Tuesday 12 December 2017

'Once the hotel business gets into your system it's very hard to do anything else' - Pat McCann

Dalata's Pat McCann believes too much is being paid for Dublin hotels, writes Business Editor Samantha McCaughren

Pat McCann. Photo by Dave Conachy
Pat McCann. Photo by Dave Conachy
Samantha McCaughren

Samantha McCaughren

On a recent trip to London, Pat McCann caught up with a former employee now working in a desk job at a computer company. Their conversation encapsulated why McCann, chief executive of listed hotel group Dalata, has spent his life in the hospitality trade.

"He told me if he had three words of conversation a day now, that was the height of it. But he would have had hundreds of words of conversation when he was with us. It was very different," said McCann (65). "It kind of encapsulated what this business is about."

"If you like people and you're pretty outgoing, and take the opportunities, the hotel business is a great business," said McCann. "Once it gets into your system, it's very hard to do anything else."

It certainly got into McCann's system. Over the past 40 years, he has held senior roles in the only three quoted hotel companies this country has had - Ryan, Jurys and now Dalata.

In the coming months and years he will be spending an increasing amount of time in London and the rest of the UK. After initially warning that Brexit could hit Dalata's expansion there, McCann is now pressing ahead with significant development plans.

The group already has 10 hotels in Britain and Northern Ireland, in addition to 30 here.

"Like everyone else, we got a shock," he says of the June referendum result. "And then, after a couple of months, nothing has changed. The market is expanding, it's still robust, it's still trading well."

Much of the rationale for the UK expansion comes down to his view of the Irish market.

"We are building four hotels in Ireland, a heap of extensions and once that's done in 2018, Ireland is pretty much done for us," he says. "We have a very robust business in Ireland and we want to nurture and grow that."

"But the next phase of our development will be the UK and it will be provincial UK. The key cities such as Edinburgh, Glasgow, Newcastle, Manchester, Birmingham, Bristol, Brighton... all of those. They give us a great opportunity to grow our business, in a calculated way."

It will be through a combination of new-builds and also some acquisitions.

"In the UK, we are looking at an asset-light model where somebody would buy the hotel for us and we will lease it or they build it for us and we lease. So we don't have to raise capital," he says. "We might do bits of selective stuff, if I found an interesting project that I could go and talk to my shareholders on, but there is nothing on the cards."

Back home, the days of picking up bargains are gone. Dalata ruled itself out of buying the Gresham, which sold for €92m early on. "Too much money," he says.

"When you look at the deal done for the Spencer, the Morgan and the Beacon (which sold for €150m), that's way, way too heady," he says.

Can these hotels work financially carrying the weight of such large price tags? "Somebody obviously believes they can and good luck to them. I certainly wouldn't be buying at those prices," says McCann.

Sitting in a newly decorated bar area of the Clayton Hotel, Leopardstown, he says he has no fears about domestic business, however. "The Irish consumer has been cautious since 2008 and they haven't really changed," he says."

There is a shortage of hotel rooms in Dublin, with the city estimated to need an additional 5,000 rooms to meet demand. There will be some extensions in the current year, but most of the new capacity is still some way off.

"There will be 1,100 rooms built in 2018. I'll be supplying about 600 of those," says McCann.

"These include rooms at a new hotel on Charlemont, Kevin Street and an extension at Dublin Airport."

However, more supply will not lead to lower prices, He believes that Dublin should be priced like Amsterdam, Barcelona and Copenhagen.

"We should be at the same level as those and we're about 10 to 20pc behind."

McCann is from Sligo, where his father ran a timber yard in Ballymote and times were tight. "The room for entrepreneurial spirit was pretty limited," he says.

McCann was due to begin teacher training after his Leaving Cert. "But I decided, much to my parents' horror, that I was going into the hotel business. I had been working for the previous three summers in Rosses Point, which was owned by the Ryan Hotels chain. The bug got me and that it was it."

McCann says the opportunities came down to his own attitude. "When there was a job to be done, I was the first fella with my hand up, the annoying one in the corner. It's about having a willingness."

After joining the Ryans trainee programme he spent 20 years with the company, becoming general manager of the Royal Marine Hotel in Dun Laoghaire and part of the company's executive team on acquisitions.

In 1989, he joined Jurys as general manager of the Ballsbridge hotel. "Jurys had floated in 1986 and the problem for them was they were under pressure to do something to spend the money and get the business moving.

"We were starting to develop Jurys Inn at that point and we got very involved in that."

In 1993, McCann took on the role of group operations director. "Or god for short," he jokes.

The Jurys Inn concept was an immediate success. Despite much scepticism in the market about the location of Jurys Inn, Christchurch, occupancy never fell below 95pc in all McCann's time with the group.

It was a time of huge growth. "I remember having one of out great strategy meetings in around 1993 looking at how we could get the earnings of the company up to IR£5m a year. Of course, by the time 1995 came, we were doing a multiple of that."

In 1998, the company took over the Doyle Group of hotels, which was a game changer for Jurys.

Years later, the property bubble began to influence the thinking at Jurys. McCann, who became group chief executive designate in 1998 and ceo two years later, was sitting on the extremely valuable Ballsbridge hotels of Jury's and the Berkeley Court, which were sold to Sean Dunne for €380m.

"People thought we are were selling that because it wasn't performing. It wasn't that at all.

"The hotels were very decent earners. The problem was, as a plc, we were sitting on assets that were worth far more for alternative use. We simply had to sell. We were selling at inflated prices."

However, he admits the hotelier in him was disappointed to sell the hotels for redevelopment. "Ballsbridge was my all-time favourite hotel - ever. Having to do that was challenging, but business is business."

The company went private in 2006 and McCann moved on.

After a brief stint as a consultant, he set up Dalata with €45m in backing from TVC Holdings and Davy Private Clients. They bought 11-leasehold hotels with the aim of building a platform which allow the group expand into the UK.

At a time when most companies were being loaded up with loans, it was fortuitous that Dalata chose to take on just €15m in debt and the remaining €30m in equity. In 2008, the first three-quarters were good. "But the last quarter just tanked. It was just carnage. Then in 2009, it got worse and worse and worse."

Then McCann got a call from ACC bank, which needed someone to run two hotels being put into receivership and for a number of years, running hotels for banks became its main business.

McCann knew this business would be short-lived, so he and his team set about raising some money to buy some of these hotels. In March 2014, Dalata floated raising €265m. A further €150m was raised in September of that year in addition to €282m of debt. In September 2015, Dalata raised a further €150m and put another €80m of debt in, bringing the total funds raised to over €800m. "And we spent all of that," he says.

The company went on a spending spree, quickly acquiring several hotels, including its biggest deal, the Moran Bewley hotels. "But we had some phenomenal deals," he says. "Like the Clayton in Galway. We paid €15m for a property that had cost €45m to develop."

There are no plans to raise more money, he says. In future, Dalata will be looking for deals similar to the arrangement with the Clayton, Burlington Road, the former Burlington Hotel, whereby they take a long-term lease on the property.

As the group rolls out its Clayton and Maldron brands in the UK, McCann is certain it can offer something different to the main chains already operating there.

"We talk a lot about the difference with Dalata. Why are we different? Fundamentally, the way we operate our business. If you're part of a large company you tend to have very large centralised structures, whereas our view on life is that having a decentralised structure works best."

For now, another key challenge is dealing with the impact of technology. "It's about distribution, how we get our business. Things like the online travel operators, like, and other disruptors."

"We have to keep it very simple for the consumer." For now, McCann is working with these online operators and is unperturbed by this or any challenges that may lay ahead.

"People say it's a tough business," says McCann. "It's no tougher than any business."

'Retirement scares the life out of me'

In my time off... I enjoy little bit of hillwalking. I love sport and I'm a GAA man and when I say I'm from Sligo I don't have too much too shout about. I'd be a secret Mayo admirer and I like Leinster rugby and Arsenal soccer.

My business advice is... if you want success you have to put yourself forward and put yourself out there.

Given the opportunity to do it again... I would do exactly the same. It has been an amazing life for me.

My worst moment in business... came in 2009. I felt the business was out of my control. Almost every day was getting worse and there seemed to be no solution to it - and of course there are solutions. But it was without doubt my worst year ever.

Retirement... scares the life out of me. I have had conversations with my own board about this. What I don't want to be is the fella who doesn't spot it when I'm not contributing. That's why I need them to be able to say when it's time to pack my bags and go.

Sunday Indo Business

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