Board
Business Outlook 2012
Contents
Christie + Co price indices for 2011
04 06 09
Public Houses
22 28 32 38 42
Retail
46 50 54
Chairman’s overview
Restaurants
Pharmacy
Services
Leisure
Contact details
Christie + Co operations
12
Care
Hotels
14
Childcare + Education
About Christie + Co Christie + Co is the pre-eminent property adviser, employing a team of specialist agents and advisers across a network of 25 offices. We pride ourselves on our ability to respond rapidly to requests for honest, reliable advice. Christie + Co is regulated by RICS and employs registered valuers and specialist chartered surveyors across the business.
3
2012
Business Outlook
Analyses of the movement in average prices
2011
2005
2006 2007
2008 2009 2010
13.1
10.8
6.1
- 5.1% movement in average prices
Hotels
0.1
Christie + Co’s price indices use average price information derived from transactions brokered by the company in a 12-month period.
2011
2005
2006 2007
-18.4 2008 2009 2010
-19.5
8.5
6.5
5.2
- 1.1% movement in average prices
Public Houses
-0.9
-11.6
2011
2005
2006 2007
2008 2009 2010
-20.1
8.0
4.7
4.9
4.6
- 4.1% movement in average prices
Restaurants
-14.9
-18.1
2011
2005
2006 2007
2008 2009 2010
17.4
14.5
12.2
- 3.3% movement in average prices
Care
0.4
-11.0
-16.9
2011
2005
2006 2007
2008 2009 2010
7.9
5.9
5.6
- 3.6% movement in average prices
Retail
2.1
-6.5
-9.8
4
Index based on average sale prices ( from a base of 100 in 1975)
2000
1500
1000
500
0
2011
1991
1987
1997
2001
2010
1993
1988
1995
1992
1989
1998
1994
1986
1990
1999
1996
2007
2003
2005
2002
2008
2004
2000
2009
2006
2005
2006
2007
2008
2009
2010
2011
Hotels
854 865 906 775 933
966 939 950 910 988
1,025 1,000 1,026 1,021 1,043
837 884 873 849 975
674 706 715 755 880 823 550 1,511
675 700 748 758 899 826 575 1,517
641 692 717 733 867 806 606 1,541
Public Houses
Restaurants
Care Retail
Average Index
937 497
1,021
1,099
981 554
Retail Price Index House Price Index
516
538
1,458
1,598
1,708
1,471
5
2012
Business Outlook
Chairman’s overview
David Rugg Chairman
A year ago in Christie + Co’s Business Outlook 2011 we reported that despite the difficulties in the business environment, average property prices in hospitality, leisure, care and retail businesses had plateaued and perhaps had emerged from the bottom of the value curve. Twelve months on and even the gloomiest forecasters would never have predicted quite how deep the recession would be, nor the extent of the crisis that would engulf the financial markets, particularly across the Eurozone. Consequently, and in the face of continuing economic uncertainty, the plateauing of property prices in 2010 must now be viewed as a step towards prices once again settling at a lower level in 2011. However, this is a time for realism and it should be acknowledged that yield ranges remain on a par with those seen in the 1990s. This is not new territory for the sectors in which Christie + Co operates, it is more a case of trading assets transacting at former multiples of trading profit. Cash transactions dominant In 2011 we saw a transactional market where cash was everything. In some cases, notably for Christie + Co in its sales on behalf of the administrators of a number of von Essen Hotels, we saw cash deals being done as a prelude to debt finance being secured. Administrator-led sales were more common during the year, but the market was able to absorb the number of businesses being made available for sale. This is surely a sign that the market mechanism remains as effective as ever, even as values change. There has been no stasis, which has to be encouraging in these difficult and financially uncertain times.
“ In the face of continuing economic uncertainty, the plateauing of property prices in 2010 must now be viewed as a step towards prices once again settling at a lower level in 2011. However, yield ranges remain on a par with those seen in the 1990s.”
6
predicted earlier in the year, ended up being geared towards existing operators rather than encouraging new business. Role of Christie + Co recognised During 2011 we were delighted to receive two accolades from Estates Gazette Group — first, as the UK’s most active agents in Leisure and Hotels and latterly as Property Adviser of the Year in Leisure. This is fantastic recognition of the strength in depth we have in our 300 people across 25 offices throughout the UK, Europe and the Middle East. However, success on the agency side only tells half the story as our advisory and valuation services teams provided a higher proportion of our business activity than ever before. Our Bank Support and Business Recovery team not only provided continuity with our agency business, but also worked with banks to provide distressed businesses with the advice and knowledge they needed to inform their turnaround and recovery decision-making processes. This work is symptomatic of the contribution all our teams make to the wider business community. And that’s also not to forget our sister companies. With businesses concentrating on maximising margins from operating activities at a time when like-for-like sales are hard- won, the likes of Venners and Orridge, which operate in the licensed and retail stocktaking sectors respectively, are noticing, and fulfilling, strong demand for their services. Lively times ahead Looking ahead, we can expect a good supply of business offerings early in the year, especially as the banks and their customers will remain committed to disposing of assets in order to reduce gearing. Increasingly we will see the sale of some ‘ trophy’ assets, where the value is viewed as disproportionate to the commercial return.
Also of great encouragement has been the return to the market — principally in the leisure and hospitality sectors, but also in care and education — of some entrepreneurs who had exited the scene at record prices in 2006 and 2007. Many returned in order to buy back businesses they had previously owned — one only has to see the new ownership structures for the likes of Luminar Leisure to understand how experienced operators see the value in familiar businesses. For many, returning to previously owned businesses is the safest investment they can make and, in many cases, avoids the need to undertake arduous due diligence. New lending vehicles offer hope Both for those who are making a return to owning businesses and those already entrenched, there have been heartening signs of the emergence of new lending platforms, even though traditional high street lenders have been, understandably, reluctant to expand their existing overall exposure to our sectors. One such is the Shawbrook Bank, led by the former Royal Bank of Scotland chief executive Sir George Mathewson, which aims to lend £250 million to small businesses in its first year and recently provided funding to the private buyer of Callow Hall, a former von Essen Hotel in Derbyshire. Other vehicles, such as regional development funds and online loan/ exchange facilitators, are also beginning to play their part. And we await with interest to see if the new owners of Northern Rock will engage in commercial lending. The slight concern is that all the new facilities are chiefly aimed at small businesses which, while heartening for this market, could leave a drought of debt finance for larger transactions. The other potential losers could be start-ups which in 2011 were not encouraged by the anticipated boost from the Government’s Project Merlin funding which, as David Grant, Head of UK Business Mortgages for Christie Finance
Already, in the public house sector, Enterprise Inns has outlined its strategy to offload the ‘ best 100’ pubs in its estate this year. The availability of high quality and trophy assets will present a once-in-a-lifetime opportunity for niche investors — particularly those with cash. We may also see new investors emerging amongst graduates who face the fiercest competition for employment we’ve seen for some time. Funded by the ‘bank of mum and dad’, these new investors may use the opportunities, and the filial funding, to both create and purchase businesses and develop them with innovation and flair to appeal to their own generation of connected customers. As a bonus, family and friends should be able to retain attractive tax reliefs through the recently announced Seed Enterprise Investment Scheme. Emerging investors, fresh ideas and new businesses should be encouraged more than ever as we continue to face up to the economic uncertainty.
-2.48%
Movement in average prices across our sectors in 2011
7
2012
Business Outlook
5.9%
Increase in the number of offers received for businesses in 2011 compared with the previous year
-7.3%
Decrease in the number of viewings arranged by Christie + Co in 2011 compared with the previous year
Chris Day International Managing Director
“ We believe that our specialists are the most active in the industry — not only facilitating more transactions than other property brokers in the sector, but also completing more valuations and advisory projects. The fact that we not only won the EGi deals competition in 2011, based on the volume of leisure transactions we completed, but also an EG Award for best leisure property adviser, helps to endorse this opinion. Christie + Co’s experienced advisers are able to work with their Christie Group colleagues to offer an unrivalled range of more than 40 professional services across the leisure, care and retail sectors.”
8
Services throughout the business cycle Christie + Co and its sister companies offer a comprehensive range of services to support businesses throughout their life-cycle.
Christie Finance Deal finance Financing for business development purposes Business refinancing
+ Valuation for acquisition purposes + Commercial due diligence + Acquisition brokerage + Strategic and business advice + Performance analysis and benchmarking + Operational reviews + Management contract and lease advice + Opportunity identification + Market, feasibility and impact studies + Deal origination and buy-side advice + Site sourcing and development deals + Operator search and selection + Forward sales
+ Advice to debt providers + The identification of business recovery solutions + Valuation for marketing purposes + Preparation of sales memoranda + Disposal advice and brokerage + Calculation of building reinstatement costs + Residual land valuations + Rent reviews + Arbitration, dispute resolution and expert witness advice + Litigation support + Capex appraisal + Valuation for accounting purposes + Loan security valuations + Advice relating to non-performing or distressed assets
Christie Insurance Business insurance solutions Life assurance protection
Venners Inventory listing and valuation Health and safety advice
Food safety advice Stocktaking for loss control prevention Event stocktaking
Orridge Stocktaking solutions Inventory services Supply chain optimisation
9
2012
Business Outlook
Darren Bond Director and Head of Valuation Services
“ The uncertain economic climate made for different demand drivers in 2011. As a result Christie + Co’s specialist Valuation Services team was able to use its strong sector knowledge and expertise to support the debt restructuring work of lenders as well as providing expert pre-transaction assistance and valuations.”
Simon Hughes UK Managing Director
“ Christie + Co enters 2012 with an encouraging number of new instructions to bring businesses to market. Of the businesses we sold in 2011, 25 per cent had a distressed background and we expect banks to continue driving transactional activity over the next few months. The current transactional landscape is not new territory for Christie + Co’s experienced business advisers and agents. We are confident in our ability to value businesses for sale and are also buoyed by the fact that the market mechanism continues to function, as buyers come forward to absorb the stock that becomes available.”
Andreas Scriven Director and Head of Consultancy
“ With their combined expertise allied to the company’s heritage, Christie +Co’s Consultancy team can genuinely say they’ve seen it all before. Therefore, in a turbulent year like 2011, we were able to leverage our considerable experience of economic ups and downs to deliver genuine, sustainable solutions of value to our clients.”
10
Christie + Co offers a comprehensive range of professional services to meet clients’ needs and reflect the market conditions. Our reputation was built on brokering transactions and we pride ourselves on our ability to manage marketing campaigns and facilitate deals. Our position as the leading agent at the forefront of the leisure and hotels sector was confirmed by the Estates Gazette Group in 2011 when we were awarded the most active agent title, based on the volume of transactions we completed in 2010. Although the number of businesses we inspected in 2011 was down by 1.7 per cent compared to the previous year, our specialists were responsible for inspecting almost 15,000 businesses for sale or valuation purposes. Our chartered surveyors and advisers are just as active as our agents — in fact valuation and advisory projects accounted for approximately 40 per cent of Christie + Co’s business activity in 2011. Distress in our markets amplified the need for specialist advice in 2011 and we were able to work with banks and business operators to help improve operational performance, preserve value and avoid insolvency. Of the total number of businesses we sold last year, 25 per cent were distressed. In distress situations, the need for timely advice and decisive action is crucial and the decision to dispose of assets is not always negative — it often enables operators to recapitalise and move forward with other businesses. Our transactional evidence proves that there is a market for distressed businesses and many of the assets we sold in 2011 will be operated successfully in a different format. You can see some encouraging examples of successful distress sales throughout this document. Services to meet client needs and reflect market conditions
Percentage of instructions marked as distressed by sector
Hotels Public Houses Restaurants Leisure
60
Care Retail
50
40
30
20
10
0
Q1
Q2
60
50
40
30
20
10
0
Q3
Q4
“ With increasing numbers of business failures an inevitable consequence of the continuing economic conditions, transactions involving distressed assets were always likely to hit the headlines. However, this should not mask the role played by business recovery services in assisting many companies to stay afloat. By providing sound and impartial advice, Christie + Co was able to work with banks and recovery professionals to assist distressed businesses in their decision-making processes — helping many with their turnaround and recovery strategies, and avoiding the need for disposal.”
Stephen Jacobs – Associate Director, Bank Support and Business Recovery
11
2012
Business Outlook
Geographical coverage
Christie + Co has developed an extensive network of offices, which enables us to respond effectively to client projects across the UK and Europe. With 14 offices in the UK and 12 international offices, our penetration into local and regional markets is second to none.
14
UK offices
1 2 3 4 5
Glasgow Edinburgh Newcastle
Leeds
Manchester
K L M N
London Enfield
Maidstone
6 7 8 9 J
Nottingham Birmingham
Ipswich
Bristol
Winchester
Exeter
12
Our areas of expertise
Hotels
Public Houses
Restaurants
Leisure
Care + Education
Retail Retail investments Convenience stores Petrol filling stations CTNs Pharmacies Off-licences Post offices Fish & chip shops Garden centres
B&Bs Guest houses Boutique hotels Niche hotels Budget hotels Aparthotels Mid-market hotels Luxury hotels Hostels
Freehouses Tenanted pubs Leased pubs
Casual dining Fine dining Independents Sandwich bars Coffee shops
Cinemas Entertainment venues Health & fitness Sports clubs Bingo halls Gaming sector Ten-pin bowling Snooker clubs Holiday and caravan parks Golf courses
Nursing & residential care Specialist care
Supported living Private hospitals Doctors’ surgeries Dental practices Veterinary surgeries Funeral directors
Managed houses High-street bars Late-night venues Nightclubs
Tea rooms Takeaways
Children’s day nurseries Children’s play centres Specialist education, residential and day schools Foster care Children’s homes Independent schools
12
International offices
1 2 3 4 5 6
Helsinki
Berlin
Munich
Frankfurt
Paris
London
7 8 9 J K
Rennes
Barcelona
Lyon
Marseille
Vienna Dubai
13
2012
Business Outlook
2011
2005
2006 2007
2008 2009 2010
Hotels
13.1
10.8
6.1
- 5.1% movement in average prices
Hotels
0.1
-18.4
-19.5
Jeremy Hill Director and Head of Hotels
“ The market dynamic in the hotel sector changed quarter-by-quarter through 2011 – from hope and increased activity early in the year to uncertainty and confusion by year-end. Significant deals did take place in a transactional market dominated by distress all across Europe, while London again led trading performance. The year to come could provide a windfall for cash buyers in an increasingly ‘ come-and-buy-me’ marketplace in which the availability of cash
in a debt-scarce environment will again be the most crucial influencing factor.”
14
Market predictions
05_ Regions will see continued variable trading performance, but may be boosted by Olympic ‘stay-aways’ 06_ Mid-market and budget hotels will continue to up-scale their customer bases 07_ Capex timebomb will hit owners and force down prices on tired assets
01_ Cash buyers will hold the upper hand 02_ Investment will come from diverse and new markets including China, India and Russia, but will be London-centric 03_ Banks may seek to rationalise their investments seeing some consolidation in the market 04_ Transactional market likely to remain cautious. Prices will be driven by those able to buy now and fund later
2012
The lack of available debt and the ongoing economic uncertainty combined to repress a hotel sector which began 2011 with high hopes following a hint of recovery in 2010. In many respects, 2011 can be considered a tale of four quarters. The year began with operators and investors alike full of optimism, following a relatively positive end to 2010 – and the trading environment remained largely benign. By quarter two, that optimism was reflected in a wave of positivity and an increase in transactional activity – albeit partly due to some distressed assets, like von Essen Hotels, coming to market. As the reality of the slow pace of recovery hit home, and the full extent of the problems facing the financial markets in Europe emerged, quarter three was marked by uncertainty and confusion. In turn, by the fourth quarter, transactional activity stuttered as operators and investors adopted a ‘wait and see’ approach. Trading performance was inextricably linked to the economy where, as far as the UK was concerned, it remained very much a case of ‘London and the rest’, although even the capital had its share of peaks and troughs in revenue per available room (RevPAR).
Higher quality hotels in both London and the regions suffered as consumers migrated to mid-market accommodation, and mid-market operators ‘up-scaled’ their customer base. Despite this, London, buoyed in part by the Royal Wedding and the extended Easter holiday period in the first half of the year, significantly outperformed the rest of the UK. Most regional hotels struggled to maintain occupancy levels and RevPAR fluctuated greatly from month to month. Transactional activity marked by flight to quality … and distress In uncertain and recessionary markets, the only certainty is quality – that was typified by transactional activity in the hotel sector. The availability of stock was somewhat limited – the one exception being cases of distress. The 26 UK luxury country house hotel assets of von Essen Hotels (plus a Napoleonic island fort off the Welsh coast and a French chateau hotel) went into administration in April, with Christie + Co instructed by the administrators to sell the portfolio. Market sentiment and investor appetite determined that the portfolio would be sold off in parts rather than as a whole. By the end of 2011 the majority of the hotels were under new ownership as a new quorum of country house hotel operators emerged. The majority of the deals were completed for cash with the possibility of raising debt subsequently.
Andrew Brownsword’s Bath Priory Group acquired four of the hotels, Sir Peter Rigby’s Eden Hotels Collection added two to its growing portfolio, while Longleat Enterprises bought two of the hotels as it sought to build a small portfolio near to the estate. Patron Capital Partners, in a joint venture with Halcyon Hotels and Resorts, acquired a portfolio of seven former von Essen assets. Halcyon Hotels and Resorts is owned by Nigel Chapman, who sold five of the hotels to von Essen when they were part of his Luxury Family Hotels chain. The sales of the von Essen Hotels portfolio, the Mint Hotels in the UK and Europe to the Blackstone Group (owners of Hilton Worldwide) for £615 million, and the Leicester Square W Hotel to the Qatari Al Faisal Holdings for just shy of £200 million all generated huge interest. They also emphasised both the investor desire for quality and the fact that values for quality assets were holding up in the difficult market conditions. Whilst the acquisition of a controlling stake in the Maybourne Group by the Barclay brothers for £700 million was the headline-grabbing deal of the year, the sales of the Aerodrome Hotel in Croydon and a further von Essen asset, Hotel Verta in Battersea, demonstrated the continuing investor appreciation for character as well as quality.
>>
15
2012
Business Outlook
Case Studies
Year-on-year RevPAR growth cannot be suggested as a reliable indicator of future business profile. This means the valuer places greater emphasis on interpreting current performance, and the market view of value which that creates, to provide a valuation. The banks find themselves in a different position as we enter 2012. With most having concluded basic debt restructuring exercises, they are now in a period of monitoring how assets are performing, how they fit into the market and making decisions on whether to remain or exit. The ‘capex-timebomb’ has exploded for some operators too – especially those who chose not to invest when economic conditions were much better. They, particularly, are finding that money is no longer available to undertake capex, having a real effect on ongoing value and value realisation at sale. At this point last year the feeling was that things ‘couldn’t get any worse’. However, our experience of previous recessions suggests that the recovery from the current one is already taking longer. The future The next year will see cash buyers dominate once more, and there will be a real opportunity for them to ‘fill their boots’, should distress force more property to the market. Investment in the sector is likely to come from an even more diverse international community, including from the likes of Russia, India and China, but this is likely to be very London-centric investment. Of course, 2012 is the year of the Olympics, not to mention the biennial Farnborough International Airshow and the Queen’s Diamond Jubilee, but with a concentration of visitors in the summer months there is certain to be a drop off in demand and visitor numbers may fall sharply from an extraordinary peak. Concerns remain over funding, so accurate and considered pricing of assets is the key to success – every deal next year will be about price. This may create a fragile trading environment as the timid hang onto assets awaiting a recovery that doesn’t look like coming for some time.
Elsewhere, transactional activity largely stalled due to the lack of available debt facilities and the over-pricing of assets by some owners/operators. Increasingly as the year progressed, cash became king in a market of limited supply. On that note, 2011 saw new hotel development plans being curtailed with those new developments that did enter the fray serving to disrupt an already fragile sector – depressing values on existing assets as a consequence. However, a longer-term effect of a dwindling pipeline could see operators reap rewards from a decline in the growth of competition. With the exception of London, which is always likely to see development, hotel operators could see a marginal increase in values and improvement in trading performance while the pipeline continues to be slow. Needless to say, quality will remain key, so capital expenditure is essential, even in these times of restricted access to debt and cash flow. An interesting development was the increasing appetite for serviced sites in London and other provincial cities. Christie + Co, acting as joint agent, sold the Atelier EC1 serviced- apartment business in the Hatton Garden area of London. Elsewhere, apartment operators were taking floors in existing hotels, providing the hotel business with additional income from rent and also from the apartment occupiers’ use of hotel services. Investors are increasingly recognising the importance of hotel businesses as going concerns and this places a huge emphasis on sustainable values, particularly when there is such a lack of debt finance available. Historic, ongoing and forward-looking capital expenditure is also crucial. However, the debt problems and lack of stability in funding markets has raised questions over how historic transactional evidence can be interpreted to create meaningful values. The consensus view amongst people we deal with is that historic asset values are falling increasingly into conflict with the reality of achieving a deal. The dominance of cash buyers is also having its impact on values – the £615 million deal that saw the Blackstone Group acquire Mint Hotels did achieve funding but there has to be a significant doubt as to whether funding of this level will be available in the near future. Defining period for values and valuation
Sea Containers House
Acting on behalf of the Deerbrook Group, adviser to the owner, Christie + Co’s Advisory team provided feasibility and valuation advice for a proposed lifestyle hotel at Sea Containers House on London’s South Bank. Morgans Hotel Group has recently entered into a hotel management agreement for an approximately 360-room Mondrian- branded hotel to be located at Sea Containers and due to open in early 2014.
Atelier EC1
Christie + Co acted as a joint agent on behalf of Matthew Wild and John Ariel of Baker Tilly Restructuring and Recovery LLP, Joint Administrators of Summerpark Homes Limited, to sell the freehold interest of Atelier ECI, a luxury serviced apartment business in London’s diamond quarter, Hatton Garden.
16
von Essen Hotels
The 26 UK luxury country house hotel assets of von Essen Hotels (plus a Napoleonic island fort off the Welsh coast and a French chateau hotel) went into administration in April, with Christie + Co instructed by the administrators to sell the portfolio. By the end of 2011 the majority of the hotels ( like Thornbury Castle above) were under new ownership, many deals being for cash with the possibility of raising debt subsequently.
Mint Hotels
Aerodrome Hotel
The Aerodrome Hotel, which opened in 1928 as the world’s first airport hotel, was sold by Christie + Co on behalf of administrators. It was acquired by Hallmark Hotels and took the growing group’s portfolio of 4-star hotels up to six. This sale, and others, demonstrated the continuing investor appreciation for character as well as quality.
Christie + Co provided a formal loan security valuation of this portfolio, on behalf of a bank seeking to fund one of the bidders. The group comprised seven UK hotels and one in Amsterdam. Two of the UK hotels are in London and comprise approximately 1,000 bedrooms. The portfolio was eventually acquired by Blackstone Group (owners of Hilton Worldwide) for a reported £615 million.
17
2012
Business Outlook
Hotel Transactions 2011 – Portfolio
Date
Property / Properties
Total bedrooms
Total sale price £75m for 25% stake
Purchaser
Vendor
3 hotels (539 rooms) 8 hotels (569 rooms) 6 inns (58 rooms) 16 hotels (1,700 rooms) 4 hotels (575 rooms)
Misland (Cyprus) Investments — Peter Green’s investment vehicle Administrators of Butterfly Hotels Ltd (Begbies Traynor) Administrators of Maypole Group (Baker Tilly) Administrators of Piccadilly Hotels (KPMG)
January
25% stake in Maybourne Hotel Group
The Barclay brothers
February Butterfly Hotels
Undisclosed Akkeron Hotels
March
Maypole Group
Undisclosed Marco Pierre White
July
Menzies Hotels
Undisclosed Management buyout — Cordial Hotels
Malmaison hotels in Birmingham, Newcastle and Manchester
Legal and General Property — sale and leaseback
July
£55.3m
MWB Group Holdings
Premier Inns: Sandhurst, Harlow, Norwich Central South, Chippenham, Worcester, Hereford, Weston-Super-Mare East The Mint Hotel brand and chain of 8 hotels — of which 7 are in the UK and 1 in Amsterdam
7 hotels (588 rooms)
LaSalle Investment Management — sale and leaseback
August
£53.8m
Whitbread
Uberior Ventures — part of Lloyds Banking Group – and the founders of City Inn
8 hotels (2,783 rooms)
Blackstone Group — the hotels have been added to Hilton Worldwide’s portfolio Jupiter Hotels — a joint venture between Patron Capital and West Register — the hotels will be rebranded Mercure under a franchise agreement with Accor
September
£615m
Portfolio of 26 Jarvis Hotels comprising 21 freeholds and 5 leaseholds
26 hotels (2,664 rooms)
Jarvis Hotels Limited ( pre-pack administration)
September
£111m
£700 million debt acquisition
Maybourne Hotel Group: The Berkeley, the Connaught and Claridge’s Lower Slaughter Manor, Buckland Manor, Washbourne Court (all Gloucestershire); Amberley Castle (West Sussex) The Elms (Worcester); Fowey Hall ( Cornwall); the Ickworth (Suffolk); Moonfleet Manor (Dorset); Woolley Grange (Wiltshire); Thornbury Castle ( Gloucestershire); New Park Manor ( Hampshire)
3 hotels (539 rooms)
Maybourne Finance Limited ( Barclay brothers)
September
NAMA
4 hotels (81 rooms)
Administrators of von Essen Hotels (Ernst & Young)
October
Undisclosed Bath Priory Limited (Brownsword Hotels)
7 hotels (211 rooms)
Patron Capital (Halcyon Hotels & Resorts)
Administrators of von Essen Hotels (Ernst & Young)
December
Undisclosed
Note: Details of the transactions listed in the tables above are taken from information in the public domain and Christie + Co cannot warrant their accuracy.
18
Hotel Transactions 2011 – London
Date
Property / Properties
Total bedrooms
Total sale price Purchaser
Vendor
March
Cadogan Hotel
65
£15.4m
Cadogan Estate
Trinity Hotel Investors
Bird Hospitality Services (BHS) — the hotel will be operated by Interstate Hotels and Resorts
Harte Property & Investment/ Franklyn Hotels and Resorts Administrators of Mainwalk Ltd ( PricewaterhouseCoopers) King’s Cross Central – Robson Asset Management (RAM) retains the 125-year hotel lease
April
Royal Park Hotel
48
Undisclosed
May
Aerodrome Hotel, Croydon
109
£6.5m
Hallmark Hotels
£12m for the 999- year ground lease
August
Great Northern Hotel, King’s Cross
94
Pramerica
Crimson Hotels — the hotel will be operated as a DoubleTree by Hilton AXA Real Estate on behalf of the Co- operative Insurance Society
October
The Hesperia London Victoria
212
£55m
Hesperia Hotels
October
IBIS London City
348
£38.35m
Mangrove Securities
Administrators of Ramada Jarvis ( Grant Thornton)
October
Ramada London Heathrow
200
Undisclosed Focus Hotels
November W Hotel development, Leicester Square
192
£200m
Qatari-based Al Faisal Holding Westinvest Gesellschaft Für Investmentfods MBH — sale and leaseback
McAleer & Rushe
November Malmaison hotel in Charterhouse Square 97
£31.5m
MWB Group Holdings
2 hotels (354 rooms)
Morgans Hotel Group/ Walton Street Quintain Estates and Development The Ballymore Group
November Sanderson and St Martins Lane Hotels
£192m
Capital Hill Hotels
November Plaza Hotel, Wembley
306
£15m
Sojourn Hotel Group
November Radisson Edwardian New Providence Wharf 169
£37.5m
Jasminder Singh (Edwardian Group) Woodlon — the hotel will be managed by Rhombus International Hotels Group
Administrators of Hotel Verta and Verta Properties (Ernst & Young) Administrators of Summerpark Homes (Baker Tilly)
December
Hotel Verta
70
Undisclosed
24 serviced apartments
December
Atelier EC1
£11.5m
Mara International
December
The Cromwell Hotel
85
£20m
Unnamed buyer
The Lords Group
Increase in the number of hotel viewings arranged by Christie + Co in 2011 compared with the previous year
Increase in the number of offers received for hotel businesses in 2011 compared with the previous year
21.5%
32.8%
19
2012
Business Outlook
Hotel Transactions 2011 – Regional
Date
Properties / Properties
Total bedrooms
Total sale price Purchaser
Vendor
Howard Hotel, Edinburgh; Channings Hotel, Edinburgh Wellington Hotel, Boscastle
January
59
£9m
Palm Holdings
Town House Company Ltd
January
15
£1.65m
Cornish Coastal Hotels
Paul Roberts
Administrators of Elizabeth Hotels (KPMG)
February Copdock Hotel, Ipswich
76
circa £2m Steve and Jane Denton
February Polurrian Hotel, Cornwall
39
£2.3m
Halcyon Hotels & Resorts
The Barlow family Administrators of Wren’s Hotel Group
Sir Christopher Wren’s House Hotel, Windsor
March
95
circa £13m Sarova Hotels
Administrators of Beetham Hotels Manchester (KPMG) Administrators of Beetham Hotels Liverpool (KPMG) Administrators of Malvern Spa (Baker Tilly) Administrators of Shelleys Hotel (FRP Advisory) RBS
March
Hilton Manchester Deansgate
279
£47.5m
Blue Manchester (Loucas Louca)
March
Radisson Blu Liverpool
194
£12.5m
Blue Liverpool (Loucas Louca)
March
Hilton Brighton Metropole Hotel
328
£39.25m
Topland Group
April
Malvern Hotel & Spa
32
Undisclosed Huw Watson/Helen Rogers
April
Shelleys Hotel, East Sussex
19
Undisclosed Colonnade Hotels
April
No 10 Hotel, Edinburgh White Swan Hotel, Stratford-upon-Avon Pinewood Hotel, Wilmslow
30
£5m
Shanti Hospitality Group
Louise Koch Leonard
April
41
Undisclosed Fuller’s
Pebble Hotels
May
58
£2.25m
Owners of the Castle Green Hotel, Kendal Menzies Hotels
Former Mercure London Gatwick Airport hotel
May
257
£40m
Travelodge and PRUPIM
Arora Hotels
Administrators of Blue Cedars Leisure ( PricewaterhouseCoopers) Administrators of Pedersen Hotels (Grant Thornton) Administrators of Pedersen Hotels (Grant Thornton)
May
Mount Hotel, Wolverhampton
66
£3.8m
Aspen Leisure
May
Winchester Hotel, Winchester
98
Undisclosed Quantum Hotels
June
Crowne Plaza Reading
122
£12.75m
Redefine Hotels Reading
June June
Eaves Hall, Waddington
34
£3m £3m
James Places
Richardson Hotels
Brockencote Hall, Kidderminster
17
Eden Hotel Collection
The Petitjean family
Administrators of the Nottingham Gateway Hotel ( BDO)
June
Nottingham Gateway Hotel
108
£4.5m
Exceptional Hotels and Resorts
Longrose Buccleuch, Hotbed (investor syndicate), Santander Corporate Banking — the hotel will be operated as a DoubleTree by Hilton Cairn Hotel Group — the hotel will be operated as a DoubleTree by Hilton
Administrators of Pedersen Hotels (Grant Thornton)
June
Sheffield Park Hotel, Sheffield
95
£4m
Administrators of Rostock ( Zolfo Cooper)
July
Newcastle Airport Hotel (part-built)
179
£25m
Note: Details of the transactions listed in the tables above are taken from information in the public domain and Christie + Co cannot warrant their accuracy.
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Date
Property / Properties
Total bedrooms
Total sale price Purchaser
Vendor
Crerar Hotels/LaSalle Investment Management
August
Fishers Hotel, Pitlochry
130
£3m
Castle Hotel Group
August
Grand Jersey
123
Undisclosed West Register (Hotels No 2)
Delancey
CIP Property (AIPT) Limited — sale and leaseback Circus Invest – Premier Inn retains management contract
August
Malmaison hotel, Aberdeen
80
£16.1m
MWB Group Holdings
£20.1m for mixed development
Clients of LaSalle Investment Management Matrix Property Management Pre-pack administration (BDO)
August
Premier Inn, Manchester City Centre
228
August August
Swallow Bower Hotel, Manchester
88 88
£1.85m £3.25m
Blue Training
Scarisbrick Hotel, Southport
Britannia Hotels
Blackmore Fund — to be rebranded as Holiday Inn Express managed by Chardon Management Ltd
September Ramada, Crewe
64
Undisclosed
Ramacourt Ltd
September Hilton Glasgow Grosvenor
96
£9.45m £35.7m
Private Investor Topland Group
RBS RBS
September Hilton Glasgow City
319
Administrators of Cube Hotels ( Zolfo Cooper) Administrators of Cube Hotels ( Zolfo Cooper) Administrators of Ramada Jarvis ( Grant Thornton) Administrators of Free Trade Hall Hotels (Grant Thornton) Administrators of von Essen Hotels ( Ernst & Young) Administrators of von Essen Hotels ( Ernst & Young) von Essen Hotels Limited (in administration: Ernst & Young) Administrators of von Essen Hotels ( Ernst & Young) Administrators of von Essen Hotels ( Ernst & Young) Administrators of von Essen Hotels ( Ernst & Young)
September Best Western Salford Hall, Evesham
36
£2.25m
Skylane Limited
October
Best Western West Grange Hotel, Newbury 62
£3m
Hawk Investments
October
Ramada Bristol City
201
Undisclosed Focus Hotels
October
Free Trade Hall Hotel Manchester
263
£37.5m
Jasminder Singh (Edwardian Group)
October
The Samling, Cumbria
11
Undisclosed Private buyer
October
Bishopstrow House, Wiltshire
32
Undisclosed Longleat Enterprises
November Thorn Island, Pembrokeshire
n/a
Undisclosed Kent Mushrooms Limited
2 hotels (36 rooms)
Greenway Hotel & Spa, Cheltenham; The Mount Somerset
November
Undisclosed Eden Hotel Collection
November Homewood Park Hotel & Spa, Bath
21
Undisclosed Longleat Enterprises
December
Callow Hall, Derbyshire
16
Undisclosed Private buyer
Increase in the number of hotel deals completed in 2011 compared with the previous year
9.6%
52%
Of the hotels sold by Christie + Co in 2011 were distressed
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2012
Business Outlook
2011
2005
2006 2007
2008 2009 2010
Public Houses
8.5
6.5
5.2
- 1.1% movement in average prices
Public Houses
-0.9
-11.6
-20.1
Neil Morgan Director and Head of Public Houses
“ Though clouded by the general economic malaise, 2011 has given those of us involved in the sector grounds for optimism.
The estate-rationalisation strategies of some of our major names, the return of entrepreneurs and the
diversification plans of many, make it an exciting time for the sector and for those seeking to invest in it. Whilst pubs continue to be lost to the market, the good news is that more sold pubs are staying as pubs, symptomatic of an increasing appetite for the sector.”
22
Market predictions
04_ The late-night sector will remain extremely challenging 05_ The private freehouse sector will grow by at least 1,000 06_ There will be continued private equity interest in the managed house sector and emerging interest in the tenanted sector
01_ Banks will release further assets to the market 02_ Over 2,000 pubs will be sold by the pub companies 03_ Managed public house stock will continue to be in high demand
2012
As with most years, the broader public house sector experienced highs and lows in terms of trading performance and transactional activity, while a question mark still hovers over the key issues of future investment and funding. However, we can look back on a year that was in part dynamic, in part unnerving – but never dull. Freehouses go ‘boom’, in a good way In the private freehouse sector in 2011, values remained lower than their historic peak – meaning that vendors were disinclined to place their assets on the market. This certainly didn’t prevent the sector growing during the year, as the corporate operators who were engaged in estate rationalisation and disposal activity placed many reasonably-priced pubs on to the market. An encouraging by-product of this was the return to the public house sector of many entrepreneurs who had exited at or about the peak. This is likely to provide for a more competitive and, by extension, higher quality sector.
No tsunami of closures from pubco disposals Whilst the freehouse marketplace continues to benefit from pubco disposals, there were fears that the pub property market was becoming flooded with tenanted pubs. In retrospect those fears, and also the suspicion that this would lead to an escalating rate of pub closures, were largely unfounded. The strategies pursued by the likes of Punch and Admiral Taverns was not the signal for disposals of tsunami proportions, nor of more pubs being sold for development. Instead, what we saw was a steady stream of fairly-priced pub disposals from a number of operators. Enterprise Inns, for instance, disposed of over 400 pubs in 2011 and has plans to dispose of 100 pubs from its high- end estate in 2012. In our experience, where there are good disposals, a better quality of operator follows – both in the freehouse and tenanted sectors. And far from increasing the rate of attrition, there is a real case for believing that more sold pubs are staying as pubs under new ownership. In 2010, some 60 per cent of the pubs sold by Christie + Co from the tenanted pubcos’ churn were bought to remain as pubs. With the quality of proposition that the pubcos are bringing to the marketplace now, not
to mention the volume, that percentage increased to 64 per cent in 2011. Moreover, of those pubs that do close, it is reassuring, to a degree, that many are retained for some form of leisure industry usage, such as restaurants. The pub market is still oversupplied and a further 2,500 – 3,000 pubs need to go over the next two or three years if we are to achieve a sustainable marketplace, bringing choice and quality for customers. And what of the closed pub? Some are serving, and will serve, their communities better through alternative use. For instance, during 2011, Christie + Co sold a pub in Gloucestershire to the local Salvation Army which intends to use the premises to create a safe environment for local youth to meet, share and pursue creative interests. This surely has to be more valuable and healthy to the community than a run-down, under-used pub? Tenanted sector awaits the big deal The market occupied by the pub tenancy companies was largely quiet on the transactional front in 2011 – until Scottish & Newcastle Pub Company’s acquisition of RBS’s Galaxy pub estate was announced in December. RBS was advised by Christie + Co throughout the process.
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23
2012
Business Outlook
Managed sector set for new look In a year where the Punch de-merger of its managed houses to Spirit dominated, managed pubs largely outperformed their leased business contemporaries. One interesting development was the new approach to ‘management’ being adopted by some companies. Amber Taverns, for one, developed a new quasi-managed/franchised operator agreement – one where operators are responsible for the licensed elements of the business and not the property itself. Marston’s has adopted a similar approach which is proving very popular. These models, one assumes, were developed in response to the return to the sector of entrepreneurs, whose flair for the business is being maximised by the new model agreement and not diverted from the primary purpose of the business. Elsewhere, buoyed by reasonable trading performance, managed pub companies, either owned or with the backing of private equity, sought to expand their estates. This is a trend we expect to continue into 2012. Late-night sector hit while high street bars thrive As banks and major pubcos sought to dispose of toxic lease sites in 2011, and the administration of Luminar and its subsidiaries hit the headlines, the late-night sector took a bit of a beating. There were encouraging signs for the high street bar sector, however. Christie + Co’s experience with the likes of the former Barracuda, Cougar Leisure, Walkabout, Yates’s, and Ivory Lounge bars appeared to demonstrate the potential for good businesses being realised under new ownership and management. And this seemed to be mirrored up and down the country. The nature of the traditional high street has changed in recent years as retail moves increasingly to edge-of-town or out-of-town locations, leaving opportunities available for bars to be established. Meanwhile, there appears to be a genuine appetite from both experienced and new local operators. Operators are also using their experience and expertise to renegotiate on leases and rents with the landlords. Many bars can be picked up at nil premium, others will have leases that can be torn up, redrawn or renegotiated. In order to further safeguard their investments, many landlords will also be
prepared to renegotiate on rents, or even offer good, long, rent-free periods, leaving well-advised operators with room to invest in improving the quality of the bar and, by extension, the customer experience. All of which makes for a good deal for landlords, operators and tenants alike. Administrators busy A number of regional pub companies fell by the wayside during the year but the biggest administration was that of Robert Tchenguiz’s R&L Properties portfolio. Christie + Co was instructed to sell almost 200 R&L pubs by the administrators and was immediately met with a genuine appetite from potential investors. Our feeling is that this mirrors the migration towards quality that the sector is undertaking. This example is largely symptomatic of the administrations we saw in 2011 – based less on the trading outlook but more on the way the businesses were geared. Food overtakes wet-led for first time The year was also marked by a major shift in the trade which saw food-led overtaking wet-led pubs in the marketplace. It is surely symptomatic of our economy- dominated times that pub-dining is proving a viable alternative to restaurant dining for consumers and more cost-effective for operators. It’s not a seismic shift, but one worth monitoring as 2012 develops. M&B is leading the way thanks to its powerful brands like Toby Carvery and Harvester. However, Christie + Co is working with The Restaurant Group’s Brunning & Price pub brand to find suitable, characterful properties to extend their brand across the UK from their current north-west-focused operation. In the Budget, apart from the de rigueur tax on strong beers, the Government continued to pursue its local community agenda by offering opportunities and tax breaks for small and start-up businesses. The availability of good quality pub opportunities, along with the tax advantages afforded small businesses, may well encourage yet more local entrepreneurs to see the value in pub businesses – as well as entice more tenants to make the step-up to ownership. Encouragement needs further funding
Much, as always, depends on the lenders to see whether this confidence is misplaced. Early in 2011 the Government announced a deal it struck with big banks – Project Merlin – under which £76 billion was made available to small businesses. Reports of how this pot has been distributed have been confusing and contradictory. And being a target-driven exercise may have meant it missed the point somewhat. Funding remains a big question. Traditional high street lenders have their own damning experiences with ‘toxic’ property, so it is not surprising that they remain somewhat cautious about investment in the public house sector. But with the Project Merlin cash and optimistic noises from some new lenders, we and our sister company Christie Finance can hope that this will inspire a renewed vigour and vitality in the sector. We are, of course, at the mercy of the bigger global financial picture, so making more positive predictions on the availability of funding is going to be a risky business.
11.5%
Increase in the number of offers received for pub businesses in 2011 compared with the previous year
-13.8%
Decrease in the number of pub businesses Christie + Co was instructed to sell in 2011 compared with the previous year
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