Red Hot, and No Buffeting Yet
December 19, 2013
Mark Sheehan rounds up an extremely busy year’s activity at Coffer Corporate Leisure, exclusively for Peach Report, and predicts 2014 will start just as busy.
This time last year I wrote that We have transacted more than £100m of property in the pub and restaurant sectors during the past 12 months and expect the next 12 months to be busier.
Little did I know when penning those lines what a transformation the leisure market was about to undergo.
The scale and size of change we have seen – certainly in the last few months – has been tremendous. The year has seen confidence return to the market on a scale we havent seen since 2008; transactions levels hitting a new high; and a growing hunger from investors for leisure businesses as well as leisure property.
These changes reflect the findings of the first ever Leisure Property Investment Survey, which we published in February, where 96% of those asked intending to increase or maintain their exposure to leisure property going forward.
We have worked on some of the years biggest corporate deals, many of which simply would not have been possible before now. These include TDR Capitals acquisition of 91-strong health club group David Lloyd Leisure in September for circa £750m; Lloyds Banking Groups acquisition of 69% stake in D&D London in April; and the acquisition of two managed house pub portfolios during the summer.
Private Equity love roll outs and catering. Weve seen many funds active including CPBE acquiring of Cote, Hutton Collins purchase of Byron, Risk Capital acquiring a stake in Red Hot Buffet and Bowmark with Drake and Morgan. Thats not all. Graphite with Hawksmoor, BGF with Camino and Calculus investing in Benitos Hat were all 2013 investments.
These strategic purchases are symptomatic of the market cycle, with the new owners ensuring they are ideally placed to roll out and expand the chain as soon as the market is in a position for them to do so. This is particularly evident with Cote and Byron which have announced numerous new sites between them since acquisition.
Supermarket giant Tesco really set the market alight though with its £48.6m purchase of Giraffe. It intends to open restaurants under the well-known brand at its outlets to boost sales and attract more shoppers – something no supermarket has ever done before.
We have also seen the return of IPOs to the leisure sector. Everyman Cinema and Merlin Entertainments have successfully floated . We predict that several of those companies referred to above will see exits for their new owners through IPOs – some surprisingly soon. At the time of writing Centre Parcs is mooted as the next such opportunity.
Although trading remains tough for the licensed sector, which has led to some high profile failures – most recently the collapse of Bramwell Pub Company – the rump of which was subsequently snapped up by Stonegate – many of the large pub companies continue to perform well. In addition, we have seen the emergence of fledging pub companies taking advantage of the gaps that these failed groups have left in the market.
There is also a re-emergence of sale and leasebacks and we have completed one such deal on well-known Soho pub, Comptons, in November. This transaction yet again demonstrates very strong prices at low yields being paid for Central London property. Now may be the team to sell trophy assets before interest rate rises push prime yields up.
Increased confidence and activity has led to a rise in value for both individual assets and groups. We have advised on over £200 million of leisure property investments both within London and in the regions – twice what we achieved last year.
Transactions have been in restaurants, pubs live music venues, leisure parks and health clubs. Buyers like the long term nature of leisure. Long leases without breaks are hard to find in other sectors and structural changes in the way people shop and work means that property invests are nervous about other traditionally attractive sectors.
So what next for the leisure market?
The leisure markets recovery appears to be running about six months ahead of the UKs economy. Where the Bank of England announced that the recovery has taken hold in November, we were seeing signs and completing deals on a new level back in the summer. As the UK continues to bounce back and the economy continues to grow I believe we will continue to see sign of improvement with prices and values increasing.
There will however come a tipping point where prices and yields need to rebalance themselves. As I write this, I have no idea how long this strong market will last but it seems to me the first few months of 2014 is going to be busy.