Hotel chain targets various land deals as profits plummet

● Sale proceeds going towards revamps as group targets luxury end of market

Hotels is on the verge of signing formal agreements with a major UK housing developer regarding a handful of its sites as it spruces up its network to harness demand for luxury accommodation.

The news came as the firm saw a sharp fall in pretax profit in the year to 30 March, falling to £5.6 million from £62.4m. Turnover was also down, to £154.2m from £163.4m, hit by a loss of income after the disposal of Macdonald Swan’s Nest Hotel in Stratford in May 2016 and two sales the previous year.

Deputy chairman and group managing director Gordon Fraser told The Scotsman that the firm has offers “on the table” of £83m for a total of 11 sites across the UK, “which is excellent news for us”.

He said: “We won’t be doing the developments obviously – that’s why we involve housebuilders – what we’ll be doing is getting on with the job of running a hotel.

“But we’ll be able to invest a large portion of that money back into the hotels over and above the money that we generate from our operations,” he added, with the group generating operating cash flow after interest of £15.3m in the year.

“So it gives us a good platform to invest in these businesses and the remainder we would use to reduce the debt.”

The Bathgate-based firm’s bank net core debt reduced to a 14-year low of £184m at 30 March.

Fraser continued: “The purpose of these investments is that we see the future of the company is heading towards the luxury status, moving about 20 of our hotels into the next stage.”

The independent group has 53 hotels and resorts in the UK, Ireland, Spain and Portugal. During the year, it invested £8m in its properties, including completing the refurbishments of 42 bedrooms at the Macdonald Houstoun House Hotel in Uphall and 65 bedrooms at the Macdonald Holymacdonald rood Hotel in Edinburgh. The group has also upgraded 33 bedrooms and five suites at the Macdonald Forest Hills Hotel near Aberfoyle and revamped the meeting rooms at the Macdonald Inchyra Hotel & Spa near Polmont.

Fraser added that the move into the more luxurious end of the market will boost cashgeneration, amid exceptional cost increases in the year arising from the national minimum and living wages, the apprenticeship levy, business rates and utilities. They collectively grew expenses by £2.4m.

The group also plans to create a five-star hotel at its La Ermita resort in Spain. Looking at Brexit, Fraser said the fall in the pound has helped drive a 2 per cent increase in both like-for-like hotel sales and profits, boosting overseas custom and “staycations”.

However, he also noted Brexit-related uncertainty over staffing, with 28 per cent of the group’s employees from the EU.

Looking ahead, “we really are just focusing on the hotels that we’ve got. Almost any hotel that we have has got development potential.”