Dalata did the housework during lockdown, and now awaits a post-pandemic bounce

The pain has continued into 2021. In its half-year results published on Wednesday, Dalata revealed further falls in both revenue (to €39m) and occupancy (a mere 19.9pc).

When compared to the first half of 2019 – the last ‘normal’ year – Dalata’s revenue and occupancy have shrunk by four-fifths.

In fact, when looked at more closely, Dalata’s first-half 2020 results were even worse than they appear, while the results for the first six months of this year were significantly better.

How come? Dalata’s 2020 numbers included about ten weeks of pre-Covid trading, when its performance would have been broadly in line with the previous year. And this year’s results included only one month in Ireland and six weeks in England when hotels were fully re-open.

Since re-opening, business has picked up rapidly at Dalata’s hotels, with 44pc occupancy in June, 58pc in July and 68pc in August.

However, despite improved trading in recent months, Dalata is still haemorrhaging red ink. Operating (pre-interest) losses fell from almost €55m in the first six months of 2020 to €20m in the first half of 2021. When the €17.8m interest bill on Dalata’s leased hotels and bank loans is added, the group recorded a pre-tax loss of €37.8m for the six months to June, down 47pc on the €71m pre-tax loss for the same period last year.

Perhaps even more relevant, the cash outflow from Dalata was €24m in the first half.

And it could have been worse, an awful lot worse. Both the Irish and UK governments have pumped buckets of cash into businesses forced to close by the pandemic. Dalata received a total of €29.1m from the Irish and UK governments in the first half.

When the pandemic struck, Dalata also took decisive action to bullet-proof its balance sheet. It raised €65m from the sale and leaseback of its Clayton Hotel at Charlemont Street in Dublin, wrote down the value of its hotel assets by €161m, and raised €94m from a placing of new shares.

This came at a cost, with the new shares diluting existing shareholders by almost a sixth. The new shareholders paid €2.55 a share. With the shares now trading at €3.67, were the new shares under-priced? Incoming chief executive Dermot Crowley, who takes over from Pat McCann next month, says not.

“The placement strengthened our balance sheet. It gave reassurance to our fixed-rate investors. We will be able to take advantage of opportunities as they emerge over the next few years. It gave us the cash to commence the construction of [the 149-room Maldron Hotel] Shoreditch. We have absolutely no regrets.”

Several other major players in the travel and hospitality sectors – including Ryanair, IAG and Whitbread – also sold new shares to investors during the pandemic.

While Dalata has performed relatively well since its hotels re-opened in early summer, this recovery has not been evenly spread across the group.

Occupancy at its regional Irish hotels climbed to 81pc in August, regional UK occupancy was 76pc, and London occupancy was 65pc. However, occupancy at its Dublin hotels was just 59pc. By comparison, occupancy at Dalata’s hotels in August 2019 ranged from 85pc to 94pc.

The relative under-performance of its Dublin hotels is a major concern because 46pc of its 8,900 rooms (almost 4,100) are in the Irish capital. Even before Covid struck, there were emerging signs that the Dublin hotel market was becoming glutted – with property consultants Savills predicting an extra 4,500 rooms, an increase of almost 20pc on the existing 23,500 rooms, by the end of 2023.

Dalata will be among those adding to the Dublin hotel room total. During the first half of 2022 it will be opening two new hotels, the 204-room Samuel Hotel in the Docklands and the 140-room Maldron on Merrion Road. The 200-bedroom Croke Park Maldron is then due to come on stream in 2024.

In Dalata’s defence, Crowley says that each of the new Dublin hotels represented very attractive specific opportunities for the group.

At the same time a significant amount of existing Dublin capacity – including Dalata’s own Ballsbridge Hotel and the Beacon Hotel – are set to leave the market.

Even so, while Dalata is increasing the absolute number of its Dublin hotel rooms, the planned increase in its total number of rooms (by 2,600 to over 11,500) will reduce the proportion of Dublin rooms in its portfolio – from 46pc at present to a still very high 41pc by 2024.

With the Irish Government announcing last week that most of the remaining Covid restrictions will be lifted next month, Dalata’s second half will be far more ‘normal’ than its first half.

But the hospitality sector, Dalata included, may continue to experience the financial equivalent of ‘long Covid’. Forecasting firm STR has predicted that it will be 2024 before the Dublin and London hotel markets recover to levels seen in 2019.