Dalata Hotel Group Strategy Update Dermot Crowley, Deputy CEO, Business Dev & Finance
The Value Proposition in March 2014 POSITIVE OUTLOOK FOR DEMAND Positive outlook for increased number of international visitors Corporate - increased economic activity and continuing FDI Leisure - increased number of attractions, infrastructural improvements and increased access being provided by airlines Domestic demand expected to grow as economy recovers OPPORTUNE TIME TO INVEST SUPPLY LIKELY TO BE CURTAILED Debt finance remained very tight for business in Ireland, including for the development of new hotels Significant gap existed between expected replacement costs and asset values in all locations outside central Dublin ASSETS AVAILABLE AT ATTRACTIVE PRICES Increased number of assets expected to come on the market in 2014 & 2015: NAMA, Lloyds, ACC, Ulster Bank & IBRC all looking to either deleverage, exit or wind down Majority of sales continued to be distressed in nature Dalata saw opportunities for immediate performance improvements 2
Our Strategy was simple in early 2014 The corporate objective was to leverage the group s core asset management, hotel operation and development competencies to grow a sustained earnings flow through a mix of owned, leased and managed assets ACQUISITION OF HOTELS Acquisition of assets currently under lease Bolt on acquisitions of assets coming to market Poorly managed hotels Capacity to turn around assets Strong balance sheet OPERATION OF THIRD PARTY HOTELS ON LONG LEASES & MANAGEMENT CONTRACTS Leverage experience and knowledge of Irish and UK hotel markets to secure long term management contracts and leases for hotels in Ireland and the UK Increased scale benefits with suppliers and customers 3
We offered a combination of hotel operational & asset acquisition / management expertise HOTEL OPERATIONAL EXPERTISE MARKETING Brand development, innovative online strategies, not constrained by big brand guidelines REVENUE MANAGMENT Supporting hotels through training, recruitment, internal & external benchmarking SALES Representation in all sales channels, leveraging size of group OPERATIONS Ensuring service standards are maintained, food & beverage product developed, purchasing efficiencies, training/ development programmes for employees, health & safety ASSET ACQUISITION / MANAGEMENT EXPERTISE ACQUISITIONS Ability to identify, analyse and execute a large number of hotel acquisitions and lease opportunities DEVELOPMENT Planning, development, construction expertise to build new hotels as well as construct extensions to existing hotels FINANCE Raising equity and debt. Managing relationships with debt and equity providers. Providing financial information to shareholders, management and hotels. Financial analysis skills to maximise the performance of hotel portfolio. 4
Switching from Managed & Leased to Owned & Leased 25% more rooms, double the size of Central Office but 7 times increase in EBITDA 2014 Adjusted EBITDA - 8.9m 2015 Adjusted EBITDA - 62.6m March 2014 6,120 rooms March 2016 7,717 rooms 63% 37% Leased Managed 54% 31% 15% Leased Managed Owned
Summary of Amounts Raised & Invested Since Oct 2015 m m Net Equity Raised 153.6 Additional Debt 90.0 Amount Available to Invest 243.6 Announced Projects Clarion Hotel Cork 36.5 Tara Towers 13.7 Clarion Sligo 13.6 Choice Hotels 41.6 Clayton Charlemont, Dublin 11.9 Maldron Belfast 32.0 Maldron Beasley St, Cork 22.6 171.9 Amount Remaining To Spend 71.7 Development costs associated with Charlemont, Clayton Ballsbridge, Tara Towers, Clayton Dublin Airport & Maldron Sandy Rd Galway will be funded out of operating cashflow. 6
Geographical Mix of Owned / Leased Portfolio Likely to Remain Unchanged for Next Three Years No. Rooms Dublin Regional Ireland Northern Ireland Mainland UK Total Current Portfolio 3,190 1,638 263 1,501 6,592 Percentage Split 48.4% 24.8% 4.0% 22.8% 100% Announced Development Projects 180 121 206-507 Various Extensions 200 30 - - 230 Target New Agreements for Lease in 2016, open in 2018 UK 3 hotels 600 600 Dublin 2 hotels 400 400 Total Rooms Estd End 2018 3,970 1,789 469 2,101 8,329 Percentage Split 47.7% 21.5% 5.6% 25.2% 100% 7
Republic of Ireland 1. Achieve market share of circa 20% in Dublin and main regional cities of Cork, Galway & Limerick Gives Group significant economies of scale in purchasing, shared support functions, back office processing Group gains significant distribution advantages deeper knowledge of market than competitors hotels sharing knowledge, ability to cater for large events coming to cities, variety of offering to corporate and leisure clients, city cluster meetings 2. Dublin remains a major development target and strategic opportunity Currently manage 350 rooms on short term management contract. Expected that there will be circa 4,000 new rooms in the city by 2020 Group currently has circa 380 rooms in the development pipeline To maintain market share at circa 20%, Group needs to secure additional 800 rooms in Dublin by 2020 Currently, new hotel development looks more attractive than existing hotels 3. Beasley Street will increase market share in Cork to circa 21% Dublin Cork Galway Limerick Current Market Share 19.1% 17.2% 13.3% 16.3% 4. Will look at any suitable opportunities that arise in Limerick and Galway 8
Northern Ireland Belfast Derry Current Market Share 7.5% 13.6% 1. New Maldron Hotel on Brunswick St will increase market share in Belfast to 13.1% 2. No plans to expand further in Northern Ireland 9
UK Market Analysis Analysis of 9 Large UK Provincial Cities Glasgow, Edinburgh, Bristol, Birmingham, Brighton, Cardiff, Newcastle, Manchester & Leeds Analysis By Grade 4-Star 37% 5-Star 2% 3-Star 23% Budget 34% 2-Star 4% Budget 2-Star 3-Star 4-Star 5-Star 10
UK Market Analysis Budget Market Segment that has grown most in last 10 years Dominated by large brands that either own or lease properties Premier Inn, Travelodge & Ibis Modern consistent properties Locations both central and tertiary within cities PROVINCIAL UK CITIES 3 Star Market Holiday Inn is biggest brand through franchised offering Jurys Inn, Novotel & Britannia also have significant presence Significant number of smaller independent operators Product offering not as consistent as budget sector 4 Star Market Very fragmented with Hilton being the biggest brand. Other smaller players include Crowne Plaza, Marriott, Mercure & Radisson. Significant number of smaller independent operators Operating model dominated by managed and franchised Control of brand standards looser than in budget sector 11
Analysis of 9 Large UK Provincial Cities Brand Grade Market Share Operating Model Premier Inn Budget 12.8% Owned & Leased Travelodge Budget 7.5% Owned & Leased Ibis Budget 5.5% Leased Holiday Inn 3 Star 7.3% Primarily Franchised Jurys Inn 3 Star 3.1% Owned & Leased Novotel 3 & 4 Star 2.1% Leased Primarily Hilton 4 Star 7.4% Managed, leased & franchised Radisson 4 Star 2.8% Leased & Managed Crowne Plaza 4 Star 2.5% Primarily Franchised Marriott 4 Star 2.3% Primarily Managed Mercure 4 Star 2.0% Managed & franchised Clayton 4 Star 1.3% Primarily Owned 12
UK Growth Strategy 1. A negative outcome on Brexit vote would require full assessment of its impact on UK economy and hotel sector. 2. Senior team has extensive experience of rolling out a new brand (Jurys Inn) in the UK: Acquisitions team sourced, financed and developed over 15 new hotels Operations team opened and operated over 20 hotels 3. Opportunity exists in the upper 3 star and 4 star markets in large provincial UK cities: Market is fragmented - only Hilton and Holiday Inn have any significant presence Major brands have moved away from owned/leased to managed and increasingly franchise model can lead to dilution of brand standards Dalata is one of the few hotel operators in the 3 and 4 star markets that has a significant central office management structure to operate a large portfolio of hotels We believe space exists for a fresh new offering 4. Carefully assess opportunities to grow Maldron and Clayton brands Focus on strong locations in the larger cities Strength of location is more important than speed of rollout 5. Target to have 2 to 3 new hotels open in late 2018, with further 3 to 4 in 2019 13
We considered management contracts but we do not see it as best option to grow the size of the Group 1. Security of tenure eroded as contracts become shorter and landlord termination rights get stronger. 2. Does not represent the optimum return on expertise of Central Office team Management capabilities driving returns for owner as opposed to Dalata shareholders First six months of contract most time consuming from operator perspective Downward pressure on fees 14
1. Rollout to be financed through a leased model with strict minimum target rental cover of 1.75x by Year 3 strength of plc covenant and current low yields create an opportunity 2. Sourcing investors One of very few operators offering a strong covenant Lowering construction and development risk if required through preferred construction partnership Close to completing a detailed building and brand specification for both the Maldron and Clayton brands sample bedrooms already constructed 3. Lease terms will vary from location to location but in general will contain: Term of circa 25 to 35 years Financing Expansion in the UK Leased Model Rent review linked to RPI with cap and collar 15
Sample UK Rental Opportunity No. Rooms 200 FF&E Investment Cost - 2.4m 000 Year 1 Year 2 Year 3 Year 4 ARR ( ) 65.00 68.25 71.50 75.25 Occ (%) 65.0% 72.5% 77.5% 77.5% RevPar ( ) 42.25 49.50 55.40 58.30 Revenue Rooms 3,085 3,610 4,040 4,255 Other 1,190 1,350 1,480 1,525 Total 4,275 4,960 5,520 5,780 EBITDAR 1,600 2,000 2,400 2,510 Rent 1,250 1,250 1,250 1,250 Rental Cover 1.28x 1.6x 1.9x 2.0x
Dalata Hotel Group Strategy in May 2016 continues to be a combination of hotel operation and asset management expertise 1. Exploit our Hotel Operational Capabilities to focus on: Maximise RevPAR opportunities in all hotels through decentralised revenue management system Focus on developing our Food & Beverage offering to drive additional sales and profitability Driving further economies of scale given increased size of the portfolio Continue current targeted refurbishment programme 2. Utilise our Asset Management & Acquisition Capabilities to grow our Clayton and Maldron brands: Complete acquisition programme in Ireland Exploit opportunities to extend existing hotels Look to secure leasehold opportunities for new build hotels in Dublin and the UK 17 17
In Conclusion 1. RevPars in Ireland continue to grow very strongly 2. Pipeline of opportunity remains very strong and we expect to be fully invested in second half of 2016 3. Targeting earnings growth from current portfolio in 2016 and 2017 on back of strong revpar growth and improved operating efficiencies 4. Building a pipeline of new projects in Ireland to deliver growth in 2018 and 2019 circa 750 rooms expected to open in 2018 5. Market opportunity identified in UK which will help further drive earnings growth from 2019 onwards 18
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