• Dalata to hold assets

Dalata Hotel Group told us that it had no plans to dispose of its assets, now valued at more than Eur1.3bn.
The company reported first-half figures which saw the group continue to build its pipeline, supported by institutional investors in the UK, despite concerns over performance in Dublin.
Dermot Crowley, deputy CEO, business development & finance told us: “We’ve got a really valuable pipeline and we’re confident that we can continue at that rate. We can take on 1,200, 1,300 rooms per annum under leases.”
The company’s pipeline of around 2,400 rooms was due to open at various stages from 2020 to 2022. Dalata described its UK growth strategy as continuing “at pace”, with the development of six new hotels, located in the centre of Bristol, Birmingham, Glasgow and Manchester.
The group used its results to announced the acquisition in Shoreditch with planning approval for a new Maldron hotel, with between 130 and 140 rooms, expected to open in early 2022. The total cost of developing the hotel will be approximately GBP60m, including the site cost of GBP32.05m.
Dalata said that it was currently looking at “a number of exciting opportunities in the UK and Ireland” and expected to announce further additions before the end of the year.
Crowley said that the company had no interest in moving into management, or franchising out its brands. He said: “Before we floated we were a management company, but you don’t get the returns, management contracts are getting shorter. We wouldn’t want to franchise out, you lose control and if you look at the other brands which are franchised, they are inconsistent. We’re also very realistic; Clayton and Maldron are big in Ireland, but not well known in the UK.”
Commenting on a potential sale of the company, Crowley added: “We don’t need money at the moment, the attraction of our balance sheet is that it attracts investors like Deka and M&G – we’re very popular with the fixed-term investors. The hotels generate cash but they also generate opportunities. We also want to keep our gearing at a comfortable to withstand any [Brexit] shock.”
As part of its commitment to remaining lowly geared, and with an eye to Brexit, the group has extended its Eur525m debt flexibility, agreed in October 2018, by one year to October 2024. The company’s undrawn loan facilities as at 30 June 2019 amounted to Eur120m.
He added: “There are some aggressive deals out there, people who are putting in a high level of debt with ground leases. We don’t lose out on a lot of deals, we have lost out to other uses, but less so recently to residential and offices.”
Dalata reported that revpar at its Dublin hotels was down by 0.5%, pulled back by performance in July and August due to a number of factors, primarily, it said, a weaker calendar of events compared to 2018 and the ongoing impact of the VAT increase. Dublin accounted for 67% of the group’s Ebitda. Crowley said that other factors included student accommodation being used as hotels over the summer, adding: “We’re not going back to high revpar growth, but what will slow down the pipeline is that construction costs are rising, due to a lack of construction workers.”
CEO Pat McCann added: “Demand for hotel rooms in Dublin continues to grow and the group believes the market can support increases in supply. Additionally, our UK expansion strategy will reduce the proportion of Ebitda produced out of Dublin over time.”
Trading in Regional Ireland was also behind last year in July and August primarily due, Dalata said, to the “more significant impact of the VAT increase on domestic leisure demand”.
The group reported revpar growth across the estate of 0.7%, with adjusted Ebitda pre IFRS 16 increasing by 18.1% to Eur60.3m. Revenue grew by 12.2% to Eur201.9m.
The company concluded: “We remain positive about our ability to exploit the opportunity that exists for us in the UK. Trade at our UK hotels was very strong in both July and August and ahead of our expectations. Despite the ongoing uncertainty surrounding the timing and nature of Brexit, the outlook for the balance of the year looks positive.”

HA Perspective [by Katherine Doggrell]: Dalata Hotel Group has risen in interest since its 2014 as it seemingly bucked trends with its insistence on ownership and its enthusiasm for leases, which, at the time, was very much not what the market wanted.
Now it looks prescient, giving the institutions exactly what they want and, despite interested parties knocking on its doors, determined not to deviate. Assets beget assets. And they don’t need a massive brand behind them.
Crowley said that, within this sector, the strongest competition it came up against for sites was from Premier Inn and Staycity, two brands with an enthusiasm for leases and putting their money where their mouths are. Brands note; if you want to grow, then something more than a brand and a tagline is required.
Of course things are not going so well for Premier Inn at the minute and it is pinning its hopes on Germany. Dalata is not as exposed to the UK as yet, but don’t expect it to wait as long to make a foreign move.

Additional comment [by Andrew Sangster]: The antecedents of Dalata are very similar to British hotel chains forged out of the ashes of earlier downturns like Menzies or Paramount. But Dalata has transitioned from a group of troubled assets into a chain with serious growth ambitions.
The difference is perhaps that Dalata was forged from fundamentally good assets that were available at knock-down prices thanks to the severity of the crash in the Irish Republic. The UK saw nowhere near the level of opportunity.
Dalata has now demonstrated its credentials by growing into the UK. By 2022 it will have 39% of its rooms in the UK rather than the Republic, up from the current 28%.
And despite the new accountancy regulations, Dalata is continuing to grow its lease portfolio and will have 39% of its rooms leased compared to 27% today.
The leasing is perhaps key to understanding Dalata’s success. It offers a financial structure to property investors that, despite all of the hotel industry’s progress in creating understanding of management contracts, is easily understood and accepted.

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