The Hotel Landscape in 2015 Tuesday, 14 April 2015

1

Welcome and Introduction Vanessa Byrne Partner, Real Estate Mason Hayes & Curran

2

Performance Trends and the Outlook for Ireland’s Hotel Sector Naoise Cosgrove Advisory Partner Crowe Horwath

3

4 © 2015 Crowe Horwath

The Hotel Landscape in 2015 Performance trends and the outlook for Ireland’s hotel sector

Naoise Cosgrove, Partner Crowe Horwath

Audit | Tax | Advisory Audit | Tax | Advisory

5 © 2015 Crowe Horwath

Contents

Introduction

Economic Context

Hotel Supply

Demand

Market Performance

Consolidation and Branding

6 © 2015 Crowe Horwath

Hotel, Tourism & Leisure Team

7 © 2015 Crowe Horwath

Economic Context

8 © 2015 Crowe Horwath

Growing Consumer Confidence

Growing Business Sentiment

Continued Foreign Direct Investment

Economic Context

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012 2013 2014

Unemployment Rates in Ireland

EURO value Sterling £ Dollar $

Y/E 2012 1.23 0.76

Y/E 2013 1.20 0.73

Y/E 2014 1.28 0.83

YTD 2015 1.37 0.94

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

GDP Annual Growth Rate

9 © 2015 Crowe Horwath

Hotel Supply

10 © 2015 Crowe Horwath

Overview of Current Hotel Supply

Midlands & East

# Hotels 239

# Rooms 13,024

Avg Size 54

Dublin D1/2/4/

8

Naas

Rd Airport Other Total

#

Hotels 91 7 11 42 151

#

Rooms 10,583 1,301 1,930 4,904 18,718

Avg

Size 116 186 175 117 124

D1/2/4/8

Naas Rd

Airport

Other

Western Seaboard

# Hotels 242

# Rooms 13,270

Avg Size 55

South West

# Hotels 180

# Rooms 11,793

Avg Size 66 Source: Fáilte Ireland

11 © 2015 Crowe Horwath

The Marker Hotel

5 Star

187 Rooms

Dublin 2

Opened 2013

The Dean Hotel

Boutique Hotel

52 Rooms

Dublin 2

Opened 2014

New Supply 2013 / 2014

The Kingsley Hotel

4 Star

131 Rooms

Cork

Re-Opened 2014

12 © 2015 Crowe Horwath

Findlater House

Dublin 1

Holiday Inn Express

1970s Office Conversion

Spring 2016

Former Ormonde Hotel

Dublin 1

Tune Hotel

170 Rooms

Planning Delays

New Supply Pipeline

Charlemont Clinic

Dublin 2

Development Securities

184 Rooms

Pre-Planning

13 © 2015 Crowe Horwath

Summerhill

Dublin 1

362-bed hotel

Planning Received

1/5 Camden Street Upper

Dublin 2

143-bedroom hotel

Planning Received

New Supply Pipeline

Merrion Hotel

Dublin 2

20 Suites and

Penthouse Extension

Works Ongoing

14 © 2015 Crowe Horwath

Demand

15 © 2015 Crowe Horwath

Overseas Visitor Numbers

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

4,739k 5,165k 5,716k 6,067k 6,416k 6,082k 6,065k 6,369k 6,575k 6,977k 7,709k 8,012k 7,839k 6,927k 6,037k 6,505k 6,517k 6,986k 7,604k

-

1m

2m

3m

4m

5m

6m

7m

8m

9m Currently 400k

below peak +9% +7% +8% 0%

Source: CSO

16 © 2015 Crowe Horwath

Visitor Numbers by Source Market

-

500k

1,000k

1,500k

2,000k

2,500k

3,000k

3,500k

4,000k

4,500k

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Great Britain North America Other Europe Other Areas

200

7

201

4 %

Great

Britian 4,03

2k

3,16

4k

-

22%

North

America 1,07

3k

1,32

9k 24%

Other

Europe 2,59

0k

2,63

8k 2%

Other

Areas 317k 474k 50%

Total 8,01

2k

7,60

4k -5%

Source: CSO

+16.8%

+10.0%

+7.5%

+8.5%

17 © 2015 Crowe Horwath

Department of Transport, Tourism and

Sport Targets for 2025

Targets for 2025

2014 2025 Growt

h

Visitors 7.6m 10m +31%

Earnings €3.7bn €5bn +35%

Employm

ent

200,00

0

250,00

0 +25%

18 © 2015 Crowe Horwath

Target Audiences and Brand Identities

South & East Heritage

Source: Tourism Ireland

19 © 2015 Crowe Horwath

Market Performance

20 © 2015 Crowe Horwath

Market Performance – Dublin

2010 2011 2012 2013 2014

RevPar €52.04 €58.30 €63.85 €67.79 €75.35

ADR €77.43 €82.12 €85.60 €88.50 €96.23

Occupancy 67.2% 71.0% 74.6% 76.6% 78.3%

RevPAR Growth 12.0% 9.5% 6.2% 11.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

€0

€20

€40

€60

€80

€100

€120

Source: STR Global

21 © 2015 Crowe Horwath

European Context (excl London / Paris)

79.0%

78.3%

80.5%

78.8%

0% 20% 40% 60% 80% 100%

Amsterdam

Athens

Barcelona

Brussels

Copenhagen

Dublin

Edinburgh

Frankfurt

Geneva

Istanbul

Manchester

Milan

Moscow

Rome

Tel Aviv

Vienna

Zurich

Occupancy

€96.2

€0 €50 €100 €150 €200 €250 €300

Amsterdam

Athens

Barcelona

Brussels

Copenhagen

Dublin

Edinburgh

Frankfurt

Geneva

Istanbul

Manchester

Milan

Moscow

Rome

Tel Aviv

Vienna

Zurich

ADR

Source: STR Global

Dublin Ranked # 4 of 17 Dublin Ranked # 16 of 17

22 © 2015 Crowe Horwath

Market Performance – Regional 2014

Cork Galway Limerick Regional

Occ Growth +1% +3% +4% +4%

ADR Growth +7% +4% +6% +4%

RevPAR Growth +9% +8% +13% +10%

-

+2%

+4%

+6%

+8%

+10%

+12%

+14%

Occ ADR RevPA

R

Cork 76.6% €72.2 €55.3

Galway 72.3% €76.6 €55.4

Limerick 63.4% €54.7 €34.7

Regional 66.8% €66.5 €44.4

Source: Trending

23 © 2015 Crowe Horwath

Outlook

Continued growth in demand / occupancy

Modest short-term supply growth between Canals in Dublin

Limited supply growth elsewhere

ADR growth likely to continue over short-medium term

Susceptible to external Geopolitical Factors

Downside Risk if VAT rate adjusted

24 © 2015 Crowe Horwath

Consolidation and Branding

25 © 2015 Crowe Horwath

Key Sellers Key Purchasers

Consolidation

26 © 2015 Crowe Horwath

Management Contract Franchise

Branding

27 © 2015 Crowe Horwath

Bastow Charleton

Member Crowe Horwath International

Marine House

Clanwilliam Court

Dublin 2

Ireland

www.crowehorwath.ie

Bastow Charleton is a member of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and independent legal entity. Bastow Charleton and its affiliates

are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or

any other Crowe Horwath member.

Doing the Deal: Buying, Selling and Lending to Hotels Vanessa Byrne Partner, Real Estate Mason Hayes & Curran

28

What is a hotel?

• Fáilte Ireland registration

• Restriction on use of term “hotel” or “guesthouse”

• Offence under Section 33 of Tourism Traffic Act 1939

• Section 33: it shall not be lawful for the proprietor of any premises to

describe or hold out or permit any person to describe or hold out the

premises as a hotel unless such premises are registered in the register

of hotels and such proprietor is registered in that register as the

registered proprietor of such premises.

Hotel Transactions

• A property transaction with bells and whistles

• Sale of property and business assets

• Sale of shares in company that owns both the property and trade

Due Diligence

• Preparation and planning

• Full disclosure – caveat emptor

• Building survey

• Financial due diligence

• Price chipping

• Completion risk

Anatomy of a Hotel Sale

Tax

A Trading Business

Property – hotel

and ancillary

buildings

Business Transfer Agreement Contract for Sale

Employees

TUPE

Pensions Book debts

Liquor

licence

Planning

and fire

safety

Identity Good and

marketable

title

Domain

name Competition

Law

Bookings Goodwill

The Property Asset

• Good and marketable title

• Contract for Sale – special conditions are key

• Identity and boundaries – declaration of identity

Planning and Environmental

• Planning permission and conditions

• Financial contributions

• Compliance documentation for any work done

• Fire Safety Certificates / requirements of Fire Officer

Liquor Licensing

• Hotel Licence

• Hotel with or without Public Bar Licence

• Licence attaches to the premises

– lowest legal interest must be vested in the licence holder

• Check for requirements of fire officer

• Check if premises have been altered

Hotels & Management Companies

• Mixed development – a product of the capital allowance schemes

• Unwinding the tax scheme

• Reinstatement of management company

• Transfer of Common Areas

• Requirements of MUD Act 2011

Sale of the Business – The BTA

• Business Transfer Agreement (“BTA”) used when selling an

operating pub/hotel

• Stock: purchase price is typically exclusive of stock

• Book debts

• Bookings and vouchers – apportionment on closing

• Intellectual Property – Domain name

• Data Protection

Tax

1. Tax on Acquisition

• VAT – Law Society Pre Contract VAT

enquiries

• Stamp duty – 2%

2. Structuring the deal

• Use of QIAIF / funds structures

3. Capital Allowances

• Accelerated hotel capital allowances gone now

• Industrial buildings allowances at 4% over 25 years and plant and

machinery at 12.5%

Outlook for 2015 and Beyond

• Strong pipeline of activity for 2015

• Asset / Loan / Portfolio Sales

• Capital Expenditure by owners / investors

• New hotels to be built in Dublin – development considerations

Irish Merger Control and Hotel Transactions Maureen O’Neill Partner, EU & Antitrust Mason Hayes & Curran

42

What’s changed?

On 31 October 2014, revised merger control regime came into effect Since that date … • 29 notifications have been made to the Commission • 7 relate to the hotel sector

1. Dalata / Clayton Hotel

2. Dalata / White’s Hotel

3. Dalata / Pillo Hotel

4. Dalata / Moran / Bewleys

5. LSF / Jurys

6. Atlantic / Charleville Park Hotel

7. Irish Property / Ballsbridge Hotel

43

• Thresholds easily met

• Criminal sanctions for failure to file

• €8,000 filing fee

• Suspended completion pending clearance

• Transaction void without clearance

Merger control – Why should you care?

44

When should you care about merger control?

A merger control filing requirement is triggered when:

• acquisition of shares or assets amounting to a change of

control … “decisive influence” is enough

• certain financial thresholds are met

45

… outright

ownership not

necessary

The financial thresholds

A transaction that amounts to a “change of control” is notifiable where,

in the most recent financial year:

• combined turnover in the Republic of Ireland of the parties is not

less than €50 million; and

• turnover in the Republic of Ireland of each of at least two of the

parties is not less than €3 million.

CO: 6155969v3

Misconceptions about merger control to look out for …

1. The deal is only worth €X so why should we care?

Irrelevant to whether a deal triggers merger control rules … we look at turnover of the parties involved.

2. The parties are individuals not companies, so merger control can’t apply, right?

In certain circumstances, individuals are caught by the merger control

rules.

3. Wasn’t there a deal that was cleared in 2 weeks?

Unlikely in the extreme! Set timetable – At least 30 working days.

4. Presumably we can just close the deal while we wait for clearance?

No … not unless you want the transaction to be void!

Recap on why you should care about merger control

• Thresholds easily met

• Impact on closing timetable and failure to file is a criminal offence

• Transaction void if complete without clearance

The Industrial Relations Landscape Going Forward Ronnie Neville Partner, Employment Law & Benefits Mason Hayes & Curran

49

Industrial Relations to Date

• Industrial Relations Acts 1946 – 2012.

• Commitment to legal abstention – “voluntarism”.

• No duty on employer to negotiate with a trade union.

• No requirement to recognise trade unions for collective bargaining.

• Article 11 European Convention on Human Rights: right to collective

bargaining is a fundamental right – not an absolute right: may be

regulated by contracting states.

Joint Labour Committees (“JLCs”)

• Established by the Labour Court.

• Regulate conditions of employment and minimum rates of pay for all

workers engaged in a type of activity to which the members of the

JLC are representative.

• Once approved, a JLC would submit proposals to the Labour Court

for an Employment Regulation Order (“ERO”).

• ERO sets down minimum rates of pay and terms and conditions.

• JLCs struck down as being unconstitutional: John Grace Fried

Chicken Ltd & Ors v Catering JLC & Ors [2011] IEHC 277.

Joint Labour Committees cntd.

IHF Judicial Review

• Proposals for re-establishing JLCs following Industrial Relations

(Amendment) Act 2012

• Proceedings adjourned between the parties – case re-affirmed

voluntary participation of parties needed for JLCs

Collective Bargaining in Ireland

• Collective bargaining encouraged and facilitated, only if the

employer voluntarily engages in such negotiations.

• Source of dissatisfaction for unions: Ireland’s voluntarist traditions

are at odds with international legal requirements / does not comply

with recent judgments of the European Court of Human Rights.

• Industrial Relations (Amendment) Acts 2001 – 2004.

• Employers exposed to action where they decline to recognise

unions.

Collective Bargaining in Ireland cntd.

• Ryanair v The Labour Court [2007] IESC 6 – limits the scope of the

Amendment Acts:

“it is not in dispute that as a matter of law Ryanair is perfectly

entitled not to deal with trade unions nor can a law be passed

compelling it to do so”.

New Legislation following the Industrial Relations (Amendment) Acts 2001 - 2004

• December 2014: to allow for an improved framework for workers

who seek to better their terms and conditions where collective

bargaining is not recognised by their employer.

• Key Reforms:

Definition of “Collective Bargaining”.

Guidelines to assist Labour Court to identify if internal

bargaining bodies are genuinely independent of their employer.

Clarity in the process of Trade Unions advancing a claim.

Policies and principles for the Labour Court to follow.

• Anticipated draft law by mid-2015.

Take Away

• There will be compulsory collective bargaining in some form

• New employment fora – Workplace Relations Bill 2014

Hotel Transactions – what about the people?

TUPE (transfer of Undertakings)

What is TUPE and its application?

• European Communities (Protection of Employees and Transfer of

Undertakings) Regulations 2003

• Whenever there is a transfer of the ownership of an economic

entity from one employer to another which retains its identity

through the transfer

• N/A on share sale but may apply on sale of a business or part of a

business

• Also apply in insolvency situations, but not if compulsory wind-ups

So What?

• New owner of business automatically becomes employer of existing

employees

• Same T&C of Employment

• Exemption re Pensions

• Continued Service of Employees

• Continued Trade Union Representation

• Information and Consultation

• Complaint Mechanism Available

So What (cont’d)

• Cannot contract out of TUPE

• Dismissals void

• But ETO Defence

• Economic

• Technical

• Organisational

Take Away

• Tupe can apply to sale of the business, part of the business or even

sale of assets

• Need to identify if Tupe applies and if it does, do 2 things:

Follow the Tupe Regs

Do your due diligence

Q&A

62

The Hotel Landscape in 2015 Tuesday, 14 April 2015

63