Case Study Highlight: Transaction Risks Assessed Through Due Diligence Analysis
Upon entering into a co-investment opportunity, the potential hotel investment group committed funding for a 45% stake in a joint venture to acquire, redevelop and reposition approximately 30 hotels located in the United States. The hotels were to be completely renovated and reopened under a nationally-recognized brand. Withum was initially engaged to perform due diligence for three underperforming hotels. One of the buyer’s challenges was assessing the properties’ future success after the renovations were complete, given the current and future geographic and demographic factors and competitive market forces.
Withum’s Transaction Advisoryand Hospitality ServicesTeams compared current performance of targets, including NOI, ADR and REvPAR, to STAR reports of the competitive sets of hotels. The data analysis helped the buyer forecast future results after the renovations, helping assist in the buying process. Further, Withum’s team assisted the buyer with research assessing the transaction risk and evaluating potential buyers for an exit.
Cost Segregation Study Results in Cost Savings
A chain of hotels underwent significant renovations, with the original allocation for tax purposes being very general. The client, who owned the hotel chain, wanted to explore cost savings to improve profitability, including the possibility of performing a cost segregation study, which would potentially increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.
Withum’s cost segregation specialists performed an initial review of potential revisions under the current tax code, which could reduce their tax burden by reallocating certain costs associated with building to other shorter-lives assets. After the first engagement, one hotel entity saved over $1 million in current taxable income. The client is considering additional cost segregation studies for the other hotels in the chain, with the hopes of having similar cost-saving outcomes.
Content and Digital Workplace Migration Improves Collaboration
A large publicly-traded real estate investment trust with a diverse portfolio of hotels and resorts had spun off from a larger corporation and established itself as an independent company. There was little existing technology infrastructure in place, and the company was legally required to migrate their content off of their servers to Microsoft Office 365 in a short amount of time.
In tandem with migrating the hotel to Microsoft Office 365, Withum’s Digital and Technology Transformation Advisory Team rolled out a digital workplace for the company to enhance collaboration. Withum delivered a solution that allowed the business to access existing company information via the OneWindow Workplace intranet easily and facilitated its architecture and security structure. The team also created property workspace sites that allow the client’s general managers to find and share important information regarding the individual properties they manage.
Analysis Uncovers Cost Amortization Opportunities
A US-based hotel development and operating company went through an extensive $2 million website, photography and internal-use software upgrade project and needed assistance in determining which aspects of the project could be considered capital expenditures which could be amortized versus having to be immediately expensed.
Withum’s Hospitality Services Team diligently worked to create deliverables that included a white paper on the method for identifying and segregating costs into pools, and final calculation of the allocation. Using Withum’s assessment, the client discovered they could spread the project’s cost over 3-5 years rather than taking on the entire cost in a single year. Determining which costs can be capitalized for website and internal/external software can be difficult, but Withum’s knowledge and experience on the subject matter helped the client navigate the process seamlessly.
Our Hotel Services Group members have extensive knowledge on the ins-and-outs of the complex issues facing the hotel industry and provide a wide variety of accounting, tax and consulting services to businesses ranging from small, boutique hotels to large, international chains.