the IFSC, Cork and Limerick Inns, which are also expected to sell at the cost of construction, make it "highly likely" the company's management will opt to wholly own all three buildings once the contracts expire.

But Mr McCann said the decision to exercise buy options on the remaining financed leases will be "looked at individually in the light of the general economic climate".

Over the last 18 months, Ireland's largest hotel group has implemented a rapid re-structuring programme, disposing of its low-margin three-star outlets in favour of the much higher margin limited service Inns and its four and five-star hotels.

Last week it emerged the group is to sell its three-star Glasgow hotel, The Pond, on the open market after failing to attract a satisfactory bid through ongoing private negotiations.

Mr McCann has also confirmed the group will either upgrade its remaining three-star property, the 180-bedroom Montrose in Stillorgan, to a four-star hotel or dispose of it by the end of the year.

He claimed the upgrade would not require a "substantial investment" but declined to offer a ballpark figure for the project.

Although Mr McCann stressed the Montrose was a "strong performing hotel" he conceded the group is committed to disposing of properties "where we feel there is no long-term strategic need for them or if they don't fit into the longer term strategy". He said: "There's no point in looking at properties in the short-term and saying we will keep them in the short-term but not in the long-term. The Montrose is one of the propertin, es that has to be decided upoprobably in this current year."

While the fast-paced expansion in the UK market in recent years has forced the group to opt for long operating leases rather than weigh the balance sheet down with a raft of property acquisitions, Mr McCann still holds to the company's traditional view that a hotel's value is created by the owner.

Pointing out that the last valuation of the 31 properties on the group's portfolio threw up a surplus of over €182 million, he said "we have created that value for the shareholder and if we didn't own the property then the landlord would get that value".

But if Jurys Doyle is to fulfil its expansionary ambitions and become a larger player in the hotel industry, shifting towards the operational structures of international chains such as Le Meridien, the Hilton and the Four Seasons, it is the only option.

According to Mr McCann, by 2005 there will be 36 hotels in the group with five of those on operating leases while 31 will be fully owned.

He said: "Up to a few years ago Jury's Doyle would always have full ownership as an option in terms of how we expand as a company; however, in recent times we've taken to operating leases as a way forward. The difficulty is that where there's a lot of assets involved, high growth and full ownership doesn't necessarily work hand-in-hand.

"And for us we had to look at a number of opportunities to grow the company at the rate we wanted to grow it and yet maintain our balance sheet in pretty good shape." He claimed it's "always a toss up between whether you will own the property or whether you will lease it" but said the "strategy now is to do a combination of both."

Those outlets in regional locations are likely to be leased while those in major cities, such as the Heathrow Airport Inn in London, which is currently under construction, will be fully owned.

Despite this extensive property portfolio, Mr McCann remains unfazed about the prospect of a property crash in the group's operating territories of Ireland, the UK and the US.

He said: "If you take the last four years, where our industry has been very hard hit by all events like September 11th, SARS, war in Iraq: has it had any negative impact on valuations on hotels across the world other than maybe the Far East? The answer is no. "Property and valuations have held extraordinarily well. In my view if it can withstand that kind of upset, it will withstand a lot more."