"It wouldn't be Choice if it wasn't complex," Choice Hotel Group chief executive Andy O'Neill says with a smile as he sips a coffee in the Gibson Hotel. He's talking about the convoluted financial and operating structure of the business.
In the boom years, Cork-based hotelier Frankie Whelehan fronted the operation when investor cash was plentiful thanks to generous tax breaks.
Then the economy crashed in late 2008 and the hotel group was put through the wringer, ending up with Nama as its de facto landlord. In March, a €40 million cash deal to sell its leasehold interest in four hotels to market leader Dalata finally closed the book on that difficult period.
The hotels were the Gibson in Dublin, the Croydon Park in London, and the Clarions in Cork and Limerick. Dalata also took over the management of the Clarion at Liffey Valley in southwest Dublin.
Whelehan has departed the group, with O’Neill now the sole shareholder behind a restructured hotel operator with ambitious plans to renew and grow the business.
But one thing hasn’t changed – the corporate structure remains convoluted.
Tulip Bay Ltd is the operating company and management agreement arm. “That would have been set up in late 2014 as an operating arm for smaller agreements,” O’Neill explains.
Its franchise arm is run through a company called Luckwell Ltd. It has the master franchise for Ireland and Britain for the Clarion, Quality, Comfort and the Ascend Collection brands owned by Choice.
“That gives us great ability to have something we can sell to other companies or other hotels,” he says. “There’s plenty of hotels or operators that need the support of a brand or franchise and the banks love franchises and brands.”
O’Neill is the 100 per cent shareholder in both entities, having provided financing from his share of the €40 million sale to Dalata.
Incentive
He joined Choice in November 2000 as a senior manager, building his holding by taking his incentive in shares. “I obviously gained from the sale being a shareholder and I decided to back myself again and go on,” he says.
How much did he make from the sale?
“A Garda wouldn’t ask me that question,” he says with a chuckle. “I was the largest management shareholder in the company.”
Some millions? “Yeah, yeah. Enough to back myself in the future.”
And enough to allow him to waive his salary for the first year while the business establishes itself. “I don’t take a salary myself at the moment because I really want to invest in the team rather than myself to try and grow the business.”
At its core, Choice is tightly managed. Just six people run the operation and a payroll of about €400,000 centrally. Income for Tulip and Luckwell together is about €1.7 million to €2 million annually, with profits of €300,000 to €400,000.
O’Neill’s vision is to build a broad hospitality group, comprising hotels, pubs, franchises, and management contracts, both here and overseas.
“We’ve always been renowned for hotels but I want to build a more holistic hospitality business,” he says.
In the recession, Choice would have acted as an adviser on loan book sales, supporting institutions looking to secure deals and advising on how to reposition the assets they were buying.
“We’ve continued work with the loan books and we will continue to do that with some of the institutes that bought them,” he says.
Online platform
It has also invested in an online platform for hotels called Dmbook Pro. “It’s a little whizz of a business set up by two French guys. One of them previously worked for us,” O’Neill says. “We’re working hard on incubating that at the moment in the Guinness enterprise centre. It’s a software app that helps you to manage your property better. We’ve got about 40 people buying from us.”
He has set up a division to manage and operate pubs, bars and restaurants. “We’ve taken over our first management of a large pub called Shannon Knights in Shannon town centre for the receiver [Gearoid Costelloe of Grant Thornton].”
“We saw a gap because we have the skill set in hotels that falls across food and beverage.”
There are five hotels in the Choice Hotel Group – the Carton House resort in Kildare, Hotel Woodstock in Ennis, the Montenotte Hotel in Cork, the Malone Lodge in Belfast, and the Waterside House Hotel in Donabate, Co Dublin. They all operate separately of each other but generate about €35 million a year in revenues between them.
Malone Lodge marks the group’s first venture into Northern Ireland. “We took it on in March under a management agreement. We’re extremely excited about getting into Belfast. It adds a new dynamic to the operation and the group on a platform basis.”
And there are two potential hotel purchases in the west of Ireland that are close to being agreed. One is in due diligence while the other is simply waiting for the paperwork to be completed.
“There’s still a lot of work to get both over the line but we’re looking forward to bringing them into the group. We’re purchasing one and one is to manage.”
O’Neill wouldn’t name the properties concerned but said the size of the deals would be “late fives to early sixes in the millions”.
“The west is an important market because there’s minimal impact from the UK [and Brexit]. Only 5.9 per cent of all the activity in the west is from the UK. It’s still predominantly tourists from North America and mainland Europe so the average spend is very strong for both.
Is he concerned about the impact of Brexit on Irish tourism, given the recent weakness of sterling versus the euro?
“It’s not going to be the end of the world. I think it will affect the food export industry more than us and we’ll gain from corporate business tourism midweek.”
Domestic tourists
He thinks Dublin might be impacted most from Brexit but argues that this might open up capacity to domestic tourists who are being priced out of the market at present by a lack of capacity.
“There’s plenty of money in the country willing to stay in Dublin but they can’t at the moment because the demand is so high, the rates are so high and the occupancy isn’t there for them.”
He doesn’t see Choice participating in deals in Dublin due to the high valuations being attached to properties. “ There’s no value for us.”
“Our ambition over the next three-five years is to get back to 10 or 11 hotels. We’re never going to be a 40 hotel group. We’re never going to have the money to compete with Dalata or Tifco.”
What about a lease in Dublin, where Choice would run a property for the owner?
“If someone said to me ‘we’re going to pay €400,000 a bedroom [buying a hotel in Dublin] and would you lease it off me?’ I can only imagine what they would be looking for and I wouldn’t be able to afford it or get someone to underwrite it for me.
“You kind of wish that we don’t go back to where we were and learn something in the industry. My mantra is I’m not going to compromise by signing a lease where there’s one winner: the landlord. The business has to breathe, the operator has to make profits and the leaseholder has to get a fair deal.”
O’Neill accepts that mistakes were made in the boom years in the hotel industry.
“Everyone knows that the growth of hotels in the mid-noughties was off the back of tax breaks. The Government did a good job in tying up that loophole, and developers and leaseholders in particular should stay apart. You don’t need to be a developer and a hotelier. That crossover shouldn’t happen.”
While O’Neill had skin in the game with Choice, he didn’t have any personal guarantees and admits that he could have walked away from the mess at the height of the recession.
“I’d be lying if I said it didn’t run through my mind. But we had 1,500 staff that believed in my ethos, my story, my leadership and I didn’t want to let them down. I wanted them to be secure.
“When we did the deal with Dalata, the one thing I said to them was that they had a better sense of security going into a plc [public company] and they will fund the assets as they see fit.”
Not surprisingly, O’Neill thinks highly of Choice as a brand for franchisees or hotel operators. He argues that its global distribution system offers the best value, with commissions of between 3 and 6 per cent.
“We brought €21 million worth of business through Choice into Ireland last year, which is extremely significant considering that only two of our hotels are in Dublin. Over €4 million in room revenue was in Cork coming through the Choice franchise system, €2 million in Limerick.
“The biggest benefit of our franchise over our competitors is that we’re half the price and we’re half the price because we’re on the ground in Ireland delivering. And it doesn’t mean our system is worse. We’re the second largest GDS [global distribution system] provider in the world. Choice are 6,700 hotels worldwide.”
O'Neill has built a strong relationship with Choice International over the years to the point where the Irish business has been selected to run a hotel in Amsterdam should Choice be successful in the bidding process for a DoubleTree property, which is being sold by Blackstone.
“They are doing due diligence on a sale in Amsterdam, the DoubleTree, where they will buy it and fund the purchase, underwrite the lease and then we will go in and operate it for them. That’s pretty exciting.”
Other opportunities
Even if Choice is unsuccessful in securing the Amsterdam hotel deal, O’Neill expects other opportunities to arise. “I would hope we’d get the opportunity to do a couple of them with Choice in Europe,” he says. “Ideally, we’d have somewhere around the 10 mark in Ireland and three to four in the UK and Europe in possible, in a partnership model.”
O’Neill, who hails from Balbriggan in north Dublin, has spent 27 years in the industry, having left school after his Inter Cert (now the Junior Cert) at 15.
Remarkably, he has had just two employers during that time, Forte and Choice. It started with an apprenticeship to be a waiter at the old Forte in Dublin Airport. “I only went there to work for the summer because I lost a job picking strawberries,” he recalls. “I just loved it and couldn’t see myself doing anything else.”
His parents were less enthused, both being distraught when he broke the news. “My dad had many sleepless nights over it.”
At 17, O’Neill was offered a spot on Forte’s graduate programme and graduated with the Dublin Institute of Technology.
Having once had 11 properties, Forte has long since departed the Irish market and O’Neill was part of the investor group that bought its former Dublin Airport hotel in 2006.
He joined Choice in 2000, becoming its group operations director in 2009 having been general manager for the Clarion Hotel Liffey Valley, the Clarion Dublin Airport and the Morrison in Dublin.
Relentless nature
In spite of the long hours and relentless nature of the industry, O’Neill says he would be “honoured” if either of his young children chose hospitality as a career.
His favourite hotel in Ireland is BrookLodge in Wicklow. “I like everything about it from the time you hit the front door. When I ring up to book, I never have to ask them for the room that I like. You get great food and the surroundings are going to surpass your expectations whether it’s rain or shine.”
His favourite “city” hotel is Muckross Park in Killarney, Bill Cullen’s old place. “I’ve always enjoyed it and found it to be a really comfortable hotel with superb service and a really good sleep product.”
He rents a house in Portugal each year for family holiday and says the “swankiest” hotel he would stay in overseas would be the Fitzpatrick properties in Manhattan, owned by Irish hotelier John Fitzpatrick.
Has he ever stayed at a Trump hotel?
“Never. I probably couldn’t afford it to be honest and it’s never appealed to me.”
He thinks Donald Trump’s election as president of the United States might impact tourism here if the dollar weakens in value but this won’t be known for months, he says.
On Airbnb, he has no problem competing with the online short-term rental platform, once they follow the same rules as hotel operators.
“Airbnb need to be paying their taxes the same as we have to. For us to get a hotel licence, we have to jump through hoops. They should be regulated and pay their taxes as we all have to.”
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CV
Name:
Andy O’Neill
Job: Chief executive Choice Hotel Group
Age: 42
Family: Married with two children
Lives: Balbriggan, Co Dublin
Hobbies: Watching live football. "I like a live match rather than TV."
Something you might expect: He's a member of the Irish Hotels Federation
Something that might surprise: He used to be a football scout for Irish manager Mick McCarthy at Sunderland, Wolverhampton Wanderers and Ipswich Town. "Mattie Doherty at Wolves would be one of my lads. Probably the biggest getaway was Séamus Coleman [of Everton]. I'd more or less a deal done with Sligo Rovers to get him to Wolves but it didn't happen. I was extremely disappointed."
“I had a couple of trials at Everton myself. I’d half a chance until I got a bad head injury and I didn’t play for about 10 years then.”
