Pub Market Afire As Consolidation Picks Up The Pace

Sydney Morning Herald

Wednesday April 26, 2006

Carolyn Cummins Commercial Property Editor

A RECORD number of sales in the NSW pub market has set the sector ablaze, with the total value of deals made or proposed in the past four months already approaching the $173 million mark.

In the year to December 31, 2005, $326.1 million worth of pubs were sold.

Ben Parkinson, CB Richard Ellis associate director, hotels and leisure, expects continued strong activity in 2006, with $122.8 million worth of properties already sold and what is understood to be more than $50 million worth of properties under negotiation off market.

Manenti Quinlan & Associates says in its Hotel Industry 2006 report that accelerating change in the sector will result in more buying and selling opportunities.

It says that "while some industry observers believe the biggest threat to the industry is a rise in interest rates, the only real threat is an increase in gaming tax".

But one deal that is unlikely to take place is a $500 million float by the Laundy family.

The Laundy Group has denied any such deal has been in the offing and, while sources say a float of the family's pub assets could be drawing closer, with suggestions the group has been talking to several parties and advisers, others deny such a possibility is on the cards.

The group was unavailable for comment yesterday.

The speculation of a sale was fuelled by the establishment of the unlisted Grant Samuel Laundy Pub fund last year.

The fund, run by Grant Samuel and Stuart and Craig Laundy, is also backed by the US Fortress Investment Group and recently increased its extensive exposure when it paid $26 million for the Hotel Cremorne on Sydney's North Shore, sold by the Hayson Group of Companies.

Yet for a group said to be selling, it has been an active buyer.

The family, through patriarch Arthur Laundy, recently bought the Charing Cross Hotel at Waverley for $7 million and the Cat and Fiddle Hotel at Balmain for $8.5 million. Last week it exchanged contracts on the Albion Park Hotel for $9.3 million through Mike Wheatley of Knight Frank.

CB Richard Ellis, in its recently released pub MarketView report, said the advent of gaming and the continuing tightening of yields in other retail asset classes had increased the security and appeal of this sector.

The pub market is now in an accelerated consolidation, led by major retailers Coles and Woolworths (the latter via the Bruandwo partnership with Bruce Mathieson), ING Entertainment Fund and a host of syndicators and joint venture partnerships.

Mr Parkinson said the consolidation and corporatisation of the sector had come with an evolution in ownership structure.

"The leasehold market is burgeoning, as lease terms stretch out to 25 years and beyond when only a few years ago 12 to 15-year terms were considered long term," Mr Parkinson said.

The report also found the demand was greatest for pubs with a broad and balanced trade mix or redevelopment potential.

"The high level of demand has resulted in significant increases in capital values over the last three to four years with substantially tighter yields being achieved," he said.

"With these extended lease terms now being offered the leasehold market is more appealing to traditional freehold pub owners, especially in the metropolitan area.

"The regional market is also enjoying the flow-on effects from growth in the metropolitan areas with yields tightening, particularly in larger regional centres."

© 2006 Sydney Morning Herald

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