Pat McCann's winter of deep content as Dalata's spending spree set to continue in 2016
The Dalata CEO has guided his group on a spending spree over the last year and, as he tells Donal Lynch, they're going to start building new hotels in 2016.
Published 13/12/2015 | 02:30
It's coming close to that time of the year when many people count the cost of their shopping and ruefully wonder whether they could have gotten a few better bargains.
Not Pat McCann, however.
The Dalata chief has been on a spending spree for quite a while now and there is no sign of him letting up. The Sligo-born hotel magnate is a fan of the TV series House Of Cards and he has shepherded Dalata out of the depths of the crash with the type of shrewd nous that Frank Underwood would be proud of.
To put the company's arc of recovery into perspective, one need perhaps only look back to 2009, when the group's room rate collapsed as the industry went through its darkest days.
Some 300 hotels across the country were insolvent by that point. Fast forward six years and in the most recent financial figures available, the hotel group reported pre-tax profits of €2.7m for the six months to the end of June, up from €0.9m the same time last year. Revenues for the six-month period rose to €97.7m from €34.9m the previous year - an 180pc increase.
Dalata spent a whopping €523.7m on hotel acquisitions in the six-month period - €452.3m on the nine Moran Bewley hotels and €71.4m on the other five hotels in both the Republic and Northern Ireland.
It has also just completed the acquisition of the Clarion, a four-star hotel in Cork, for €35.1m It's a story of growth that looks set to continue.
McCann modestly puts much of this success down to luck and impeccable timing, as well as the financial clout gained from the 2014 IPO.
"We were lucky in that we were able to shift from leased and owned into managing for a time. It allowed us to take advantage of the marketplace. As banks and receivers were selling hotels, we were still able to go out and raise capital.
"The most flexible system to do that for us was through flotation. Prior to us doing that I had identified lots of hotels that, because of their shareholding structure - being controlled by banks or Nama - would be a fertile hunting ground for us and that's exactly how it played out.
"If we had tried to do it a year earlier, we wouldn't have gotten the money. If we had gone out a year later, many of the opportunities might have already been gone."
Dalata was one of the first big Irish players to begin to take advantage of the opportunities created by the crash and McCann says that the narrative of predatory US-based investment vehicles buying up everything in sight, to the detriment of local investors, wasn't as lamentable as it was presented at the time.
"The fact is that we needed those people to come in. Irish investors didn't have the money to do it and frankly, until someone starts doing it, the process will never start.
"You could spend 10 years in the doldrums and that was the kind of timeline that was being given at the time. By the time Dalata got going, Ireland wasn't as much in vogue as it became. You had the Franklin Templetons of this world buying Irish bonds - but the US market in particular hadn't quite grasped the Irish recovery, whereas six months to a year later they had."
What was the best deal he got?
"The Moran Bewleys was probably the best deal, in the sense that it was the biggest. But there also was the Clayton in Galway, which cost €50m to build and we got for €15m. I would add to that the caveat that price is, of course, always relative to what you can earn out of it. I remember taking a call and a guy saying to me that we could buy a hotel for €300,000 and he said, 'you couldn't get a good house for that.' My response was, 'yeah but the house won't cost you €1m a year in terms of costs and rates and so on.'"
He won't be drawn on the price the company paid for the recent purchase of Tara Towers in Ballsbridge. " As the guy says in House Of Cards, you might ask that, but I couldn't possibly comment!"
McCann says that the biggest change he has seen over the last few years is what he calls "the return of the corporate market, the midweek business".
The strength of the UK and US economies, where much of this midweek business comes from, is a more fundamental advantage than the current favourable conditions around factors like currency, oil and interests rates, he adds. For Dalata, however, it is still a tale of two, possibly three, Irelands.
"For us, there is a big variation across the country. In Dublin, occupancy is in the high 80s percentage-wise. In Galway it's in the mid-70s. Cork would be similar. Wexford would be slightly lower."
The accountancy firm Crowe Horwath recently said that the paucity of hotel rooms in Dublin was going to act as a brake on the ongoing tourism boom. McCann says it's a situation unique in Europe.
"Since 2007, there have been almost no new hotel rooms in the city. The Marker opened but you had the Montrose going out, you had the Holiday Inn Express opening at the end of O'Connell Street but the Clyde Court closed up.
"That's remarkable for a capital this size. Our room rates are simply too low to make an investment case.
"It's almost like the early 2000s, when office and residential buildings outpriced hotels on sites. The same phenomenon is happening today. REVPARs (revenue per available room) are too low, so we haven't been able to afford to build - instead, we buy. Our purchases have been below the cost of development."
That is about to change. In September of this year, Dalata raised €160m of additional equity, but overall the company has about €250m to spend.
"We'll spend in acquiring freehold assets, mainly from Nama, as they are the one banking group."
"We'll build on to hotels we've already bought, including the Clayton at Dublin Airport", McCann says. "The Clayton in Belfast and Ballsbridge will also get additional rooms. We'll spend about €30m maximising the properties we've bought.
"The third and most important arm of our development strategy is to build new hotels in Dublin.
"It's my ambition to build about 1,000 rooms in Dublin over the two or three years over about three hotels. We'll own one and lease two. We are in discussions about sites and locations."
McCann says that Dalata will also look to the UK, where it will finance new buildings and lease them. He anticipates that building will begin sometime during 2016 in both Ireland and the UK.
Another brake on the tourism boom might be the periodic negative publicity around price gouging, which seemed to reach a critical mass recently as the Web Summit blame game played out. McCann is also president of the Irish Hotels Federation, so it's no surprise he has strong opinions on this.
"Don't forget that when the Web Summit comes to town hotels already have blocks of business which they have to honour and the amount of rooms they can release to something like the Web Summit might be small. "Everyone thinks that a hotel has all its room available to everyone every day. That's not the case at all. We use dynamic pricing to assess what the market demand is on a particular day. There are systems, but it is largely driven by human intervention."
Most corporate kingpins look fairly grizzled, worn down by long hours on the job and the stress of keeping a public company in good health. McCann, by contrast, looks about 20 years younger than his official age of 64 and his own version of "retirement" (he pulled back from the business and moved into consultancy in 2006) proved short-lived.
"I left Jurys in June 2006 and I could safely say that the two worst months of my life were the July and August of that year. I don't play golf and I don't participate in other sports, although I do enjoy watching them.
"One of the things you find in life is that when you have a big passion for something and that thing is suddenly gone, it's very hard to replace. I used to joke with people that the next big event in my life was going to be my death. I don't really understand the high life - to me that's wanting to jump out of bed every day." Luckily, another life was waiting first. He was approached by investors in 2007 to found the Dalata Hotel Group and became CEO of the company that year. Dalata now has 10pc of the market (about 15pc in Dublin alone); its nearest competitor has 3pc nationally. The company floated on the Dublin and London exchanges in March of last year, raising €265m.
It's a long way, you might say, from the bogs of south Sligo where McCann grew up. His father worked in a timber yard and his mother was a housewife.
"My father was extremely badly paid and suffered ill health toward the end of his life. What you discover when you grow up in an environment like that is how to be resourceful. There were times when I was growing up when the only things we'd buy were tea, sugar, salt, pepper, that kind of thing. We had our own chickens and made our own butter and cheese on a very small holding."
After his Leaving Cert, he went to work for Ryan Hotels in Rosses Point. In 1972, he went to work in London and while there he went back to a polytechnic and studied business studies.
"In hindsight, it was one of the best things I ever did because it opened my eyes to the broader sense of management."
He left Ryans for Jurys in 1988, which he says was "the biggest wrench" in his life.
"I knew I had to do something different because I had to move on. I knew there had to be a moment when I'd move from being a hotel manager into a group role. Whether I got there wasn't the point; the point was trying. But luckily it did work out for me."
Pat is married to Ann, they have three children, and their son also works in Dalata, in the ancillary revenue side.
These days, in addition to his responsibilities with Dalata and the Hotel Federation, he is also a non-executive director of Greencore, EBS Building Society and the Irish Heart Foundation. He serves as non-executive director of Quinn International Property Management and as the chairman of Euro Care Healthcare.
He says he can see himself retiring at some point - but for the moment he remains energised by the business.
"Politics and business are similar in that they both end in failure and you have to recognise when it's time to move aside and let a younger generation take over. I hope I'll recognise when that time comes, but I'm not there yet."
'We pulled up the carpets in the Gresham'
My ultimate backs-to-the-wall moment was… "I remember in 1982 coming to Dublin and taking carpets from the Gresham and lifting them off the floors to take them down to Westport because they were better than the ones we had. We had to be resourceful and make things work."
The best advice I got... "was from Jim Culliton, who used to be in CRH: he told me if you try to be somebody else you're going to fail. You have to try to be yourself."
The worst advice I took was… "investment advice in 2006. I would have diverse investments - virtually everything is in Ireland. I've recovered, not fully back and probably never will be, but good progress has been made."
My biggest interests outside work are… "well that's unfortunate for me now, I'm a sad bastard! Ah no, I am an Arsenal supporter, I've a season ticket although I don't get to go over too often."
The best trip I've taken recently was… "well there's no glamour in our business trips, which is most of the travel I do. My two favourite cities are Rome and Vienna and I take a holiday in Ireland in autumn and spring and I take a summer holiday in Portugal."
Sunday Indo Business