CAPITAL MARKETS DAY 2017 DALATA HOTEL GROUP PLC CLAYTON HOTEL - - PowerPoint PPT Presentation

CAPITAL MARKETS DAY 2017

DALATA HOTEL GROUP PLC CLAYTON HOTEL CHISWICK, 7 NOVEMBER 2017

AGENDA

8.45am Welcome & Overview Pat McCann 9.00am Impact of IFRS 16 Carol Phelan 9.45am Overview of UK Operat ions Emma Dalton 10.15am Coffee Break 10.45am Overview of Revenue Management Richard Noake 11.00am Overview of UK Corporate S ales Richard Coupland 11.15am UK Growt h S t rat egy Dermot Crowley 12.15pm Guest S peaker – Robin Rossman, S TR 12.30pm Lunch 1.00pm Q&A – Pat McCann & Dermot Crowley

LEASE ACCOUNTING | IFRS 16

CAROL PHELAN

Group Head of Financial Reporting, Treasury and Tax

DISCLAIMER

The presentation contains forward looking statements. These statements have been made by the Directors in good faith based on the information available to them up to the time

• f their approval of this presentation.

Due to inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward looking statements. The Directors undertake no obligation to update any forward looking statements contained in this presentation, whether as a result of new information, future events or otherwise.

LEASE ACCOUNTING | AGENDA

Context Key Points Key features of standard Impact on Dalata In summary

CONTEXT

IFRS 16 | CONTEXT

Dalata t oday has c. €0.9bn of propert y, plant and equipment, a limit ed number of leases and c. €0.2bn of net debt This very st rong balance sheet gives us t he flexibilit y t o take on further leaseholds which are becoming a bigger feat ure of our port folio The changing account ing requirement s for leases under IFRS 16 are t herefore relevant for Dalat a This presentation will seek t o address some of t he changes, t he impact , or not, t hereof and the remaining work t o be complet ed ahead of implement ation Effect ive from 1 January 2019

As at 31 October 2017 Leased Owned

• No. of rooms 1

2,233 5,097

KEY POINTS

IFRS 16 | KEY POINTS

IFRS 16 will see leases t reated as financing the “ acquisition” of asset s and t his “ financing” must no longer be off balance sheet. To this end it will bring a lease liability (and a right of use -“ RoU” - asset) on balance sheet Income st atement will be impacted due t o re-categorisation of rent int o interest and depreciation with increased lease expenses in early years due t o t he front-loaded finance charge versus t he current st raight line rent expense IFRS 16 will have no impact on cash flows IFRS 16 will have no impact on st rategy or commercial negotiation, Dalata have always considered leases as anot her form of financing Dalata current ly has, and will continue t o have, plent y of capacity t o take on new leases and grow the business

KEY FEATURES OF STANDARD

IFRS 16 | BALANCE SHEET IMPACT

Leases will now come ont o t he balance sheet in t he form of a:

• 1. Lease liabilit y:

based on discounted lease payments to the expected end of the lease likely discounted using Dalata’s incremental borrowing rate at lease inception/ transition Borrowing rate for a “ loan” with similar term and security in a similar economic environment (e.g. 30 year lease borrowing rate for 30 year loan secured on a hotel lease and assuming 100% debt financing)

• 2. Right of Use “ RoU” asset :

As we enter leases, the asset value will be based on the amount of the financial liability plus any lease payments made before or at commencement date

BALANCE SHEET OVERHAUL

IFRS 16 | INCOME STATEMENT IMPACT

Rent expenses, ot her t han variable rent (e.g. t urnover based rent), will no longer flow t hrough operating expenses and hence EBITDA There will however be an annual interest charge on the lease liabilit y. Part of the rent payment will be allocated t o this and part t o the “ repayment ” of the lease liabilit y and so interest will be at it s highest at lease incept ion and decline as t he lease liability is “ repaid” Int erest is calculat ed using t he discount rat e and fact oring in compounding and act ual rent payment s Depreciation will flow st raight line t hrough t he P&L as t he RoU asset is depreciat ed over t he t erm of t he lease This combination of st raight line depreciat ion of the RoU asset and the effective interest rat e method will result in: higher t ot al expenses in early years t han rent would have result ed in pre IFRS 16 a decreasing “ t ot al lease expense” t hrough t he lease t erm as int erest decreases – “ front -loading”

INCOME STATEMENT: INCREASED EBITDA BUT FRONTLOADING OF INTEREST COSTS WILL REDUCE PROFITS EARLY ON:

IFRS 16 | CASH FLOW IMPACT

No impact what soever on act ual pre-t ax cash flows The cash flow st at ement will have rent re-cat egorised int o int erest and “ liability repayment” so

• perat ing cash flow will increase and be offset by financing charges

NO CHANGE TO CASH, PRESENTATIONAL CHANGES IN FINANCIAL STATEMENTS

IFRS 16 | DISCOUNT RATES

Discount rates will be applied t o t he rental payment s t o create t he lease liabilit y and are the main area

• f significant j udgement and est imat ion

The estimation of t hese are the biggest challenge current ly for all those impacted, in particular t hose wit h long t erm leases It is expected that , in line with standard, in most cases est imated incremental borrowing rate will be used t o est imat e discount rat e as near impossible t o det ermine int erest rat e implicit in t he lease “ Incremental borrowing rate” will be an estimation as companies t ypically can not borrow for this t erm

• r wit h t his t ype of securit y

Under implementation approach select ed, the discount rate t o be used is t he est imated rate at date of t ransit ion (1 January 2019) so discount rat es up cannot be finally est imat ed unt il t hen New leases will be capit alised at discount rat es which depend on market rat es/ dynamics at t hat t ime

IFRS 16 | DISCOUNT RATES

Once set on t ransit ion or upon ent ering a new lease, discount rates are not amended, unless t he lease t erm changes or t he lease is modified Companies will t herefore have different discount rat es because of timing differences in when leases are ent ered The better a credit risk and the more benign the market is, the higher a liabilit y you have on balance sheet as lower “ incremental borrowing rat e” ---> higher liability following discount ing So you will be penalised from a balance sheet perspective the more credit worthy you are and the better quality your underlying assets Therefore, users of financial st atement s will need t o look t hrough t he numbers and understand how the asset and liabilit y are being calculat ed

IFRS 16 | DISCOUNT RATES

Financing spread adj ustment – to reflect term, level of indebtedness, lessee entity, economic environment Lease specific adj ustment – for the “ secured” asset – the lease and the underlying asset to which it applies

Balance Sheet (£m) – Year 1 Post IFRS 16

Lease Liabilit y

(28.0)

RoU Asset

28.0

Income statement: Depreciat ion of RoU Asset

(1.12)

Int erest on lease liabilit y

(2.11)

Lease “ expense”

(3.23) Balance Sheet (£m) – Year 1 Post IFRS 16

Lease Liabilit y

(36.3)

RoU Asset

36.3

Income statement: Depreciat ion of RoU Asset

(1.45)

Int erest on lease liabilit y

(1.74)

Lease “ expense”

(3.19)

Hotel Operator A Highly leveraged on existing business 25 year lease, £2.5m rent p.a. S ay incremental borrowing rate – 8% Hotel Operator B Low levels of leverage in existing business 25 year lease, £2.5m rent p.a. S ay incremental borrowing rate – 5%

Incremental borrowing rat e must reflect a:

FOR EXAMPLE

IMP ACT ON DALATA

IFRS 16 | IMPACT ON DALATA

As Dalat a is a very st rong credit (new leases have Group guarantee) and invest s in leases on high qualit y asset s, discount rates are expected t o be lower which will lead t o higher lease liabilities t han others with poorer quality balance sheets or lease asset s Given Dalata is a relat ively young company with essentially all material long term leases at the start of t heir life, there will be no “ averaging” due t o lease age profile so t he IFRS 16 “ front-loading” effect will be pronounced This will affect EPS EBITDA will effectively be what is current ly EBITDAR as rent is removed, apart from t urnover related rent which will remain as rent hence all EBITDA relat ed met rics change Existing debt covenants are based on frozen GAAP so no impact

CHANGES IN KEY FINANCIALS

IFRS 16 | IMPACT ON DALATA

We have always viewed leases as a form of financing which increases our long term financial

• bligat ions

As always, financing for each potential opportunit y will be assessed in light

• f

market dynamics, overall capit al st ruct ure of t he Group, cash flow proj ect ions and st ress t est ing It will not influence lease terms sought or not such as variable element s, lease terms, break clauses et c

COMMERCIAL IMPACT ON LEASES

This will not impact on how we st ruct ure leases:

IFRS 16 | SAMPLE LEASE

25 year lease st art ing 1 Jan 2019; £2.5m rent ; 1.8x rent cover --> £4.5m EBITDAR Assuming a 5% discount rat e

Balance Sheet (£m) Pre IFRS 16 Post IFRS 16

£m Lease Liability

• (36.3)

RoU Asset

• 36.3

Income Statement (£m) – 2019 Pre IFRS 16 Post IFRS 16 £m EBITDAR 4.5 4.5 Rent (2.5)

• EBITDA

2.0 4.5 Depreciation of RoU Asset

• (1.5)

Int erest on lease liabilit y

• (1.7)

Profit before t axat ion 2.0 1.3

IFRS 16 | SAMPLE LEASE

Over the life of the lease, cumulatively the total of pre IFRS 16 rent will equal the total of the post IFRS 16 interest and depreciation by which it is replaced

(2.0) (1.5) (1.0) (0.5)

• 0.5

1.0 1.5

PBT Effect (Rent v Deprec & Interest)

PBT Effect (rent v deprec & interest)

IFRS 16 | ILLUSTRATIVE NOTIONAL IMPACT ON DALATA

Numbers have been prepared t o show the not ional impact on the port folio t oday t o be transitioned under IFRS 16 A discount rat e of 5%has been applied t o all leases t o calculat e pro forma numbers This is not indicative of what we believe the discount rate will be upon transition The approach for discount rate set ting remains t o be finalised on a lease by lease basis and, in any case, cannot be set unt il 1 January 2019 given t ransition approach selected The 2019 numbers are based upon average of most recent consensus (from Davy, Berenberg, Investec, Goodbody) The port folio of hotels includes exist ing leased hot els, excluding the Ballsbridge hotel as t his hotel is not expected t o be in operation as previously indicated. It also includes Maldron Hot el Newcast le which is t o

• pen by 2019

IFRS 16 | ILLUSTRATIVE NOTIONAL IMPACT ON DALATA

Discount rat e of 5% used not indicative of rat e on t ransit ion, t he approach and result for which remains t o be det ermined on a lease-by-lease basis Debt and lease service cover remains at 2.5x – a reasonable expect ed covenant might be c. 1.4 x

2019 Balance Sheet (€m) Pre IFRS 16 Post IFRS 16 Lease Liabilit y

• (313.4)

RoU Asset

• 313.4

2019 Income Statement (€m) Pre IFRS 16 Post IFRS 16 EBITDA 130.3 153.1 Depreciat ion (26.1) (26.1) Depreciat ion of RoU Asset

• (14.7)

Int erest (9.3) (9.3) Int erest on lease liabilit y

• (15.0)

Tax 2 (13.9) (13.9) Profit aft er t axat ion 81.0 74.1 2019 Cash flow Statement (€m) Pre IFRS 16 Post IFRS 16 Operat ing cash flow 102.6 122.0 Financing cash f lows: Rent payment (net of t ax 4)

• (19.4)

S enior debt service (26.7) (26.7) Cash flow for invest ment, dividends or furt her debt repayment 75.9 75.9 2019 KPIs Pre IFRS 16 Post IFRS 16 Net Debt : EBITDA 1.1x 2.9x Debt & Lease S ervice Cover 1 2.5x 2.5x Lease liabilit y: Rent 5

• 13.8x

1. Debt and Lease Service Cover calculated as Free Cashflow excluding rent: Interest, Rent and senior debt repayments. 2. Tax treatment not yet finalised by Tax Authorities 3. Assumes conversion of operating cashflow of 90%(after tax) before maintenance capex (4%of revenues) 4. Assume tax deduction of 15%- blended for UK and Ireland 5. Lease liability divided by rent

IFRS 16 | IN SUMMARY

No impact on cash flows, quality of underlying balance sheet, use of leases as a form of finance or in negot iat ing lease t erms. We have always considered leases as anot her form of financing Practical approach t o t heoret ical set ting of incremental borrowing rat es (particularly for long t erm leases) biggest challenge for t hose impact ed by IFRS 16 and t heir advisors and this process is only underway. As a result , it is not yet pract ical t o call out a discount rat e The bett er a credit risk of a company and the higher qualit y of the leased asset s, the lower the discount rate and consequent ly t he higher the liabilit y on balance sheet ฀ expect ed that the qualit y of t he Dalata covenant and asset s will lead t o lower discount rat es t han some peers Users will have t o look t hrough the numbers t o t he disclosures t o see how liabilities and asset s are being det ermined Dalat a exist ing freeholds not affected Dalat a current ly has, and will cont inue t o have, plent y of capacity t o t ake on new leases and grow t he business

OVERVIEW OF UK OPERATIONS

EMMA DALTON

Group General Manager, UK

MY CAREER PATH DEVELOPMENT

Jurys Doyle 1996 – 2007 UK Trainee Management Program 1997 General Management Development Program 2003 6 Cit ies, 3 UK New Hot el Openings (Edinburgh, Leeds, Cardiff) Dalata Hotel Group 2007 - Present General Manager of Maldron Hot el Limerick from 2007 - 2010 Oversaw t he opening of Maldron Hot el Cardiff in 2011 and GM of t hat propert y unt il early 2017 Appoint ed UK Group General Manager 2017

DALATA UK CENTRAL ORGANISATION

Evolving as presence in UK grows Dedicated UK resources across all functions that report in matrix to both UK Group GM and functional heads

UK Organisational Structure Make our teams and people central to growing a competitive advantage versus the competition

Develop our teams locally in existing hotels Create career plans and identify potential talent early Continually looking for new people to grow with our UK expansion S uccession Planning for new developments Identify and select teams for new hotel openings as they arise

We will train and develop the people necessary to ensure we can continue to grow using the Dalata decentralised model

DALATA UK CENTRAL ORGANISATION

Building sales relationships across the various channels Growing purchasing power Providing an increased UK perspective to Dublin based Central Office

Essential to ensure that there is a dedicated focus on the UK hotel portfolio as it grows and develops Being central to the planned expansion strategy Operational excellence

Ensuring integrity of both Clayton & Maldron brands Delivering consistency in service & product Rolling out new brand initiatives within the hotels Constant review of customer satisfaction results and implementing actions to continually improve Providing UK perspective to the Development Team as new opportunities and locations are assessed Managing new openings with focused pre-opening plans, selecting teams and developing business plans

THE DIFFERENCE WITH DALATA UK

Decent ralised st ructure in t he UK is unique S t rong leadership & level of experience at property level General Managers develop t hrough our business We deliver Career Pat h Development Plans for our ambit ious t eams Training is geared t owards UK Growt h & Development New Hot el Opening t eams are Dalat a People – GM, DGM, HR, FC Experienced Cent ral Team, support & visible at local level Easy t o do business wit h, hot els own t heir client relat ionships, part of t he local business communit y

HOTEL LA TOUR BIRMINGHAM

CLAYTON HOTEL BIRMINGHAM

Qualit y Product in key locat ion, seamless t ransit ion t o Clayt on Brand Dalat a is bringing ‘ int ensity & focus’ t o t he business Close t eam engagement , sharing informat ion Re-educated t he t eam on Operat ional & Business Excellence Business rest ruct ure & addit ion of st rong Dalat a GM & DGM Posit ive changes in people behaviour, embracing Dalat a cult ure Role out of Alkimii Forecast ing & Payroll syst em Int egrated int o t he communit y, local relat ionship engagement Improvement in Business Performance from t he out set

OVERVIEW OF REVENUE MANAGEMENT

RICHARD NOAKE

Group Revenue Manager, UK & NI

INTRODUCTION

13 Y ears experience wit hin t he area of Revenue Management Worked wit h hot els in numerous market s across UK/ NI and Europe Travelodge – S enior Revenue Manager IHG – Clust er Revenue Manager Hot el Collect ion – Regional Revenue Manager Jurys Inn – Regional Revenue Manager Amaris Franchise (Hilt on) Group Revenue Manager Franchise Division Area of expert ise is rooms revenue management and analyt ics

CENTRAL REVENUE TEAM

Martha Mannion

Head of Rooms Revenue & Distribution

Group Revenue Managers

Claire Lynskey Regional Ireland Sharon O’Donoghue Dublin Richard Noake U.K. & N.I. Lisa Noonan Group Online Distribution Manager Stephen Doyle Brand Revenue Co-ordinator Tanya Colbert CRO Manager Leona McGarry S ystems & S tandards Manager Monika Moscicka Group Revenue Executive Nicola Crowley Group Revenue Co-ordinator

MANAGING ROOM REVENUE

–

Strategic Direction

–

Training & Support

–

Market Insights

–

Systems Support

–

Pinpoints Opportunities & Risk

–

Distribution Channel support

–

Update on current trends

Central Revenue Team

–

Senior member

• f the Hotel team

–

Local knowledge

–

Full control of pricing and inventory allocation

–

Responsible for maximising rev par

Revenue Manager

HOTELS DISTRIBUTION/TECHNOLOGY

Hotel Revenue Manager

GDS OTA ’s Wholesalers Hot els own websit e Reservat ion Delivery Rat es & Availabilit y

OVERVIEW OF UK CORPORATE SALES

RICHARD COUPLAND

Group Sales Director, UK

INTRODUCTION

Over 25+ years in Hot els wit h S t rong S ales & Revenue background Worked wit hin maj or UK and Ireland Hot el chains – including:

Former Forte Hotel Group, S heraton WW, Hilton, Jurys Inn, Apex & Mercure (ACCOR Franchise)

S ince 2000 – S ales & Dist ribution Business Development wit hin Corporat e & GDS sect ors. Joined Dalat a Hot el Group PLC in May 2016

GLOBAL CORPORATE & MEETINGS A CHANGING LANDSCAPE IN UK & IRELAND

Globally Procurement/ Travel Managers looking for great er efficiencies Increased use of TMC’s from Rat e negot iation t o execut ion of Travel Policies Growing adopt ion t o online booking plat forms, reducing t ime and st eering t ravellers t o select ed hot els Access t o real-t ime dat a in relat ion t o spend, bookings & hot el cont ent Corporat e responsibilit y; ensuring t hat employer obligat ions are met Access t o compet it ive rat es and money-saving alt ernatives t hrough bet t er purchasing power

CORPORATE SEGMENT – GLOBAL CUSTOMERS

CORPORATE SEGMENT – DALATA STRATEGY

Advance St rong Direct Relat ionships wit h Global & Local Corporate Clients Cult ivat e part nerships wit h Travel Management Companies & Conference/ Meet ing Planners Fully engaged wit h indust ry pract it ioners, GDS part ners & t he t rade Sales and Revenue t eam rat e st rat egy, volume & market share Cont inuous educat ion & knowledge of Dalat a Hot el Group Brands Succession planning for t he fut ure - long t erm pre-

• pening client / cust omer pipeline

Corporate – Local & Global

Meet ing & Event s

Conventions

DALATA - Managed S egments

CORPORATE TRANSIENT – DALATA STRATEGY

Greater S cope for creat ivity & ident ity. Not led by

• ne brand st rat egy

Cultivate Consortia/ Agency partnerships, be first in t he market place wit h opport unities. Abilit y t o be more proact ive in our revenue management st rat egy OTA’ s & Agent Transient Programs posit ive for Dalat a for brand awareness. Operat e in Global Market place – Ready t o compet e in new pipeline hot el locat ions Freedom t o focus on t he guest experience and give personalised S ervice

GDS/AGENCY – TRANSIENT

OTA ’ S DALATA –TRANS IENT S EGMENTS

• Building Relationships
• Accountability for all Revenue S

treams

• Combined S

ales & Revenue Approach

• S

upport Team Development

• Grow knowledge around the brands

EMMA DALTON

Group General Manager, UK

UK GROWTH STRATEGY

DERMOT CROWLEY

Deputy CEO, Business Development & Finance

BACKGROUND & CONTEXT

In May 2016, we out lined an opport unity for Dalat a t o expand int o t he UK market In June 2016, t he Brit ish elect orate vot ed t o leave t he European Union and we decided t o review our st rat egy t o ensure it was st ill correct t o expand int o t he UK In lat e 2016, we decided t hat t he UK hot el market remained an at t ractive opport unit y for Dalat a Today, we out line t o t he Market :

An opportunity to grow in a selection of large regional UK cities due to structural changes in the industry The estimated size of the opportunity for Dalata A more detailed description of the strategy and the cities which we will target The impact that risks surrounding Brexit have had on our strategy

SIGNIFICANT PLATFORM ESTABLISHED IN UK

Dalat a has already est ablished a significant foot print in t he UK wit h over 1,700 rooms across eight 3 and 4 st ar hot els UK port folio current ly comprises of 2 hot els in London, 4 hot els in provincial UK (Birmingham, Manchest er, Leeds & Cardiff) and 2 hot els in Nort hern Ireland Dalat a’s UK pipeline includes t he development of a furt her 800 rooms in Belfast , Newcast le and Manchest er which will bring Dalat a’s UK foot print t o over 2,500 rooms by 2020 All of Dalat a’s hot els in t he UK are performing well wit h RevPar for H1 2017 up approximat ely 14.6% and a st rong increase in EBITDAR margin from 35.6% t o 38% . Dalat a’s UK hot els are currently out performing versus t he market (see slide overleaf) Dalat a’s management t eam, t hrough it s exist ing UK operations combined wit h it s previous experience wit h Jurys Inn, has excellent in-depth knowledge of t he UK hot el market and is a nat ural next st ep t o scale t he Group’s operations

OUTPERFORMING IN UK MARKETS

22.6% 6.5% 10.3% 13.6% 19.1% 22.9%

• 1.1%

1.8% 10.9% 9.7% Belfast Leeds Manchester Cardiff London

Dalata Market

LARGE MARKET OPPORTUNITY IN 3&4 STAR REGIONAL UK CITIES

The overall hotel market in large regional UK cities is very fragmented and only budget brands have a significant market share The specific 3 and 4 star market in certain large regional cities is very fragmented and there are no dominant brands in this market segment:

• Operators with market share of less than 4%

comprise of 70%

• f the 3 and 4 star market
• Over 70%
• f the owner operators have 4 hotels or less

International brands are increasingly evolving to a franchise model leaving a shortage of operators with any scale

The st ock of 3 and 4 st ar hot els is considerably older t han t he age profile of t he Budget sect or Dalat a’s management t eam believe t hat a large st ruct ural opport unity has emerged in t he 3 and 4 st ar hot el market s in cert ain regional cit ies in t he UK. Key drivers of t his st ruct ural opport unit y include t he following:

Opportunity now exists for a hotel operator with a strong balance sheet and operational focus to become the market leader in fragmented 3 and 4 star hotel markets

IDENTIFIED 20 PROVINCIAL UK CITIES WITH STRONG OPPORTUNITIES FOR MALDRON OR CLAYTON HOTELS

1 Edinburgh 2 Manchester 3 Glasgow 4 Brighton 5 Bristol 6 Leeds 7 Liverpool 8 Oxford 9 Belfast 10 Reading 11 Birmingham 12 York 13 Cambridge 14 Southampton 15 Milton Keynes 16 Cardiff 17 Portsmouth 18 Newcastle 19 Bournemouth 20 Exeter

MARKET RESEARCH

TARGET 20 CITIES - 3&4 STAR SEGMENT = 57% MARKET

3% 35% 22% 40%

5 S t ar 4 S t ar 3 S t ar Budget & 2 S t ar

Source : AM PM Hotels

TARGET 20 CITIES – BRAND SHARES

12% 7% 5% 4% 4% 4% 3% 3% 3% 2% Premier Inn Travelodge Ibis Holiday Inn Hilton Holiday Inn Express Jurys Britannia Hotels Marriott Mercure

Fragmented market with only budget brands having a significant share

Source : AM PM Hotels

TARGET 20 CITIES - 3&4 STAR MARKET

8% 7% 6% 5% 5% 4% 4% 3% 3% 3% Holiday Inn Hilt on Jurys Britannia Hotels Marriott Mercure Crowne Plaza Novotel DoubleTree by Hilt on Radisson Blu

Very fragmented with no dominant brand

Source : AM PM Hotels

TARGET 20 CITIES – OPERATOR MARKET SHARE IN 3&4 STAR MARKET

Operators with less than 4% market share comprise 70%

• f the 3&4 star

market

7% 6% 5% 4% 4% 4% 3% 2% 2% 2%

Source : AM PM Hotels

TARGET 20 CITIES – OWNERSHIP MODEL 3&4 STAR

47% 9% 4% 16% 24%

Owner Operator Franchised Managed/ Franchised Managed Leasehold Over 70%

• f t he owner operators have 4 hot els or less

33%

• f t he leased hot el operat ors have 4 hot els or less

Source : AM PM Hotels

INTERNATIONAL BRANDS – INCREASINGLY MOVING TO FRANCHISE MODEL

Source: Company Investor Relations Sites

Hilton Marriott/ Starwood IHG Accor Franchised 72% 43% 70% 33% Managed 24% 52% 30% 67% * Owned/ Leased 3% 2% 0%

*Accor do not disclose separat ely no. rooms managed, owned and leased

Worldwide Rooms by Ownership Model

AGE PROFILE OF 3&4 STAR HOTELS IN TARGET 20 CITIES IS CONSIDERABLY OLDER THAN BUDGET SECTOR

19% 18% 20% 18% 24% Not S tated Under 10 years 10 - 20 years 20 - 40 Years 40 + years Hot els list ed as ‘ not st at ed’ on t he dat abase are t ypically older propert ies

CONCLUSIONS & STRATEGIC OBJECTIVES

KEY OBJECTIVES IN TARGET UK 20 CITIES

• 1. Our obj ect ive is t o become t he leading 3/ 4 st ar operator in our t arget cit y market s
• 2. Target range of 10%

t o 15% market share of 3/ 4 st ar market in each cit y

• 3. Translat es t o addit ional circa 8,000 rooms (assuming a 12.5%

market share in achieved) in 5 – 7 years

• 4. Furt her opport unities are likely t o exist in t he Great er London area and adj acent t o UK airport s but

Dalat a will look t o address t hose opport unities in a more bespoke manner as and when t hey arise

CLEAR CRITERIA & STRATEGY FOR EXPANSION INTO 20 TARGET CITIES

Adhere t o Dalat a’s core principles by operating 3 and 4 st ar modern well maint ained hot els in prime locat ions wit h a st rong mix of corporat e and business demand Typical hot els will meet t he following crit eria:

>100 rooms Each location has to be prime city centre / good secondary Target 3* and 4* market segment Will be branded Clayton or Maldron

Group will look t o grow using a combination of leasehold int erest s and direct ownership int erest s Dalat a is well posit ioned t o exploit t he value of it s balance sheet covenant t o secure very compet it ive rent al rat es Dalat a’s owner/ operat or model gives full cont rol of brands st andards while securit y of t enure allows for longer t erm asset management and invest ment init iat ives

LIMITED ACQUISITION OPPORTUNITIES POINT TO SIGNIFICANT NEW DEVELOPMENT IN TARGET 20 CITIES

• 1. There is not any significant portfolio of hotels that would be a suitable acquisition target
• In some cases, hotels are not centrally located in our target cities
• In other cases, the hotels are dated and poorly maintained
• A significant number of the portfolios are committed to a large brand as a franchise partner for a long period of time
• However, we will continue to monitor portfolios of existing hotels if they come to the market at the right price
• 2. There is a limited number of existing individual hotel assets within our target cities that would suit our

criteria – central location, over 100 rooms, under 20 years old and able to rebrand as Clayton or Maldron

• We have identified a number of potential hotels but it is not clear if these hotels will become available for sale at any

time soon

• Represents a relatively small number of hotels given the total rooms stock of the target cities
• As with Hotel La Tour in Birmingham, we will seek to move quickly if opportunities do arise

IMPACT OF BREXIT?

• 1. Brexit clearly poses a risk t o t he economies of t hese cit ies
• 2. However we believe t hat t he dept h of t he market opport unity is underpinned by a st ruct ural shift in

t he indust ry with t he depart ure of int ernat ional brands from operating hot els in t hese cit ies

• 3. Addit ional risk mit igant s are already in place:
• S

et higher rent al covers t o provide a larger cushion should Brexit impact RevP AR negat ively. We now use 1.85x in Y ear 3 compared t o 1.7x pre Brexit .

• S

it e select ion and locat ions wit hin t he cit ies need t o be very st rong. Peripheral locat ions are always most exposed in downt urn

• Conservat ive assumptions regarding market RevP

AR growt h – t ypically, we are assuming flat market RevP AR growt h in our proj ect ions

VERY CLEAR COMPETITIVE ADVANTAGE IN FRAGMENTED MARKET

Dalata Competition Financial resources & Ability to secure sites

• Willing to put strong balance sheet behind

strategy to own or lease

• Very attractive to developers & property investors
• Large brands won’ t own or lease.
• Weak balance sheets for smaller
• perators

Depth of Hotel Operational Expertise & Resources

• Management and staff avail of comprehensive

training & development programmes

• Highly motivated management teams with large

growing hotel group

• S

upport of Central Office functions

• Difficult for smaller operators or

larger Third Party Operators (TPOs) to provide same level of training or

• pportunity due to lack of tenure

(TPOs) or scale (independent

• perators)

S enior Management Team

• Existing management platform in place in the UK
• S

enior management team has operated in UK hotel market for over 20 years

• S

enior management team created, rolled out and

• perated a new brand in the UK previously – Jurys

Inn

• Not clear that same level of

experience exists within TPOs or independent operators

• Large brands dependent on owners

to roll out their brands

BIRMINGHAM & MANCESTER | EARLY EXAMPLES OF EXPANSION STRATEGY

Hotel La Tour (Birmingham) – Existing Asset Clayton Manchester – Development Asset

• Bought in July 2017 for £31m
• S
• ld Freehold t o Deka Immoboilien and ent ered a 35

year lease at init ial rent of £1.6m p.a.

• Modern hot el wit h 174 rooms, rest aurant, bar and

ext ensive meet ing facilities

• Exploring pot ent ial t o add a furt her 40 rooms
• Rebranded as a Clayt on hot el in Oct ober
• Agreement for lease cont ract s exchanged
• Planning applicat ion in Q4 2017
• Excellent cit y cent re locat ion – Port land S

t reet

• Local well regarded developer – Propert y Alliance Group
• Rent cover Yr 3 > 1.85X
• Will be branded a Clayt on
• Target opening mid 2020

CONCLUSIONS

S t ructural changes in t he 3 and 4 st ar hotel market segment s in the UK provide a unique opportunit y for Dalat a t o become t he market leader in a number of large regional cit ies in t he UK Dalata has identified 20 regional UK cities with st rong market opport unities for new Maldron or Clayt on

• hotels. Opportunities may also arise in maj or UK airport s and London as Dalata’s brand awareness and

nat ional presence grows Dalata will grow it s presence in it s 20 t arget cities through acquisit ion of hotels where available although t he lack of suitable asset s point s t o the development of large new hotels in cit y cent re locations as the most effect ive way t o expand Opport unity t o develop approximately an additional 8,000 rooms in t he UK over t he next 5 t o 7 years UK expansion will be undert aken in a prudent and controlled manner with low levels of gearing and minimising financial risk

GLASGOW CLAYTON HOTEL

CLYDE STREET

CLAYTON GLASGOW, CLYDE STREET

S cotland’ s largest city, 5th third-largest city in the United Kingdom Combines a strong mix of business and leisure demand generators Attractive market experiencing robust levels of hotel demand and further growth through 2017 Ranks 5th in our strategic analysis of the UK’ s top 60 cities Circa 300 bedroom new build Clayton Hotel Transport links are excellent Very close to retail & leisure attractions International Financial S ervices District is a 5 minute walk

GLASGOW CLAYTON GLASGOW

CLAYTON GLASGOW, CLYDE STREET

DEVELOPER PARTNER –ARTISAN

ARTISAN REAL ESTATE INVESTORS

A shareholding part nership between t he S anlam Group, Argosy and S alt Propert ies Limit ed Have delivered a varied port folio of large scale mixed-used development proj ect s and invest ment asset s in at t ractive regional UK locat ions. Recent proj ect s include New Waverley Edinburgh Tot al invest ment of approx £200 million 2 new hot els 10,000 sq. met res of Grade A

• ffice space

220 resident ial unit s

LEASE TERMS

Agreement for Lease cont ract s exchanged S ubj ect t o planning permission Planning applicat ion Q1 2018 Rent per room £8.0k Lease t erm – 35 years 5 year rent reviews, Linked t o RPI S ubj ect t o cap & collar Rent Cover wit hin t arget parameters

APPENDICES

RESEARCHING THE OPPORTUNITY

We examined 60 of t he UK’s largest cit ies and analysed them using a range of qualitative and quantitat ive data including a wide range of macroeconomic data including employment and other demographic fact ors In a few cases, Dalata ignored the rankings as we knew from market knowledge that alt hough a cit y scored relat ively well, ot her fact ors ruled it out as being suit able 20 cities were selected as being suit able t arget locations on t he basis of Dalata’s existing market knowledge and in-dept h market analysis We t hen treated t hose cities as a sub market and examined market share by brand, market share by

• perat or, ownership st ruct ures and age of hot el st ock

We also identified exist ing hot els that would sat isfy our criteria of being a modern purpose built hotel, cent rally locat ed wit hin one of t hose cit ies and free of a brand We also examined whet her t here were any port folios t hat primarily cont ain hot els t hat mat ch our crit eria

MANCHESTER – EXAMPLE OF A TARGET CITY

City with large population, high RevPAR, large busy airport, strong local economy with mix of corporate and leisure demand as indicated by high

• ccupancy at over 80%

Criteria Value Ranking Population 2.76m 2nd RevPAR £63.24 8th Private S ector Jobs 840k 2nd Total Jobs 1,100k 2nd Airport Passengers 23.1m 3rd Train Passengers 24.6m 5th Total No. Hotel Rooms 16,521 2nd Pipeline as %

• f Total Rooms

11% 46th Gross Value Added 127 12th

SHEFFIELD – EXAMPLE OF A LARGE CITY BUT NOT A TARGET

City with relatively large population, but low RevPAR, below average

• ccupancy despite a relatively small number of hotel rooms in the city. Does

not have a very strong leisure market

Criteria Value Ranking

Population 570k 6th RevPAR £42.67 39th Private S ector Jobs 240k 9th Total Jobs 350k 9th Airport Passengers 0.9m 20th Train Passengers 9.1m 15th Total No. Hotel Rooms 3,070 21st Pipeline as %

• f Total Rooms

6% 36th Gross Value Added 78 43rd

OPERATOR MARKET SHARE IN TARGET 20 CITIES

Very fragmented market apart from major budget operators

12% 8% 7% 4% 4% 3% 3% 3% 2% 2%

Source : AM PM Hotels

JUST OVER HALF OF HOTEL ROOMS < 20 YEARS OLD

17% 27% 25% 14% 17% Not Stated Under 10 Years 10 - 20 Years 20 - 40 Years 40 + Years Hotels listed as ‘not stated’ on the database are typically older properties

Source : AM PM Hotels

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