Crowe attends 2024 IHF Hotel Investment Conference
The Irish Hotels Federation held its 10th Hotel Investment Conference at the Dublin Royal Convention Centre on 6 June 2024. The annual conference gathers hoteliers, professional advisers, bankers and various industry stakeholders to discuss topics such as hotel transactions, funding sources for sustainable investment, hotel room sales performance trends in Ireland, and challenges and opportunities ahead for the hotel sector.
Aiden Murphy, Corporate Finance & Recovery Partner at Crowe, presented a session where he encouraged hoteliers to adopt an "Invest to Save" business strategy where investment in ESG activities would yield "green premiums" for hotels. The context of the presentation was that 2023 would be seen as the peak year for the sector while 2024 is showing evidence of the cost base rising slightly faster than revenues, putting profits and profit margins under pressure. This is a new dynamic as in the previous two years, while costs were rising due to inflationary pressures, hotels were able to cover these cost increases through prices increases.
The Invest to Save business strategy needs to be aligned to improving ESG credentials, and this will lead to better revenue levels and lower costs. For instance, there is evidence that hotels that invest in ESG and can communicate the advancements being achieved will be rewarded by corporate bookers and leisure guests who will choose a particular hotel over another based on ESG credentials, and may also be willing to pay a higher room rate than is offered in competing hotels. On the cost side, payroll costs can be saved as ESG credentials can help with employee retention, more efficient plant and equipment can lead to lower electricity and gas bills, the replacement of equipment and upgrades will reduce annual maintenance costs, and insurance companies and funders will offer discounts to reward hotels achieving ESG targets.
A variation on the Invest to Save theme is considering if adding hotel rooms could drive efficiency by increasing the revenue stream from what is the more profitable department and taking advantage of a market where demand is growing faster than new supply is being delivered. The supply/demand equation will also be favourable to hotels when the Short Term Tourism Letting Register is up and running. The expectation is that owners of properties entirely let as tourism accommodation will need planning and fire compliance regulatory approval, and that distribution platforms will be required to remove non-compliant properties, potentially leading to 10,000 of the 20,000 full properties currently used for tourism being returned to residential uses. This aligns with the Government's objective of bringing in the new regime as part of the Housing for All initiative.
Aiden suggested that hotels need to adopt a three-step approach to ESG to help deliver on an Invest to Save business strategy.
- Step 1: Put in place a data collection, measurement and reporting process for utilities, being energy, water and waste. Generate monthly KPIs for the consumption/intensity levels so they are as well accepted as other KPIs – payroll cost percentage, food cost percentage, RevPAR etc. What is benchmarked and reported will be managed and drive improvement.
- Step 2: Complete an energy audit and efficiency plan for your hotel. This will require the engagement of an energy consultant/engineer. The plan will establish and review energy data and systems, recommend changes and provide a baseline for grant funding as well as a roadmap for completing the necessary works.
- Step 3: Build ESG into a five-year business plan. Complete a profit & loss projection on the basis of minimal investment as a base case, and another on the basis of proactive investment. Put in place a funding plan availing of grants, green or sustainability linked loans and own funds. Put in place ongoing monitoring and reporting system with measurable ESG targets.
The full set of slides from Aiden's presentation are available here (pdf).
At Crowe, we have a deep understanding of the Irish hotel market, regularly acting for owners, investors, developers, funders and industry stakeholders. As one of the leading hotel, tourism and leisure consultancy firms in the world, Crowe can provide you with the reassurance and expert advice you require in assessing your hotel investment opportunities.