Dalata "unbowed and unbroken" and well placed for the recovery, pipeline opportunities across UK and London

02 March 2021

Dalata has reported revenue down 68.1% to €136.8m (2019: €429.2m) as it issued its preliminary financial results for the year ended 31 December 2020, leading to loss after tax of €101 million (+€78.2m).

The hotel group said that proactive cost reductions and government support schemes protected employment and cash during periods of low occupancies.

Increased liquidity due to speedy and proactive response
• Sale and leaseback of Clayton Hotel Charlemont, Dublin in April for €65 million
• Agreed amended debt facility in July with additional €39 million facility and revised suite of covenants
• Equity placing in September raised net proceeds of €92 million to further enhance balance sheet
• Increased liquidity with cash of €50 million and undrawn committed debt facilities of €248 million at the end of December
Robust balance sheet provides security and opportunity
• Asset backed balance sheet with hotel assets of €1.2 billion
• Conservative gearing with Net Debt to Value1 of 23%
Ready for the recovery
• Management teams at hotels and central office in place to manage the recovery
• Hotels are primarily located in large cities or at major airports
• Modern well-maintained portfolio of hotels - average age of hotels is 17 years
• Exciting pipeline of close to 3,300 rooms in excellent locations

Strategic and operating highlights
• We have maintained a strong focus on retaining our core teams and providing opportunities for learning and development, ensuring that our teams are well prepared as the hospitality industry gradually reopens.
• All of our hotels operate under the Dalata Keep Safe Programme. Our health and safety protocols have been accredited by Bureau Veritas, a world leader in Health and Safety testing, inspection and certification.
• We have used our time wisely during the crisis to implement initiatives that will add long term value. We have accelerated the rollout of new technologies across the Group including OPERA Cloud (Property Management System) and MICROS Simphony POS system for the hotels' food and beverage outlets. We also completed the project to centralise payroll across the Group. The processing of wages for all employees in our 41 hotels is now done from the Shared Service Centre in Cork. These initiatives will allow the teams at our hotels to spend less time processing data and more time serving the needs of our customers.
• Despite the disruption caused by the pandemic, Dalata continued to progress its growth strategy with three new agreements for lease secured in 2020. In November 2020, we also opened the new 44 bedroom extension at Clayton Hotel Birmingham and the new Meeting & Events Centre at Clayton Hotel Cardiff Lane in Dublin.
• The Group continues to progress its development pipeline of almost 3,300 rooms across Ireland and the UK. Dalata's pipeline of seven hotels already under construction includes two in Ireland and five in the UK; all of these properties are scheduled to open between Q3 2021 and Q2 2022. Eight development projects including extensions are currently at the pre-construction phase. When all projects are completed, the Group will have almost doubled its rooms in the UK.
• The Group's financial position remains strong with the Group's amended suite of covenants providing flexibility as business recovers. The Group has cash and undrawn committed debt facilities of €290 million at the end of February 2021.
• We protected our cash during 2020 through proactive cost reductions, diligent working capital management, cancellation of dividends, the postponement of uncommitted capital expenditure and utilisation of governments' support.
• We improved our liquidity through 2020 by leveraging our strong relationships with our banking partners and institutional landlords as evidenced by the sale and leaseback of Clayton Hotel Charlemont, Dublin in April for €65 million and the increase in our bank facilities of €39 million in July. We also raised equity from new and existing shareholders resulting in net proceeds of €92 million.
• Our asset backed balance sheet remains robust with €1.2 billion in hotel assets. This is despite total revaluation losses of €174.4 million in 2020 (H2 2020: loss of €13.4 million), arising from independent asset valuations in 2020, representing a circa 13% decrease on valuations versus December 2019.
• The sale and leaseback of Clayton Hotel Charlemont highlights our continued ability to create value and our core strengths of selecting prime sites, developing hotels and our ability to leverage our strong relationships with fixed income investors. We acquired the site in the centre of Dublin city for €11.9 million in February 2016. We built the 187 room Clayton hotel for €29.7 million. In April 2020, we sold the hotel to Deka Immobilien for €65 million at an annual lease cost of €3.05 million, achieving an exceptional yield despite the Covid-19 pandemic.
• We have enhanced our reputation as a strong reliable covenant by meeting our rental obligations with institutional landlords through the course of the pandemic. We are confident that this will assist us greatly in securing opportunities to continue to build our pipeline in 2021 and beyond.
Outlook
The hospitality industry in Ireland and the UK continues to be impacted by restrictions to curb the spread of Covid-19. Since the start of 2021, all of our hotels remain operational providing accommodation to front line workers, essential workers and those requiring quarantine but are closed to the general public. The easing of restrictions and reopening of the hospitality industry will be determined by the Irish and UK governments.

Occupancy as expected has remained muted in January 12% and February 15% with an Adjusted EBITDA loss expected to be approximately €2.5 million for the first two months.

The outlook for the near term remains uncertain at present and it is not yet known when international travel will return to more normal levels. However, we remain ready and primed to get back to full operating levels once restrictions are lifted. The rollout of vaccines across Europe and globally is very encouraging, with the speed of rollout increasing as we move towards Q2.

As lockdowns and travel restrictions are gradually eased, the Group anticipates domestic demand will return in the first instance, as seen in July and August 2020 when restrictions were relaxed in Ireland and the UK, followed by international leisure and business travel. Our teams look forward to welcoming back those customers who have not been able to visit us over the last year.

The Group will continue the measures implemented to combat the impact of Covid-19 on the business. In addition, we are assessing distressed opportunities as they arise. Our reputation as a strong reliable covenant has been enhanced through the course of the pandemic and we are confident that this will assist us greatly in securing further opportunities.

Our cash and undrawn debt facilities of €290 million at the end of February 2021 leave us in a great position to withstand any further impact of Covid-19 restrictions in 2021 and participate in the recovery of global tourism. The hospitality sector has historically shown tremendous resilience to recover from other demand shocks and crises. As a result, the Board remain convinced that Dalata is well placed to benefit with its strong balance sheet, young, well invested portfolio and experienced teams at hotels and central office.
Pat McCann, Dalata Hotel Group CEO, commented: "2020 has been an extraordinary year, unlike any other I have encountered during my 50-year career in the hospitality industry. The impact of the Covid-19 pandemic has been extremely challenging for our industry, our people and our communities.

When I reflect on our performance in 2020, I am extremely proud of what we accomplished together. We have ended a very difficult year in a strong financial position with our core teams intact, morale running high and we are ready for the challenges and opportunities ahead. Quite simply, we are unbowed and unbroken. We achieved this by holding firm to the values and beliefs that define us including being fair, transparent, consistent and balanced.

Our financial position remains robust. We have always managed the business with a strong understanding and awareness of the inevitable ups and downs facing our industry, including shocks, and yet position it for ongoing growth and opportunity. We therefore entered the crisis in a very strong financial position. Our strategy of maintaining an asset backed balance sheet and comfortable gearing ensured Dalata was well placed to confront the challenges which followed.

Through our proactive response to the pandemic and the tremendous efforts and collaboration by our people and our key stakeholders, we protected our financial position. I would like to take this opportunity to thank all of our people and our stakeholders for their invaluable hard work and support over the last 12 months.

We have very strong relationships with our banking partners. The amended debt facility agreed in July 2020 with a temporary revised suite of covenants will provide flexibility and support as business recovers. Our institutional landlords also continue to actively support Dalata and remain committed to our long-term partnerships. Our shareholders strongly supported us through the equity placing which raised net proceeds of €92 million in September. These strong relationships with our stakeholders will be fundamental as we move through the recovery and continue to create long term value into the future.

In addition to our strong financial position, I am very pleased that we have retained our key people. We made a decision early in the pandemic to keep the core management teams in place at our hotels and central office. This approach, together with our decentralised operating model, was absolutely critical to our success during 2020 as it enabled us to react quickly as the level of restrictions in Ireland and the UK changed. It will also be beneficial that our regular guests are greeted by familiar faces when they return.

When I talk to our teams at the hotels, I am heartened by their optimism in spite of what has been a very challenging year for them. Like myself, our people enjoy the buzz of a busy hotel and are eagerly looking forward to welcoming guests back to our hotels in the year ahead.

We maintained engagement with our people including those we could not bring into work through our employee app and offering learning and development courses through our newly branded Dalata Academy. Over 92,000 courses were completed during 2020. I am proud to see the strong motivation of our people to continue upskilling and developing. They are the heart and soul of our business and I am delighted that they too are unbowed and looking to the future.

We are thankful for the support provided by the Irish and UK governments over the last 12 months. Given the scale of our business in Ireland, the Irish support packages are particularly important. The Employment Wage Subsidy Scheme and the commercial rates waiver in Ireland remain in place until 30 June 2021. The on-going support is critical as the industry navigates through this crisis and positions for recovery. The "Experience Economy" which includes the hospitality sector, employs over 330,0002 people in Ireland and is particularly important to the regional economy. I am now calling on the Irish government to continue their commitment to support this vital part of our economy as it starts to recover. One of the key supports after the financial crisis was the reduction in the VAT rate. I am asking the Irish government to commit to a minimum of five years to a VAT rate of 9%. The big beneficiary of this will be to the exchequer itself and it will support getting people back to work.

ESG (Environmental, Social and Governance) is a key focus for the Board and Management and we continue to advance our sustainability initiatives. In January of 2020, we established a new ESG Board committee which is comprised of a majority of Non-Executive directors. We improved our CDP3 score from our initial C rating in 2018 to a B rating in 2020. We also continued to invest in training and development to support our people, particularly those who we cannot employ at present by offering tailored development programmes.

We continue to make good progress on our growth strategy with a pipeline of close to 3,300 rooms. We are excited about other opportunities we are currently looking at. While we remain focused on delivering our growth strategy in our top target cities in Regional UK, we are also seeing opportunities in London.

The outlook for the near-term remains uncertain at present. The roll out of vaccines both here in Ireland and abroad continues and I remain positive on the medium-term prospects for the Group.

I believe that Dalata's key strengths will differentiate us as business recovers. Our core teams of excellent hotel operators are ready and excited to welcome customers back to our hotels when they re-open. The Group's robust financial position with an asset backed balance sheet, strong liquidity and comfortable gearing ensures Dalata is well placed as we head into 2021. Finally, our experienced management team and our record of identifying and securing opportunities in a crisis will help us position the business for a successful recovery and to look for growth opportunities that may arise out of the crisis.

We are all ready for the challenges and opportunities that 2021 may bring and look forward to the year ahead with energy and enthusiasm. Dalata is unbowed and unbroken."