Dalata Hotel Group has raised €94.4m to help it grow market share in a “dislocated marketplace”.
The company told us that the group continued to have the backing of its institutional investors, drawn to its strong covenant.
Commenting on distress in the market, Dermot Crowley, deputy CEO, told us: “It’s obvious it’s going to happen. The high profile one was Travelodge, but a lot aren’t paying their rent. It takes six to nine months for things to play out and September is also a month where people start wanting to know how things are going to go. We’re also seeing opportunities where the landlord sees the benefit of a strong covenant - we’ve paid our rent throughout the crisis.
“The institutions still have a lot of money they want to put to work, particularly when you look at the other options; retail is gone as an investment. If you look at hotels there is still a lot of interest and more if you have a strong covenant.”
Dalata said that it hoped to secure leases at competitive terms in London, regional parts of the UK and Dublin. The money raised will also provide additional headroom in the event of a more prolonged impact from Covid-19 and allow the group to develop its hotel in Shoreditch, London.
Crowley said that the company continued to have faith in London, commenting: “International travel always recovers from shock. When people feel safe London is where they will want to travel. Corporate travel will take longer because it is risk averse, but in the long term London will be back.”
Dalata had €110m in cash and €111m in undrawn committed debt facilities at the end of August, with an asset-backed balance sheet with hotel assets of €1.2bn.
News of the placing came as the company reported first-half results, on “record low occupancies” due to the Covid-19 pandemic. For the six months to 30 June the group reported a 60% drop in revenue on the year, to €80.8m, with adjusted Ebitda falling by 86.2% to €10.1m. Occupancy for the period was 34.3%, against 80.2% in the same period last year.
The group said that, since the end of June, it had been gradually opening its hotels with 100% of its portfolio now re-opened. Occupancy for the group amounted to 30% in July and was projected to be approximately 40% for August.
Crowley told us that the group had see occupancy of 70% for regional Ireland in August, but 30% for Dublin, with a “steady increase” in transient leisure and business travel in the UK.
Looking at current trading, Crowley said: “All the hospitality industry needs international travel to come back. When? It depends on medical advances. It will be impossible to keep people from travelling by January and February, the big thing is education: you need to social distance, wash your hands, wear masks. But governments are going to be concerned until they are through the winter season, until they have more visibility.”
The company also announced that it had signed agreements to lease two new Maldron hotels, to be constructed in Brighton and Manchester, which brings the current pipeline to almost 3,300 new rooms.
Dalata's pipeline of seven hotels already under construction included two in Ireland and five in the UK; all of which will open between Q1 2021 and Q1 2022. Ten development projects including extensions were currently at the pre-construction phase.
While bookings from domestic guests were encouraging, the outlook for the near term remained, the company said “uncertain at present” with short lead time on bookings and it was not yet known when international travel would return to more normal levels. Adjusted Ebitda was expected to be in the range of €7.0m to €7.5m for the July and August period.
Pat McCann, Dalata Hotel Group CEO, said: “All of our stakeholders have been impacted during these challenging times and made some form of sacrifice. Our banking club agreed to more flexible covenants and we reached various arrangements with our landlords. Our suppliers have experienced a reduction in business. Our loyal customers have been impacted by travel restrictions and the closure of hotels. Our people have been impacted through reduced working hours or loss of income. Our non-executive directors have taken reductions in their fees while the Senior Executive team have taken salary reductions. Shareholders have experienced loss through a fall in the share price and the cancellation of proposed dividends.”
Insight: Strong covenant, strong covenant, strong covenant. As at Whitbread, Dalata has found itself becoming a sanctuary for hotel investors. Indeed, last month we heard that Zahid Group Holdings had built up a 4% stake and CI Investments revealed a holding of more than 3%.
This was all grist to the mill as far as Crowley was concerned “we’re quite happy” he said “it put us until a good place”. And that good place allowed the group to raise the money it needs to start scooping up those distressed leases, of which it was starting to see signs of a fruitful shopping trip.
So the big question of Are Leases Dead was not one for Dalata and not one for its investors, who are still enjoying the world of Traditional Lease - the one where you get your income and don’t have to think about it. Turnover-based leases were not something to keep them up and night and, with the company able to prove that the markets will still back it, not likely to be a source of night terrors.