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On Market - Issue 1 – 2016


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Click here to open the pdf directly.

A comprehensive review in a magazine format with topical and informative articles from both experienced Fleurets staff and from external trade organisations, to inform and advise, including a round up of property availability nationwide, broken down by region and by sector that displays the extent and variety of opportunities on the market.


In this issue:

  • A look at corporate activity across the pub, restaurant and hotel sectors.
  • London single asset transactions.
  • Meet the Operators - We interviewed two of the industries 'leading lights' regarding acquisitions.
  • Gin - Fashion or Fad?
  • Life after EIS - Steve Kenee, partner of Downing and head of the Licensed Sector team explains crowdfunding.
  • Tough times for the industry: Best Western GB offers solutions - Rob Payne, CEO of Best Western Great Britain looks at the challenges within the hospitality industry.
  • What Lies Ahead? - Neil Gerrard from The Caterer takes a look at the next few months.
  • Making Room - Mark Wingett from MCA comments on the UK's coaching inn sector.
  • The Leasehold Pub - The route to success - The benefits of the leasehold option laid out and explained.



Positive Predictions for Pub Sector

Graeme Bunn - Managing Director

I would challenge anyone to look back in 8 months time and say that 2016 was neither a year of change nor a year of progress and opportunity for the pub sector.

I am going to make three, perhaps bold, predictions for the rest of 2016:

1. Jennifer Aniston will eventually accept my dinner date
2. Donald Trump will not become U.S. President
3. 2016 will be viewed as a year of positive change and innovation in the pub sector.

Now perhaps I am going out on a limb for the first two, but I am entirely confident that my third prediction will hold true. With the final stages of the MRO legislation under discussion and introduction imminent, the impact of this legislation is undoubtedly driving strategy of all the large tenanted pub companies. Even the most ardent supporter of the tied pub companies will have admitted that the structure had become one dimensional.

The forthcoming legislation has perhaps forced pub companies to consider much needed alternative operational and ownership structures. The introduction of genuine franchise agreements, free of tie leases, shorter term "taster" agreements with significant flexibility, turnover rent only agreements and longer term agreements without any rent review provisions, provide obvious choice to novice and experienced potential tenants. This is a long way awayfrom the position of the one size fits all full repairing lease of years gone by.

The continued growth of the managed house divisions of the tenanted pub companies should also be welcomed as it will provide such companies with a better understanding of the challenges and opportunities arising from running a public house. Whilst many tenants of good quality pubs, where the unexpired lease term is dwindling in length, will become increasinglynervous as to whether their lease will be renewed; this may lead, particularly in London, to a sharp correction of leasehold values.

At the outset, those campaigning for this legislation were perhaps targeting a more fundamental outcome in relation to the tie. Many commentators warned against the unintended consequences of the legislation - I am entirely optimistic that such consequences will be positive for the pub sector. Although it is perhaps not what Greg Mulholland was hoping to achieve by advocating this legislation, I believe the change it will drive will benefit all, and notjust the few. Whilst much hard work still needs to be done, I would challenge anyone to look back in 8 months time and say that 2016 was neither a year of change nor a year of progress and opportunity for the pub sector.


A look at Corporate Activity

Paul Hardwick - Director & Head of Hotels

It has been an incredibly interesting and active year or so, with changing market dynamics across the leisure property sectors, each with differing characteristics reflective of the ownership and buyer structures. In the pubs sector, we saw continued decline in the sale of individual assets by the major tenanted pub companies, albeit counteracted to a degree by a couple of portfolio transactions. In the managed sector, the trend of strong trading results, increased operator and consumer confidence has fuelled further organic acquisition by expanding multiples. However, most noticeable has been the sustained corporate activity in the managed sectors, for example with Stonegate Pub Company's acquisition of the 53 TattershallCastle sites alongside the 15 Maclay Group sites and, of course, Greene King's acquisition of Spirit.

The restaurant sector has also seen a fair share of action and evolution, with a flow of corporate deals involving many of the high street brands; Côte, Las Iguanas, La Tasca and CAU to name a few. This area of the market continues to be under the watchful eye of privateequity funds, supported by strong trading results, increasing brand confidence, brand awareness and brand loyalty. The sector also demonstrates a seemingly endless ability to develop new brands and secure expansion opportunities.

However, it is arguably the hotel sector which has dominated the headlines in terms of deal volumes. Due to a heavy excess of demand over supply and eye watering London pricing, transactional activity has concentrated on the regions. Whilst a reflection of the rejuvenating private market and individual asset sales, along with the continued expansion of the established and emerging brands through new development, it is predominantly a result of a handful of very significant group deals. Again, private equity and overseas buyers have been major players, albeit supported by trade buyers during recent times.

There has also been a reasonable degree of traditional investment activity at portfolio level, reflecting the growing understanding and acceptance of leisure property as mainstream investment assets. Starboard Hotels acquired 7 hotels in a sale and leaseback transaction with Accor; Mansford Group acquired a package of 23 pubs let to Stonegate; and OLIM Property Limited bought 5 bowling centres for BAE Systems Pension Fund as well as a package of 8 restaurants in a sale and leaseback transaction with Prezzo.

With interest rates continuing at historically low levels, increasing availability of funding from traditional and alternative sources, supported by a trend of improving trading performance, we expect that purchaser appetite will continue, with asset supply met through trade sales, group consolidation and partly through increased liquidity in the private market, as sellers cash in on improving pricing.

The market is not, however, without concern. National Living Wage is a significant challenge, the Market Rent Only option continues to be discussed, fuelling uncertainty to both owners and occupiers in the pub sector and, of course, there is continued uncertainty around the domestic, European and global economies.


London single asset transactions

Andy Frisby - Divisional Director

The trading performance of leisure and hospitality venues operating within Central London is well documented, with strong like-for-like sales growth reported across all sub-sectors of the wider leisure market. Given this backdrop, it is of little surprise that strong demand from operators for new and existing sites has seen the level of asset prices grow steadily and strongly over recent years. The level of rental values is regularly questioned, but are capital values under the same pressure in the capital? One of many quotes attributed to Warren Buffett sums up the thoughts on many. "Only when the tide goes out do you discover who's seen swimming naked." We therefore provide an overview of a number of single asset transactions highlighting key landmark and notable transactions which have recently occurred across all sectors of the Leisure market.

1. Bocconcino, 19 Berkeley Street, Mayfair
- New 25 year lease from 2014 at an initial rent of £380,000 per annum subject to a premium of

2. Sexy Fish, Berkeley Square, Mayfair
- Acquisition by Richard Caring of a former NatWest banking hall on a new lease at an initial rent of £800,000 per annum subject to a premium of £500,000.

3. Five Guys, 5-6 Argyll Street, Oxford Circus
- Leasehold acquisition by Five Guys of the former Cape Town Fish Market in 2014 with an unexpired term of 13 years for £2.6 million.

4. Harp, 47 Chandos Place, Covent Garden
- Purchase of the freehold interest by Fuller Smith & Turner of the iconic Harp for £7.2 million in August 2014.

5. Kingsway Hall Hotel, 66 Great Queen Street, Covent Garden
- 170 bedroom freehold hotel sold by Cola Holdings Ltd in October 2014 for £96m to Shiva Hotels.

6. Ace Hotel, 100 Shoreditch High Street, Shoreditch
- 258 bedroom Ace Hotel acquired by Limulus from Starwood Capital for £150m.

7. Fox & Anchor, 115 Charterhouse Street, Clerkenwell
- Purchased by Young & Co in July 2014 for £4.3 million.

8. The Garrison, 99 Bermondsey Street, Bermondsey
- Purchase of the freehold interest by City Pub Company in May 2015 for £3.5 million.

9. Admiralty, 66 Trafalgar Square, Trafalgar Square
- Acquisition by Fuller Smith & Turner of a new 25 year lease from March 2014 at an initial rent of £300,000 per annum.

10. Five Guys, 9-11 Villiers Street, Charing Cross
- Another acquisition by Five Guys of the former Café Rouge in December 2014 for £1.5 million, subject to a lease with 15 years unexpired.

11. TGI Friday's, 30 Leicester Square, Leicester Square
- Letting of the former Yates' unit on a new lease of 20 years from June 2015 at a rent of £1.8 million per annum.

12. Kings Head, 17 Hogarth Place, Earls Court
- Acquisition of the freehold interest by Fuller Smith & Turner from Faucet Inns in 2014 for £3.5 million.


Meet the Operators

James Davies - Director

In the last 10 years we have watched the pub and bar sector polarise, as we have witnessed fantastic success stories from some of our country's best leisure entrepreneurs; smashing trading records whilst making sure the 'bar' continues to reach new heights.

It is no coincidence that in this time we have seen record numbers of public houses closing down, however despite what the popularist national media would have you believe, it is not all the fault of the 'big bad' pub companies.

We all are only too aware of the huge pressures the average publican has had to endure in this time: an unprecedented number of threats to their business include the smoking ban, declining beer volumes and escalating costs associated with running their businesses.

But, what is often not considered is that we have also seen a huge growth in the number of coffee shops on every high street in the country as well as a much higher number of fast casual dining restaurants, all offering a slightly different service and product with brand consistency, meaning you can go to any one of these coffee shops or restaurant chains and the experience should be replicated.

To compete, the private pub operator has had to up the ante again and there are now independent chains of pubs and bars throughout the country offering exceptional experiences, which once upon a time could only be found in the very best restaurants and West End bars.

The rapid growth of such companies has meant increased competition for a finite number of acquisition opportunities and here we speak to two of the leading lights in our sector who share with us some of their views for current acquisition requirements and future planning.

Sarah Weir - Managing Director, Ruth and Robinson

Do you have a set list of criteria for each potential acquisition?

The criteria very much comes first, but then sometimes you see a site and/or a location and it just works. There is always a balance of 'head and heart' in the judgement. If we didn't do that there would be no new frontiers in locations; Soho House would never have gone into the Meatpacking district of NY.

Would you rather take a shell unit or would you be happy to alter something already in place?

This really comes down to budget. It's always better to signal strongly your new concept from the start. That however doesn't necessarily need lots of money. People, service, standards, music, entertainment, food and drink are all as important as design and capex. Arguably more in some cases.

How far ahead do you plan your acquisitions?

Probably planning about 2 years out now. In London there is a mix of acquisitions and new builds, and for the latter you need to be around a year ahead of completion.

What tips do you have for the next generation of entrepreneurs?

Get as much experience as possible first. Then, when you are ready, do not compromise on anything. Fulfil every one of your dreams, every scrap book and every crazy idea. Be relentless and uncompromising, yet always gracious.

What are the biggest changes you expect to see in the sector in the next 10 years?

Same as the last 10 years. Property prices and availability, the impact of legislation and most importantly finding and keeping great people.


Richard Brown - Director, Pearmain Pubs Ltd

What are the key criteria in assessing a potential acquisition?

It's very much about the feel of a site and its location. We do have a basic criteria, i.e. footprint size, character building, location/demographics, car park, garden etc... Usually we know within minutes of arriving at a site, but one or two have challenged us, but we have learnt from experience over many years.

What should the Government be doing to help the industry?

To pay full taxes on profits from day one despite huge investment seems inappropriate, but it's always been that way. Obviously capital allowances help, but in my view do not go far enough,plus the Government changes them quite often.

How far ahead do you plan your acquisitions?

We aim to open one pub per year, so it is essential we have them in the pipeline, because these projects can take months of design, drawings and feasibility. Also planning consent may be needed, and that takes time, as does the work itself. It is now very difficult to find good sites at the right price.

What impact do you think the Market Rent Only option will have on your business?

It's a bit too soon to be sure of the impact generally, but we do not think it will have any significant effect on our existing group other than maybe less new lease properties on the market. We've been able to grow our business with traditional tied leases, it will be interesting to see how Enterprise and Punch react.

What are the biggest changes you expect to see in the sector in the next 10 years?

More innovation in both food and drink to keep pace with what is going on in the home retail sector, great opportunities for creative operators. For brewers, maintaining sales volume whilst keeping with the pace of change will be tough.


Gin - Fashion or Fad?

Lizzie Hawes - PR Manager

As with most industries, the hospitality sector is not immune to particular products 'trending'. Drinks, themes and locations all come in and out of fashion; and it is always the challenge and concern of operators to predict the future; forecasting whether the current trend is fashion or fad.

Whilst vodka has had its turn and the craft beer scene continues to thrive; the current trend is gin. Earlier this year in March, the Wine and Spirit Trade Association announced that they expected to see gin sales exceeding £1bn in 2017. And since 2010, pubs have seen a 35% increase in the sale of gin, which is now the bestselling spirit. Its success is often attributed to its popularity with the younger generations, however here at Fleurets we have (closely!) monitored gin's upward surge and thus believe gin's popularity to be founded in the spirit's versatility.

Whilst gin is still being appreciated in its most conventional form: a classic G&T; gin lovers have also begun experimenting with other concoctions, for which tea and cucumber have both become popular flavourings. However, the gin scene has also seen some more eccentric interpretations of the old classic. Up until July this year, Londoner's can swap sipping for inhalation at Bompass and Parr's Alcoholic Architecture bar in Borough Market - they describe the installation as 'meteorology and mixology'. Various cocktails bars have also begun offering hot beverages to keep a chilly day at bay. A hot gin toddy has been no exception, and has been met with a warm reception.

As well as occupying permanent residencies, gin has also generated a strong following within the pop-up scene and gin festivals operate across the length and breadth of the country. UK food and drink trends generally materialise in London, but once regional spread has begun, it is difficult to pacify the contagion. In September 2015 Newcastle leisure company Vaulkhard Group (formerly called Fluid Group) opened the doors of Bealim House, having bought the former print works in 2000 and previously operated the premises as a sports bar with food offering. Having paired with award-winning gin specialists, Durham Distillery, the new partnership (named The Newcastle Gin Company) distills their own gin on-site in a 400 litre custom-built still. This evolution is the first of a £4million development supported by NatWest and Sintons, which will be implemented over the next three years, spanning several of thegroup's city centre premises.

Amber Taverns' gin palace brand Hogarths is particularly aptly named, as William Hogarth's famous 1751 painting 'Gin Lane' depicts gin's less salubrious past. Gin's origins lie in medicine, as it was thought to be a cure for both gout and indigestion. However, gin was also the drink of choice for the working classes, as it was cheap. Such vast quantities were consumed, particularly by women, that children were consequently neglected and consumers imprisoned having indebted themselves through consumption. Hogarth's print depicts the inebriated streets of London.

With that, the advice to drink responsibly has perhaps never been so pertinent as the popularity of gin once again soars. And as for Fleurets' conclusion as to fashion or fad - we believe gin is here to stay, although in what form, who can tell...


Life after EIS

Steven Kenee - Partner of Downing and head of the Licensed Sector team.

Raising equity under the Government's Enterprise Investment Scheme ("EIS") has historically been a key source of finance for early stage PubCo's. However, changes to the EIS rules mean that companies that raise equity under the EIS scheme after 18 November 2015 will be prohibited from purchasing businesses. Unfortunately for the sector, the definition of a businessincludes trade and assets and therefore any pub which was trading when it was purchased i.e. the majority of PubCo acquisitions.

Whilst this is clearly a blow to early stage companies, one thing is for sure, young ambitious companies will remain young and ambitious and will find new ways to fund their early stage businesses. So what will fill the void? One obvious candidate is Crowdfunding.

So what is Crowdfunding? Technically speaking Crowdfunding refers to raising finance from a number of individual investors in exchange for shares in your business and/or benefits. Whilst this doesn't have to be carried out on-line, the general assumption is that it is. However, the term is often also used to describe raising debt via a web based platform which is otherwiseknown as Peer to Peer Lending.

Whilst most of the press coverage appears to be focused on companies raising equity, according to Liberum Alti Volume Index UK (as at 16 February 2016), 97% (£5.6bn) of the estimated £5.8bn raised to date in the UK fell under the Peer to Peer Lending category.

Digging behind the headline figures is tricky, however, research by Downing using Crowdsurfer (which collects data from over 700 platforms) and the key words of 'Pub', 'Bar', Brewery','Restaurant', 'Casual' & 'Licensed Sector' has highlighted the following:

- This is a growth area: Whilst £39m was raised in the past three years, £29m was raised in the past 12 months;

- Amounts being raised are small: The average amount raised was just £32k and less than 2% of the total successful funds raised were for more than £250k; and

- The success rate is low: just 39% raising the amount they requested. This falls dramatically as the amount being raised increases. Only 17% of businesses raising more than £250k being successful.

Despite the relatively small amounts being raised and the poor success rate, both Crowdfunding and Peer to Peer Lending make a good fit for the sector. It works for companies as they gain customers/brand advocates as well as investors and it works for investors as people like to invest into businesses they know and (think they) understand.

It may be a cheaper source of finance as companies can set higher business valuations or lower interest rates than a professional investor would accept. It also avoids the time consuming pre-investment due diligence, the ongoing post investment oversight and the rights and protections professional investors are likely to insist upon.

However, whilst easier, cheaper funding may sound like a good thing, the truth is not as simple. Professional investors carry out due diligence and insist upon protections/oversight for a reason. As well as ensuring investors get the return they are entitled to, they are designed to protect companies from taking on unsustainable amounts of debt and from promising returns they cannot deliver. If one of the advantages of Crowdfunding is gaining customers/brand advocates, then one of the dangers is leaving them feeling short changed or oversold.

This lack of oversight and/or proper disclosure has led many commentators to conclude that it is only a matter of time before the bad news stories start to appear. Indeed, former City regulator Adair Turner has recently been quoted as saying 'losses which will emerge from peer-topeer lending over the next 5 to 10 years will make the bankers look like lending geniuses'!

Finally a lot of time, effort and cost is involved in putting a Crowdfunding pitch together and answering potential investors queries. This is, by definition, a very public process and one with no guarantee of success.

Despite the issues above, we believe that Crowdfunding/Peer to Peer Lending is here to stay. Generation X and Y are growing up using the internet for everything from shopping to their social lives and we expect this to transpose to how they manage their investments. However, we also believe that in order for it to thrive, it needs to grow up and become more professionalised, otherwise the benefits could be overshadowed by the failures...

'Important notice: This article is for information only. Opinions expressed in this document represent the views of the author at the time of publication, are subject to change, and should not be interpreted as investment advice. Downing LLP shall have no liability arising for any error, inaccuracy or incompleteness of fact or opinion in this article. '


Hard times for the industry: Best Western GB offers solutions

Rob Payne - CEO of Best Western Great Britain and Beacon, Britain's leading purchasing

Tourism is one of the largest contributors to the UK economy, a multibillion pound performer year after year. Yet I think the tourism and hospitality industries are faced with some key issues that will continue to affect them significantly in the future, with little intervention or support from the Government.

One of the biggest issues for our industry, and most topical is the National Living Wage (NLW), which has the potential to damage the image of British tourism worldwide. From a recent survey of the hotels we represent, 90% said they might have to increase their prices to mitigate against costs incurred by the NLW.

The Office of Budget Responsibility predicted that 60,000 jobs would be lost as a result of the introduction of the NLW. While we are all in favour of a fair wage for everyone, I think that it will be small and medium-sized enterprises (SMEs) that will pay the highest price for the introduction of the NLW, with those job losses disproportionately distributed amongst our industry.

Our sister company, Beacon, helps our members with professional procurement to relieve the pressure on margins and secure global economies of scale. We have seen businesses that are heavily dependent upon people for production and distribution pass on the cost of the NLW in their goods to our customer base. My worry is for those smaller independent businesses that do not have the security of being part of a collective like ours.

With that in mind we are calling on the Government to look again at ways in which it can help ease pressure on our industry.

We are one of only three countries in Europe who don't have a lower VAT for tourism; a reduction in Tourism VAT would bring us in line with our competition. The Cut Tourism VAT campaign group have said this would create 120,000 new jobs and add £3.9bn into the treasury.

Another key issue for our industry is the disruption in the online distribution space and a huge worry to Best Western's members is that amongst this online disruption and dominance is Rate Parity. Rate Parity has been banned in France, Italy and Germany and it is about time it was addressed here too. Best Western GB is working with the British Hospitality Association (BHA) to ensure that this issue is at the forefront of the Government's mind.

The third issue I am particularly passionate about is making the hospitality industry a first choice career for school leavers and graduates. With more governmental support and industry buy in, we believe that we can address the skills deficit within the hospitality industry, as well as attract and support quality employees. One way of attracting more young people into hospitality will be through the wider promotion and implementation of apprentice schemes. Apprenticeships can have a positive impact on our industry; indeed, as a result of the NLW and other financial pressures, more than 80% of our member hotels said they would reconsider their recruitment strategies, including employing more apprentices.

We know that every one of these pressures has a personal impact on our hotels, and withoutmore support, the landscape of Great British hotels could change dramatically over the next 12 months. To find out more about how you can support industrybacked campaigns visit or contact


What Lies Ahead?

Neil Gerrard - Associate Editor, The Caterer

Trying to predict the future is supposedly a mug's game, but in the increasingly competitive world of hospitality nor is ignorance likely to be bliss.

And while we at The Caterer like to try and avoid being branded mugs, we also try to remain alive to both the opportunities and some of the obstacles that may face restaurant, hotel and foodservice business operators.

So, after a couple of years during which we have enjoyed some more positive economic news, what lies ahead for the hospitality sector?

We started the year with news that eating out in restaurants still appears to be in good health, and openings continued apace in the run-up to Christmas, both in and outside of London and the south east.

There was a raft of information from operators like Fuller's, Marston's, Loungers, and Oakman Inns and Restaurants, among others, that suggested that it was a positive Christmas and New Year period in the hospitality sector (although of course, those who had a less fruitful festive period are probably less inclined to shout about it).

Even the wet weather, which hurt some retail businesses, didn't seem to dampen the public's enthusiasm for eating out, which they did more often, but spending slightly less on each occasion than they did a year before.

But all that glistens is not gold and there are now some notes of caution.

Restaurant trends analysts Horizons predicted that overcapacity in the market due to several years of rapid growth, particularly among the bigger groups, means that growth in eating out will be constrained over the longer term.

The industry has also recently seen the introduction of the National Living Wage, and there is of course still concern among many about the effect it will have on some operators, particularly independents.

Meanwhile, there was a flurry of deals in the hotel sector at the end of 2015 with Accor Hotels paying £2bn for the luxury Fairmont, Raffles and Swissotel brands. The tug of war to gain control of Starwood Hotels & Resorts has resolved as the merger of Marriott International and Starwood Hotels & Resorts has been approved by shareholders of both companies.

Consolidation is expected to continue throughout 2016 as several international hotel groups jockey for position, with IHG expected to try and reassert its dominance with an acquisition.

On a national level, there have been some local shocks to the market such as the Paris terror attacks which pushed down London hotel occupancy in its aftermath, or the flooding in Cumbria, Lancashire, and Scotland, and the continued fall in oil prices which is wreaking havoc in the Aberdeen hotel market.

In spite of all of the above, the picture still looks positive for UK hospitality, particularly in the regions where much of the growth is taking place, and a continuation of food price deflation in 2016 should at least provide some respite for hoteliers and restaurateurs alike. We mustn't take continued food price deflation for granted, of course. One interesting side effect of a decision to leave the EU (and a worrying one, especially if you are a restaurateur or caterer) could be a marked weakening of Sterling. Obviously, the effects of a decision to leave wouldonly be felt over the longer term, but it could eventually lead to a ramping up of food inflation again, which, combined with increasing labour costs could spell trouble for operators.

So there are reasons to be cheerful, but also some potential pitfalls that the market will need to remain vigilant of. As ever, of course, the operators who demonstrate the highest levels of quality - whether that is quality of service or food - coupled with an offer that represents value for money, will be the ones who endure.


Making Room

Mark Wingett - Editor, MCA

The UK's coaching inn sector is on the rise again, helped by new investment and improving market conditions, with a number of fledgling groups set to take advantage.

According to the latest sector research regional hotel occupancies have climbed back into the 70s since 2011 and have been creeping up since then, hitting 75% in 2014. It's forecast for 2016 that 77% would be the highest on record. At the same time, research late last year by Barclays showed that 77% of British adults have been on or are planning a staycation, with the combined spend estimated at £22.5bn every year. It found that the number of UK small businesses catering for accommodation and food services has risen 17% since 2009 as appetite for staycations rises.

The Barclays data reveals an average spend of £575 per party with men spending over 5% more than women, while those over 55+ budget £619 on average and are most likely to go away in September than any other month. The seaside is the most popular type of staycation with 20 million or 52% heading to be beside the sea, followed by country breaks (45%).

It is no surprise then that new investment has entered the sector. Last January, the Coaching Inn Group, the Kevin Charity-led, Andrew Guy-chaired business, secured a £20m investment from the Commer Group. That was followed by a further £4.5m secured from the Business Growth Fund as it seeks to double in size by 2020.

When the then seven-strong group received backing from the Commer Group last January it set out its target of doubling in size by 2020. Having added three sites during 2015, the group is now planning six more acquisitions this year. Finance director Ed Walsh said: "We believe the ability to consolidate the coaching inn market could create a very big business. It could be very much a national play. It depends on how viable group acquisitions are versus individual sites. Our geography at the moment is quite broad and there are plenty of infill opportunities but we are certainly interested in pushing south."

Competition for that growth will come from operators such as the Inn Collection, Cirrus Inns and Draco Pub Company. The Inn Collection, the north-east based coaching inn operator backed by Kings Park Capital, has recently been given permission to build its sixth site. Rob Greacen, managing director of Draco Pub Co, says that the group's recent £4m refinancing deal will allow it to ramp up its expansion plans - with a deal close on its fourth site. The Somerset-based coaching inn operator has struck a deal with Barclays and Greacen said this would be combined with existing growth funds, as the group seeks to grow to 10 sites. Greacen said he was keen to focus on pubs with rooms because "the accommodation feeds other areas of the business".

Cirrus Inns, the investment vehicle launched to back a premium estate of freehold pubs with rooms, has recently secured a further two sites, as its looks to ramp up its expansion plans over the next two years. The 15-strong company raised a further £15m toward its continued expansion in 2014. The group, which is led by Alex Langlands Pearse (Langy), raised the funding via its existing shareholders. The group, which operates sites including the iconic The Punchbowl in London's Mayfair and the Yew Tree Inn in Berkshire, had spent the previous 12 months strengthening its operations team and enhancing the offer across its estate as it gears up for further expansion. It is thought that the group is aiming to eventually invest in up to 35 pubs and has already built up a database of "talented" entrepreneurs to work with.

Not that these fledgling operators will have it all their own way, with established group's such as Fuller's, Young's, Star Pubs & Bars and Thwaites all expressing their desire to ramp up the accommodations sides of their businesses. Will there be room for everyone?


Investments - Long lease terms lure investors

Graeme Bunn - Managing Director

The Public House investment market has historically been the Cinderella of the wider commercial property investment market with fewer transactions. However, the growth of leasehold estates on long, institutionally acceptable terms and the increasing appetite of operators to undertake sale and leaseback transactions has seen the pub investment sector become a key and active component of the market. Critically, investors are attracted to the sector by the often long unexpired lease terms available, many of which provide for index linked rental growth. This has been evidenced by much of the recent transactional activity.

In January 2016 Marstons completed the latest of a series of "income strip" transactions on a seven-strong package of new build pubs for £25.32m with Legal & General, representing a net initial yield of 4.15%. The pubs are located across the north of England and the Midlands, and include new build sites in Chepstow, Telford, Chesterfield and Middlesbrough. Perhaps most interesting is the movement in yield across the various transactions which has seen the yield harden from 5.6% in 2012 when the first transaction was completed, to 4.6% in 2014 when the third deal was completed to 4.15% in the most recent sale.

Also in January 2016 TDR Capital completed a swift sale & leaseback from the newly acquired Tattershall Castle Estate. The three pubs located in prime central London locations was offered subject to new 25 year leases with five yearly capped and collared RPI reviews of 1% & 3% to the Stonegate Pub Company Ltd. The pubs, St James Tavern - Piccadilly Circus, Admiral Duncan - Old Compton Street, and the Duke of Wellington - Wardour Street were sold to CBRE Investors at a reported net initial yield of 3.5%.

In March 2015 OLIM Property Ltd acquired seven freehold pubs let to Stonegate Pub Company or its subsidiaries for £9.7 million equating to a net initial yield of 7.53%. In May 2015 Blackstone sold three separate portfolios of central London pubs, comprising 23 pubs, for £51.8m. All pubs were let to Enterprise Inns until 2046. 7 pubs were sold to LaSalle Investment Management for £17.3m, reflecting 4.1% net yield. 8 pubs were sold to Harmsworth Pension Fund Trustees for £17.4m, reflecting 4.4% net yield, and a further 8 pubs were sold to a private individual client for £17.6m. All of these transactions contained RPI linked rent reviews.

The trend of strong appetite from a range of investors including major pension funds and property companies is set to continue throughout 2016, regardless of the uncertainty created by the wider political events in the UK, EU and beyond.


Hotels - High Expectations

Will Thomas - Senior Associate

A late flurry of activity in 2015 has meant transaction volumes within the hotel sector exceeded both 2014's post recession peak and also the levels achieved in 2006. Activity in the regions has dominated the market, with portfolio activity leading the way. Overseas buyers have been key participants, particularly US private equity and Asia Pacific and Middle Eastern investors. A shortage of Central London stock, combined with high pricing means that buyer activity is likely to be displaced,increasing the focus on the regions further.

Growing demand for regional stock is in turn applying downward pressure on property yields and increasing hotel pricing, alongside which is the ongoing strengthening of regional hotels performance, benefitting sellers at the expense of buyers.

Key performance statistics (supplied by STR Global Limited) for Greater London suggested that hotel occupancy has declined and although room rate has shown improvement, RevPar growth has slowed. Conversely, the statistics reflect a strong regional hotel performance, occupancy having improved substantially over the last few years, room rates and RevPar showing above inflationary growth.

This renewed strength and confidence in the regional market has led to some hotel owners hoarding assets in anticipation of further yield compression, alternatively seeking to dispose of hotels with inflated price expectations. It is certainly the case that the market has improved, performance is growing and values have generally increased, however, the key to achieving a sale at the right price in the optimum timeframe is proper pricing at the outset. Whilst it is human nature to seek to make the most of an opportunity, excessive pricing typically leads to a prolonged marketing period, potentially a stagnated marketing process and alienating prospective purchasers.

Unfortunately, the current market conditions can readily be used by agents to secure sales instructions by providing sellers with price guidance they want to hear rather than what they should hear.


Restaurants - A steak in the future

Rosie Hallam - Senior Surveyor

Another year of strong M&A activity has seen 2016 continue in the same vein as the previous 12 months, with the private equity houses in particular competing to secure the best deals on some key restaurant groups, including Prezzo, Côte and Las Iguanas to name but a few.

After two years with the focus on the larger, more established brands, this year has begun with some of the smaller emerging brands taking centre stage and proving an equally attractive proposition to investors. Perhaps after such a flurry of top tier transactions, this is only to be expected and reflects the burgeoning growth and quality of new operators that have emerged in this vibrant restaurant sector.

These transactions have primarily taken the form of minority stake acquisitions; Business Growth Fund's £6.4m investment in the 13 strong Giggling Squid; Livingbridge's £9.8m investment in the regionally based Le Bistrot Pierre; and Active Private Equity's £7m investment in Honest Burgers in return for a 50% stake.

Deals of this structure provide the financial means for these still emerging companies to have the financial muscle and opportunity to roll out their brands and achieve a wider market presence. At the same time it enables the principal founders to retain a degree of control over the concepts they have created, ensuring they can continue to influence its direction and evolution.

Stakes of a different kind have also been in the headlines over the past 12 months as the taste for steak restaurants continues to whet the consumer's appetite. Within the London market lace especially, the range and number of steak restaurants is staggering, ranging from the affordable casual dining realm to high end fine dining; whether it is Flat Iron or Gaucho, Meat & Co or M Restaurants; the choice is yours.

A personal favourite of mine, Flat Iron has firmly established itself as a quality, niche player in the casual dining sector. From its humble beginnings in it's small but popular Beak Street site, here people often queue out the door for their £10 steak and salad, to its newest and largest site to date in Covent Garden's Henrietta Street, it's a brand that has hit a cord with London diners, making steak accessible and affordable to all and is a brand that looks set to stay the course. Hawksmoor have equally established themselves as a key brand in the sector and having proved themselves in the capital, have now ventured north to Manchester to tap into this northern stronghold, with the next stop New York, where they intend to open at the new World Trade Centre in 2017.

At the same time as Hawksmoor have committed to venture across the pond to try and establish itself in the US market, the US based steak chain Smith and Wollensky, is now seeking to spread its presence further internationally following its recent acquisition by Irish private equity firm, Danu Investment Partners. Smith and Wollensky have already put down a marker in the UK, opening their flagship London site in June 2015 with a 12,000sq ft unit in the Adelphi Building near Charing Cross.

Another new entrant into the sector, M Restaurants, has been marked out as one to watch. Martin Williams' first site in the City set a clear marker, through sheer size alone, that he was here to make an impact, not only on the steak restaurant sector but on service and style, making interaction with his guests a core part of his strategy.

But whilst a number of the newer steak restaurant concepts have been hitting the headlines in recent years, Gaucho has been quietly maintaining its position as a sought after destination restaurant. Being one of the first high end steak restaurants it is something of an institution, renowned for its high levels of service, consistency and quality of staff, let alone the quality of its steak! Not since 2007 has the restaurant press really been talking about the group.

Following an aborted IPO the decision was taken to undertake a management buy out instead, backed by Intermediate Capital Group. This deal was one of the last key restaurant group transactions to take place before the recession arrived.

Fast forward to January 2016 and Gaucho, this time along with its casual dining sister brand, CAU, has once more returned to the headlines with Equistone Partners acquiring the group. As it stands today Gaucho is now 14 strong (up from 11 in 2007), with sites across London as well as Leeds and Manchester and CAU, only established in 2010, boasts 19 units, predominantly regionally based in the likes of Guildford and Cambridge.

With renewed uncertainty in the wider world economy, and hot on the heels of several years of strong M&A activity, one has to hope that the recent sale of Gaucho will not be a portent of things to come.


Pubs - Pub Closures - Target the real cause

Simon Hall - Director & Head of Agency

It's not as simple as blaming the 'nasty' 'Pub Co' for the number of pub closures in the last decade. It is much more to do with the economic principles of price and demand.

As a population we go to the pub less often than we used too. Why? Well there are many factors that are involved but I would point to 3 main reasons.

Firstly, many of the pub closures have been in the old industrial areas; particularly the Midlands and the North. With the demise of heavy industry, customer demand for wet led pubs has fallen. As a result many have now become uneconomic and have inevitably closed never to open again.

Secondly it is the increasing price differential between on-sale and off-sales. Supermarkets sell alcohol at a much lower price than pubs. The increased cost of complying with legislation, the elimination of business rates relief, the national living wage and particularly the penal duty escalator, have all hit pub sales significantly, requiring an increase in retail price and a reduction in demand for on-sales.

Thirdly, the continuous attacks from the health lobby have seeped into the public psyche, creating an aura of guilt around having a few pints or glasses of wine, further reducing demand.

These are the main causes of pub closures, and these second two points should be the targets for CAMRA and all those who love our pub industry. After all you can't blame pub owners for selling their properties to the highest bidder. Would we all be so quick to sell our homes for 10% less than we could get because there is a shortage of affordable homes in the community? I suspect not.

Even with stable demand don't expect pub numbers to remain static. The managed pub companies are doing a great job in investing millions in fantastic new large pubs fit for the 21st century. Each new super pub might trade at £40,000 per week, satisfying a good amount of demand and leaving less for the typical community operator, thereby pushing them closer to the edge of viability.

So numbers will fall as big replaces small. Also the next generation of potential pub users are not growing up with the same pub orientated outlook and will demand different things from their licensed operations, leaving many older traditional outlets unable to meet changing needs.

Like King Canute we can't stop the world changing, but to slow it down we should target the right causes of Pub closures.


Leisure - A new cinema experience for every man

James Davies - Director

I have loved going to the cinema since I was a child and I am old and grey enough to remember watching The Empire Strikes Back and E.T in my local cinema, probably in the company of several litres of Coke and half a tonne of popcorn. Whilst I rarely go to the cinema these days I still look forward to it with similar enthusiasm and still purchase the same fizzy drink and popcorn! This all changed a few weeks ago when I had my first experience of an Everyman Cinema...

In 2016 we consumers have such an enormous choice of how and where we watch a film; whether it be in our living rooms on T.V.s, laptops, iPads and now even smart phones are large enough. With so many choices it is perhaps more important than ever that the effort and cost of visiting a cinema should be rewarded with an even better experience.

A number of smaller independant operators have entered the market in recent years and a great example is Everyman Cinema. It is a small but rapidly expanding company who have introduced a cold and hot food menu together with alcoholic drinks. These can be served to you while you watch your chosen film on your choice of either a comfy sofa or armchair.

This 21st century cinema experience creates a new challenge to the established national
operators so it will be be interesting to see how they respond...