1. 1 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton IHF Conference – Banking Issues 8 March 2011 Audit | Tax | Advisory

2. 2 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton Profits Under Pressure 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 50%60%70% Occupancy Net profit % (before finance) Then Now Does excess capacity mean higher occupancy levels will be achieved at current room rates? C A B

3. 3 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton Limit to Cash Available to Service Debt OccNet Profit Then Net Profit Now Capital Expenditure (3%) Available to Service Debt – Now InterestCapital 50%11% - €440k6% - €240k€120k €400k€499k 60%14% - €560k10% - €400k€120k€280k€400k€499k 70%18% - €720k14% - €560k€120k€440k€400k€499k 100 bedroom hotel with turnover of €4m Loan of €10m over 15 years at rate of 4% Is it the banks that have a problem?

4. 4 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton Hotels & the Banking Sector How long will it take to return to profit and debt levels similar to 2003?

5. 5 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton Over Investment in the Hotel Sector The Irish hotel industry comprises c900 hotels with over 60,000 rooms Over 18,000 rooms were added between 2004 and 2008 - c250 hotels Older properties were extended and refurbished Over 50 hotels or c5,000 rooms in receivership - 8% of the total hotel room stock Hotel sector debt in 2010 was €5.1bn as per Central Bank

6. 6 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton Financial Institutions How do the Banks deal with their problem? No appetite for providing working capital (Certus)

7. 7 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton What the Banks Have Learnt Banks understand that they are in for the long haul Banks need hoteliers as much as hoteliers need banks Certain achievable cashflow Change in sector – slow profit recovery Most hoteliers operating efficiently in context of current environment

8. 8 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton What the Banks Have Learnt As cashflow is as good as it gets – the issue is capital structure Hotels funded by bank loans and reinvestment by owners Recession wrong footed Owners and Banks Debt needs to be restructured

9. 9 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton Banking Strategies Phase 1 Slow reaction of Banks to industry crisis Do nothing and capital moratorium strategy Phase 2 Appointment of Receivers Introduction of Management Companies Phase 3 Hotels repackaged with restructured loans Banks need to do deals with existing customers

10. 10 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton Why Banks are forced to appoint Receivers Failed Examinerships Hotels part of a larger property empire Available hotel profits not being used to service debts Un bearable level of unsecured creditor debt Inadequate level of working capital

11. 11 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton N The sustainable level should be c€550k A reduction of €400k is therefore required This is the equivalent of 1-2 years profit Creditors compete with the Banks for payment Banks address the problem by appointing a Receiver Profit Before Interest Revenue Bank Rates Trade Creditors Working Capital Problems Potential Creditor Levels Trade Creditors€600k VAT & Payroll Taxes€250k Rates€100k Total€950k

12. 12 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton Receiverships These 5,000 rooms are likely to have €500m in outstanding loans Is 50% in the € a good return for the banks? Are there likely to be 100 hotels in Receivership by the end of 2011?

13. 13 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton Discussion WinnersOpportunists LosersSurvivors

14. 14 © 2011 Horwath Bastow Charleton Horwath Bastow Charleton Chartered Accountants and Business Advisors Marine House Clanwilliam Court Dublin 2 Ireland www.hbc.ie Aiden Murphy Partner Horwath Bastow Charleton aiden.murphy@hbc.ie Horwath 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. Horwath 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.