Macdonald Hotels secures JV offers to fund portfolio investment

Macdonald's The Swan's Nest, Stratford, UK

Bathgate-based Macdonald Hotels has accrued £83 million worth of offers to start joint property ventures on 11 of its sites, as the firm continues to secure funding to invest in its portfolio. Gordon Fraser, MD of Macdonald Hotels told the Herald Scotland that the firm has continued to expand its non-hotel asset portfolio as it breaks into the luxury hotel sector. 

This follows a previous report that Macdonald saw a pre-tax profit of £5.6 million in the year ended March 31, which was boosted by a 30-percent group booking increase from Japan, China and the U.S. during the pound's slump post-Brexit vote. In the months after the Brexit vote in 2016, those same markets brought a similar rise in group bookings, which contribute approximately 10 percent of overall sales. The firm's hotels in tourist destinations, such as Edinburgh, Oxford and the Lake District, befitted the most form this uptick.
Macdonald reported in December 2016 that profits had grown to £62.4 million due to a £57.2-million gain on the sale of land at Southampton's Botley Park Golf Course to developers. According to Fraser, Macdonald has now shifted its focus to realize value from non-hotel assets through seeking JV deals at certain sites. The firm is currently eyeing development opportunities for as many as 26 locations. 

Fraser explained that the firm would be able to gain funds to invest in upgrading the quality of its properties through sharing the profits earned through these partnerships. He added that the proceeds from these projects will typically develop between the second and fifth year of development. "This is a medium to long-term strategy but it allows us to plan. We’ve got the cash flow from the developers and the architects working on this within the five-year plan," Fraser said. 

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Although the company's debt surged well over £700 million in 2003, Macdonald cut down the debt to £184 million in 2016 thanks to the last year's sale of the Macdonald Swan's Nest Hotel in Stratford. Just a year prior, Macdonald acquired the Old England Hotel at Bowness-on-Windemere and the Marine Hotel in North Berwick. Both properties are owned by Macdonald companies and managed by Macdonald Hotels. However, the loss of income from the newly-acquired hotels led to turnover at the group, dropping to £154.2 million from £163.4 million. Operating profit also dropped to £11.1 million from £17.4 million, which the company explained was caused by the impact of higher overheads. These included investments in IT and hotel sales. Without the hotel disposals, Macdonald's like-for-like operating profits increased by 8 percent to £3.2 million. 

Fraser also highlighted that the hotel firm was working to mitigate the possible end to EU citizens' freedom of movement when the UK's split is finalized. Out of the 4,000 Macdonald employees, approximately 30 percent are EU citizens. Macdonald's preference is that the current freedom of movement would continue. However, the company is developing initiatives to promote hospitality careers in schools to help ensure the flow of employees to the sector continues. “The entire UK hospitality industry is concerned that the flow of EU workers, upon which we all depend to some degree, might be severely curtailed. We’ve therefore increased investment in our graduate programs and in our internal hospitality development schemes, improving staff retention," Fraser explained. 

Macdonald is also adapting to the rise in utility costs, the national minimum wage and living wages, apprenticeship recruitment and higher business rates, which totaled £2.4 million on top of other costs in 2016. The group surpassed its target of saving energy by 15 percent, setting the bar higher at 20 percent. The company is looking for opportunities to minimize food waste and to offset the rising cost of goods attributed to a weakened pound by partnering with alternative suppliers.