Dalata Hotel Group Strategy Update

Dalata Hotel Group
Strategy Update
Dermot Crowley, Deputy CEO, Business Dev & Finance
The Value Proposition in March 2014
POSITIVE OUTLOOK FOR
DEMAND
SUPPLY LIKELY TO BE
CURTAILED
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
Debt finance remained very
tight for business in Ireland,
including for the development
of new hotels
OPPORTUNE
TIME TO
INVEST
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
37%
63%
31%
Leased
Managed
Leased
Managed
54%
15%
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
Amount Remaining To Spend
171.9
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
600
600
Target New Agreements for Lease in 2016, open in 2018
UK – 3 hotels
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
Current Market Share
1.
2.
Dublin
Cork
Galway
Limerick
19.1%
17.2%
13.3%
16.3%
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
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%
4.
Will look at any suitable opportunities that arise in Limerick and Galway
88
Northern Ireland
Current Market Share
Belfast
Derry
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
2-Star
3-Star
Budget
34%
2-Star
4%
4-Star
5-Star
10
UK Market Analysis
Budget Market
•
•
•
•
3 Star 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


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

3.
4.
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
Carefully assess opportunities to grow Maldron and Clayton brands
 Focus on strong locations in the larger cities

5.
Operations team opened and operated over 20 hotels
Strength of location is more important than speed of rollout
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
Financing Expansion in the UK
Leased Model
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

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
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
Revenue
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
1717
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
Questions & Answers