WEBINAR: NAVIGATING THE ONGOING CHALLENGES FOR THE RESTAURANT SECTOR - Duff ...
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WEBINAR: NAVIGATING THE ONGOING CHALLENGES FOR THE RESTAURANT SECTOR 14 October 2020
1 Introduction
TODAY’S PRESENTATION / AGENDA
Speakers
• Adrian Cummins, CEO, Restaurants Association of Ireland
• Tom Mahon, Managing Partner, Warren & Partners
• Mark Synnott, Managing Director, Duff & Phelps
• Declan Taite, Managing Director and Co-Head of Ireland, Duff & Phelps
Agenda
1. Introduction
2. Overview of Budget 2021 and announcements directly impacting the restaurant sector
3. Latest guidance for landlords and tenants when renegotiating commercial lease options
4. Restructuring update, including understanding of the funding supports available
5. Q&A
3
ABOUT DUFF & PHELPS
Duff & Phelps is the world’s premier provider of governance, risk and transparency solutions.
We work with clients across diverse sectors in the areas of valuation, corporate finance,
disputes and investigations, cyber security, claims administration and regulatory compliance.
MORE THAN
~4,000 13,500
TOTAL 19,000 CLIENTS INCLUDING NEARLY
47% OF THE
PROFESSIONALS ENGAGEMENTS
GLOBALLY PERFORMED IN 2019 S&P 500
THE EUROPE AND ASIA
AMERICAS MIDDLE EAST PACIFIC
~2,000 1100+ 700+
PROFESSIONALS PROFESSIONALS PROFESSIONALS
4
ONE COMPANY
ACROSS 25 COUNTRIES WORLDWIDE
EUROPE AND
THE AMERICAS MIDDLE EAST A S I A PA C I F I C
Addison Libertyville St. Louis Abu Dhabi Dublin Moscow Bangalore Shanghai
Atlanta Los Angeles San Francisco Agrate Brianza Frankfurt Munich Beijing Shenzhen
Austin Mexico City São Paulo Amsterdam Hamburg Padua Guangzhou Singapore
Bogota Miami Seattle Barcelona Lisbon Paris Hanoi Sydney
Boston Milwaukee Secaucus Bari London Pesaro Hong Kong Taipei
Buenos Aires Minneapolis Silicon Valley Berlin Longford Riyadh Hyderabad Tokyo
Cayman Islands Morristown Toronto Bilbao Luxembourg Rome Melbourne
Chicago Nashville Washington, D.C. Birmingham Madrid Turin Mumbai
Dallas New York Westlake Channel Islands Manchester Warsaw New Delhi
Denver Philadelphia Dubai Milan Zurich
Houston Reston
5
ENHANCING VALUE ACROSS A RANGE OF EXPERTISE
VALUATION CORPORATE GOVERNANCE, RISK, BUSINESS
ADVISORY FINANCE INVESTIGATIONS SERVICES
AND DISPUTES
Valuation and consulting for Objective guidance to management Combined Duff & Phelps and Kroll risk Leading global provider of complex
financial reporting, tax, investment teams and stakeholders throughout management and mitigation, disputes claims administration and business
and risk management purposes restructuring, financing and M&A and other advisory services services through its proprietary
transactions, including independent software and industry leading
• Valuation Services fairness and solvency opinions • Business Intelligence and management team
• Alternative Asset Advisory Investigations
• Real Estate Advisory • M&A Advisory
• Global Disputes Consulting • Restructuring
• Fairness and Solvency Opinions
• Tax Services • Global Restructuring Advisory • Global Corporate Actions
• Transaction Advisory Services
• Transfer Pricing • Cyber Risk • Settlement Administration
• ESOP and ERISA Advisory
• Fixed Asset Management and • Private Equity – Financial Sponsors • Legal Management Consulting • Notice Media Solutions
Insurance Solutions Group • Security Risk Management • Contract Review and Contract
• Distressed M&A and Special
• Compliance Risk and Diligence Management
Situations
• Private Capital Markets and Debt • Compliance and Regulatory
Advisory Consulting
• Financial Restructuring
6
DISCLAIMER
• Any positions presented in this session are those of the panelists and do not represent the official position of
Duff & Phelps, LLC. This material is offered for educational purposes with the understanding that neither the
authors nor Duff & Phelps, LLC or its affiliates are engaged in rendering legal, accounting or any other
professional service through presentation of this material.
• The information presented in this session has been obtained with the greatest of care from sources believed
to be reliable, but is not guaranteed to be complete, accurate or timely. The authors and Duff & Phelps, LLC
or its affiliates expressly disclaim any liability, including incidental or consequential damages, arising from the
use of this material or any errors or omissions that may be contained in it.
7
Overview of Budget 2021 and announcements
2 directly impacting the restaurant sector
Tom Mahon,
Managing Partner, Warren & Partners
BUDGET 2021
UPDATE FOR THE RESTAURANTS
ASSOCIATION OF IRELAND
14 October 2020
WARREN & PARTNERS
ONE OF IRELAND'S LEADING BOUTIQUE TAX AND BUSINESS ADVISORY FIRMS
tommahon@warrenp.ie
+ 353 6607 333
+ 353 86 6059 359
Tom is the Managing Director of Warren & Partners and has over 25
years of taxation experience.
He has extensive knowledge of all areas of Irish taxation and has a
particular interest in tax planning for high-net-worth individuals, family-
owned private companies, SME’s, foreign companies setting up in
Ireland and Irish companies expanding abroad.ABOUT US Warren & Partners are one of the longest established specialist tax advisory firms in Ireland. Their Dublin-based team of chartered tax advisors have been delivering tax and business consultancy services for over 25 years. An Experienced Team of Chartered Tax Advisors Warren & Partners is not a training firm and hires only qualified professionals who have the expertise and knowledge to deal with the vast array of tax, commercial and legal issues that may affect their clients. This means that clients always have access to a team that are highly-skilled and best equipped to meet their requirements. A Unique Relationship with Warren Private Warren & Partners’ sister company, Warren Private, provides complementary real estate investment, management, banking and restructuring services to clients. The combined services of Warren & Partners and Warren Private make it a unique offering in the Irish market.
BUDGET 2021 – CHANGES IN VAT
BIGGEST CHANGE
• 13.5% VAT rate will fall temporarily to 9%, effective from 1 November 2020.
• Currently expected the VAT reduction will apply to the end of 2021.
• On the cost side, reduction in VAT rate from 23% to 21% will cease at the end of February 2021.
• Stay and spend initiative to compliment the reduction in VAT?
• Question:
• What good is the above reduction if L3 restrictions (or worse) continue to apply?BUDGET 2021 – COVID RESTICTIONS SUPPORT SCHEME
CRSS
• Aimed at businesses:
• which have had to close, or
• who have traded at significantly reduced levels (80% lower than corresponding period in 2019)
• Effective from 13 October 2020. Due to cease on 31 March 2021, subject to restriction level
conditions (see below).
• Apply for the duration of L3 (or higher) restrictions.
• Maximum weekly payment is €5,000 in the form of an advanced credit for tax deductible trading expenses.
• Comment:
• Hopefully we won’t have to wait until the Finance Bill to fully understand how this scheme will
work.BUDGET 2021 – OTHER MEASURES • EWSS Scheme (or similar scheme) to continue until the end of 2021. • Modest changes in USC to reduce or eliminate tax for those on minimum wage. Employers PRSI threshold also to change so as not to disincentivise those on minimum wage. • Commercial rates waiver to continue for Q4 2020. • Minor enhancement to the entrepreneur relief CGT scheme. Comment: No reference to employee tax on TWSS support being picked up tax effectively by employers.
TAX PAYMENT – FILING DEADLINES • The Pay and File deadline for self-employed individuals is extended to 10 December 2020. • Budget announcement on tax debt warehousing may apply to self employed taxpayers under financial duress – more details to follow in the Finance Bill.
DISCLAIMER
• The above slides are based on current Irish tax law (as at October 2020) and
our interpretation of yesterday’s Budget 2021 announcements.
• These slides have been written in general terms and therefore should not be
construed as tax advice.
• Warren & Partners accept no duty of care or liability for any loss occasioned by
any person acting or refraining from acting as a result of any material in these
slides.3 Latest guidance for landlords and
tenants
Mark Synnott, Managing Director, Duff & Phelps
Real Estate Advisory GroupLatest guidance for landlords and tenants when renegotiating
commercial lease options
Summary:
➢ Introduction
➢ Summary of new code of conduct between landlord and landlord and
tenants for commercial rents
➢ Important considerations before negotiating lease terms
➢ Case studies
18Summary of new Code of Conduct between Landlords
and Tenants for Commercial Rents
▪ The Code of Conduct was prepared by the Department of Business, Enterprise and Innovation
▪ It is a voluntary code and has no statutory basis – the legal agreement (lease/licence) is
sacrosanct
Main points include:
➢ It is intended to promote and reinforce good practice in landlord and tenant relationships
➢ Landlords and tenants share a common interest in working together to enable otherwise
viable businesses to continue operating
➢ The Code will apply until July 2021
➢ Landlords and tenants should act reasonably, swiftly, transparently and in good faith,
recognising the impact of COVID-19, in order to identify and implement mutually beneficial
solutions.
▪ Service Charge:
➢ It is important that buildings continue to be insured and safely-maintained
➢ Unless otherwise agreed, service charges and insurance need to be paid in full
19The Code sets out the following options:
➢ Full or partial rent free
➢ A rent deferral of all or part of the rent
➢ Changing from quarterly to monthly payments
➢ Reduction in rent to market levels or a proportion of turnover for a specified period
➢ Landlords drawing from rent deposits (and allowing appropriate time to be topped
back up)
➢ Reduction in rent across a portfolio (if appropriate)
➢ Landlords waiving interest on arrears to make payment plans more affordable
➢ Agreeing a specific end date or particular trigger point (e.g. turnover has reached a
certain level)
➢ Landlord and tenants agreeing to split the cost of rent for the unoccupied periods
between them
➢ Compromising by extending the term to cover period of closure
➢ Any of the above in return for other arrangements e.g. a new lease on market terms,
removal of break option or extension of the term
20Important considerations before negotiating lease terms
21Case Study 1 – Dublin Retail Unit
Duff & Phelps acting on behalf of the tenant
➢ Unit currently open and trading
➢ Revenue down significantly
➢ Tenant – single unit in Dublin (objective – to remain in occupation)
➢ Landlord – private landlord
➢ We reviewed the lease and the company accounts to agree a strategy with the tenant
➢ When I got involved, the relationship between the landlord and tenant had deteriorated and rent
arrears had built up.
➢ The Landlord was not very receptive however I negotiated a payment plan to clear arrears and a
relatively small rent-free period of 1.25m
➢ The standout element of this situation was not the rent free achieved but the upcoming rent review
➢ At lease commencement, the Landlord had put a lot of favourable tenant clauses into a side letter to
include repairing obligations and break options
➢ We agreed the above plan in the knowledge that the hypothetical term (30 years) within the lease
and assumptions around the rent review (e.g. FRI lease, no break options etc) will result in a
significant reduction in the passing rent once the rent review is completed
➢ This type of analysis is imperative to negotiate the right solution in every case
22Case Study 2 – Dublin City Centre Office
Duff & Phelps acting on behalf of the tenant
➢ Closed since mid-March
➢ Tenant – multiple units in Dublin (objective – to exit the Property)
➢ Landlord – investment landlord (a number of assets in Greater Dublin area)
➢ We reviewed the lease and the company accounts to agree a strategy with the tenant
➢ The lease is due to expire in late 2021
➢ Options considered:
- Sub-let or assign their interest in the property (not enough time)
- Surrender their lease (agreed option)
➢ Proposal to landlord:
- Q2 rent had already been paid
- Landlord holds three month deposit
- 3 months rent offered (in additional to above)
➢ Current status
- Agreed and legally documented c. May 2020
23Case Study 3 – Dublin Retail Unit
Duff & Phelps acting on the behalf of the landlord
➢ Unit currently open and trading
➢ Revenue down approx. 80%
➢ Tenant – multiple units in Dublin (objective – to remain in occupation)
➢ Landlord – professional investment landlord (multiple assets in Greater Dublin area)
➢ We reviewed the lease, financial information and proposal provided by the tenant
➢ Landlord agreed to the following:
- 50% reduction in rent from April to October 2020 (no repayment
required)
- From October 2020, for a period of 12 months, the rent payment goes
from Monthly in Advance to monthly in arrears
- In lieu of the above abated terms, the Tenant break option was moved
out from 2024 to 2025
➢ Current status
- Agreed and legally documented
24Summary of Available Options
➢ Lease Options:
➢ Sub-let
➢ Assign
➢ Surrender
➢ Alienation clauses
➢ Lease Events/Considerations:
➢ Rent review
➢ Break option
➢ Lease expiry
➢ Payment terms (monthly/quarterly in advance)
➢ Schedule of dilapidations obligations
➢ Macro/Micro Considerations:
➢ Adjoining occupiers
➢ Development potential
➢ Absolute requirement to take a holistic view of the entire situation, from both sides
perspective, prior to entering discussions/negotiations
254 Restructuring Update
Declan Taite, Managing Director, Duff & Phelps
Corporate Restructuring and Debt AdvisoryRestructuring update, including understanding of the supports
available
Forecasting short term cash and viability
Significant reduction in credit terms from suppliers
Critical that you have a clear understanding of essential cash
requirements over initial 3-6 month time horizon
Identify key milestones
Establish who needs to be paid and when
Avail of government schemes and supports
Department of Business, Enterprise & Innovation
Analyse financial and operational resources
Review cash position, working capital cycle, access to funding
Determine critical cash pinch points
Availability of forbearance from banks and funding providers?
Costs review and potential for streamlining
27Restructuring update, including understanding of the supports
available
Prepare 13 week rolling cashflows – ongoing
updates
Absolute requirement for accurate management
information
Implement rigorous cash controls with daily
monitoring
Negotiate phased payment arrangements with
Revenue and larger creditors
Assess funding options to assist in paying creditor
arrears and accrued liabilities
Discuss longer-term arrangements with creditors
and extend credit terms, where possible
Always remember - “cash is king”
28Restructuring update, including understanding of the supports
available
Government July jobs stimulus - Employment Wage Subsidy Scheme (EWSS)
replaced the Temporary Wage Subsidy Scheme (TWSS)
Flat rate subsidy to qualifying employers based on number of eligible employees on
the employer’s payroll
Drop in turnover from 1 July to 31 December 2020 of 30% compared to same period
in 2019 – must have valid tax clearance
Reduced employer PRSI rate of 0.5% of payments made under scheme
Eligible employees earn between €151.50 and €1,462 gross per week (can include
proprietary directors subject to criteria)
Subsidy of €203 per week paid where employee earns between €151.50 and €1,462
Subsidy of €151.50 per week paid where employee earns between €151.50 and
€202.99
Similar scheme to continue until December 20212
Restart Grant Plus Scheme extended to 31 October 2020
Grants of between €4,000 and €25,000
Scheme criteria
29Restructuring update, including understanding of the supports
available
Commercial Rates Waiver – 100% waiver of 6 months rates from 27 March to 31
December 2020
Revenue Warehousing Scheme where phased payment arrangement is not possible
Must continue to file tax returns on time - interest free for 12 months from recommencement of trading
– no debt enforcement by revenue
Business expected to engage with Revenue to reach agreement prior to expiration of warehousing
period
Budget 2021 announced extension of debt warehousing for self employed tax payers (2019 balance
and 2020 Preliminary Tax)
COVID-19 Credit Guarantee Scheme
Operated by SBCI via participating finance providers (AIB, BoI, UB)
Loans of between €10,000 and €1,000,000. Loan period of between 3 months
and 5 ½ years. Up to €250,000 on unsecured basis.
Must have at least 15% drop in actual or projected turnover or profit
Maximum amount which can be borrowed cannot exceed 25% of 2019
turnover or twice the 2019 wage bill for the business.
Loans available until 31 December 2020
30Restructuring update, including understanding of the
supports available
COVID-19 Business Loans from Microfinance Ireland
Criteria includes having less than 10 employees and turnover of less than €2m
Must be able to demonstrate inability to borrow from bank or commercial lending
provider
Loans of between €5,000 and €25,000 - Up to 3 years term
Six months interest free
Balance payable over 30 months
Interest rate of 4.5% if loan processed via Local Enterprise Office or 5.5% if directly via
Microfinance Ireland
Enterprise Ireland Supports – not generally available for restaurant sector
Criteria includes operating in the manufacturing and internationally traded
services sector
COVID Restrictions Support Scheme
Aimed at businesses who have had to close/trading at significantly reduced levels. Will
apply for duration of L3 (or higher) restrictions. Scheme to run until 31 March 2021.
Maximum weekly payment of €5,000
Amendments to Planning and Development Regulations
31Ongoing Engagement with Stakeholders
Business Plan Considerations
Identify break even point for continuity of trade
What are the key components to ensure break even goal is
achieved
Hard, unpalatable decisions may be required
Determine availability and qualifying criteria for Government
Schemes & Supports (www.dbei.gov.ie)
Conduct sensitivity analysis
base case, worse case and best case scenarios – Link to
Cashflows
Will greatly assist in quantifying range of funding required
Contingency planning is crucial
Set aside time resources and budget where appropriate
32Ongoing Engagement with Stakeholders
Business Plan Considerations
Continue cost review and forecast adjustments
Trade will fluctuate – actual outturn will differ from original
estimates
Business plan should be flexible
Prepare periodic updates of business plan for key
stakeholders
Regular, ongoing open communication is essential
When seeking to informally renegotiate your position an
understanding of the broader principles which guide
restructuring and insolvency can be vital in ensuring that any
deal achieved is more favourable than that available through
more formal processes.
Consider viability of a restructuring proposal with creditors,
or more formally via examinership or a court approved
scheme of arrangement
33Ongoing Engagement with Stakeholders
Business Plan Considerations
Use your prepared and stress-tested
forecasts to negotiate with your funders,
including but not limited to fresh capital,
forbearance or restricted debt.
Banks and creditors will, in part, be
steered by the outcomes they would
achieve through more formal processes
and businesses should do the same.
A significant number of businesses will
need to restructure their balance sheet to
continue trading on a long term basis
345 Q&A
For more information, please contact:
DECLAN TAITE MARK SYNNOTT
Managing Director Managing Director
Restructuring Advisory Restructuring Estate Advisory Group
M: +353 86 2111485 M: +353 472 0748
E: declan.taite@duffandphelps.com E: mark.synnott@duffandphelps.com
TOM MAHON
Managing Director
Taxation
Warren & Partners
E: tommahon@warren.ie
ABOUT DUFF & PHELPS
Duff & Phelps is the world’s premier provider of governance, risk and transparency solutions. We work with clients across diverse sectors in the areas of valuation, corporate finance, disputes and
investigations, cyber security, claims administration and regulatory compliance. With Kroll, the leading global provider of risk solutions, and Prime Clerk, the leader in complex business services and
claims administration, our firm has nearly 4,000 professionals in 25 countries around the world. For more information, visit www.duffandphelps.com.
M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of
Duff & Phelps Securities, LLC. M&A advisory and capital raising services in Canada are provided by Duff & Phelps Securities Canada Ltd., a registered Exempt Market Dealer. M&A advisory, capital
raising and secondary market advisory services in the United Kingdom and across Europe are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial
Conduct Authority. In Germany M&A advisory and capital raising services are also provided by Duff & Phelps GmbH, which is a Tied Agent of DPSL. Valuation Advisory Services in India are provided
by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.You can also read
