• Dalata buying spree continues

Dalata Hotel Group has announced plans to buy 25% stakes in the owners of the Clyde Court Hotel and Ballsbridge Hotels in Dublin, both of which are currently operated by the group.

The deal is the third for the group since its flotation at the end of March, which added that the agreement may lead to it acquiring 100% of the two Dublin owners.

The company is to pay EUR21.8m for 25% of the share capital in each of Qulpic Limited and Zrko Limited, which own the Clyde Court and Ballsbridge Hotels respectively, together with associated loans from Durance Investments Limited. Dalata said that the deal could also lead to the group acquiring up to 100% of the share capital of Qulpic and Zrko together with associated loans on the same terms, “although there can be no certainty that any such transaction will occur”.

Pat McCann, Dalata CEO, said: “Having operated these two hotels since January 2012, we are delighted to have the opportunity to increase our economic interest in these two properties.”

The group entered a five year lease to operate the hotels in April 2013. The rental charge for 2013 was EUR3.36m. The gross assets of Qulpic and Zrko as at 31 December 2012, the latest date to which accounts are available, were EUR16.2m and EUR32.0m respectively.

In June, Dalata agreed to buy two other hotels in Dublin, paying EUR15.3m to acquire the freehold interest in the Maldron Hotel Parnell Square and EUR14.4m for the freehold interest of the Pearse Hotel in Dublin. The company had operated the Maldron Hotel since 2007 and was planning to rebrand the Pearse Hotel under the Maldron flag. All the deals to date have been done in cash.

The company’s listing in March raised EUR265m, ahead of the planned range of EUR150m to EUR200m, valuing the whole group at EUR305m. The group planned to use the proceeds to pay down some of the company’s EUR4.1m debt, in addition to funding the acquisition of between 16 and 25 hotels in Ireland.

McCann said at the time that the group had seen strong international institutional investor interest, which has since proven to be the case with US-based asset management group Franklin Templeton increasing its stake from an initial 3.9% to 11.07% by the end of July. Fellow US investment group Marketfield Asset Management has also been stake building, moving from 4.3% to 10.03% by mid-June.

As previously reported in Hotel Analyst, Dalata provides hotel management to third party hotels under both lease and management agreements and has taken over the operation of eight additional hotels since the start of 2014. This has taken its total portfolio to 40 hotels; 13 under lease agreements and 27 under management agreements and totalling over 6,100 rooms. All but one are in Ireland – with one site in Cardiff – and 11 are in Dublin.

The group owns the Maldron brand, which operates in the three to four star market, which the company described as “the most attractive segment in the Irish hotel industry” offering significant profit growth potential.

Last year the group recorded revenue of EUR60.6m, up 12% from EUR54.1m in the previous year and Ebitda of EUR5.3m, a 51% increase on the year. The company’s board is largely made up of former Jurys Doyle Hotel Group executives, with McCann having been CEO, Dermot Crowley, current deputy CEO, finance & development, formerly head of development, and Stephen McNally, current deputy CEO, formerly operations manager.

The group has yet to announce any results since its submission document, but confirmed to this publication that it was preparing its half-year results.

Dublin is currently a key focus for hotel investors, with the city seeing limited supply of rooms, but building demand, according to a report this month from Fáilte Ireland, the National Tourism Development Authority.

The study estimated that Dublin’s visitor accommodation capacity would need to increase by up to two thirds to cater for the anticipated growth in tourist numbers over the coming years. “Unless more stock becomes available, Dublin runs the risk of being unable to accommodate the anticipated level of demand,” the report warned.

Fáilte Ireland said that while the number of hotels (151) had not increased notably in recent years, the number of hotel bedrooms has risen by 15% to 18,718 since 2007. Dublin’s hotel occupancy rates are returning to pre-recession levels of over 70% although, the agency said profits before tax were below pre-recession levels.

According to a recent report by PwC, Dublin is amongst the top performing European cities in terms of hotel occupancy and this performance is expected to be maintained for the foreseeable future. A new plan for tourism in Dublin, launched at the start of this year, is aiming to build visitor numbers by 7% a year, visitor spending by 8.6% a year and spending by international visitors would almost double to just under EUR2.5bn by 2020.

 

HA Perspective [by Chris Bown]: In the crazy pre-crash days of 2005, the Clyde Court and Ballsbridge hotels changed hands for an eye-watering EUR380m, when developer Sean Dunne advanced plans for a luxury apartment tower development. His ideas never won the approval of local planners, so the properties fell into the hands of lending banks.

But never mind overblown redevelopment ideas, right now the two hotels are set fair to deliver a solid performance as hotels, if the tourism authority’s predictions come true.

There are plenty more Irish hotels due to come on the market this year and next, with local agents DTZ predicting up to EUR400m of transactions. That should give Dalata plenty of options for spending their cash pile, whether they want to add more properties in Dublin, or elsewhere in Ireland. There’s also the option of taking the company’s Maldron brand into new markets, such as the UK, where it currently has just one hotel in Cardiff.

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