Macdonald hotels forms development joint venture
Macdonald Hotels has set up a joint venture with the Royal Bank of Scotland and the Bank of Scotland to build and operate up to 10 four-star hotels in city centres throughout the UK.
The joint venture has secured funds of £100m and is in advanced talks to acquire its first four sites, in Sheffield, Birmingham, Leeds and Glasgow. It is also the front runner for a site along the M4 corridor near London.
Macdonald is investing £5.2m over five years to take a 15% stake in the venture. It will have a 10-year management contract at each hotel, with an option to extend. The properties will be completed within five years and branded as Macdonald hotels.
Managing director of operations Gerry Smith said there were several reasons for entering into the development joint venture: "If we do it ourselves, it would tie up an awful lot of money and we don't believe you have to own these hotels to make money out of them."
He added: "We believe we can build these hotels of high quality cheaper than we can buy them."
They will be built to four-star standard, with large bedrooms and a contemporary design. All will be fully air-conditioned, with leisure facilities, car parking, a business centre and a function suite.
News of the joint venture was announced as Macdonald reported its financial results for the year to 2 April. Turnover was up by 7% at £60.6m, underlying operating profit rose by 5% to £15.1m, and underlying pre-tax profit increased by 8% to £13.8m.
The group now owns or manages 79 hotels and resorts in the UK and Spain, with a total of 5,000 bedrooms and turnover of more than £150m a year.
Chief executive Donald Macdonald said: "The group has performed well through what have been difficult trading conditions in 1999."
He added: "Trading conditions have improved in the first months of the new financial year and we are optimistic about the period ahead."
The company's 25 owned hotels saw turnover increase by 6% during the year to £57.4m. Operating profits were up by 3% to £14m. "By applying attention to cost control and manning efficiency we were able to maintain operating margins at 33%," said Macdonald.
Average room rate improved marginally to £57.99, while occupancy slipped by one percentage point to 62%. This resulted in a 2% drop in room yield to £35.67, which the company admitted was "still some way short of the industry average."
In January Macdonald launched a fair rate scheme, whereby it researches the room rates offered by its local competitors and sets its own prices in the middle of this band. No further discounts are then offered to guests. Early results have been encouraging, the group said, with room yields up by 9% in the first two months of the new financial year.
Several new developments being undertaken by the group include building new conference facilities and an extra 39 bedrooms at the Macdonald Ansty Hall hotel near Coventry. The £3.1m project should be finished by October.
Macdonald's joint venture timeshare business, Barratt International, now has 11 resorts and four hotels. It contributed £1.3m to the group's profits last year. In February, Barratt bought the 48-bedroom Riverside hotel in Kendal, Cumbria. There is space to add 70 timeshare apartments on land next to the hotel.
Macdonald also runs 43 hotels under management contracts, a business which contributed operating profits of £1.1m last year.
The group said 2% of its bookings were now coming through its Web site.
by David Shrimpton david.shrimpton@rbi.co.uk
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