Zahid Group Holdings has built up a 4% stake in Dalata Hotel Group in two separate transactions through subsidiary Perpetua Holding.
Dalata, which saw its share price rise by more than 1% on Monday morning, has seen growing interest from investors in recent weeks, with Canadian group CI Investments revealing a holding of more than 3%.
Dalata, which was due to report its results next week, declined to comment to this publication. The company has seen its share price halve in the last year, from a 52-week high of €502, to €226 at the time of writing, with the the most dramatic dive coming from the end of February to mid March as the virus spread into Europe and hotels were closed.
As of 24 February the company’s largest shareholder was Ameriprise Financial, with a 9.04% stake, followed by FMR with 4.94%. Other shareholders included Blackrock, with 4%, and Allianz Global Investors, with 3.1%.
At the time of the group’s full-year results in February CEO Dermot Crowley told us: “We have seen no change at all in terms of interest from our institutional investors, the appetite for hotel investments is still strong - hotels have stepped into the retail space for investors. Brexit isn’t as prominent a conversation as it has been, the UK has now left the EU.
“Our cash generation is very strong and we’re relatively lowly geared. Our portfolio is very young and over 60% of our rooms are either newly refurbished or newly built. Although a lot of supply is coming into Dublin, it’s not all in the four-star sector: 2,000 rooms are in the budget sector, 2,000 are aparthotels.
In July Dalata agreed an extended debt package which saw its revolving credit facility increased by €39m to €364m until September next year. The company said that its cash utilisation in the second quarter had been better than expected and that it was “encouraged” by the pace of bookings over the past week.
Under the revised agreement, previous covenants comprising net debt to Ebitda and interest cover will not be tested again until June 2022.
Instead the company has agreed a net debt to value covenant and a minimum liquidity test, whereby must have a minimum of €50m available to it in cash and/or an unutilised amount of the revolving credit facility. At the end of June Dalata had cash resources of €103m and further undrawn committed debt facilities of €72m.
The undrawn committed debt facilities had increased to €111m as a result of the increase in the RCF.
Crowley said: “Throughout the crisis we continued to maintain very strong relationships with our banking partners. Our institutional landlords also continue to actively support Dalata and remain committed to our long-term partnerships. We are positioning the business for a successful recovery and to look for growth opportunities that may arise out of the crisis. Our key strengths continue to be our asset-backed balance sheet and strong liquidity, our experienced management team, our culture and people, and our record of identifying and securing opportunities in a crisis. We will remain very focused and energised in meeting the challenges ahead and exploiting the opportunities that arise.”
Analyst Paul Ruddy at Goodbody Stockbrokers was confident of the group’s ability to survive the pandemic, writing in a note: “Many of the reasons we liked Dalata before this crisis persist. It has a significant freehold asset base, a strong management team, scale advantages in its key Dublin market and a compelling growth opportunity in the UK.
Insight: One person’s ‘look at that move on Dalata’ is another’s ‘look at the ongoing faith in the hotel sector’ and the opportunity to buy into the institutions’ favourite at a cut price is clearly one which many are finding hard to turn down.
With everyone’s eyes on leases, Dalata is of particular interest. The group’s portfolio consists of 29 owned hotels, 12 leased hotels and three management contracts with a total of 9,208 bedrooms. It has been able to attract significant institutional interest because of its strong covenant and all of this is backed up by its freehold assets. Dalata may at some point attract more vociferous attention, but it will be because of its strengths, not its weaknesses.
We look forward to hearing more from the company at next week’s results, particularly at its expansion plans as it looked further from its domestic market in Ireland.