Dalata Hotel Group, Ireland’s largest hotel operator, began a strategic review this month that could lead to a sale of the company, spotlighting investor appetite for European hospitality assets.
This review, with guidance from Rothschild & Co, could lead to a sale. However, as of the March 6 announcement, the company wasn’t in talks with potential suitors.
Dalata’s review comes as European hotel assets attract increasing interest from international investors seeking inflation hedges and exposure to resilient travel demand.
Dalata runs 55 hotels, primarily under the Clayton and Maldron brands. A majority are in Dublin and London. Its hotel assets were valued at €1.7 billion as of December 31.
While deal activity trended upward in Europe last year, Dalata has specific characteristics that will affect the interest of potential joint venture partners or acquirers.
Relatively large, asset-heavy portfolio acquisitions can be complex.
“About half of the transactions last year were of portfolios in the UK, but unlike Dalata, the deals were not a mix of leasehold and freehold interests,” said Adam Maclennan, partner, managing director – head of UK & Ireland at international hospitality consultancy firm PKF Hospitality Group.
Dalata’s portfolio includes 30 owned hotels. The group also operates 22 leased hotels, most on long-term institutional lease agreements with a weighted average lease length of 29 years and rent cover of 1.7x. It also runs a few properties via management contracts.
“Having a hybrid tenure structure in one business is extremely confusing for the outside world looking in, and what it really looks like to me and to the market, I suppose, is a growth strategy rather than a real estate strategy,” said William Laxton, CEO of real estate investment manager Mactaggart Family & Partners.
“It’s an awkward split,” Laxton said. “The leases are inconsistent. They don’t have the same expiry, the same mechanisms, or the same rent review provisions, and all of that means that a buyer is unlikely, especially at this kind of quantum, to want all of it.”
“It needs to be split, I would say, to realize value,” added Laxton.
The European hotel asset market is currently experiencing investor interest: “2024 was a pretty good year for real estate transactions in the hotel sector in the UK and Ireland,” said Maclennan. “London and Dublin had particularly strong years.”
Maclennan partly attributed dealmaking to the relative attractiveness of cash-flowing assets.