INTERVIEW: Managing 26 hotels in Ireland and the UK in these tough times, Pat McCann could never be accused of being a glass-half- empty man
THE BOY IS BACK in town. Or in Ballsbridge to be precise. Almost seven years after negotiating the sale of the adjoining Jurys and Berkeley Court hotels in leafy Dublin 4 to developer Seán Dunne for a whopping €402 million, Pat McCann has returned to take charge of the businesses.
In January, McCann’s hotel management group, Dalata Management Services Ltd, was appointed by a consortium of lenders led by Ulster Bank to run the two hotels after they called in Dunne’s loans.
McCann sold the hotels to Dunne in 2005 in his role as Jurys Doyle chief executive. It was a sale that symbolised the folly of the Irish property bubble.
“I remember gasping when the bids were opened,” McCann recalls of the sale process for the hotels. “I found it unbelievable that somebody would have a business that could afford to pay that kind of money.
“I had this idea in my head that the price would be €25 to €30 million an acre, because a piece of land in Lad Lane [in Dublin] had sold for €22 million and we had better sites.”
In the end, Jury Doyle hotels – since rebranded as the Doyle Collection – netted an eye watering €57 million an acre from Dunne. At the time, some people had the view that the hotels were losing money and trading badly.
“That was not the case,” McCann explains. “The difficulty that we had was that we were a plc and we were sitting on land values that had far greater alternative uses than hotels. It was incumbent on us to realise that value.”
Dunne had grandiose plans to turn the site into a Dublin version of Knightsbridge, with a 37-storey tower as the centrepiece of a €1.5bn development. The global financial crisis and Irish recession put paid to that dream and Dunne has since relocated to the US.
While McCann feels sorry for the way the investment turned out for Dunne, he has no regrets about his role in the deal.
“No. Not at all,” he says. “You see, you were in a different time and a different era. We were all euphoric at the time. We all shared in this enthusiasm that the world we lived in would go on forever. You’ve got to remember that the site next door [UCD veterinary college] sold for €78 million an acre. So it wasn’t the most expensive land in Dublin at the time. When you look back at it, it was utter madness but the reality at the time is that we didn’t think that.”
So what’s it like to be back? “Great,” says McCann, with a grin in the bar of the newly renamed Berkeley Court Hotel.
Next door the old Jurys property has been renamed the Ballsbridge hotel. The D4 brands that Dunne used are now history, as is the convenience store that occupied part of the ground floor at the Ballsbridge hotel.
Both hotels have faded from their heyday and McCann has wasted no time in implementing some changes. He has put in place his own management team and moved the properties onto the Dalata systems, which underpin the Maldron hotel chain and the 15 hotels that McCann is managing for various receivers and owners.
A near €4 million overhaul of the ground floor of the Ballsbridge hotel is largely completed. This was funded by insurance payouts following flooding during the storm in Dublin last October. He also plans to upgrade the 300 rooms in that hotel, which will cost about €1 million. The Berkeley was in better shape but has been freshened up in places.
Perhaps more importantly, certainly in the eyes of his rivals in Dublin and farther afield, McCann has changed the pricing structure. Gone are the cut-price €39 a night deals to be replaced by a base price of €79 or €89, “moving up from there”.
“We are not going to be in the heavily discounted sector that we previously occupied,” McCann insists. “We are going to shift the positioning of the properties so that they operate at a four-star level as opposed to a quasi three-star,” he said. “We will never be back to five-star here but we will operate to a good four-star level. These are fundamentally great businesses.”
And they will be profitable this year, he adds, although whether that includes being able to meet its obligations to lenders is not entirely clear.
Dalata’s contract with the receiver is for an initial one-year period but McCann expects to get a “longer contract”.
What will eventually become of the site?
“This will be a long term venture [for Dalata]. At some point, it will be redeveloped here but that will be well down the road. Somewhere between five and 10 years.”
It’s not all about Ballsbridge for McCann. Dalata runs 11 Maldron-branded hotels and has 15 management contracts, including Jim Mansfield’s Citywest resort in Saggart, Co Dublin; Breaffy House in Mayo; and White’s in Wexford.
He’s particularly proud of the Academy Hotel on Cathal Brugha Street in the capital, which he describes as the “best unknown hotel in Dublin”, an unusual claim to fame.
It’s owned by Kilkennyman Joe Comerford. “It has 304 air-conditioned rooms. Virtually brand new. A fine, fine hotel.”
Citywest, he says, is doing “extraordinarily well”, with a strong pipeline of events for this year already booked. “The first two months have been outstanding,” he says.
McCann says Citywest is operating profitably. “The long-term plan is that we’ll continue to build the business and at some point it will be sold by the receiver. We’re on a rolling 12-month contract so who knows [when that might be]. It’s a large site and there’s a lot of development potential if you needed development.
“For example, if a gambling [casino] licence ever came to being [from the Government] it could be a very good centre for that type of thing because it has good access.”
McCann says each of his hotels is “self sustaining” and says lenders are not “shovelling money into the hotels” to keep them open.
“I have not received 10 red cents from any bank to keep a hotel open,” he says. “We’re now in a place where we’re producing decent cash in most of them and some of them are already paying off their interest.”
McCann could never be accused of being a glass half empty man. He used to describe the Jurys Inn chain as a “three-star budget plus”, whatever that means.
The Sligoman now attaches the same title to Maldron. The Academy is a “very good, three-star [hotel]; in fact it should be a four-star”. The Maldron on Cardiff Lane in Dublin is a “star performer” while its hotel in Cardiff, Wales is “super, trading very well”.
He never undersells his businesses. “What do you want me to say?” he counters with a cheeky grin.
Dalata, itself, was a construct of the Celtic Tiger. Set up in 2007, it was funded by investment from public company TVC Holdings and Davy private clients. In all, about 100 investors put money into the company, which used tax breaks to build many of the hotels.
McCann personally invested €1 million. He reckons this is “probably [worth] about 30 per cent of that now. That’s fine. I put investments into other things that are now worth zero and will never be worth anything.”
He says Dalata has never missed an interest payment or a capital repayment with its banks. Its net debt at the end of 2011 was €6 million. “All my leases are up to date. I’m a good boy.”
However, €42.3 million is owed by way of loan notes to shareholders, with interest of about €3.5 million a year racking up on this debt. “They [the loan notes] don’t exercise until there’s a liquidity event. That won’t be for some time.”
The original time horizon for a “liquidity” event was five to seven years but the economic crash here has extended it out to at least 10 years now, according to McCann.
“My job is to create value for those shareholders. It’s a question of how quickly we can do that but that’s what we intend to do.”
McCann claims a “number of people [are] beginning to appear who are interested in getting a piece of Dalata Hotel group”.
Who?
“I can’t tell you. They’d be in the investing community.”
In Ireland or abroad? “Both actually. Nothing to do with trade players. This would be pure investing … they wouldn’t be individuals.”
Is there a deal in the offing? “No, not at all. There’s no liquidity in the shares.”
In 2010, Dalata Ltd generated revenue of €30.6 million and Ebitda (earnings before interest, tax, depreciation and amortisation) of €882,300. McCann said it achieved a single digit increase in its revenues last year while its Ebitda “more than doubled”.
The revenues comprise income from the Maldrons and fee income from its management contracts. The combined revenues for all the hotels he manages would be “well in excess of €100 million”, he says.
He says Dalata is profitable if you strip out interest payments on the shareholder loans, which will only be repaid when the liquidity event occurs. “There’s a sense that we’ve moved to a point where we can start creating value for shareholders,” he said.
Initially, McCann saw the UK market as the potential value creator for his investors. But the crash put the kibosh on that plan. Maldron opened in Cardiff last year but the planned expansion into other UK cities is on hold. “It’s impossible to get funding there at the moment. But that will come.”
Again, the note of optimism. McCann should be working for IDA Ireland or Tourism Ireland selling the country to the world.
He left Jurys Doyle not long after the Dunne deals were completed. He’d spent 18 years with the company, eight of them as chief executive. “I wanted to retire,” he says, with a wry grin.
Was there a row over strategy with the family owners after it was delisted from the stock market?
“Oh God, no. There was plenty of arguments but there was never a big row in that sense. But I always felt that they wanted to go and do things a certain way and I wanted to do things a certain way, so I said ‘look, I’ll bow out’.”
McCann was 54 and had notions of semi-retirement. These were quickly ruled out. He took up some consultancy work before Rory Quirke of TVC approached him with the idea for Dalata/Maldron. “It was a perfect fit,” McCann says.
At 60, he has too much on his plate now to think about retirement. Fortunately, he remains as enthusiastic as ever about the hotel game. Has he any idea when the sector might turn the corner?
“I don’t think we’re near the end of it at all,” he says, for once sounding a downbeat note. It has been estimated that there are 10,000 too many bedrooms in the Irish hotel sector. How do we sort out that problem?
“I have no idea. You’ll eventually have a natural wastage and some properties being accelerated out of the system. I don’t know how long that will take. Eventually the banks will say enough is enough and they won’t do it anymore. That’s the way it will happen and the hotels will fall off the edge of a cliff.”
McCann doesn’t intend to be one of the casualties.
THE HOTELS
Staff: 2,500
Bedrooms:4,500
Maldrons: 11 (Cardiff, Cork, Galway, Limerick, Portlaoise, Wexford and five in Dublin (Cardiff Lane, Citywest, Parnell Square, Smithfield and Tallaght).
Management contracts: Academy Plaza Hotel, Dublin 1; Ballsbridge Hotel, Dublin 4; Belvedere Hotel, Dublin 1; Berkeley Court, Dublin 4; Breaffy Resort Hotel, Mayo; Cavan Crystal Hotel; Citywest Hotel, Co Dublin; Clare Inn Hotel, Clare; Clayton Hotel, Galway; Diamond Coast Hotel, Sligo; Finnstown House Hotel, Co Dublin; The Heritage Golf Spa Resort, Laois; Portlaoise Heritage Hotel, Laois; Shamrock Lodge Hotel, Athlone; White's of Wexford.
FRIDAY INTERVIEW
Name: Pat McCann
Job: Chief executive Dalata Ltd
Age:60
Family:Married with three children
Lives: Foxrock, Co Dublin
Hobbies:"Im an avid observer of most sports other than horse racing, which I hate."
Something we might expect: The Sligo native supports Sligo Rovers.
Something that might surprise:"When I holiday, sometimes I try to stay away from hotels because it is a distraction. It's like a busman's holiday."
