• Macdonald to invest after refinancing

Macdonald Hotels has agreed a refinancing package with Lloyds Bank which will see the company’s executives take full ownership of the group.
The agreement includes a five-year GBP299m banking facility, which the group said would contribute to investments in its estate.
Under the terms of the agreement the group’s executives now own 100% of the share capital, after the 50% stake owned by Lloyds Banking Group was swapped for GBP5.5m in loan notes. GBP70m of the facility has been earmarked for capital expenditure.
The banking facility replaces a previous three-year term. The company’s finance director, Gordon Fraser, told the Herald Scotland: “The core facilities are 1% more expensive but are still very competitive. We are very pleased with the deal. As part of the refinancing we wanted the shares back and asked for them back. The shares that are in existence are now 100% owned by the executives in the company. We negotiated with the bank to convert their shares into loan notes and that is what the bank have done.”
The group is expected to reduce its debt over the period and has just completed a sale and leaseback deal for its Macdonald Randolph Hotel in Oxford, for an undisclosed sum, reported to be around GBP35m. Fraser said that the group would continue to operate the site under a 60 year lease with a tenant’s only break at 35 years “which creates additional value for us” as part of the debt reduction strategy.
He added: “For the past five years the group has been working on a planning application for 1,400 houses on a 200 acre Brownfield site in Hampshire. Planning permission has now been granted subject, however to the outcome of a judicial review raised by a local action group. This development will realise cash in excess of GBP55m which will be used to further reduce our debt.”
The group will now continue to invest in its estate and, while it has not ruled out buying new properties, is reported to be planning to expand through management contracts. The news came as the company announced its results for the year to March 2013, in which it revealed that it had invested GBP8.7m over the year.
The group saw a 5% increase in hotel and resort operating profit to GBP14.7m, which CEO David Guile attributed to hotels in which the company had recently invested. He said: “We have achieved continued sales and profit growth of 5% and 7% respectively this financial year to March 2014, driven primarily by a 4 percentage point growth in occupancy. The commercial and leisure segments continue to grow, however the conference market is still inconsistent.”
Looking forward, Fraser added: “We have tremendous latent investment potential within our existing estate and we look forward to realising this over the term of the new banking facility and beyond. The business in its 24 year history has never been better placed.”
Lloyds involvement with the company effectively dates back to Macdonald’s decision to go private in 2003, a GBP590m move which saw HBoS supply the debt as well as equity. The takeover of HBoS by Lloyds made the latter a bigger player in the hotel sector, although it has been initiating a series of sales since then.
In January 2007 the company moved to cuts its debt with the sale of 24 hotels to Moorfield Real Estate Fund in January for a sum in excess of GBP400m, retaining operation under short-term management deals. The group was to lose those sites to Accor a few months later and has since then focused on its core 45-strong estate.

HA Perspective [by Katherine Doggrell]: Fraser told The Scotsman: “It has always been our intention to reduce our debt and to strengthen our balance sheet. The deal allows us to do just that and gives us the platform to realise the potential in our portfolio and to be in a position to take advantage of new opportunities when they arise.”
And when did he say this? 2007, on the occasion of the sale to Moorfield. It all looks very familiar when compared to this latest move, with one crucial difference – Macdonald now has a clear route out of debt and a significant reduction in bank involvement. What this has meant for the bank’s equity in the group has yet to become clear, but the decision-making power is back with the executives, who have a strong year of trading ahead of them in Scotland and have made the investments to take advantage of it.
As has been reported frequently in these pages, markets outside London in the UK are rebounding aided by rising consumer confidence and conferencing executives. A word of caution for those looking at the leisure market; only 45% of UK holiday market is planning a domestic break in 2014, compared to 56% in 2013 and 58% in 2012, according to BDRC Continental’s Holiday Trends 2014 report – the lowest level since 2010.
At fault? Rising consumer confidence, which is encouraging everyone overseas in an attempt to avoid the falling British rain. Jon Young, associate director at BDRC Continental, said: “Hopefully, with an improvement in the weather, the rest of the UK will join London and increase in its appeal as a holiday destination.”
For regional hoteliers such as MacDonald, the challenge now is to provide a point of differentiation for those holidaymakers prepared to stick it out in the UK. The company has sites in perennially popular destinations for overseas travellers, such as Edinburgh, Bath and Oxford but the downturn has seen the rise of boutique country house hotels with stylish interiors, high quality locally-sourced food and drink and free-range chickens. The competition has upped its game.
The trials of Macdonald have been many of the past decade. Charitable observers hope that the weather is the greatest of its issues looking ahead.

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