Dalata poised to buy Covid casualty hotels

Pat McCann says Dalata will adapt so that it can take advantage of the inevitable opportunities in the months ahead, writes Sean Pollock

PAT McCann, the chief executive of listed hotel group Dalata, has said that there will be “chaos” as a result of the Covid-19 pandemic.

Speaking to the Sunday Independent, McCann, who heads up Ireland’s largest hotel operator behind the Maldron and Clayton hotel brands, spoke about how Covid-19 could present acquisition opportunities for Dalata.

“We had taken full advantage of the [last financial] crisis,” he said. “And we took further advantage then when we went public. We listed and we raised lots of money, and we went off and we bought hotels at well below replacement cost.

“You could say Dalata has been a company for taking advantage of every crisis. And do I expect us to do the same here? Absolutely. Because unfortunately there will be casualties,” he said.

“Our plan is to be strong and in a position to take advantage of some of those casualties,” McCann added. “Now, what they will be or where they are at this point in time, I have no idea. But mark my words; there will be carnage out of this.”

The Dalata chief shared his concerns regarding the coach tourism industry, which he said is set to experience a difficult period as a result of Covid-19 and the lack of international tourism.

PAT McCann is a man on the move. The chief executive of Dalata, the Dublin and London-listed owner of the Maldron and Clayton hotel brands, has a busy schedule traveling across the country ensuring his business keeps up with the demands of Covid-19. McCann is travelling across Galway visiting three of his hotels in the city through the day, before visiting another in Limerick at night. On his way to Dublin, he plans on checking into his hotel in Portlaoise before clocking into the office and catching up over Thursday and Friday.

“We are alive and well,” McCann says of his experience through Covid-19. “Everything else is a bonus. It’s been OK, obviously a million miles away from what we are used to, but it is what it is.”

The pandemic was a bolt from the blue for 68-year-old McCann, who founded Dalata in 2007. The hotel group owns 44 Maldron and Clayton hotels across Ireland and the UK, with a further 11 at various stages of development.

Despite Covid-19, McCann says the company is still in good health. With a healthy balance sheet, he believes Dalata is well positioned to thrive.

Even with a dose of optimism, Covid-19 has had a significant impact on Dalata. For the first quarter of 2020, revenue per available room on a ‘like-for-like’ basis decreased by 24.3pc at its Dublin hotels, 14pc at its regional Ireland hotels and 18.6pc at its UK hotels. Adjusted ebitda for the first quarter of 2020 was €17.7m. The figures included two months of regular trading before the effects of the global pandemic were first felt — meaning the full impact is still to be revealed.

McCann said occupancy levels are sitting at between 35pc and 40pc across the group, with his rural hotels performing better than those in Dublin and London.

“Certainly, we are pleasantly surprised with how we are trading,” he says. “We are actually somewhat ahead of our numbers in terms of where we expected to be at this point in time. “I don’t want to over-promise and say ‘everything is wonderful’,” he adds. “It is far from wonderful.”

Having experienced challenges such as the oil crisis in the seventies, the Gulf War and two recessions, McCann knows a problem when he sees one. In 2011, the then 51-year business veteran said in an interview that the prior three years of the global financial crisis had been his toughest in business. Today, he admits the past three months have been worse.

“If you put all of those [challenges] together, they don’t equal the experience that we have today. All of those combined will not equal [it]. I’m [over] 50 years in business, the first time I ever closed a hotel was in March of this year when we closed 29 of our hotels. That’s the first time I’ve ever had to do that in my entire life. It gives you a sense of the devastation out there.”

In the early days, building the largest hotel group in Ireland never seemed on the cards for McCann. He grew up in Ballymote, Co Sligo, where his father ran a timber yard.

“We were the furthest thing from the hotel business you could imagine,” McCann says. “Coming from the place where I came from, everybody was poor in financial terms, but extraordinarily rich in human and resilience terms.”

McCann entered the hotel trade when he took a job at the Yeats Country Hotel in Rosses Point, Co Sligo, then owned by the Ryan Hotels chain. He was bitten by the hotelier bug immediately.

“The hotel business is a funny business; it sucks you in,” he says. “I always say, it’s a business that if you love it, it will love you back.”

The moment McCann realised he had an entrepreneurial spark was on a return journey from London to Westport in 1981. He told the late Conor McCarthy, then the chairman of Ryan Hotels, that he would lease one of his hotels in the Co Mayo town and keep it open post-October, something no other hotel there had done before.

The plan worked. “I said I would lease the hotel for the winter and I would cut their losses in half,” he says. “It worked exceptionally well — both for the company and me.”

Following success with Ryan Hotels and Jurys, McCann developed a taste for his own enterprise.

In 2007, he set up Dalata, and he hasn’t looked back since. “To find something that you love has been fantastic,” McCann says. “I talk to a lot of people who can’t wait to retire; it’s the furthest thing from my mind. It has kept me young.”

Despite recognising this trading period as being his most challenging, McCann has high hopes for Dalata compared with others in the tourism and hospitality space.

“In of all this, Dalata is going to be fine,” he says. “We are a big company, we have a lot of resources. We have sources to capital that nobody else has.”

It hasn’t been plain sailing. McCann recognises the work and sacrifice which has gone into keeping Dalata on an even keel through the Covid-19 storm.

During the lockdown, Dalata kept some of its hotels’ doors open for frontline workers, with the company running around 1,000 rooms a night. It was also forced to lay off around 3,500 people.

With the lockdown, Dalata had thousands of reservations it had to deal with, which took a few months. It also had to protect its cash, including recently agreeing on a new debt deal with banks.

Between cash and undrawn facilities, McCann says Dalata has more than €200m available.

“We don’t need to do anything else from a liquidity point of view,” he says. “We are in good shape on that front.”

With the unexpected news that hotels would reopen on June 29, Dalata was handed the opportunity to boost revenue and bring back staff earlier than anticipated. McCann was able to bring back 2,000 of Dalata’s 4,500 staff.

Despite being “pleasantly surprised” with how customers have returned, McCann holds concerns over the impact of Covid-19 on Ireland’s tourism product, particularly for coach tourism.

“It has been pretty desperate for them,” he says. “I think what people don’t realise is how important the coach tourism is to the entire Irish tourism product and how we all benefit from it.

“When I look at Dalata, we have a huge dependency on the tour operators. They form a critical part of our business, right across the spectrum, whether it’s our city or regional hotels in both Ireland and the UK.”

McCann says coach tourism would account for around 15pc worth of business at one of his typical Dublin hotels, with further activity, such as events, some of which also relies on coaches.

“What we need to make sure is that all these guys are around when the market starts to open back up,” he says. “We need them there, and we need them supported to be there. They give big employment, and the knock-on effect is substantial.”

Key to the issues faced by the coach operators is the lack of international tourism. This has also hit Dalata, with the hotel group and the industry typically taking 70pc of its visitors from overseas.

McCann recognises the international part of his business is gone this year, and he doesn’t expect it to recover again until 2022 fully. He thinks the company can sustain itself at the current levels with the domestic trade — “but it won’t grow” without international, he says.

Further issues are ahead for Dublin hotels, says McCann. Before Covid-19, it was generally accepted that there were not enough hotel rooms in Dublin to match the demand. McCann believes this has now turned on its head, with some projects — though not his own — set to pause or stop.

“If you look at new supply now and the things that haven’t started, or even the stuff that has started, I can’t see how they will get funded,” he says. “When you look at where we are in terms of business levels, it will be a very brave funder that funds something to build new.”

McCann also believes that the pandemic will thrust Ireland’s — and the world’s — treatment of Airbnb into the spotlight, particularly when it comes to legislation.

“I think there will be more stricter regulation coming through around that. It’s interesting, as business has disappeared, how many apartments are now available for residents to rent.”

As McCann looks ahead with hope, he says lessons of the last global recession will stand Dalata well.

“The last one was about debt and over leverage,” he says. “Thankfully, we have learned some lessons around that.”

He recalls a conversation with a big corporate bank last year in London during which it called Dalata’s balance sheet “lazy”, adding it had too many assets and too much cash. In April, McCann gleefully decided to remind the executive about the comment.

“I said to them, ‘who’s the happy fella that he had a lazy balance sheet last year’ because boy did this stand to it. That was deliberate on our part. We are always conservative with how we manage our balance sheet because we have learned the lessons”.

McCann said his acquisition team is working as hard as ever. Dalata could also swoop on some of the inevitable opportunities resulting from the crisis. “Our plan is to be strong and in a position to take advantage of some of those casualties,” he says. “Now, what they will be or where they are at this point in time, I have no idea. But mark my words; there will be carnage out of this.”

With McCann staring the inevitable recession down, he is still focussed on pushing forward. Calling himself a “relentless optimist”, he feels his team is ready to push Dalata over the line.

“There are going to be challenges ahead and some dark days,” he says. “That doesn’t mean to say that fundamentally everything is broken, because it’s not. It’s about then how we can adapt as a team of people to make this work for us.

“I have come through so many crises in my career,” he adds, “but they always come to an end.”