EP Business in Hospitality Issue 48 - January 2014

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The Irish connection Relations between Ireland and the United Kingdom are probably at their best compared with any period in the past. For anyone with even a cursory knowledge of historical relations between the two islands, it is fair to say that the last 20 years have arguably been the most WELDON MATHER DISCUSSES THE TRADE LINKS BETWEEN THE UK AND IRELAND AND THE OPPORTUNITIES FOR INVESTORS IN HOSPITALITY ON BOTH SIDES OF IRISH SEA prosperous for both sides. At the start of the recession, it was stated that Britain did too much trade with Ireland and that there was a need to look at the new emerging nations. As we come out of recession, five years on, the trading relationship is still as strong as ever. Few things change too much and it is an important relationship and picture to understand. on the UK market for exports. Tourism Tourism is Ireland’s largest indigenous industry, contributing almost four percent of GNP and employing more than 200,000 people in every community on the island. Overseas tourism business accounts for 59 percent (approximately Northern Ireland. Brands have had a presence on the island, including THF, Hilton, Marriott and Premier Inn, among several others. Since the well-documented effects of the recession in Ireland, many of the flags have high tailed it out of the Emerald Isle, leaving a trail of unbranded properties, some in receivership €3.5 billion) of all tourism revenue and (administration) and teetering on the is critical to future growth. The Irish edge of liquidation and/or closure. Even dependence on the UK market cannot Ritz Carlton has departed after the hotel be overstated and is hugely valuable to the tourism and hospitality industry. Close air and sea links, the same language and similar legal frameworks, coupled with strong tourism links, reinforces the symbiotic relationship between the two islands. The London- Dublin air route carries circa 1.5 million passengers per year and is one of busiest in Europe. While the number of UK visitors to Ireland has halved in the last 10 years, it is still the largest overseas market, delivering more than 50 percent of the approximate 6.5 million visitors to the ROI in 2012. Exports According to the British/Ireland Chamber, Ireland is Britain’s fifth-largest export partner. British businesses have invested heavily in Ireland and the shared cultural, language and legal system links have ensured that the intra-island trade space will continue to grow exponentially. • A third of all Irish imports come from Britain, or €19 billion worth of goods in 2010. • The top five British exports to Ireland in 2011 were: energy, electronics, machinery, pharmaceuticals and plastics (source: CSO, OECD). • Britain’s largest export to Ireland in 2011 was fuel, worth an estimated £3.1/€3.6 billion. • Ireland is the UK’s largest export market in sectors such as food and drink (UK Trade and Investment) and two-way trade stands at €1bn per week. Irish food and drink producers rely heavily Hotels The hotel landscape in Ireland is still dominated by smaller owner-operated properties, although this trend is changing. The industry has taken an absolute hammering since 2008 and RevPAR dropped by 33 percent over 18 months. There are around 850 hotels in the ROI and approximately 130 in 16 | January 14 | EP
BUSINESS company was liquidated. So much for cast iron management agreements. Hotel-related debt stands at circa €2.9bn, which is clearly unsustainable. Fundamentally, many hotels in Ireland have solid trading businesses and it was the only debt associated with the loans (not the ability to trade) that forced a change in ownership. This has created opportunities for indigenous management companies (Dalata & Tifco) to asset manage circa 50 properties for banks, while the hotels are prepared for sale. Indeed, there has been a flood of sales in 2013, and Savills expects total hotel salesto exceed €300m in 2013 with more than 30 properties forecasted to sell. Investors in these distressed properties are mostly international and are mainly cash buyers or institutional buyers, such as Blackstone and Patron Capital. Private-equity buyers are also in the mix, including Chinese and American individuals. Examples include Red Carnation’s purchase of Ashford Castle and Palladian’s purchase of Sheen Falls Lodge in Kerry. Private buyers sometimes require asset management companies to represent them and recently it was announced that Michels and Taylor (M&T)were advising Swiss Fund BSQ, which bought Citywest, Ireland’s largest hotel, with 774 bedrooms for around €38k per key. M&T expect to take on the running of this hotel and the timing is fortuitous, given M&T’s recent Temple Bar, Dublin, Ireland appointment to market and manage 25 hotels owned by RBS (Ulster Bank). This represents a significant shift in the ROI hotel sector, but also presents opportunities for other asset management companies. Of course, BDL/Redefine are already in Ireland managing 17 properties on behalf of the now departed Bank of Scotland (Ireland) and Lloyds. This points to an overlap of expertise between the UK and Ireland and the arrival of non-domestic management companies will bring significant economies of scale to these operations, not to mention access to large UK marketing databases and a much wider target audience. How successful these these joint ventures will be will be remains to be seen, however it does represent a significant change in direction for bank-controlled distressed hotels (of which there are about 200). Some hoteliers are in for a rude awakening when the above players arrive to check in and play hard ball. “A third of all Irish imports come from Britain, or €19 billion worth of goods” Pubs The licensed sector is also going through a period of change and pubrelated debt is around €2.2bn. There are approximately 4,000 pubs in the ROI, nearly all privately owned, but nearly one per week is closing (26 per week in the UK). With a population of only 4.58 million in ROI (6.9 million all island) there are too many pubs and the off-trade (supermarkets) are selling often below cost, thus further eroding sales. Diageo and Heineken operate a duopoly on draught beer distribution, which many of the UK brewers would love to break up, as there are rich pickings (profitable pubs) to be snapped up in larger cities. Recent moves by JD Wetherspoons and Greene King have alarmed the domestic trade as scouts have been looking for suitable pubs to buy. JDW has nine pubs in NI, but the ROI market is looking frothy again now that property values have collapsed and are more realistic – they are planning to open over 30 pubs south of the border. Again the trading businesses are good in urban areas, but level of debt associated with the property is unsustainable. Imagine the aforementioned companies licking their lips at the chance to not only get a foothold in Ireland, but also to supply new products in an untapped (excuse the pun) market, where beverage cost of sales are north of 30 percent partly because of the duopoly’s stranglehold on the market. Heavily indebted Irish pubs are vulnerable and banks would be more than happy to take a haircut on their loans if the quantum of euros or sterling is right. Expect to see more foreclosures on profitable pubs as JDW and GK seek out pubs on high streets with floorplates in excess of 4,000 sq ft (of which there are plenty) and parking spaces. Interestingly, when news of the UK companies’ interest broke, a Facebook campaign named “feckoffwetherspoons” (yes, seriously!) went viral with 2,395 likes at the time of writing! While some are clearly exercised by this development the dye has been cast and capitalism, not nationalism, will be the ultimate arbiter. But caveat emptor when picking out sites as certain local sensitivities have to be understood by any new owner, particularly where alcohol is served. Opportunities If you are interested in getting into Ireland a word of warning: do your research. Despite the legendary and genuinely warm Irish welcome for all visitors, cultural sensitivities must be understood in light of over 800 years of shared history between the two islands. It’s fair to say that the vast majority of the population have embraced the much improved relations between the UK and Ireland, but despite the recession and six successive slash and burn budgets, the Irish spirit is indomitable and can be a force of nature for good or ill – it just depends on what the proposition is. If the promise of well run, clean and good value hotels and pubs is delivered, then it won’t matter who or what company is delivering it. Price and service are the new currency in hospitality and Ireland is no different in embracing this new reality. Just remember that the Irish still expect pub table service and that ice and lemon is mandatory in all spirit drinks! • EP | January 14 | 17
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Page 47 and 48: MANAGEMENT Miriam Staley, encourage
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EP Business in Hospitality Issue 48 - January 2014

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