Significant acquisitions

2018 Acquisitions

Castello di Casole

On February 7, 2018, Belmond acquired 100% of two entities that together own Castello di Casole, a 39-key luxury resort and estate in Tuscany, Italy, for a total transaction value of €40,220,000 (equivalent to $49,257,000 at February 7, 2018), including a cash purchase price of €38,287,000 ($46,934,000), contingent consideration with a fair value of €1,003,000 ($1,226,000) and acquisition-related costs of €930,000 ($1,097,000). Belmond rebranded the resort as Belmond Castello di Casole on May 11, 2018, when the incumbent operator’s management agreement terminated. The property is the latest addition to Belmond’s family of ‘Italian Icons’, which includes Belmond Hotel Cipriani in Venice and Belmond Hotel Splendido in Portofino. Located within easy access of both Florence and Siena, the resort and estate span 1,500 hectares and comprise the 39-key Castello di Casole hotel, together with vineyards, olive groves, extensive wooded Tuscan countryside, and 48 residential plots, of which 15 plots remain unsold, with one subject to a binding sale contract, and one subject to a non-binding reservation letter of intent to purchase. It is expected that two of the remaining 13 residential plots will be converted into new villas as part of the hotel inventory.

The following table summarizes the consideration paid for the hotel and the allocation of the purchase price to the estimated fair value of assets acquired and liabilities assumed at the acquisition date. The acquisition has been accounted for in accordance with ASC 805, Business Combinations, using the acquisition method of accounting whereby the total purchase price has been allocated to the acquired assets and liabilities as at February 7, 2018. The estimated fair values are final and no further adjustments will be made to the identified assets and liabilities.



	Fair value on February 7, 2018
	$'000
Consideration:

Agreed cash consideration	46,934
Contingent consideration	1,226
Total purchase price	48,160

Assets acquired and liabilities assumed:

Cash and cash equivalents	1,530
Other receivables	2,319
Current assets	1,355
Property, plant and equipment - hotel land and buildings	22,555
Property, plant and equipment - land plots	22,554
Other intangible assets	2,676
Current liabilities	(1,595	)
Accrued liabilities	(2,137	)
Deferred revenue	(1,261	)
Goodwill	164
Net assets acquired	48,160

The agreed cash consideration of €38,287,000 (equivalent to $46,934,000 at February 7, 2018) was funded from existing cash reserves.

The contingent consideration arrangement required the Company to pay 50% of the net proceeds from the sale of the two residential plots that are subject to non-binding reservation letters of intent to purchase (which are recorded as part of property, plant and equipment - land plots in the table above) to the vendor if the sales occur prior to September 30, 2018. The fair value of the contingent consideration at the acquisition date was €1,003,000 ($1,226,000), determined using an income approach based on an analysis of the likelihood of the conditions for payment being met. As the sale of the two residential plots did not occur prior to September 30, 2018, the Company is no longer required to pay the contingent consideration and the subsequent change in fair value is recorded in the statements of consolidated operations. As such, during the year ended December 31, 2018, the change in fair value of the contingent consideration of €1,003,000 (equivalent to $1,197,000 at September 30, 2018) is recognized within other operating income in the statements of consolidated operations.

Acquisition-related costs of €930,000 ($1,097,000) are included within selling, general and administrative expenses in the statements of consolidated operations for the year ended December 31, 2018.

Other intangible assets of $2,676,000 was assigned to trade names that are not subject to amortization. No other intangible assets were identified and recognized.

Goodwill arising on acquisition of $164,000 was assigned to the Owned hotels in the Company’s Europe segment and consists largely of profit growth opportunities the hotel is expected to generate. None of the goodwill recognized is expected to be deductible for income tax purposes. See Note 10 for details of goodwill impairment at Belmond Castello di Casole.

The results of operations of the hotel have been included in the consolidated financial results since the date of acquisition. The following table presents information for Castello di Casole included in the Company’s statements of consolidated operations from the acquisition date to the period ending December 31, 2018:



		2018
		$'000

Revenue		8,780
Earnings from continuing operations		3,760

Belmond is unable to provide pro forma results of operations for the year ended December 31, 2018 and 2017 as if the acquisition had occurred on January 1, 2017 due to the lack of reliable historical financial information.

2017 Acquisitions

Cap Juluca

On May 26, 2017, Belmond acquired 100% ownership of Cap Juluca, 96-key luxury resort on the Caribbean island of Anguilla, British West Indies for a total transaction value of $84,791,000, including an aggregate cash purchase price of $68,652,000, acquisition-related costs of $14,032,000 and excluding a working capital credit of $2,107,000. On the same date, the Company assumed management of the resort, which had been independently managed, and began marketing the property under the name Belmond Cap Juluca. As one of the most recognized resorts in the Caribbean, Cap Juluca is a natural fit for the Belmond portfolio and enhances Belmond's positioning in the global luxury resort market.

The following table summarizes the consideration paid for the hotel and the allocation of the purchase price to the estimated fair value of assets acquired and liabilities assumed at the acquisition date. The acquisition has been accounted for in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, using the acquisition method of accounting whereby the total purchase price has been allocated to the acquired assets and liabilities as at May 26, 2017. The estimated fair values are final and no further adjustments will be made to the identified assets and liabilities.



	Fair value on May 26, 2017
	$'000
Consideration:

Agreed cash consideration	70,759
Less: Working capital adjustment	(2,107	)
Total purchase price	68,652

Assets acquired and liabilities assumed:

Cash and cash equivalents	20
Accounts receivable	112
Prepaid expenses and other	45
Inventories	108
Property, plant and equipment	59,159
Other intangible assets	6,100
Accounts payable	(595	)
Accrued liabilities	(360	)
Deferred revenue	(1,437	)
Goodwill	5,500
Net assets acquired	68,652

The purchase price of $68,652,000 was funded from existing cash reserves and $45,000,000 of borrowings under the Company’s prior revolving credit facility, which was repaid following the amendment and restatement to the credit agreement on July 3, 2017. See Note 12.

Acquisition-related costs which are included within selling, general and administrative expenses in the statements of consolidated operations for the year ended December 31, 2017 were $14,032,000, related to professional fees incurred in preliminary design and planning, structuring, assessment of financing opportunities, legal, tax, accounting and engineering due diligence and the negotiation of the purchase and sale agreements, and other ancillary documents, with the principal owner and leaseholder, together with three owners of villas and separate subleases, as well as a memorandum of understanding and ground lease with the Government of Anguilla.

Other intangible assets of $6,100,000 was assigned to trade names that are not subject to amortization. No other intangible assets were identified and recognized.

Goodwill arising on acquisition of $5,500,000 was assigned to the Owned hotels in North America segment and consists largely of profit growth opportunities the hotel is expected to generate. None of the goodwill recognized is expected to be deductible for income tax purposes. See Note 9 for details of the fixed assets recoverability test and Note 10 for details of goodwill impairment at Belmond Cap Juluca following the impact of Hurricanes Irma and Jose in September 2017.

At the same time, the Company entered into a 125-year ground lease for the property with the Government of Anguilla. The lease has been accounted for as an operating lease in accordance with ASC 840, Leases, with the annual rental expense recognized in selling, general and administrative expenses in the statements of consolidated operations, and future rental payments committed as at December 31, 2018 disclosed in Note 21.

The results of operations of the hotel has been included in the consolidated financial results since the date of acquisition. The following table presents information for Belmond Cap Juluca included in the Company’s statements of consolidated operations from the acquisition date to the period ending December 31, 2017:



	2017
	$'000

Revenue	2,435
Losses from continuing operations	(16,681	)

Belmond is unable to provide pro forma results of operations for the year ended December 31, 2017 and 2016 as if the acquisition had occurred on January 1, 2016 due to the lack of reliable historical financial information.