Dalata Hotel Gp Regulatory News (DAL)

Delivering Performance and Growth

ISE: DHG LSE: DAL

Dublin and London | 3 September 2019: Dalata Hotel Group plc ("Dalata" or "the Group"), the largest hotel operator in Ireland with a growing presence in the United Kingdom, announces its results for the six month period ended 30 June 2019.

STRONG OPERATING PERFORMANCE

·; Strong revenue growth of 12.2% to €201.9 million

·; Like for like2 revenue per available room1 (RevPAR) increased 0.7% to €87.62

·; Adjusted EBITDA pre IFRS 16 increased by 18.1% to €60.3 million

·; Basic EPS of 17.7 cent (Adjusted basic EPS1 pre IFRS 16 up 8.4% to 19.3 cent)

·; Cash generated for investment, debt repayments and dividends1 of €45.1 million

STRONG BALANCE SHEET - LOWLY GEARED AND ASSET BACKED

·; €1.3 billion of prime hotel assets1 located in large cities

·; Further upward property revaluation of €46.3 million

·; Net Debt to Adjusted EBITDA1 pre IFRS 16 of 2.8x (post IFRS 16: 4.3x)

·; Debt and Lease Service Cover1 of 3.1x

DRIVING SHAREHOLDER VALUE

·; Over 1,400 new rooms opened in the last 18 months which continue to perform very well and have been a significant driver of growth for H1 2019 and will be for the second half

·; Exciting pipeline of circa 2,400 rooms in excellent locations to be delivered between 2020 and 2022

ANNOUNCING TODAY

·; The Board has proposed an interim dividend of 3.5 cent per share

·; Acquisition of a site with planning permission for a new Maldron hotel in Shoreditch, London

STRATEGIC AND OPERATING HIGHLIGHTS

·; Revenue increased by €21.9 million driven by strong operational performance and growth from the new and extended hotels. The 1,400 new rooms which opened in the last 18 months in Dublin, Cork, Galway, Belfast, Newcastle and London are performing very well.

·; Continued to outperform market RevPAR change in Dublin. Strong performance versus market in Regional Ireland.

·; Very strong RevPAR performance in the UK. Significantly outperformed market in four of the six3 cities in which we operate - Manchester, Birmingham, Leeds and Belfast.

·; We continue to invest in our product to ensure our hotels remain best-in-class for our customers. We spent €8.8 million on capital refurbishment across all areas of the Group's hotels with 578 rooms refurbished in the first half of 2019.

·; Group EBITDAR margin1 increased from 40.0% to 40.4% underpinned by our operating intensity and strong focus on cost control. Overall, there has also been no margin dilution despite the ramp up costs of the opening of six new hotels during 2018 and early 2019.

·; The results for the first six months of 2019 reflect the adoption of IFRS 16 for the first time which has brought an accounting estimate of lease liabilities and corresponding right-of-use ("RoU") assets on balance sheet. This has reduced reported profit after tax by €3.8 million and basic EPS by 2.1 cent. Net debt has increased by €399 million primarily due to the recognition of lease liabilities of €314 million resulting in Net Debt to Adjusted EBITDA1 increasing to 4.3x (pre IFRS 16: 2.8x).

·; Post 30 June 2019, the Group availed of the option to extend the €525 million debt facility by a further year - now maturing in October 2024.

·; We continue to build an attractive pipeline of rooms located in large cities such as Dublin, Bristol, Manchester, Glasgow, Birmingham and London. Announced today that we have acquired a site in London with planning approval for a new hotel. The new Maldron hotel will have between 130 to 140 rooms and is expected to open in early 2022. The total cost of developing the hotel will be approximately £60 million, including the site cost of £32.05 million.

·; We have signed an agreement to extend the Ballsbridge Hotel lease in Dublin by 21 months now expiring on 31 December 2021.

·; The Board has proposed an interim dividend of 3.5 cent per share payable on 4 October 2019 to all ordinary shareholders on the share register at the close of business on the record date of 13 September 2019. This represents an increase of 16.7% on the interim dividend for 2018.

OUTLOOK

We remain positive about our ability to exploit the opportunity that exists for us in the UK. Trade at our UK hotels was very strong in both July and August and ahead of our expectations. Despite the ongoing uncertainty surrounding the timing and nature of Brexit, the outlook for the balance of the year looks positive.

RevPAR at our Dublin hotels in July and August was behind last year due to a number of factors, primarily a weaker calendar of events compared to 2018 and the ongoing impact of the VAT increase.

Trading in Regional Ireland was also behind last year in July and August primarily due to the more significant impact of the VAT increase on domestic leisure demand.

The outlook for the balance of the year looks positive in both Dublin and Regional Ireland with a stronger calendar of events and the return of corporate guests after the summer period. Some of our Dublin hotels are forecasting September to deliver the highest ever monthly room revenue for their properties.

We continue to be very happy with the performance of the hotels opened and extensions completed in 2018 and early 2019. They will continue to make a very significant contribution to earnings growth in the second half of the year.

We continue to work closely with developers and fixed income investors on opportunities to further increase our very attractive pipeline in Ireland and the UK and expect to make further announcements in 2019.

Pat McCann, Dalata Group CEO, commented:

"I am pleased to report another strong set of results with revenue growth of 12.2% to €201.9 million in the period. Excluding the impact of IFRS 16, Adjusted EBITDA1 increased 18.1% to €60.3 million and Adjusted basic EPS1 increased by 8.4% to 19.3 cent.

We have demonstrated our excellent operating performance and ability to control costs through the growth of our EBITDAR margin1 from 40.0% to 40.4% despite opening six new hotels and four hotel extensions in the past 18 months. This is an example of the intensity and commitment I often speak of in Dalata where we continue to drive performance of our existing portfolio while building our future pipeline of hotels. Our hotels in all regions are performing well and I am particularly happy with the performance of our UK hotels given our exciting growth plans for the region.

Dalata has grown at considerable pace since our IPO in March 2014. We were a small Irish company with big goals and a lot of ambition at the time. Our results for the first six months of 2014 delivered revenue of €35 million, Group EBITDA of €2.4 million and hotel assets of €23.9 million. Five years on, the Group has been transformed, with revenue of €201.9 million and Group EBITDA of €74.2 million for the first six months of 2019. The value of our hotel assets now exceeds €1.3 billion and we are far from finished on our journey. It is extraordinary how fast we have grown in a little over five years and I am pleased with the sustainable and disciplined way in which we have delivered this growth. We have built a portfolio of young, well maintained assets in prime locations across Ireland and the UK. We have also built a great team of people who enable us to grow our portfolio while continuing to be excellent hotel operators.

Dalata remains very ambitious and will continue to grow in 2019 and beyond. Our pipeline of circa 2,400 rooms will open at various stages from 2020 to 2022. Our UK growth strategy continues at pace. The development of the six new hotels located in the centre of Bristol, Birmingham, Glasgow (x2) and Manchester (x2) is progressing well.

Today, we announced that we have acquired a fantastic site in Shoreditch, London for £32.05 million with planning approval for a new hotel. London's first Maldron hotel will have between 130 to 140 rooms and is expected to open in early 2022. The total cost of developing the hotel, including the acquisition of the site, will be approximately £60 million. We have funded the site purchase using debt and will fund the development cost from operating cash flow. The strong performance of our Clayton Hotel City of London which opened in January 2019 reinforces our belief that there is great value in owning and operating a hotel in the centre of the city. Our existing hotel portfolio is generating very strong cash flows and this allows us to take advantage of such great opportunities while keeping our gearing at very comfortable levels.

We continue to invest in our people and our systems to support our growing portfolio. The new Dalata website was launched in August, complementing the Clayton and Maldron websites that went live in 2018 and 2017 respectively. The development of our people continues to be at the top of our agenda. Each of our six new hotels, opened over the last 18 months, are run by internally developed management teams and we are developing the next wave of managers who will go on to operate the hotels in our pipeline. We have 332 people on graduate programmes. We had over 1,100 applicants to our graduate programmes this year which demonstrates that Dalata is becoming the employer of choice in the hospitality industry.

Dalata is committed to remaining lowly geared. Having successfully agreed a new €525 million debt facility on improved terms and with greater flexibility in October 2018, we have since decided to extend this facility by a further year. Our debt package now matures in October 2024. Dalata's strong balance sheet makes us an attractive partner for fixed income investors allowing us to secure superb leased hotels at relatively low yields. We continue to extract good value from our assets with Normalised Return on Invested Capital1 of 12.6% at 30 June 2019.

Our confidence in the prospects for the business is reflected in our interim dividend of 3.5 cent per share, an increase of 16.7% on the 2018 interim dividend.

Despite the challenges of a significant increase in the VAT rate in Ireland and the ongoing uncertainty surrounding the timing and nature of Brexit, 2019 to date, as a whole has been another very successful year. The outlook for the balance of the year looks very positive. We are currently looking at a number of exciting opportunities in the UK and Ireland and we expect to announce further additions before the end of the year.

We continue to grow our portfolio, develop our great people, increase our customer satisfaction and further grow our earnings. We are looking forward to the balance of 2019 with optimism and enthusiasm".

ENDS 

Principal Risks and Uncertainties

The Group's principal risks and uncertainties for the remainder of 2019 are:

·; The manner and impact of the UK's departure from the European Union remains uncertain. Brexit may have a negative impact on both the UK and Irish economies. This, in turn, could impact on demand for hotel rooms in both countries.

·; Other geo-political events could result in uncertainty and have an impact on general economic activity in the UK and Ireland and further afield, which in turn could impact the number of people looking to stay at hotels in both countries.

·; Significant fluctuations in exchange rates can make destinations more expensive or cheaper for potential customers to visit. The current uncertainty around Brexit has caused notable fluctuations in the value of sterling versus other currencies. A significant reduction in the value of sterling would make Ireland a more expensive destination for UK visitors, which in turn could impact on the number of UK residents staying in Irish hotels. While UK visitors are an important part of our business in Ireland, 86% of our rooms in Dublin are sold to either domestic consumers or visitors from countries other than the UK. Only 9% of our rooms sold in our Regional Ireland hotels are to UK customers. Additionally, the reduction in UK visitors to Ireland is currently being more than offset by the growth in visitors from other markets such as North America and Europe.

·; A very significant proportion of EBITDA is generated by the Dublin hotel portfolio, and therefore any downturn in the Dublin market is likely to have a material impact on the Group's performance. There is also risk associated with an increase in the supply of rooms in the Dublin market in the future. However, demand for hotel rooms in Dublin continues to grow and the Group believes the market can support increases in supply. Additionally, our UK expansion strategy will reduce the proportion of EBITDA produced out of Dublin over time.

·; The opening of new hotels presents an operational risk that expected earnings may not materialise. The Group is minimising this risk by having teams in place and contracting business with corporates and tour operators well in advance of the hotels' opening dates. Senior management have considerable past experience and a strong track record of success in opening new hotels. The new hotels opened in 2018 and 2019 are all performing well.

·; As Dalata expands there is a risk that the organisation's unique culture and values could be damaged. The rollout of the Dalata business model is dependent on the retention of its strong culture. The Group is actively managing this risk by focusing on the behaviours of executive management and through its employee engagement programme.

·; Dalata's business model is built on the ability to grow and retain expertise. There is a risk to the Group's ongoing and future success if it fails to retain key people and develop new talent within the Group. To minimise this risk the Group invests in training and development programmes and reviews market remuneration trends.

About Dalata

Dalata Hotel Group plc was founded in August 2007 and listed as a plc in March 2014. Dalata has a strategy of owning or leasing its hotels and also has a small number of management contracts. The Group's portfolio consists of 30 owned hotels, ten leased hotels and three management contracts with a total of 9,046 bedrooms. In addition to this, the Group is currently developing nine new hotels with approximately 2,400 bedrooms and these will open over the next three years. This will bring the total number of bedrooms in Dalata to over 11,000. Dalata now has close to 5,000 employees. For the first six months of 2019, Dalata reported revenue of €201.9 million and a profit after tax of €32.7 million. Dalata is listed on the Main Market of Euronext Dublin (DHG) and the London Stock Exchange (DAL). For further information visit: www.dalatahotelgroup.com.

Conference Call Details | Analysts & Institutional Investors

Management will host a conference call for analysts and institutional investors at 08:30 BST, today 3 September 2019, and this can be accessed using the contact details below.

From Ireland dial: +353 1 431 1252

From the UK dial: +44 3333 000 804

From the USA dial: +1 631 913 1422

From other locations dial: +353 1 431 1252

Participant PIN code: 12767841#

Contacts

Note on forward-looking information

This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this Announcement. The Company will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority. 

Half Year 2019 Financial Performance

IFRS 16

Dalata have accounted for the Group's leasing activities under the new standard, IFRS 16 Leases, for the first time in the current set of results. Under IFRS 16 almost all of Dalata's leases are recorded on the balance sheet in the form of right-of-use assets, representing our right to use the leased assets, and corresponding lease liabilities, representing our obligation to pay rental expenses.

The lease liability is calculated by discounting the future minimum rental cashflows using the estimated applicable incremental borrowing rate on a lease by lease basis. Total lease liabilities amounted to €314.4 million on 1 January 2019. The weighted average incremental borrowing rate for the Group at 1 January 2019 for IFRS 16 discount rate purposes was 6.03% which is marginally higher than the discount rate of 5% previously estimated as referred to in the 2018 annual report.

The right-of-use asset is equal to the lease liability at the date of initial application adjusted for any lease prepayments and accruals at that date. Total right-of-use assets amounted to €343.7 million on 1 January 2019. This amount includes €20.5 million which was part of the consideration paid for the Choice Hotel Group leases in March 2016 which was previously recorded as an intangible asset.

Over the lease term, the lease liability is increased by the interest charge and decreased by the cash flows for fixed rent payments under the lease agreement. The right-of-use asset is depreciated on a straight-line basis over the lease term.

The lease liability will be remeasured during the lease term following the completion of any rent reviews, a reassessment of the lease term or where a lease contract is modified. This will result in a change to the interest charge and the corresponding adjustment made to the right-of-use asset will result in a modification to the depreciation of the right-of-use asset.

The adoption of IFRS 16 for the first time results in a significant change to the profit or loss, cash flow statement presentation and balance sheet for the six months ended 30 June 2019. This impact is discussed in more detail in the tables below.

Impact on financial statements: Consolidated statement of comprehensive income

As permitted under IFRS 16, Dalata have adopted the modified retrospective approach and therefore have not restated prior period comparatives. A summary of the impact of IFRS 16 on profit or loss for the six month period ended 30 June 2019 is outlined in the table hereafter, together with the results excluding the impact of IFRS 16, ("the pre IFRS 16 results") to aid comparability.

Impact on financial statements: Consolidated statement of financial position

Impact on financial statements: Consolidated statement of cash flows

Financial Results

Summary of hotel performance

Dalata delivered strong revenue growth of 12.2% to €201.9 million for the first six months of 2019. The opening of six new hotels in 2018 and early 2019 contributed €18.1 million to revenue growth. The four hotels in which we opened new extensions during 2018 and the additional rooms acquired at Clayton Hotel Liffey Valley added €6.4 million. 'Like for like' revenue growth at our existing UK hotel portfolio added €1.1 million, which is particularly encouraging given our expansion plans for this country. Revenue at our Republic of Ireland hotels decreased by €0.6 million on a 'like for like' basis due to challenging market conditions and the impact of the VAT increase in Ireland. There were also reductions in revenue of €1.8 million due to the closure of Tara Towers Hotel in September 2018 and €1.6 million due to the extensive renovations ongoing at Clayton Hotel Burlington Road which has decreased its available rooms by circa 10% and impacted its ability to accept conference business.

The additional revenue converted strongly to the bottom line with Segments EBITDAR increasing by €9.4 million. Segments EBITDAR margin for the Group increased from 40.0% to 40.4% demonstrating our excellent control of costs and no margin dilution despite the opening of six new hotels which have yet to reach full operating performance.

Post adoption of IFRS 16, Segments EBITDA has increased as fixed rental expenses are now removed from profit or loss and replaced with finance costs on the lease liabilities and depreciation of the right-of-use assets. Excluding the impact of IFRS 16, Segments EBITDA increased by €9.0 million driven by the new rooms added during 2018/early 2019.

Adjusted EBITDA bridge

The table below shows by region how Adjusted EBITDA has grown by €9.3 million to €60.3 million (pre IFRS 16) for the first six months of 2019.

Performance Review | Segmental Analysis

The following section analyses the results from the Group's portfolio of hotels in Dublin, Regional Ireland and United Kingdom.

1. Dublin Hotel Portfolio | Strong Growth in Revenue and Margins

Our sixteen hotels in the Group's Dublin portfolio consists of seven Maldron hotels, seven Clayton hotels, the Ballsbridge Hotel and The Gibson Hotel. Since June 2018, we have opened the Clayton Hotel Charlemont (187 rooms), Maldron Hotel Kevin Street (137 rooms) and completed two extensions at Clayton Hotel Ballsbridge and Maldron Hotel Parnell Square. The Tara Towers closed in September 2018 resulting in a loss of 109 rooms to allow the building of the new Maldron Hotel Merrion Road to commence.

Our Dublin hotels outperformed the market RevPAR decline of 1.4% for the first six months. Dublin revenue increased by €10.5 million driven by the growth in the portfolio during 2018. The two new hotels which opened in 2018 contributed €8.2 million. The three extensions and additional rooms acquired at Clayton Hotel Liffey Valley, which opened during 2018, added a further €6.0 million. The ongoing renovations at Clayton Hotel Burlington Road have temporarily impacted the performance of that hotel resulting in a decrease in revenue of €1.6 million. The renovations have reduced room numbers by approximately 10% and limited the hotel's ability to take on conference business as a result of disruptions caused by the construction work.

Dublin EBITDAR increased by €5.8 million to €55.6 million primarily driven by the additional rooms added to the portfolio. The existing Dublin hotels had a more difficult six months with revenue declining by €0.3 million due to challenging market conditions and reduction in the number of events in the city. However, these hotels were able to mitigate the impact of the reduction in revenue through excellent cost control and delivered an EBITDAR increase of €0.3 million compared to the first six months of 2018.

2. Regional Ireland Hotel Portfolio | Revenue and Margins Growing

Our thirteen hotels in the Regional Ireland portfolio comprise seven Maldron hotels and six Clayton hotels located in Cork (x4), Galway (x3), Limerick (x2), Wexford (x2), Portlaoise and Sligo.

Dalata's hotels in Cork, Galway and Limerick account for 72% of the rooms, generate 72% of revenue and 76% of EBITDAR in the Regional Ireland portfolio.

Total revenue in Regional Ireland increased by 7.5% driven by the additional rooms added with the opening of Maldron Hotel South Mall, Cork in December 2018 and the extension at Maldron Hotel Sandy Road, Galway in June 2018 which together contributed €3.0 million. Revenue from the existing hotel portfolio decreased by €0.3 million on the prior period due to challenging market dynamics. In general, the VAT increase of 4.5% has had a negative impact on the Regional Ireland market. However, Dalata did outperform the market RevPAR change in both Cork and Galway.

EBITDAR margin increased by 40 bps to 24.5% with no dilution by the additional rooms added in 2018. This result demonstrates our excellent control of costs despite the decrease in revenue from the existing portfolio.

3. UK Hotel Portfolio | Proving our UK Model

Our UK hotel portfolio comprises eight Clayton hotels and three Maldron hotels with three hotels situated in London, five hotels in regional UK and three hotels in Northern Ireland. Since June 2018 Dalata have opened two new hotels with Maldron Hotel Newcastle (265 rooms) opened in December 2018 and Clayton Hotel City of London (212 rooms) opened in January 2019.

Dalata's UK hotels performed strongly in the first six months of 2019, achieving a RevPAR increase of 3.2%. We had a very strong performance in Manchester (+7.6%), Birmingham (+8.2%), Leeds (+4.5%) and Belfast (-6.5%), where we significantly outperformed the market. This strong performance is a testament to the quality and location of our hotels within large UK cities and reinforces our UK growth strategy.

UK EBITDAR increased by 20.0% to £14.4 million for the first six months of 2019. The additional revenue was converted strongly by our existing UK portfolio. The decrease in EBITDAR margin from 36.8% to 36.2% is driven by the three new hotels which opened in 2018 and early 2019. Excluding the impact of Maldron Hotel Newcastle, Maldron Hotel Belfast City and Clayton Hotel City of London, which will initially operate at lower margins, the 'like for like' EBITDAR margin increased from 37.6% to 38.4%.

Central costs and share-based payments expense

For the first six months, central costs decreased by €0.7 million to €3.7 million. Wages and salaries included within central costs increased by €0.9 million following new hires to support the growing Group. This was offset by a release of €1.5 million of insurance provisions made in previous accounting periods following the impact of better claims experience on original estimates. Excluding the impact of this provision release, the Group expects that central overheads for the full year will increase due to increased resources and sales and marketing spend.

The share-based payments expense increased marginally by €0.2 million.

Other income

Other income comprises rental income of €0.2 million and income from management contracts of €0.4 million. During the six months ended 30 June 2019, the Group changed the composition of operating segments with income from management contracts no longer presented as a separate segment. This change reflected the decreasing importance of management fees as an element of the business and represents the way the information is now reported and analysed internally by senior management. The income from managed hotels has been reclassified from revenue to other income in the period ended 30 June 2019. Prior period comparatives and the KPIs calculated thereon for the period ended 30 June 2018 have also been restated for this reclassification.

Adjusting items to EBITDA

Adjusted EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group. Consequently, items which are not reflective of normal trading activities or distort comparability either 'period on period' or with other similar businesses are excluded.

In the first six months of 2019, the Group incurred pre-opening expenses amounting to €0.1 million relating to the launch of Clayton Hotel City of London which opened in early 2019. Pre-opening expenses typically include staff training costs, wages and salaries of the core hotel management team prior to opening and sales and marketing expenses. They are incurred in advance of a newly built hotel becoming operational.

The decision to show pre-opening costs as an adjusting item due to the manner in which they distort comparability 'period on period' and with other similar businesses was made in December 2018. In the current financial period, the prior period comparatives have been restated in line with this decision. Accordingly, pre-opening costs of €0.7 million associated with the opening of Maldron Hotel Belfast City and Maldron Hotel Kevin Street incurred in the six months ended 30 June 2018 were reclassified from 'Segments EBITDAR' to 'Adjusting items to EBITDA'.

Depreciation of property, plant and equipment

Depreciation increased by €3.6 million to €12.9 million driven by growth in the portfolio. €3.0 million of the increase relates to the completion of four new "owned" hotels and four extensions to existing properties since June 2018 and the full period impact of the depreciation of Maldron Belfast City which opened in March 2018. The remaining increase relates to the depreciation of refurbishment capital expenditure which replaced items that had already been fully depreciated in previous accounting periods.

Depreciation of right-of-use assets

Under IFRS 16, the right-of-use assets are depreciated on a straight-line basis from the commencement date of the lease typically to the end of the lease term. The depreciation of right-of-use assets amounted to €8.2 million for the first six months of 2019.

Finance Costs

Finance costs have increased primarily due to the application of IFRS 16, which results in the recognition of an interest charge on the lease liabilities totalling €9.3 million. Capitalised interest has reduced by €1.1 million due to a decrease in the number of development projects.

The interest on the lease liabilities is calculated using the estimated incremental borrowing rate at 1 January 2019 applicable to each lease, which is derived from country specific risk-free interest rates over the relevant lease term, adjusted for the estimated finance margin attainable by each lessee and asset specific adjustments designed to reflect the underlying asset's location and condition. The Group's weighted average estimated incremental borrowing rate for IFRS 16 accounting purposes is 6.03%.

Interest on bank loans increased by €0.5 million due to the additional draw down of £60 million and €30.5 million from the multicurrency revolving credit facility to fund the acquisition of Clayton Hotel City of London, offset by a decrease in interest on bank loans under the improved terms of the new facility agreement secured in October 2018.

Tax charge

The Group's effective tax rate1 decreased from 13.9% in the first six months of 2018 to 13.5% in the first six months of 2019 largely due a reduction in non-deductible financing costs and professional fees for tax purposes.

Earnings per share

Excluding the impact of IFRS 16, the Group's strong operating performance has translated into an increase in basic earnings per share and adjusted basic earnings per share of 19.3% and 8.4% respectively. The adoption of IFRS 16 has decreased basic earnings per share and adjusted basic earnings per share for the six months ended 30 June 2019 by 2.1 cent and decreased diluted earnings per share by 2.0 cent.

Dividends

In 2018, Dalata announced that it has adopted a progressive dividend policy with the level of payment based on a percentage of profit after tax. The Board has proposed an interim dividend of 3.5 cent per share payable on 4 October 2019 to all ordinary shareholders on the share register at the close of business on the record date of 13 September 2019.

Strong operating cash flows re-invested in the business

Our portfolio of hotels continues to earn a strong free cash flow. This cash generated allows us to fund acquisitions and developments whilst also paying dividends to our shareholders. Dalata allocates approximately 4% of annual revenue to refurbishment capital expenditure to ensure the portfolio remains fresh for our customers and adheres to brand standards.

Balance Sheet | Lowly Geared and Asset Backed

Dalata's strong balance sheet is vital as it will help support future growth. Maintaining a strong covenant with well-located property assets and low levels of gearing allows Dalata to attract and partner with strong fixed income investors and enter into leases at relatively low yields. This is critical for the Group's strategy of expanding in the UK using the leasing model.

Dalata is committed to actively managing its balance sheet to ensure it has an appropriate level and mix of debt. The adoption of IFRS 16 has brought an accounting estimate of lease liabilities on to the balance sheet, increasing the Group's liabilities by €314.1 million. This has resulted in an increase to our Net Debt to Adjusted EBITDA1 to 4.3x. Excluding the impact of IFRS 16 the Group's Net Debt to Adjusted EBITDA1 was 2.8x (31 December 2018: 2.3x).

Dalata also monitor a ratio, referred to as our 'Debt and Lease Service Cover1', to assess the Group's ability to meet interest and rent commitments. At the end of June 2019, this ratio amounted to a very strong 3.1x.

For the first six months of 2019, Dalata achieved a Return on Invested Capital1 of 10.8% (2018: 11.2%). Excluding the capital cost and trading impact of the six new hotels, which opened in the past 18 months and assets under construction at period end, the Normalised Return on Invested Capital1 was 12.6%.

Property, plant and equipment

Property, plant and equipment was €1,334.5 million at 30 June 2019. The increase of €158.3 million in six months is driven by additions of €129.2 million, a net revaluation gain of €46.4 million offset by the depreciation charge of €12.9 million and adverse foreign exchange movements which decreased the value of the UK hotel assets by €0.4 million. €4.1 million of assets relating to a renovation project ongoing at Clayton Hotel Burlington Road, Dublin were transferred to other receivables as a result of a contractual arrangement entered into in 2019 whereby assets totalling €7.5 million will be transferred at cost to the landlord.

The Group typically allocates 4% of revenue to refurbishment capital expenditure. In the first six months of 2019, €4.6 million was spent refurbishing bedrooms and a further €4.2 million was spent on public areas and completing health and safety works.

During the period, the Group completed the acquisition of the effective freehold interest of a newly built hotel in Aldgate, London for a total consideration of £92.9 million (€103.6 million) including acquisition related costs. The Group also acquired a site adjacent to the Clayton Hotel Cardiff Lane, Dublin for €5.9 million which the Group plans to redevelop into circa 93 bedrooms and ancillary facilities, including a conference centre.

Right-of-use assets

Right-of-use assets are recorded at cost less accumulated depreciation. The initial cost at 1 January 2019 comprises the initial amount of the lease liability adjusted for lease prepayments and accruals at the commencement date, and reclassifications from intangible assets where applicable. At 30 June 2019, right-of-use assets amounted to €338.8 million.

Loans and borrowings

Dalata refinanced its debt facilities with a new €525 million debt facility on improved terms in October 2018. The multicurrency facility agreement consists of a €200 million term loan facility and €325 million revolving credit facility (RCF). Post 30 June 2019, the Group availed of the option to extend the term of the facility by one additional year so it is now maturing in October 2024.

As at 30 June 2019, the drawn loan facility amounted to €401.0 million consisting of sterling term borrowings of £176.5 million (€196.9 million) and revolving credit facility borrowings of €204.1 million consisting of €137.2 million drawn in euro and £60 million (€66.9 million) drawn in sterling. The undrawn loan facilities as at 30 June 2019 amounted to €120.9 million.

During the period, the Group drew down £60.0 million (€66.9 million) and €30.5 million from the multicurrency revolving credit facility to fund the acquisition of a company which owned the Clayton Hotel City of London. Post 30 June 2019, the Group drew down a further £30.0 million to fund the acquisition of a site in Shoreditch, London.

The Group limits its exposure to foreign currency by using sterling term debt to act as a natural hedge against the impact of sterling rate fluctuations on the euro value of the Group's UK assets. These borrowings amounted to £236.5 million (€263.8 million) at 30 June 2019 (31 December 2018: £176.5 million; €197.3 million) and are designated as net investment hedges.

The Group is also exposed to floating interest rates on its debt obligations and uses hedging instruments to mitigate the risk associated with interest rate fluctuations. This is achieved by entering into interest rate swaps and an interest rate cap which hedge the variability in cash flows attributable to the interest rate risk. As at 30 June 2019, the interest rate risk on approximately 85% of our sterling denominated borrowings was hedged by interest rate swaps.

Lease liabilities

Lease liabilities are initially measured at the present value of the outstanding lease payments, discounted using the estimated incremental borrowing rate attributable to the lease. The lease liabilities are subsequently remeasured during the lease term following the completion of rent reviews, a reassessment of the lease term or where a lease contract is modified.

The remeasurement of lease liabilities of €3.4 million relates to the reassessment of the lease liability of two hotel leases following the completion of rent reviews.

2 Like for like' KPIs exclude the hotels which opened during 2018/early 2019 and hotels where there is a significant change in room numbers compared to the prior period. Prior period comparatives have been restated on a constant currency basis.

In Dublin, performance statistics exclude the new hotels which opened during 2018 (Maldron Hotel Kevin Street and Clayton Hotel Charlemont) and the Tara Towers Hotel which closed in September 2018. To achieve an accurate like for like comparison we have also excluded (i) Clayton Hotel Dublin Airport and Maldron Hotel Parnell Square due to the significant extensions completed during 2018 which distorts comparability, (ii) Clayton Hotel Burlington Road due to the redevelopment works ongoing in the hotel and (iii) Clayton Hotel Liffey Valley due to the significant acquisition of rooms during the period July 2018 - June 2019.

In Regional Ireland, performance statistics exclude the new Maldron Hotel South Mall, Cork which opened in December 2018 and Maldron Hotel Sandy Road, Galway which had a significant extension added during 2018.

In UK, performance statistics exclude the new Maldron Hotel Belfast City, Maldron Hotel Newcastle and Clayton Hotel City of London which opened in March 2018, December 2018 and January 2019 respectively.

3 The reference to six cities excludes Newcastle as the hotel in this city only opened in December 2018 and therefore its performance is not included in our RevPAR statistics.

4 Prior period comparatives have been restated to reflect (i) the reclassification of hotel pre-opening costs from Segments EBITDAR to 'Adjusting items to EBITDA' following the decision made in December 2018 to show pre-opening costs as an adjusting item as they distort comparability 'period on period' and with similar businesses and (ii) the reclassification of income from managed hotels from revenue to other income in the period ended 30 June 2019. Prior period KPIs for the period ended 30 June 2018 have been restated for these reclassifications.

Unaudited condensed consolidated

interim financial statements

for the six months ended 30 June 2019

Dalata Hotel Group plc

Unaudited condensed consolidated statement of comprehensive income

for the six months ended 30 June 2019

 *Revenue from managed hotels has been reclassified to other income in the period ended 30 June 2019. The prior period figures have been restated for this reclassification (note 2).

Dalata Hotel Group plc

Unaudited condensed consolidated statement of financial position

at 30 June 2019

Dalata Hotel Group plc

Unaudited condensed consolidated statement of changes in equity

for the six months ended 30 June 2019

Dalata Hotel Group plc

Unaudited condensed consolidated statement of changes in equity

for the six months ended 30 June 2018

Dalata Hotel Group plc

Unaudited condensed consolidated statement of cash flows

for the six months ended 30 June 2019

Dalata Hotel Group plc

Notes to the unaudited condensed consolidated interim financial statements

1 General information and basis of preparation

Dalata Hotel Group plc ('the Company') is a company incorporated in the Republic of Ireland. The unaudited condensed consolidated financial statements for the six months ended 30 June 2019 (the 'Interim Financial Statements') include the Company and its subsidiaries (together referred to as the 'Group'). The Interim Financial Statements were authorised for issue by the Directors on 2 September 2019.

These unaudited Interim Financial Statements have been prepared by Dalata Hotel Group plc in accordance with IAS 34 Interim Financial Reporting ('IAS 34') as adopted by the European Union. They do not include all of the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since 31 December 2018. They should be read in conjunction with the consolidated financial statements of Dalata Hotel Group plc, which were prepared in accordance with IFRS as adopted by the European Union, as at and for the year ended 31 December 2018.

These Interim Financial Statements are presented in Euro, rounded to the nearest thousand, which is the functional currency of the parent company and also the presentation currency for the Group's financial reporting.

The preparation of Interim Financial Statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results could differ materially from these estimates. In preparing these Interim Financial Statements, the critical judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2018 with the exception of estimates surrounding the implementation of IFRS 16 Leases, which is effective for the first time in the financial year ending 31 December 2019. Estimates surrounding the determination of the appropriate rate to discount lease payments is a new source of estimation uncertainty since the consolidated financial statements as at and for the year ended 31 December 2018.

The Interim Financial Statements do not constitute statutory financial statements. The statutory financial statements for the year ended 31 December 2018, together with the independent auditor's report thereon, have been filed with the Companies Registration Office and are available on the Company's website www.dalatahotelgroup.com. The auditor's report on those financial statements was not qualified and did not contain an emphasis of matter paragraph.

2 Significant accounting policies

The accounting policies applied in these Interim Financial Statements are consistent with those applied in the consolidated financial statements as at and for the year ended 31 December 2018 with the exception of the lease payments accounting policy as a result of the adoption of a new IFRS accounting standard, IFRS 16 Leases and the revenue recognition accounting policy as a result of a change in the composition of operating segments.

IFRS 16 Leases is effective for the first time in the financial year ending 31 December 2019. Its transition impact is disclosed in note 12 and its impact on the Group's reported profit and net assets in these Interim Financial Statements is discussed in further detail in note 13. The accounting policies applicable from 1 January 2019 have been disclosed hereafter.

The change in the revenue recognition accounting policy is isolated to a change in classification. In the year ended 31 December 2018, management fees which were earned from hotels managed by the Group under contracts with the hotel owners were recognised within revenue. From 1 January 2019, the Group has included income earned from managed hotels within other income as a consequence of the change in reportable segments referred to hereafter.

Change in reportable segments

During the first six months ended 30 June 2019, the Group changed the composition of operating segments. This reflected the decreasing importance of management fees as an element of the business and reflects the way the information is now reported and analysed internally by the chief operating decision makers. Income from managed hotels represents the fees and other income earned from services provided in relation to partner hotels, which are not owned or leased by the Group, and has been previously reported as a separate operating segment.

The effect of the change in the prior period would have resulted in a decrease in revenue of €0.6 million for the period ended 30 June 2018, with a corresponding increase in other income of the same amount. These comparatives have been restated. The impact of this change on the comparatives for the Group for the period ended 30 June 2019 is presented hereafter.