Corporate development director Shane Casserly discusses growth plans on both sides of the Channel
by Franciszek Bryk
In September 2023 Dalata, Ireland’s largest hotel operator, announced its second acquisition in continental Europe, having agreed to buy American Hotel Exploitatie – the operational leaseholder of the Hard Rock Hotel Amsterdam American. The London- and Dublin-listed group, which owns a portfolio of assets valued at €1.6bn, had entered mainland Europe by buying the operational lease of Hotel Nikko in Düsseldorf, the year before. Both hotels have been rebranded as Clayton Hotels – one of Dalata’s brands, alongside Maldron Hotels.
The Dublin-headquartered company, which reported 29% hotel revenue growth and declared its first dividend since Covid-19 in the first half of 2023, has a portfolio of 11,412 rooms across 53 hotels – and more than 1,300 rooms across four projects in the pipeline. The group has 31 owned hotels, 19 leased hotels and three management contracts across the UK, Ireland and continental Europe.
While the UK remains the firm’s strategic focus, with €112m of capital deployed into two London hotels in the first half of 2023, including the Apex Hotel London Wall – which it snapped up for £53.4m, Dalata has also defined continental Europe as its “next strategic priority”.
React News sat down with Shane Casserly, corporate development director, to discuss the company’s strategy across both sides of the Channel, target locations, capital availability and competition.
Does European expansion change anything in your UK strategy?
Having entered Düsseldorf in February 2022, I can say we are very excited about Europe. I see Germany and the wider continent as a very attractive and productive market for the Dalata model. With cities like Amsterdam, Brussels or the top six in Germany – Berlin, Hamburg, Düsseldorf, Cologne, Frankfurt and Munich – we can see opportunities for ourselves not just to go with one property but with two or three properties in the one city.
However, the key strategic growth market for us is still the UK. We had originally been targeting a 7.5% share of the market in a larger pool of cities. Now, we have narrowed our target cities and we very much focus on the high-end – London, Manchester, Edinburgh and so on.
We have 153 bedrooms in Edinburgh and would love to add another Maldron Hotel very quickly. But we aren’t going to add three or four hotels straight away. As our UK portfolio development matures, we will look at Europe more and more. The internal target of our acquisitions team is to secure 1,200 bedroom opportunities a year. While the team is based in Dublin, we have very strong connections in Europe through the brokerage and the agency market.
How do you define target locations?
We love large and busy urban areas, which basically generate their own business.
We want to get more than our fair share of the market in such places. Let’s take Dublin as a template, where we are very strong. We have 972 bedrooms in Manchester – with 188 due to open next year and we are already looking for new opportunities. If we are successful in Dublin at a 18% share of the market, why would we not be happy with 10% or 12% in Manchester?
“As our UK portfolio development matures, we will look at Europe more and more. The internal target of our acquisitions team is to secure 1,200 bedroom opportunities a year”
We like cities with a balance, a mixture of corporate and leisure travellers. We don’t want to be overweighted in either component. That’s why Amsterdam is so attractive to us. It has, obviously, a huge corporate base. It’s a European hub. And there’s also a huge amount of leisure travellers coming in.
However, it’s not just about the right city. My team could be looking at something in Brussels today, but if it’s not the right opportunity, we won’t pursue it just because it’s Brussels. To date, we have been focusing in Europe on the west. I don’t think we have the scale and depth of resources to look to the east – at least no further than Warsaw or Prague. However, we aren’t looking at these cities at the moment.
How much competition did you face with these European acquisitions?
Both of our European acquisitions were, if not purely off-market, then certainly grey market. These were not open-marketed processes.
In Düsseldorf we became aware of the process quite late but one of our agency contacts recommended us. We were able to demonstrate to the landlord our strong record in the UK and Ireland, especially in terms of paying rent through Covid-19. We showed our ability to enter new markets and generate business there.
In Amsterdam, we understand there were other bidders. The Zien Group was aware of us and we were approached on it. We initially visited the hotel in April and closed within a few months. If the property is ideal and it’s in an excellent location, you have to move really quickly.
Some places are more competitive than others and there are higher barriers to entry. You have to always go back to that basic maths of your affordability per key. I would be a lot more comfortable paying €500,000 per key in London than €300,000 per key in some regional cities. Ultimately, it’s a reflection of the achievable RevPAR. Paris is a great hotel market, for example, but cities like Amsterdam, Brussels and the German cities are more attractive for us at the current stage.
Has the low availability and high cost of capital impacted Dalata?
We are certainly all in a challenging space. If we are honest, it was probably a bit too easy for a few years when the cost of debt was so low.
One of the benefits that we have is that we are a mixed model. So, while we were able to close some very attractive leaseholds with the likes of Deka, Union and Abrdn when the yield values were very, very attractive, we can also buy and develop.
“Paris is a great hotel market, for example, but cities like Amsterdam, Brussels and the German cities are more attractive for us at the current stage”
Our Edinburgh acquisition, which we announced at the same time as Amsterdam, was a stranded office. It had an institutional landlord, who was looking to sell it into the office market with no success. We became aware of it in the summertime and managed to enter the process. What we bought is essentially a development site, a building which we are content to be able to convert.
Our cost of debt has gone up, but we are very prudently geared relative to our portfolio asset value. It’s a bit of a cliche, but if we had a balance sheet with just lease assets, we wouldn’t be able to do that. Because we have these different pathways open, we are able to turn one on if another is too much of a hurdle in terms of the cost of debt or the cost of investment yields.
Would you consider developments in continental Europe?
We have a lot of strong building partnerships in the UK and Ireland, but we don’t have those on the continent. We certainly wouldn’t put the company in an exposed position by taking a very open development risk. Within the Irish market, we understand development in Ireland. A lot of us had a history of working in the UK as well, so we understand the inherent risks around construction work there.
“If you asked me in 2022 if we were going to buy a development site in Amsterdam, it would have been a straight no. As we get more comfortable in new geographies, we are more willing to look at those type of opportunities”
But if you asked me in 2022 if we were going to buy a development site in Amsterdam, it would have been a straight no. As we get more comfortable in new geographies, we are more willing to look at those type of opportunities. If something came up in Düsseldorf now, we would certainly have to consider it. I suppose the hill is less steep, but it’s still there.