Christie & Co Feb 2010 Newsletter by PAD Financial

“2009 was another difﬁcult year in the business property sector, but one that also provided a number of encouraging highlights.”

DAVID RUGG PAGE 2

Business Outlook 2010 M A R K E T

I N T E L L I G E N C E

Analysis of the movement in average prices Having inspected almost 15,000 businesses for sale or valuation purposes during 2009, Christie + Co is well placed to report on sector trends and prospects for 2010. We publish average price indices annually and have done so since the 1970s, but credible evidence of business values is never more eagerly sought than in financially challenging times. That’s why we believe our analysis of value movements – coupled with our experts' considered views on what creates long-term value – will help to inform and influence the market in 2010. This year we have not only published average value movements for each of our sectors in 2009, we have also measured the change in values since the markets peaked. Analysing our own transactional data, we identified the peak in average prices, which occurred at a slightly different point in each sector – typically towards the end of 2007 – and calculated the overall reduction since then.

International Managing Director Christie + Co’s Bank Support and Business Recovery team has worked with a growing

HOTELS

PARK INN ATTRACTS £1 BILLION WORTH OF FUNDED OFFERS

Hotels -34% Public Houses -29% Restaurants -30% Care -26% Retail -16%

list of clients over the last 12 months to reduce liability and enhance asset value. The team assisted with more than 350 distress cases in 2009, involving over 1,600 assets.

Chris Day

2 0 0 9

Although we have successfully handled a number of disposal programmes, our specialists are also able to recognise distress at an early stage — providing practical

PUBLIC HOUSES

advice before asset sales become the only option. The operational experience of members of our consultancy team enables them to provide options appraisals to help identify the best possible solutions for stakeholders. We are geared up to provide further assistance to banks and faltering businesses as additional cases emerge in 2010.

RESTAURANTS

Dempster and A.J Davison of Ernst & Young, Joint Administrators for W G Mitchell (Guernsey) No.10 Limited, Christie + Co sold the Park Inn London, Russell Square to Crimson Hotels Group, the privately-owned,

UK-based hotel company, for an undisclosed sum. We accompanied more than 50 formal tours of the hotel in just over a month, culminating in a multi-stage competitive bidding process, which attracted a combined £1 billion-worth of funded offers.

Retail sector overview

Hotel sector overview

by Tony Evans

by Jeremy Hill

Page 23

LEISURE

Page 5

CARE

RETAIL

Business Outlook 2010 Market Intelligence 2009

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FQR disposals attract large number of bidders

Christie + Co was appointed by Richard Fleming, Mick McLoughlin and Ian Corﬁeld of KPMG, Joint Administrators of First Quench Retailing (FQR) Limited, to advise on the disposal of approximately 750 former First Quench stores.

First Quench, which was placed into administration in October, operated circa 1,200 stores under the well-known Threshers, The Local, Wine Rack, Bottoms Up, Victoria Wine and Haddows brands, located across England,

Scotland and Wales. After marketing the properties for just a week, we received in excess of 1,000 offers. As Business Outlook went to press, we had been instructed to market a further 470 stores from the former FQR estate.

Chairman's Overview David Rugg Overview

Tough trading conditions

2009 was another difficult year in the business property sector — a year that many were relieved to leave behind — but one that also provided a number of encouraging highlights. Transactional activity, which dropped from a frenetic peak in 2007, to a relative trickle at the end of 2008, finally found its base level during 2009, as buyers tentatively moved back into the market. The volume of single asset transactions was reasonably steady and frequent across all our offices, although funding and due diligence issues lengthened the process. Well priced businesses — from corporate disposal programmes in particular — were keenly sought-after, despite all the negative reports from the financial sector. deals tailed off, there was always a steady stream of underlying activity, which was created by vendors’ requirement to sell. Analysis of our own transactions identified the main motivations behind the sale of individual businesses in 2009, which demonstrate that there is little likelihood of current transaction volumes declining. One of the main motivations behind the sale of individual businesses in 2009 was retirement, although this was closely followed by financial necessity. Other reasons on the list included ill health, death and divorce. Although we recognise that these reasons are somewhat gloomy, they are driving factors, which will not disappear.

Although trading conditions proved tough in almost all our specialist sectors, operators successfully mitigated losses by focusing on reducing costs and providing value for money goods and services. Not all businesses were fortunate enough to survive the year, but the profusion of administrations that many industry commentators predicted for 2009 did not materialise. It is worth noting that most of the business failures in our sectors were due to over leveraging, or unsustainable rent commitments, rather than as a result of poor trading. Many of the acquisitions that were made in the ﬁnal phase of the bull market were based on strong levels of trade and were highly leveraged. Whilst these trading levels may Although there were some slight variances across our have been sustainable across the previous decade, sectors, the peaks in our markets generally occurred they unfortunately weren’t stress-tested against the towards the end of 2007. The heady prices achieved at realities of a recession. this point are fortunately beginning to fade in vendors' Christie + Co’s Bank Support and Business Recovery memory and reality is ﬁnally kicking in. There are team was busy throughout the year, providing encouraging signs that transactional activity is picking practical advice to help reorganise businesses and up, as normality gradually returns. Values are now alleviate distress. Where necessary, we also undertook much lower than they were at the peak of the market, disposal programmes on behalf of administrators. but this will drive buyer interest and ultimately restore During the year, the team handled more than 350 transaction volumes. distress cases, involving over 1,600 assets.

Reality kicks in

Steady transactional activity In a buoyant market, transactional activity is driven by acquisitive organisations and by vendors’ desire to take advantage of the prices achievable. As we discovered in the last recession, when corporate

Changing buyer profiles The profile of buyers also changed in 2009, as the large corporates curbed their acquisition strategies in order to focus on improving operating efficiencies. The absence of corporate buyers was common across all our specialist sectors, with just 5% of the

individual businesses we sold last year moving into corporate ownership. Independent buyers positively welcomed opportunities to acquire properties that were previously beyond their reach. Our own buyer analysis told us that approximately 66% of the properties we sold during 2009 were acquired by experienced operators. It is also encouraging to note that ﬁrst-time buyers still accounted for around 34% of the transactions we analysed — demonstrating that there is still plenty of conﬁdence in our markets. The distress sales that came through to the market generated a large volume of enquiries throughout the year. We frequently witnessed competitive bidding for assets that were perceived as bargains — simply because they were in the hands of administrators.

Corporate disposals drive demand The large corporates, which were acquisitive when the market was buoyant — particularly in the pub sector — drove activity from a completely different perspective in 2009. Having grown their estates at the height of the market, they were keen to ofﬂoad large numbers of sites during 2009, in order to generate cash and reduce debt. Corporate disposals created large peaks in transactional activity, as bidders quickly emerged to seize the best sites. Our marketing intelligence told us that the number of potential buyers almost doubled when corporate disposal programmes were launched, with large peaks in website registrations and viewing activity.

Business Outlook 2010 Market Intelligence 2009

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Occupancy levels and customer numbers were undoubtedly boosted by the many value deals in 2009, but it will be interesting to see how businesses manage to re-establish their prices in the long-term, now that customer expectations have been set.

Christie + Co Price Indices Index based on average sale prices (from a base of 100 in 1975)

What will 2010 bring?

1975

2004

2005

2006

2007

2008

2009

Hotels

100

771

854

966

1025

837

674

Public Houses

100

822

865

939

1000

884

706

Restaurants

100

865

906

950

1026

873

715

Care

100

677

775

910

1021

849

755

Retail

100

865

933

988

1043

975

880

Average Index

100

863

973

1021

1099

981

823

Retail Price Index

100

484

497

516

538

554

550

House Price Index

100

1411

1458

1598

1708

1471

1511

Ownership changes The ownership structure noticeably shifted in some markets, as independent operators bought sites out of corporate ownership. The structure of the pub market was particularly subject to change, as pub companies ofﬂoaded assets — back into a privately-owned freehouse market that spent the previous ten years shrinking rapidly. Although some of the properties we marketed on behalf of administrators were acquired by buyers with an alternative use agenda — who wished to move them into a completely different area of the property market — the majority were sold to experienced operators who were conﬁdent in their ability to breathe new life into them and retain their existing use. It is reassuring to know that a growing number of businesses are owner-operated — and that these owners will be actively involved in captaining businesses out of the recession. Big business ownership structures were also subject to change during 2009, as we witnessed a large number of debt for equity conversions and a move away from the once popular PropCo/OpCo splits. Bankers, who previously had no detailed knowledge of the hospitality, care, leisure and retail sectors are suddenly taking an active interest in issues, trends and prospects, as they assist ailing businesses. Christie + Co’s Bank Support and Business Recovery team is aiding this education process, providing specialist advice and sector intelligence. The fact that our specialist sector teams comprise not only property experts, but also consultants with trading experience, puts us in a unique position to do so.

Movement in property values Christie + Co’s average price indices, which are based on analysis of our own transactions for the year as a whole, show a reduction in average business property values across all our sectors in 2009. Values within the hotel sector reduced by 19.5%, whilst in the pub and restaurant sectors, they reduced by 20.1% and 18.1% respectively. The care sector reported a negative value movement of 11%, whilst the retail sector recorded a reduction of 9.8%. This year, we thought it would also be helpful to provide average value falls from the peak of the market, to illustrate the full impact of the recession. Since hotel values reached their peak in the third

quarter of 2007, our analysis tells us that they have fallen by approximately 34% overall. Values in the pub and restaurant sectors peaked in the ﬁnal quarter of 2007 and in the ﬁrst quarter of 2008 respectively. They have since fallen by 29% in the pub sector and by 30% in the restaurant sector. In the care sector, the peak in average values occurred in the third quarter of 2007 and they have fallen by 26% overall. Finally, values in the retail sector also peaked in the last quarter of 2007 and have subsequently fallen by 16%.

A rise in value consciousness Value consciousness was one of the big themes in 2009. Buyers sought exceptional value deals — regardless of whether they were purchasing pizza, overnight stays or the businesses themselves. Promotional offers were profuse, as business owners sought to boost customer numbers or maintain occupancy levels. Budget hotel operators and takeaway restaurants were expected to grow market share as customers traded down. Although there was growth in the budget sectors, it was perhaps not as great as expected, as customers chose to take advantage of some of the value deals on offer, in the middle and at the high end of the market.

Funding will continue to be a key issue in 2010 and we wait with interest to see how much money will be made available for investment in our sectors and when it will really start to filter through. We are seeing the first new-to-sector lenders emerging, which benefit from not possessing satiated loan books. Independent buyers, with a good level of equity, successfully secured the funding they needed to do deals in 2009 — often with the assistance of Christie Finance — and we are confident that individual transaction volumes will be maintained in 2010. Whilst the causes of the current recession are very different to those of previous recessions, there are many extraordinary similarities when we compare the paths of the two. In fact, the movement in transaction volumes, seen since 2007, mirrors what we witnessed in the late ‘80s and early ‘90s. If the transactional pattern continues to follow that of the previous recession, we have reached the bottom of the market and a gradual recovery is in prospect. Whilst I am unfortunately unable to confirm that history will repeat itself, I am reasonably confident that transaction volume rises will occur in the early part of 2010 — largely as a result of the corporate disposal projects we are currently undertaking. The phenomenal levels of interest generated by the FQR disposals show that there are plenty of potential buyers out there, who are willing to respond to new opportunities. We can also expect to see an increase in the number of distressed asset sales, post the General Election, which are likely to tempt experienced operators and first-time buyers to make further acquisitions. Christie + Co looks forward to 2010 with renewed optimism and I hope to be in a position to provide a positive review of the year in Business Outlook 2011.

David Rugg

Christie + Co Price Indices 1800

Hotels Public Houses Restaurants Care Retail Christie + Co Average Index Retail Price Index House Price Index

1600

1400

1200

1000

800

600

400

200

1986

1987

1988

1989

1990

1991

1992

1993 1994

1995

1996 1997

1998

1999

2000

2001 2002

2003

2004 2005 2006 2007

2008 2009

Business Outlook 2010 Market Intelligence 2009

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Percentage movement in average prices Hotels -19.5% movement in average prices 2004 2005 2006 2007 2008 2009

2004 2005 2006 2007 2008 2009

10.9 10.8 13.1 6.1 -18.44 -19.5

-20%

-15%

-10%

-5%

Restaurants 04 05 06 07 08in average prices -18.1% movement 2004 2005 2006 2007 2008 2009

Public houses -20.1% movement in average prices

10%

8.0 -14.9 -18.1

-5%

10%

15%

10%

15%

Retail -9.8% movement in average prices 4.5

2004 2005 2006 2007 2008 2009

7.9 5.9 5.6 -6.5 -9.8

-20%

-15%

-10%

-5%

6.5 -11.6 -20.1

2004 2005 2006 2007 2008 2009

4.9

-10%

8.5

-15%

-10%

-5%

10%

15%

Care -11.0% movement in average prices

4.7

-15%

5.2

-20%

15%

3.3

-20%

9.2

16.9 14.5 17.4 12.2 -16.9 -11.0

-20%

-15%

-10%

-5%

10%

15%

Business Outlook 2010 Market Intelligence 2009

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Hotels “

Trading fundamentals came under increasing pressure during the first half of 2009, leading to a number of operator failures, whilst others faced uncertain futures. A near total lack of visibility in terms of forward bookings contributed to an already challenging trading environment. Jeremy Hill - Head of Hotels Whilst some initial signs of demand stabilisation emerged during the latter part of the year, the ongoing uncertainty amongst operators, owners and investors forced the sector to focus on the basic principles of quality of service, range of guest facilities and location. Most operators realigned themselves to the new challenges, through refocusing on operational efficiencies and the introduction of significant rate discounting. Unlike previous recessions, London appears to be holding up significantly better than most regional UK markets, with year-on-year growth observed towards the end of the year. Unfortunately, a number of regional markets have experienced significant supply additions in recent years, which has contributed to the current challenges that are likely to persist well into 2010. Initial speculation that the budget sector would escape relatively unscathed, as customers traded down to more affordable accommodation, only partially materialised. Pressure was experienced across all sectors in 2009. Properties that were able to resist some of the decline were those assets in prime locations that were well invested. Some businesses were exposed to the economic failure of their key clients, but others were able to diversify their demand base to avoid this. Assets in tertiary locations, with significant exposure to the meeting & conference segment, appeared to suffer the most, as companies cut their meeting, travel and training budgets.

A weaker pound and staycations to the rescue As corporate demand continued its inevitable decline during 2009, many hoteliers wondered how they would replace this key segment of business. A signiﬁcant decline in the value of the pound against both the dollar and the euro made the UK more affordable to continental Europeans and Americans

”

BUSINESS OUTLOOK

OUR PREDICTIONS FOR 2010 + Slow re-emergence of the corporate meetings market.

+ Steady return of the hotel development market.

+ Room supply will continue to grow, especially in London in the build-up to the Olympic Games.

+ Return of conﬁdence and investor sentiment towards the sector.

+ Rises in VAT and utility costs could affect the speed of the recovery outside the capital. + Further distressed assets will be brought to the market; supply issues will ease. + Emergence of new groups and opportunistic buyers.

+ A realignment of interests in the operator/investor relationship. + Operational margins under pressure from competitive room rates and increased costs. + Reﬁnancing requirements to impact on market activity. + Fallout from Dubai’s debt problems could impact London trophy hotel assets.

Business Outlook 2010 Market Intelligence 2009

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alike. Meanwhile, many British holidaymakers were forced to reassess their European and long-haul vacations, with the ‘staycation’ becoming a popular option. Consumers became more strategic in where they planned to stay, researching the best deals for that day, week or month, and switching between different operators/brands. Those hotel businesses that adapted to these changes – and continued to invest in raising their value proposition – were in the best position to take advantage of increased leisure demand. This leisure demand helped carry many businesses through the downturn, offsetting some of the drop-off in corporate trade.

Distressed cases boost transactional activity A number of groups collapsed during the year, including the Real Hotel Company and Folio Hotels. The majority of companies that struggled operated under a lease model, with insufficient headroom to meet their rental commitments. Distress cases made up the majority of transactional activity that took place during the year, with the number of deals completed hampered by the lack of available debt in the marketplace – as well as wildly different price expectations between buyers and sellers. Investors continued to seek the ‘right’ deal, not just ‘any’ deal, but the expectation by many opportunistic buyers that there would be a glut of distressed assets, offered to the market at rock bottom prices, failed to materialise. Banks were largely unwilling to crystalise significant losses, opting to hold on to assets that were viewed as being only temporarily impaired, with a good chance of recovery in the mid-term. There continues to be strong demand for well-located hotels – especially in major cities – but there is an ongoing lack of opportunities. Although the bid/ask divide is narrowing, we believe that it is still too wide to enable the volume of transactions to accelerate rapidly over the coming months. Whilst debt remained scarce, compared to the vast volumes chasing deals at the peak of the market, there were indications, in the second half of the year, that lenders were willing to underwrite sensibly priced deals in the right location. A recognition that performance and value erosion had slowed, coupled with more sensible LTV ratios, led a number of investors and lenders to seek out opportunities with a sensible risk profile.

Difficulties overseas Problems have not been limited to the UK by any means. From New York to Dubai, via Dublin, a large number of overseas markets experienced significant shocks to their financial systems, many of which had, or may have, an impact on the UK hotel sector. The beginning of December brought a new problem for the global economy after Dubai World, which has business interests in many countries, including the UK, informed creditors that it intended to postpone the repayments on some of its $59 billion (£36 billion) in debts. The news brought fears about Dubai’s ability to service its significant debt commitments and the knock-on impact any worsening of the situation could have on UK investors and lenders. Any impact is unlikely to be limited to Dubai, given the exposure of global sovereign wealth funds, which include London trophy hotel assets. Abu Dhabi stepped in, to temporarily stabilise the situation, but Dubai will remain a market to watch in 2010.

Movement in hotel values Christie + Co’s hotel price index, which uses average price information derived from hotel transactions brokered by the company, shows that hotel property values have fallen by approximately 34% from their peak in the third quarter of 2007. Hotel property values for 2009 declined by 19.5% compared to a fall of 18.4% in the previous year.

Hotels -19.5% movement in average prices 2004 2005 2006 2007 2008 2009

10.9 10.8 13.1 6.1 -18.4 -19.5

-20%

A close watch will also be kept on the actions of the National Asset Management Agency (NAMA) in Ireland. There are likely to be repercussions if it decides to rapidly off-load assets held by the Irish banks, many of which have signiﬁcant exposure to the UK hotel market.

Developments not dead Hotel development remained subdued in 2009, stunted by the virtual withdrawal of finance. The continued fall in construction costs mean that it is attractive to set the development wheels in motion, but funders are mindful of the relatively low day one values, in comparison to development cost. Those few new projects that are able to forge ahead are likely to open into a recovering market and benefit from being able to offer the newest product. As 2009 entered its final quarter, we started to see some life return to the development market. Demand for feasibility studies increased as shrewd, wellfunded owners, operators and developers identified opportunities to grow their portfolios at much reduced costs. Developers and owners have also looked to mitigate risk by turning towards the seeming safety net of a brand, on which to anchor their new schemes and projects. The perfect combination of a rated operator and global flag is the aim of many investors. With operators having had no other option than to become more flexible with the terms on offer, the realignment of owner and operator interests is likely to continue.

Investment outlook Clearly, the overall investment volume is likely to remain subdued over the next six to 12 months, with a credit logjam yet to be removed and trading performance continuing to be impacted. However, hotels still appear of interest to investors, particularly those who take a longer-term view. The investment fundamentals of location, covenant strength, certainty of cash ﬂow, growth prospects, and ability to meet payment obligations remain key. A number of investors continue to have a long-term interest in prime assets, although it is a select group that is currently able to source funding, subject to reasonable terms. We believe that some companies will need to do more to persuade long-term institutional capital that hotels still have merit as an investment class. A number of investment opportunities in the budget sector have been brought to market in recent months and have been met with considerable appetite from the investment community. Covenant strength is the key inﬂuencing factor on the yield achieved.

-15%

-10%

-5%

10%

15%

Will 2010 bring renewed optimism? Despite the lack of significant transactional activity and the challenging trading conditions, the mid-term outlook for the sector as a whole became more positive during the second half of 2009. We believe this will continue over the next 12 months, unless there are further shocks to the wider economy. UK-wide trading performance is likely to remain challenging throughout 2010, with any real recovery in RevPAR not materialising until the second half of the year at the earliest. London hotels are set to be at the forefront of the recovery, having so far weathered the storm better than many expected. Market sentiment has improved from its low point in March 2009, aided by the stabilisation in occupancy and we would expect this trend to continue. Significant rate discounting remains a concern and it is difficult to predict any increase in average rate for at least another six months. We may also see some initial signs of recovery in travel across Europe, with short-haul trips and leisure breaks continuing to replace long-haul travel and extended vacations. The gradual re-emergence of the hard-hit corporate meetings market, will influence hoteliers' ability to stabilise and recover average rate. The number of investors and opportunistic funds that announced their intention to circle the market in 2009 also suggests that transactional activity could increase over the coming year — if there are sufficient opportunities in which to invest. The emergence of new group Akkeron Hotels, which acquired the Folio name and eight properties at the end of the year, with plans to grow a 150-strong regional hotel group, highlights the fact that there are major opportunities for those who can obtain funding and act decisively.

LEARNING LESSONS Despite witnessing a number of hotel companies falling into administration in 2009, we have not seen the same volume of distressed asset sales that we did at the comparable point in the last recession of the early 1990s. Although banks have been more patient and supportive than many imagined, in part due to their own misfortunes, we are likely to see further distressed assets reaching the market. Trading conditions will remain challenging and signiﬁcant amounts of debt are due to be reﬁnanced in 2010. Distressed asset sales were limited in the early part of 2009, but the number of instructions received from

Business Outlook 2010 Market Intelligence 2009

banks and insolvency practitioners steadily increased during the year, as teams were put in place to deal with the ever-increasing number of problem cases. “State-owned” banks and non-government backed banks are coming under pressure to recover the substantial amount of debt lent across the real estate markets — including hotels — and we expect the level of scrutiny from lenders to intensify. This pressure is coming either from taxpayers, via central government, or from shareholders, as banks seek to repair their capital ratios. The strategies implemented by the banks in addressing distress cases vary from bank to bank and from case to case. From our experience to date, distressed debt teams are happy to release smaller assets to the market, which have proportionately low debt packages, whilst caretaking larger portfolios, where there is no permanent value impairment. Clearly the end goal for banks and their advisers is to maximise value recovery, but the hold periods deemed acceptable to lenders during this downturn appear to be exceeding those witnessed during previous recessions. This is giving a glimmer of hope to many companies that are currently under pressure. However, we are witnessing various strategies — restructuring, cost reductions, and even investment and rebranding — being implemented on both larger assets and portfolios, which are coming under pressure as a result of weak/inexperienced management, poor trading and overleveraging, or a combination of all three.

Operational focus is the key As hotel assets established themselves as an acceptable investment class for mainstream property investors, there was a reduced focus on the operational aspects, which provide the underlying value of these assets.

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Case Studies Sector Experience

Lord Milner Hotel, London

Imperial Hotel, Newcastle-upon-Tyne Acting on behalf of a fund managed by F&C Reit Asset Management, Christie + Co sold the freehold interest of the Imperial Hotel in Newcastle-uponTyne, to the family-run Cairn Hotel Group, for an undisclosed sum.

In October, Christie + Co sold the leasehold interest of the Lord Milner Hotel, the ﬁve-star boutique hotel in Central London, on behalf of Finisterre Holdings (PTY) Limited to Adrian Gardiner, owner of the Mantis Group, for an undisclosed sum. The Mantis Group currently operates the ﬁve-star Draycott Hotel, situated between Chelsea and Knightsbridge, which it acquired through Christie + Co in 2007. It also operates a number of game reserves, boutique hotels and retreats throughout South Africa and Europe.

Heathlands Hotel, Bournemouth In July, Christie + Co sold the Heathlands Hotel in Bournemouth, to Britannia Hotels, on behalf of Joint Administrators Andy Beckingham and Matthew Chadwick of BDO Stoy Hayward LLP, for an undisclosed sum. Britannia is the UK’s largest private hotel company, with over 7,000 bedrooms and the purchase of Heathlands took its hotel portfolio to 34 properties.

Private equity entered the hotel market with limited previous exposure to the sector, structuring highlyleveraged deals, with many believing they could read or beat the market cycle. Investors continued to acquire large portfolios at the top of the market, while others, who had bought earlier in the cycle, failed to sell before the downturn took hold. The lack of understanding, by some investors, of the operational intricacies of the hotel sector is likely to lead to a change in the investor proﬁle over the mid-term. Investors that have the required industry experience will remain in the market with the opportunity to pick up operationally-challenged assets. There has to be a return to basic principles and a key focus on the most vital ingredients of our industry — customer service, quality of product and the underlying operational structure.

PROVINCES FEEL THE PINCH Whilst the London hotel market remained one of the most resilient in the world during 2009, UK regional operators felt the full force of the economic downturn. Regional hotels experienced RevPAR drops of over 10%, for each of the ﬁrst three months of the year, compared to the same periods in 2008, with occupancy impacted by a lack of both business and leisure travel. Trading fundamentals across the provinces continued to come under pressure throughout 2009, leading to a number of individual business administrations, whilst a few national operators such as Real Hotel Company and Folio Hotels, also collapsed.

Imperial Hotel, Newcastle-upon-Tyne

Diversiﬁcation of demand base is key As a result of the challenging environment, the majority of regional operators used discounting and deals to drive volume. The increase in domestic holidays and the favourable exchange rates, which boosted leisure demand from overseas, helped many regional hotels to stay aﬂoat. However, those operators who failed to diversify their demand base and relied on a few corporate accounts have come under increasing pressure as the rate of business failure in the wider economy gathered pace throughout the year.

Estate expansion for some operators Although transactional activity across the whole sector was limited, established regional and national operators continued to take advantage of lower values and a lack of competition to expand their estates. The collapse of companies, such as the Real Hotel Company and Folio Hotels, provided growth

Heathlands Hotel, Bournemouth

opportunities for others. Operators such as Crerar Hotels, the Cairn Hotel Group, Macdonald Hotels & Resorts, and Peel Hotels all made additions to their portfolios last year. The budget sector has not fared as well as people expected in the downturn, with assets in tertiary locations coming under signiﬁcant pressure. However, the main budget operators — Premier Inn and Travelodge — have continued to increase their room stock across the UK, with the tone of competition intensifying, culminating in legal action relating to a Christmas advertising campaign. Single asset transactions below £10 million remained viable, as highlighted by Holidaybreak’s acquisition of the Liddington Hotel, through Christie + Co, for £9.44 million in September. Unfortunately, challenges to recovery in the regions remain. The increase in VAT and higher utility costs will squeeze margins for all operators, and when coupled with the increase in property rates, this is likely to put further pressure on ever-shrinking bottom lines.

Business Outlook 2010 Market Intelligence 2009

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EUROPEAN PORTFOLIO TRANSACTIONS 2009 Date

Portfolio

Location

No. of Properties

Total Bedrooms

Sale Price (¤m)

Purchaser

Vendor

March

Portfolio of H10 Hotels

Spain

432

Undisclosed

Nueva Rumasa

H10 Hotels

April

Portfolio of three former Purple Hotels

258

Undisclosed

Travelodge

Administrators for Real Hotel Company

June

Worldwide portfolio of hotels

Worldwide

240

c.26,000

Undisclosed

Starwood Capital

Golden Tulip Hospitality Group

July

Portfolio of independent UK hotels

1,118

Undisclosed

Travelodge

Private vendors

August

Portfolio of Western European and African-based hotels

Austria, Egypt, Germany, Italy, the Netherlands and Switzerland

14,890

Undisclosed

Travco Group International

Steigenberger Hotels

September

Portfolio of Formule 1 hotels

France

158

12,300

272

Consortium of French institutional investors

Accor

Portfolio of Western European hotels

Spain

Undisclosed

NH Hoteles

Hesperia

Portfolio of independent UK hotels

857

52.8

Travelodge

Private vendors

November

December

Portfolio of nine Western European hotels

France

c.600

Undisclosed

Time-Hotels

Compagnie Générale Hôtelière

Portfolio of eight UK hotels

Undisclosed

Akkeron Hotels

Folio Hotels

EUROPEAN SINGLE ASSET TRANSACTIONS 2009 Date

Property

Country

City

Total Bedrooms

Total Sale Price (¤m)

Purchaser

Vendor

January

Hotel Villa Rica

Portugal

Lisbon

171

Undisclosed

VIP Hotels Group

Fibeira SGPS

March

The Hotel Frankfurt City

Germany

Frankfurt

256

Undisclosed

Deka Immobilien

Quinlan Private

Sheraton Brussels

Belgium

Brussels

511

Undisclosed

International Real Estate PLC

Starwood Hotels & Resorts

Four Seasons

Switzerland

Geneva

103

Undisclosed

Cedar Capital

Starman Holdings

April

Radisson Boulogne

France

Paris

170

Capital France Hotel

Compagnie La Lucette

June

Lapa Palace

Portugal

Lisbon

109

29.4

Private Portuguese Investor

Orient Express Hotels

July

Radisson Blu

Poland

Krakow

196

Union Investment

UBM Realitätenentwicklung AG

August

September

Blue Sea Resort & Spa

Greece

Crete

225

Undisclosed

Aquis Hotels and Resorts

Private vendor

Vasia Hotel & Spa

Greece

Crete

300

Undisclosed

Aquis Hotels and Resorts

Private vendor

Novotel

Netherlands

The Hague

216

Undisclosed

Invesco European Hotel Real Estate Fund

Dutch developer TCN

Melia Madrid Princesa

Spain

Madrid

274

87.8

BBVA Renting

Sol Melia

Kempinski Hotel Rotes Ross

Germany

Halle

Undisclosed

Aurum AG

Private vendor

Andel’s

Poland

Krakow

159

Undisclosed

Deka Immobilien

Warimpex

AC Som

Spain

Barcelona

102

Undisclosed

Invisa Hotels

AC Hotels

November

Radisson Blu

Germany

Hamburg

560

155

Invesco Real Estate

Azure Group

December

Renaissance Paris Hotel Le Parc Trocadero

France

Paris

116

35.5

Private investment group

Strategic Hotels & Resorts

Date

Property

Total Bedrooms

Total Sale Price (£m)

Purchaser

Vendor

June

New Connaught Rooms

Undisclosed

Principal Hayley

BDO Stoy Hayward

September

The Stafford

Undisclosed

77.5

Britannia Hospitality

Daniel Thwaites

October

Lord Milner Hotel

Undisclosed

Mantis Group

Finisterre Holdings (PTY) Limited

December

Park Inn London, Russell Square

214

45 plus

Crimson Hotels

Ernst & Young

LONDON SINGLE ASSET TRANSACTIONS 2009

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UK REGIONAL TRANSACTIONS 2009 Date

Property

Total Bedrooms

Total Sale Price (£m)

Purchaser

Vendor

January

Holiday Inn Express, Crawley

216

Sojourn Hotels

Mitchells & Butlers

The Golf View, Inverness

Undisclosed

Crerar Hotels

PRUPIM

February

Close Hotel, Gloucestershire

Undisclosed

Greene King

April

Great Northern, Peterborough

3.025

Renelson Investment SA

Receivers

May

Norfolk Royale, Bournemouth

8.25

Peel Hotels

English Rose Hotels

June

July

August

Quality Hotel, Birmingham

176

4.5

Cobden Hotel Ltd

BDO Stoy Hayward

Best Western Popinjay, Clyde Valley

Undisclosed

Clyde Valley Developments

Private owner

Central Hotel, Glasgow

222

Undisclosed

Principal Hayley

BDO Stoy Hayward

Aviemore Highland Resort

Four hotels/18 woodland lodges

Undisclosed

Macdonald Hotels & Resorts

PricewaterhouseCoopers LLP

Barnsley House, Circencester

6.5

Calcot Manor

KPMG

Comfort Hotel, Kettering

Undisclosed

Balaji Hotels

Private owners

Heathlands Hotel, Bournemouth

115

2.5

Britannia Hotels

BDO Stoy Hayward

Southcrest Hotel, Redditch

Undisclosed

Private buyer

BDO Stoy Hayward

Yang Sing Oriental

Undisclosed

RoomZZZ

Begbies Traynor

September

The Liddington, Swindon

192

9.44

Holidaybreak

Grant Thornton

October

Shendish Manor, Hertfordshire

7.5

Manor Groves Hotel

KPMG

The Imperial, Newcastle

122

5.5

Cairn Hotel Group

F&C Reit Asset Management

November

December

Forbury Hotel, Reading

Von Essen Hotels

Baker Tilly

Former Stop Inn, Hull

Undisclosed

Private buyer

EjendomsInvest

Pittodrie House Hotel and Estate

Undisclosed (Purchase of remaining 50% stake)

Macdonald Hotels & Resorts

Theo Smith

St Brelade’s Bay Hotel

Undisclosed

Jayne Best

The Frost family

CAPITAL RETURNS As one of the principal tourist destinations in the world and with the 2012 Olympic Games on the horizon, London is set to be at the forefront of a recovery across the UK, and indeed European, hotel markets. The capital’s hotels remained resilient during 2009. Although RevPAR declined more than 10% in the first three months of 2009, figures improved as the year progressed. According to the latest figures from Deloitte, RevPAR increased by 10% in November 2009 to £119, compared to the same period in 2008. Price promotions — and the low value of sterling during the year — enabled London to remain a popular tourist destination in 2009. Leisure tourism, particularly from Europe, offset the fall in corporate bookings, which had continued from 2008. In the second half of the year, softer trading comparables and continued cost cutting also helped the capital’s hotels mitigate the drop in profitability witnessed in other key gateway cities. The economic downturn has undoubtedly had an effect on high profile transactions in London. However, interested parties, including sovereign wealth funds and high net worth individuals, have continued to circle the market, keen to acquire assets in the capital. These would-be buyers have been attracted by falling hotel values and further enticed by the decline in value of the pound against the

dollar and the euro. A growing perception that values have bottomed out has further added to the desire of well funded investors to become more acquisitive. In November, Christie + Co agreed the sale of the Park Inn London, Russell Square to Crimson Hotel Group on behalf of Ernst & Young, for a sum reported to be in excess of £45 million. Two months prior to that, the Stafford Hotel in St James’s Place was acquired by Britannia Hospitality, from Daniel Thwaites, for £77.5 million.

sustainable and assets that are developed largely for the 2012 Olympics are likely to suffer after the participants have left town, as many hoteliers in previous Olympic cities can testify. With its high barriers of entry, London continues to be an extremely competitive marketplace, but one — as the recovery gathers momentum — that will remain a target for the majority of hotel investors, developers and operators with their eye on long-term gains.

More than 50 formal tours of the Russell Square hotel were conducted in a period of just over a month. The marketing programme culminated in a combined £1 billion-worth of funded offers being submitted, through a multi-stage bidding process. This highlighted the fact that there is still huge demand for central London hotels, from well funded UK and overseas buyers. Whilst demand for assets in the capital remains strong, the market has been impacted, and will continue to be affected, by a lack of stock being brought to the market. The lack of debt funding has also curtailed activity in the mid-market sector, but not the expansion plans of the budget operators. We are currently advising Travelodge on a number of potential sites, whilst Whitbread is reportedly in talks to open a hotel at Stratford City. The lure of the Olympics is continuing to draw operators and developers into the capital, which is predicted to experience a 12% increase in new rooms (13,300) by 2012. Hotel development needs to be

Park Inn London, Russell Square

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Case Studies Sector Experience

Moorfield Group Christie Finance assisted Moorfield in raising significant debt funding on three of the Shearings hotels it owns in the North East. Having been approached by Moorfield – the real estate investor, developer and private equity fund manager – earlier this year regarding its financing plans on these three investments, Christie Finance was able to assist in securing the necessary funds from a leading UK bank.

Quality Hotel, Glasgow

Quality Hotel, Glasgow Acting on behalf of landlord Coopervale Limited, Christie + Co assisted in the sale of the long leasehold interest in one of Scotland’s best known hotels, the Quality Hotel Glasgow, to Principal Hayley Hotels and Conference Venues, for an undisclosed sum. At the same time, we also advised on the sale of the New Connaught Rooms in London to Principal Hayley.

Aldgate Serviced Apartments, London

The Liddington, Swindon

Aldgate Serviced Apartments, London

The Liddington, Swindon

Acting on behalf of a major High Street bank, Christie + Co valued 30 proposed serviced apartment units within a residential block in Aldgate, East London. The units were subsequently acquired by an experienced operator of multiple serviced apartments.

Acting on behalf of Joint Administrators David Matthews and Nigel Morrison of Grant Thornton UK LLP, Christie + Co sold The Liddington hotel & conference centre venue, near Swindon, to PGL — the outdoor education centre business — for £9.44 million.

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Public Houses + Restaurants “

The UK’s pub sector continues to find itself impacted by some of the toughest trading conditions ever seen. However, companies that have been able to adapt to this environment and to the changing needs of the consumer, have been rewarded in 2009 with robust sales figures. Neil Morgan Deal activity increased in 2009, compared to the previous year, although transaction volumes were nowhere near pre-credit crunch levels. Buyers were tempted back into the market by the attractive prices and although it was difficult to raise finance, it wasn’t impossible.

”

Head of Pubs & Restaurants

BUSINESS OUTLOOK

The number of administration cases remained constant during the year, with London-based operator, Pubs ‘n’ Bars providing the latest example at the end of 2009. Distressed assets continued to be brought to the market, whether they were single sites or wellknown national chains — such as Premium Bars and Restaurants.

Expansion and disposals As we predicted in last year’s Business Outlook publication, regional brewers and multi-site operators continued to take advantage of the lack of competition from national chains, to bolster their estates through freehold acquisitions — especially in the first half of the year. Groups, such as Charles Wells, Shepherd Neame, Frederic Robinson, Geronimo Inns and Peach Pub Company, all acquired sites from Punch Taverns during the first half of 2009, as the company spent the year exploring ways to pay down its debt. As well as selling a raft of small pub packages, Punch also sold a number of freeholds to its tenants, using the proceeds to buy back £millions in bonds. At the end of September, Christie + Co was instructed by Punch to market more than 300 individual pubs from its turnaround division. In the first month, we received significant interest in the majority of these sites from a wide range of buyers — more than 60% of whom were looking to continue operating the properties as public houses. Punch’s main rival Enterprise Inns, which has a £1 billion bank-syndicated facility to refinance in 2011, reduced group net debt by £142 million — generating cash from trading and the disposal of non-core pubs. Late in the year, the company sold and leased-back three packages at auction — a move that raised more than £35 million. The company announced that it may consider selling another 100 sites in total this way.

OUR PUB SECTOR PREDICTIONS FOR 2010 + Continued restructuring of businesses and further administrations involving the renegotiating and re-gearing of leases. + Continued growth of the freehouse market; reduction in the number of tenanted pubs. + Further convergence of the pub and restaurant sectors.

+ Continued use of deals and promotions to maintain customer numbers. + Regional brewers and multi-site operators will continue to grow their estates. + Pubcos will explore further disposal opportunities. + Increase in VAT and continued rise in youth unemployment is set to put further pressureon margins.

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Regional brewers and multi-site operators will continue to make selective acquisitions and continue their growth in 2010. In the latter half of the year, we could see the return of some national chains to the acquisition trail.

Movement in pub values Christie + Co’s pub price index, which uses average price information derived from pub transactions brokered by the company, shows that pub property values have fallen by approximately 29% from their peak in the fourth quarter of 2007. Pub property values for 2009 dropped by 20.1% compared to a decline of 11.6% in the previous year.

Public Houses 2004 2005 2006 2007 2008 2009

6.5

We will continue to see pub closures in 2010. Whilst closures are clearly unfortunate on an individual level, we ﬁrmly believe that a reduction from the current 54,000 pubs is in the long-term interests of the sector. Businesses that survive the current economic difﬁculties will be more robust and better placed to have a long-term future.

THE CHANGING PUB LANDSCAPE

9.2 5.2 8.5

-11.6 -20.1

-20%

-15%

-10%

-5%

10%

15%

The recession has already had a marked impact on the make-up of the UK’s pub industry and the ownership proﬁle is set to change even further over the coming months, as the freehold market continues to grow.

Sector interest grows

Encouraging signs

While regional brewers and multi-site operators were behind most of the transactional activity in the ﬁrst half of the year, there was a distinct increase in interest from other would-be buyers in the secondhalf. Opportunistic funds also started to circle the market.

Several end-of-year trading updates, although cautious in their outlook, showed that operators who quickly adapted to the changing environment were rewarded with sustainable like-for-like sales, especially during the second part of the year.

The economic downturn — and the resulting need to pay down debt — have changed the roles of the national pub companies from buyers to sellers. Corporate disposals have allowed private individuals and smaller groups to enhance their estates and prompted a reversal in ownership, as pubs return to the freehouse market.

Unsurprisingly, the better managed operators, such as Mitchells & Butlers and JD Wetherspoon, have led the way in terms of like-for-like sales growth and both Punch Taverns, Enterprise Inns and Admiral Taverns started acquisition campaigns before the end of 2009. are all likely to bring further non-core pubs to the market during the year. This will contribute to a drop in tenanted house numbers over the next 12 months, whilst the managed house sector will remain fairly constant. The advent of the smoking ban led many pub As demand increased during 2009, the fall in freehold operators to enhance their food offering and it seems Operators such as Peach Pub Company, Geronimo values slowed and the second half of the year brought that this trend is helping many businesses combat the Inns, Brunning & Price and Heartstone Inns will examples of competitive bidding and contract races. continue to take advantage of expansion opportunities, impact of the recession. Banks also started to show signs of being more whilst managed operators such as Mitchells & Butlers, Whilst the food mix has not been the answer for every Orchid Pub Group and JD Wetherspoon will also receptive towards lending in the sector. operator, the majority of pubs that have developed follow the acquisition trail. We may see other national In November, Christie + Co announced that it was a successful food operation, which addresses the operators, such as Marston’s and Greene King, return offering 19 free-of-tie leases, on vacant pubs, on consumers’ desire for quality and value, have found as buyers as the year progresses. Some groups will behalf Scottish & Newcastle Pub Company. The themselves in a better position to ride out the storm. look at other avenues for expansion, and may even tied model was an emotive subject during the follow Marston’s joint venture with Travelodge, as a year, highlighted by the BEC Report and CAMRA blueprint for future growth. super complaint. We were encouraged to receive a considerable number of enquiries from a wide range Although 2010 is unlikely to bring any signiﬁcant of interested parties, as soon as the S&NPC pubs were We believe the UK pub sector is set for a fragile sector consolidation, the number of debt-for-equity recovery during 2010. Distressed assets will placed on the market. swap deals that have taken place over the last 18 continue to come to the market, but we also expect months could lead to a number of banks exploring transactional activity to increase steadily, as the banks exit strategies in two to three years’ time. The market start to free up further funding and as more interested would then be set for a number of IPOs and another parties return to the market. round of private equity buyers circling the sector. 2010 is set to bring further challenges to the licensed sector, with the increase in VAT, likely interest rate rises and more unemployment. The lead up to a General Election – and political posturing, over further industry regulation – is also set to create uncertainty for the sector. Corporate disposal programmes boosted activity for Christie + Co towards the end of 2009. We registered an 80% increase in pub viewings during September and October, compared to the same period in 2008 and a 23% increase in deals agreed. Would-be buyers were attracted by the quality of pub businesses, available at price levels not seen for some years.

Eating into the restaurant market

The future

Challenges remain

Movement in restaurant values

One piece of regulation, which the government is unwilling to face head-on, is below-cost selling in the off-trade, especially by the larger supermarkets. These cheap deals encourage the public to stay at home, or to “pre-load” on low cost drinks before bypassing the pub for the late-night bar and club circuit. There are a number of positive factors that will help the trade during the year. These include a Football World Cup, with favourable kick-off times, and a resilient eating out market.

Christie + Co’s restaurant price index, which uses average price information from restaurant transactions brokered by the company, shows that restaurant property values have fallen by approximately 30%, from their peak in the ﬁrst quarter of 2008. Restaurant property values for 2009 dropped by 18.1%, compared to a decline of 14.9% in the previous year.

Restaurants -18.1% movement in average prices 2004 2005 2006 2007 2008 2009

3.3 4.7 4.9 8.0 -14.9 -18.1

-20%

-15%

-10%

-5%

10%

15%

Business Outlook 2010 Market Intelligence 2009

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PUBLIC HOUSE & RESTAURANT TRANSACTIONS 2009 Date

Vendor

Purchaser

Deal

January

FishWorks

Boparan Ventures Ltd

Acquisition of four FishWorks restaurants, out of administration.

Village du Pain

Le Pain Quotidien

Acquisition of UK arm of Le Pain Quotidien, by parent company, for an undisclosed sum.

Gourmet Restaurants

Anoup Treon (V8 Gourmet)

Acquisition of Gourmet Restaurants, operator of Tifﬁnbites and Bombay Bicycle club

GlassHouse

New Pub Company

Acquisition, out of administration, of 12-strong pub company for an undisclosed sum.

Alphabet Bars

Existing shareholders

Acquisition, out of administration, of ﬁve-strong London-based bar group

Punch Taverns

Fuller, Smith & Turner

Acquisition of six London-based pubs for £21 million.

3D Entertainment

Eminence Leisure

Acquisition of 28 bars for an undisclosed sum.

Cains Beer Company

Amber Taverns

Acquisition of 23 pubs based in the North West for an undisclosed sum.

Punch Taverns

Peach Pub Company

Acquisition of two freehold pubs for £2.85 million.

Punch Taverns

Geronimo Inns

Acquisition of six London-based pubs for an undisclosed sum.

Punch Taverns

Shepherd Neame

Acquisition of 13 pubs for £15 million.

Punch Taverns

Charles Wells

Acquisition of 17 pubs for an undisclosed sum.

Punch Taverns

Frederic Robinson

Acquisition of eight pubs for an undisclosed sum

Amano

Rondanini

Acquisition of Amano name and two London-based units, out

Luminar

Cavendish Bars

Acquisition of 27 late-night venues for an undisclosed sum.

Punch Taverns

Greene King

Acquisition of 11 pubs for £30 million.

Bar Room Bar Ltd

Orchid Pubs Ltd

Acquisition, out of administration, of 10 bars for an undisclosed sum.

Regent Inns

Cavendish Bars

Acquisition of seven Walkabout bars for an undisclosed sum.

Punch Taverns

St Austell Brewery

Acquisition of four pubs for an undisclosed sum.

3D Entertainment

JD Wetherspoon

Acquisition of seven Chicago Rock Café sites for an undisclosed sum.

Enterprise Inns

Food & Fuel

Acquisition of four London-based pubs for an undisclosed sum.

Novus Leisure

Royal Bank of Scotland

Debt-for-equity swap with banks taking a greater stake in Novus Leisure.

Barracuda Group

Babson Capital Europe Ltd,

Debt-for-equity swap with banks and Babson Capital taking a greater

Paramount Restaurants Ltd

HSBC Holdings/Barclays/

Debt-for-equity swap with banks and Santaky taking a greater stake in

Coffee Republic

Arab Investments Ltd

Acquisition of coffee shop chain, out of administration, for an undisclosed sum.

August

V8 Gourmet Group

Shilpa Shetty/Raj Kundra

Acquisition of stake in V8 Gourmet Group, operator of Tifﬁnbites, for £6 million.

September

Daniel Thwaites

Britannia Hospitality

Acquisition of 105-room Stafford Hotel in London for £77.5 million.

Highgate Brewery

David Lindol and Simon Toon

Acquisition, out of administration, of Midlands-based brewer, by two

O’Briens Irish Sandwich

Impless Ltd

Acquisition, out of administration, of the O’Briens Sandwich Bars chain for an undisclosed sum.

Clapham House Group

Giraffe

Acquisition, out of administration, of 11 Tootsies-branded restaurants for £2.5 million.

BB’s Coffee & Mufﬁns UK

Kapelad

Acquisition, out of administration, of 16 company-operated stores by a new vehicle

Enterprise Inns

A number of unnamed buyers

Sale, through auction, of ﬁve London-based pubs for a total consideration of

Regent Inns

iNTERTAIN Ltd

Acquisition of 60 bars, out of administration, by former Regents Inn management

Globe Pub Company

EBP Pub Company

Acquisition of 425 pubs for £180 million.

Punch Taverns

JD Wetherspoon

Acquisition of ﬁve freehold pubs for an undisclosed sum.

Surburban Style Bars; Pan-

Cal Management

Acquisition, out of administration, of 44 pubs for an undisclosed sum.

Helena Leisure

RCapital

Bar and nightclub operator rescued through a company voluntary agreement,

Mitchells & Butlers

Greene King

Acquisition of seven pubs in Scotland for £12.7 million.

Enterprise Inns

A number of unnamed buyers

Sale, through auction, of seven London-based pubs for a total consideration of £11.58 million.

Premium Bars &

Orchid Group

Acquisition, out of administration, of 43 sites for an undisclosed sum.

Coffeeheaven

Whitbread

Acquisition of 90 Eastern European-based coffee shops for a sum in the region of £36 million.

February

March

April

May

June

July

October

November

December

Business Outlook 2010 Market Intelligence 2009

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CAUTIOUS OUTLOOK FOR RESTAURANT SECTOR Administrations and promotional offers typiﬁed the UK’s restaurant landscape during 2009, as many operators concentrated on the latter to escape the former. The current mood in the market is one of cautious optimism, as we head into a period of recovery, with like-forlike sales continuing to show resilience and established operators set to return to the market in earnest, to seek out opportunities to grow market share.

Although trading conditions are challenging, a ﬂood of special deals and promotions has helped to maintain trade at healthy levels. The low interest rates have left many restaurant-goers feeling better off, with disposable income signiﬁcantly higher for some than it was two years ago. However, value consciousness is here to stay and customer expectations of value will ensure that promotional activity continues well into 2010, with margins set to remain tight.

Transactions and expansion Transactional activity, which had slowed in 2008, remained sluggish last year. Appetite for mediumsized packages remained modest and – until debt and credit markets reopen – there is little likelihood of a return to the frenetic M&A activity, which characterised the restaurant sector pre-2007. Demand for prime sites in key locations, such as London, Manchester and Birmingham has remained strong. However, the lack of funding has also curtailed the volume of deals and number of developments in the sector.

The majority of national operators focused on paying down debt, raising new funds and streamlining their operations in 2009. This left the door open for ﬂedgling brands to gain market share and for local operators to acquire additional sites. Emerging operators, such as Jamie’s Italian and Cote, have been able to grow their estates and place their brands ﬁrmly in the minds of consumers, giving them a base from which to expand even further over the next few years. The lack of competition for high street sites has also allowed for modest regional expansion. We also believe that we could see a number of smaller operators exploring possible mergers this year, in order to create economies of scale. The continued lack of private equity will hamper the chances of large scale consolidation. However, a stronger economic recovery in the latter half of 2010 might encourage a number of rumoured deals and IPOs to come back on the agenda.

Case Studies Sector Experience Loch Fyne Restaurant, Midhurst In August, Christie + Co sold the leasehold interest of the Loch Fyne Restaurant unit in Midhurst, West Sussex, to the Reach for the Stars Group for an undisclosed sum. Reach for the Stars Group was founded by Steve Cropper and David Stanton in 2004. The company currently operates four sites across Hampshire, employs 80 staff and has an annual turnover in the region of £2.5 million.

S&NPC pub offered as free-of-tie lease

S&NPC pubs offered as free-of-tie lease In November 2009, Christie + Co was instructed by Scottish & Newcastle Pub Company to offer 19 vacant pubs on free-of-tie leases. The leases will be fully repairing and insuring and for a minimum of 10 years. Spread throughout the UK, the group includes a wide variety of pubs, from broad based community locals, to village pubs and food houses, on rents ranging from £11k to £41k per annum. The majority of pubs are in a good state of repair and are currently being operated by temporary management companies.

Loch Fyne Restaurant, Midhurst

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BUSINESS OUTLOOK

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Fewer casualties than predicted Although conditions remained challenging during the year, the forecast landslide of administrations did not materialise. Some well known brands, such as Tootsies and Old Orleans fell into trouble, while Paramount Restaurants — the owner of the Caffè Uno and Chez Gérard brands — carried out a restructuring that saw banks taking a greater stake in the business. The problems faced by some operators will continue to provide opportunities for others, with going concern businesses generating the greatest interest, as reopening costs are kept to a minimum. The recent increase in VAT and continued rise in youth unemployment is set to put further pressure on operators in 2010. Despite this, we hope that the steps taken by the majority of operators over the previous 12 months — and the continued emergence of new concepts and entrepreneurs — will enable the sector to remain resilient in the year ahead.

KEEPING PACE WITH CONSUMERS The UK’s restaurant sector faced many challenges during 2009 and the next 12 months will be equally testing. Supermarkets, with their ‘restaurant style’ meal packages, will continue to underpin the growing trend for dining at home. However, the main focus for the restaurant industry will be adapting to consumers’ changing perception of value, which does not just mean offering cheaper dishes. Restaurateurs need to concentrate on reducing the size of menus and portions, so that waste is minimised. Consumers have become more strategic in where they plan to eat out. Brand loyalty is suffering, as consumers switch between operators, to take advantage of the best deal of the day or week.

OUR RESTAURANT SECTOR PREDICTIONS FOR 2010 + Further distress, but not a ﬂood of businesses going under.

+ Greater focus on healthy eating options and calorie labelling.

+ Ongoing use of deals and promotions, to drive customer numbers.

+ Stabilisation in the growth in popularity of takeaways.

+ Operators adapting to keep pace with consumers’ changing perception of value. + Merging of some smaller multiple -site operators.

+ Increasing use of technology to attract and retain customers. + Further convergence between the restaurant and pub markets.

Although the last 12 months has brought a surge in takeaway sales, we believe this growth will start to stabilise as a recovery takes hold. Healthy eating and sustainability issues are still high on the consumer agenda. The Food Standards Agency’s current consultation process regarding calorie labelling on menus and the forthcoming results of the scheme will also highlight the healthy eating issue. Casual dining operators will also look to strip back services that customers no longer value. For example, Nandos allows customers to lay the table and select condiments as part of the dining experience. The growing demand for all-you-can-eat concepts will also continue — highlighted by the success of Whitbread’s Taybarn pub/restaurants. The eating out market is predicted to continue growing over the next 12 months and beyond. Operators will need to evolve and be sufﬁciently agile to keep up with consumer expectations, if they want to take advantage of that growth.

Business Outlook 2010 Market Intelligence 2009

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Leisure “

2009 was a challenging year in all segments of the leisure market, although some were more resilient than others. Late-night venues continued to feel the strain, whilst the UK’s health and ﬁtness industry fared better than most expected. Community sports clubs reported a rise in both adult and junior memberships and UK holiday parks beneﬁted from the increase in domestic holidays. Jon Patrick

HEALTH & FITNESS

”

- Head of Leisure

BUSINESS OUTLOOK

The health & ﬁtness sector faced a number of challenges in 2009, including an over-supply of clubs in some areas, high levels of membership attrition, signiﬁcant rental and property liabilities and increasing utility costs.

Attracting and retaining members The UK’s health & ﬁtness industry appears to have been more resilient to the downturn than most thought. Membership renewals remain an issue for almost all clubs, although there is evidence to suggest that attrition levels are much lower for family-orientated raquet facilities. The traditionally buoyant secondary spend levels — for extra services such as personal training, spa treatments and refreshments — came under pressure in 2009. Member retention may be an issue but, in many cases, membership ﬁgures are increasing slowly. The 2009 Fitness Index showed that, on a like-for-like basis, gym membership numbers grew by almost 1% for the 12 months to the end of March 2009, compared to the previous year, while the total value of the market increased by £108 million to £3.7 billion. The number of new clubs opened between April 2008 and March 2009 was 114, which expanded the membership base by 119,000. The Fitness Industry Association also reported that many public and private sites have seen the number of active members growing.

Investment and transactional activity Transactional activity during 2009 was again hampered by the lack of available funding and the scarcity of quality real estate-backed assets. The sale, by JJB, of its 52-strong Fitness Club chain, back to founder David Whelan for £83.4 million, was the only deal of a signiﬁcant size.

OUR PREDICTIONS FOR 2010 + Continued growth of budget gym concepts.

+ Further distressed assets will be brought to the market.

+ Further rationalisation of the late-night drinking venue sector.

+ Stabilisation in the snooker and pool hall sector.

+ Ongoing rise in domestic holiday bookings.

Where clubs can show a strong historic trading proﬁle, or future opportunities for development, there continues to be strong interest in the marketplace. Well-located sites, with good catchments and defendable positions, are highly sought-after. Operators are also still willing to invest in their estates, with LA Fitness announcing in November 2009 that it had earmarked £30 million for a comprehensive refurbishment programme in its 83-strong portfolio of UK health clubs.

New concepts Over the last 12 months, we have seen the development of a number of “budget” concepts, providing “dry” clubs, with a 24-hour trading proﬁle, which offer memberships for around £10-15 per month. Examples of such operations include the likes of The Gym Group, Pure Gym, Fitness4Less and Fitness4all. In addition, the recent sale of three diverse LA Fitness clubs, to start-up operator Nuyuu Fitness, backed

Business Outlook 2010 Market Intelligence 2009

by Dragon’s Den entrepreneur James Caan, sees the development of a super-budget concept, with average monthly membership rates targeted at £20. Compared to some leisure sectors, personal health and wellness is seen as an enduring value, particularly during an economic downturn. It will be interesting to see whether the market continues to polarise, as club users seek both value and high standards of facility, equipment and service in the future.

DOWNTURN BRINGS SOME BENEFITS

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Case Studies Sector Experience The Mansion, Roundhay Park

In the face of the recession and weak exchange rates, there has been an increase in domestic holidays. A number of holiday park operators benefited from the advent of the aptly-named “staycation” in 2009. Pontins, the holiday parks company, reported a 25% rise in bookings for the first six months of the year, as cash-strapped holidaymakers turned to affordable, stay-at-home breaks. The company announced plans for a £50 million redevelopment of its six chalet parks across the UK, which would see 2,000 jobs created in the process. The group said that demand was so strong, it was also looking to acquire other businesses to boost capacity. Center Parcs is also looking to start work on its fifth site in the UK, after it obtained permission for two public rights of way at its proposed holiday village, at Warren Wood, in Bedfordshire.Rival Butlins reported a 10% rise in bookings during 2009, and a 30% increase for this summer. Caravan park operator Park Resorts, which agreed with its lenders on restructuring the terms of its £330 million debt, is also understood to have shown signs of improved trading.

Low cost activities Cheap forms of entertainment tend to do well in recessions and cinemas reported a 15% rise in admissions in the first six months of 2009, to their highest level for seven years. Box-office receipts were also boosted by a run of crowd-pulling blockbusters and an unusually wet July. In October, Cineworld Group reported revenues up by 6.5% for the 43 weeks to 22 October, compared to the previous year. The company also announced plans to expand its estate by two further cinemas by the end of the year. UK sports clubs are also defying the recession, with community activities coming to the fore during the downturn. Figures produced at the end of last year, by the Central Council of Physical Recreation, from a study of 3,000 clubs, showed a 34% increase in the number of adult memberships and a 40% rise in junior memberships. After going through a pre-pack administration process in April, Rileys the snooker and pool club operator, shorn of 30 loss-making sites, also started to see some positive signs across the remainder of its circa 130-strong estate. The rise in unemployment has contributed to an increase in footfall at the clubs during the week, whilst the introduction of new initiatives led to a 60% increase in sales in the 12 weeks after they were introduced. As predicted last year, we have continued to witness the growth of live music and entertainment businesses. Large and medium-sized venues have benefitted from the increasing popularity of touring concerts

The Mansion, Roundhay Park

Acting on behalf of Leeds City Council, Christie + Co secured Dine, the local catering and event management specialists, to operate one of Yorkshire’s most popular tourist destinations — the Mansion in Roundhay Park, Leeds. Designed to accommodate a variety of catering requirements, the Mansion comprises: the Garden Room Café Restaurant; a separate takeaway facility, for visitors looking to dine alfresco in this 700-acre conservation parkland setting; and luxurious conference, wedding and banqueting facilities for up to 220 people.

Walkabout bars — sold on behalf of Regent Inns Acting on behalf of Regent Inns, Christie + Co sold a package of seven Walkabout-branded sites, which are spread across the UK, to Cavendish Bars, for an undisclosed sum. The sites, which were all leasehold, were the Walkabouts in Brighton, Bromley, Durham, Oldham, Putney, Southampton and Swindon.

Fitness4Less On behalf of budget health & ﬁtness operator Fitness4Less, Christie + Co has been appointed in an advisory capacity to oversee a major acquisition and development programme across the UK.

and productions. Although it rarely provides a cheap form of entertainment, the live events industry has witnessed the return of numerous “Super Groups”, which the British public has been eager to support. The fragile state of the economy will continue to affect the leisure sector for the foreseeable future, but customers continue to seek low cost activities to occupy their recreational time. Operators who are able to provide value for money leisure breaks and activities will be well placed to ride out the storm.

LATE-NIGHT VENUES FEEL THE STRAIN The UK’s late-night venue and bingo sectors continued to feel the impact of the recession in 2009. The slowdown in consumer spending, rise in youth unemployment, ongoing fallout from the smoking ban and other legislative changes have all had a negative effect on operations.

Walkabout bar— sold on behalf of Regent Inns The industry continued to suffer a hangover from the “me too” years, where operators flooded to the high street in order to capture a slot on the drinking circuit — at any price. High street rental levels that are based on floor areas, or over-ambitious sale and leaseback deals, have proved inflexible and left many retailers struggling to move their businesses forward. Established high street operators, such as Premium Bars and Restaurants (PBR) and Regent Inns both entered administration during 2009. Regent Inns quickly reappeared as part of a management buyout, whilst the Orchid Group acquired PBR at the end of the year. Regional chains, such as Absolute Leisure in the North East, have also fallen by the wayside, as the squeeze on consumer spending has tightened and asset reinvestment remains under pressure. Earlier in the year, the UK’s biggest nightclub operator, Luminar Leisure, announced plans to raise £37.5 million in a share placing, to expand and develop its business and to take advantage of opportunities coming to the market. However, in October, Luminar announced that trading levels had worsened during the second half of the year, with unemployment particularly impacting its core customer base of young people.

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The 3D Entertainment business, which was spun out of Luminar in 2007 for £95 million, was reportedly placed on the market in October, after claims that it tried, unsuccessfully, to merge with both PBR and Regent during the year. Luminar, which held a 49% stake in the business, was said to have slashed the price for its interest to less than £5 million. Despite the challenging trading environment, a number of deals were completed in the sector during the year, including the disposal, by Luminar, of 27 sites to Cavendish Bars. In June, Christie + Co acted on behalf of Regent Inns in the sale of seven of its Walkabout sites, which were also acquired by Cavendish. The following month brought the sale

of Nexum Leisure’s Zanzibar nightclub in Stafford, through Christie + Co, to West Midlands operator, Utopia Clubs. In November, RCapital, the backer of Little Chef, completed the acquisition of 28 sites from Helena Leisure. Bingo operators continue to come under pressure, but the sector has shown some tentative signs of improvement, as smoking ban measures began to take effect. At the time of going to press, the Government had announced a 2% cut in bingo duty to 20%, in an attempt to halt the rate of bingo hall closures. Although this measure was a step in the right direction, many saw it as being too little, too late. The future of operator Gala Coral was also set to

be decided by the end of the year, with the company hoping to complete a reﬁnancing — although the situation had been complicated by an approach from Blackstone. The late-night sector has the potential for recovery in the medium-term, especially as the licensed leisure market continues to evolve and greater interaction between landlords, investors and operators becomes more widespread. The reality, we believe, is that the sector is set for another tough 12 months, with more pre-packs and administrations inevitable, as the banks continue to reappraise and reposition their exposure to what is recognised as a high-risk, high-reward market.

LEISURE TRANSACTIONS 2009 Date

Vendor

Purchaser

Deal

January

MAMA Group

HMV Group

Acquisition of 50% stake in Mean Fiddler Group Ltd for £22 million.

March

3D Entertainment

Eminence Leisure

Acquisition of 28 bars for an undisclosed sum.

X-Leisure Unit Trust

Matterhorn Capital

Acquisition of O2 Centre for £93 million.

Rileys

Valiant Sports Ltd

Acquisition, out of administration, of 129 snooker, pool and sports clubs for an undisclosed sum.

JJB Sports

Dave Whelan Sports Ltd

Acquisition of 52-strong ﬁtness clubs chain for £83 million.

May

Luminar

Cavendish Bars

Acquisition of 27 late-night venues for an undisclosed sum.

Britannia Parks Ltd

Frogmore Real Estate Partners II

Acquisition of 20 retirement and leisure parks for £17 million.

Drumaville Ltd

Ellis Short

Acquisition of 70% stake in Sunderland Football Club for an undisclosed sum.

Regent Inns

Cavendish Bars

Acquisition of seven Walkabout bars for an undisclosed sum.

Bjoergolfur Gudmundsson

CB Holding

Acquisition of West Ham United Football Club for £101 million.

Shipley Estates Ltd

Talarius Ltd

Acquisition of the UK-based leisure and gaming venues company for £13 million.

Esporta Group

Société Générale de France SA

Acquisition, out of administration, of UK-based health club operator and ﬁtness company for undisclosed sum.

3D Entertainment

JD Wetherspoon

Acquisition of seven Chicago Rock Café sites for an undisclosed sum.

Novus Leisure

Royal Bank of Scotland and Barclays

Debt-for-equity swap with banks taking a greater stake in Novus Leisure.

Independent News & Media

PartyGaming

Acquisition of Cashcade Ltd, the UK-based online gaming supplier, for £96 million.

Birmingham City Football Club

Grandtop International Holdings Ltd

Acquisition of 79% stake in Birmingham City Football Club for £62 million.

Devondale Investments Ltd

Al Fahim Asia Associates

Acquisition of Portsmouth City Football Club for an undisclosed sum.

LA Fitness

Nuyuu Fitness

Acquisition of three LA Fitness gyms by new ﬁtness club chain for an undisclosed sum.

Regent Inns

iNTERTAIN Ltd

Acquisition of 60 bars, out of administration, by former Regents Inn management for an undisclosed sum.

Park Resorts

Lenders including Lloyds Banking Group

A £325 million debt-for-equity swap deal by the caravan park operator with its lenders.

Powerleague Group

Patron Sports Leisure Sarl

Acquisition of 71% stake in the UK-based operator of ﬁve-a-side football centres for £30.2 million.

Al Fahim Asia Associates

Falcondrone Ltd

Acquisition of 90% stake in Portsmouth City Football Club for an undisclosed sum.

Case Concepts Ltd

Praesepe Plc

Acquisition of 13 gaming centres for £6.3 million.

November

Helena Leisure

RCapital

28 bars and nightclubs acquired through a company voluntary agreement in a deal led by RCapital.

December

Blue Chip Casinos

Casino 36

Acquisition of two casinos, out of administration, for £2.9 million.

Premium Bars & Restaurants

Orchid Group

Acquisition, out of administration, of 43 sites for an undisclosed sum.

June

July

September October

Business Outlook 2010 Market Intelligence 2009

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Care + Childcare “

The major care operators turned their backs on the transactional market in 2009, in order to focus on improving operating efﬁciency and addressing debt levels. The creation of the Care Quality Commission — and its new key lines of regulatory assessment — turned the spotlight on quality. Richard Lunn - Head of Care

Limited transactional activity Leverage issues continued to inhibit transactional activity at a corporate level in 2009, although a number of single assets changed hands during the year. Private equity groups did not abandon the sector altogether, but they were rarely able to find suitable opportunities, or agree deals at an acceptable price level. Although demand for quality single assets was strong, volume and quality of stock were key issues — particularly in the elderly market — as owners held onto assets, realising that they couldn’t better their returns by investing elsewhere. Many of the properties that reached the market had some degree of distress, otherwise they simply wouldn’t have been sold. Buyers undertook more due diligence in order to satisfy funding requirements and, without sufficient guarantees and warranties from the vendor, distressed assets proved difficult to sell. Christie + Co’s average price index shows an 11% reduction in values for 2009. It should be noted that this is reflective of the quality of stock that actually transacted in 2009. Sales of high quality, purpose-built units have been extremely limited, but we firmly believe values for such assets have remained robust. In a bullish market, the price differential between poor and high quality stock narrows dramatically. However, in 2009, this price differential has increased significantly — skewing the value index.

Operators look inwards Most of the larger operators spent the year focusing on enhancing operating efﬁciency,

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BUSINESS OUTLOOK

OUR CARE SECTOR PREDICTIONS FOR 2010 + Further distressed cases brought to the market. + Uncertainty created by the lead up to and following the general election. + Further pressure on fee rates and occupancy levels. + Issues will be raised by the Care Quality Commission’s registration process.

improving quality standards and reducing debt. The creation of the Care Quality Commission put the spotlight on quality of care, as operators endeavoured to achieve the best possible star

+ Local authorities will continue to come under pressure to reduce costs, in the face of rapidly increasing levels of central government borrowing. + Return of signiﬁcant private equity activity. + An increase in conﬁdence and liquidity would quickly result in value increases.

ratings. This commitment to improve quality prompted some companies to rid themselves of bottom end assets that were unlikely to make the grade.

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Debt-laden deals from the pre-credit crunch era continued to haunt the sector and were brought into focus at the end of 2009, when Four Seasons’ lenders, led by the Royal Bank of Scotland, were forced to write off over £800 million of loans in the company in a debt-for-equity swap. It is hoped that this reﬁnancing will draw a line under one of Britain’s biggest nursing chain’s troubled last few years. Rival Southern Cross also pulled back from the acquisition trail during the year, following the turmoil surrounding the business in 2008, when it breached its bank covenants. The company has announced that it has embarked on a period of consolidation, after several years of rapid growth. It is now concentrating on organic growth, through continuing improvements in service quality. To this end, the company launched a new management initiative called New Horizons, which is aimed at improving the quality of existing offers.

Learning disabilities The specialist care market is generally more resilient than elderly care, but it has been affected by the increase in supported living facilities. Operators continue to explore different types of services and facilities, in a move away from traditional registered accommodation.

Macro-economic concerns While most care businesses continue to trade at sustainable levels, national average occupancy has softened recently and is currently running at around 89%. Industry fundamentals continue to be driven by medium and long-term demographic pressures, including an increasingly ageing population.

Movement in care values Christie + Co’s care price index, which uses average price information derived from care transactions brokered by the company, shows that care property values have fallen by approximately 26%, from their peak in the third quarter of 2007. Care property values for 2009 dropped by 11%, compared to a decline of 16.9% in the previous year. Whilst Care has shown an overall reduction of 11%, this is exacerbated by the lack of sales of high-quality, purpose-built stock.

Care -11% movement in average prices 2004 2005 2006 2007 2008 2009

16.9 14.5 17.4 12.2 -16.9 -11.0

-20%

-10%

10%

15%

Sector Experience

Synova Capital

Development opportunities

Clearwater Care

Christie + Co provided valuation advice to Synova Capital LLP, the private equity fund, in its acquisition of Clearwater Care, the leading provider of specialist residential care facilities and supported living services for people with learning disabilities. Clearwater Care operated 14 care homes, predominantly situated in South East England. This acquisition represented Synova’s entry into the care market, from which it is looking to expand the operation by way of acquisition and organic growth.

Orchar Nursing Home

Vision UK

Acting on behalf of the owners, Angus Johnman and John Thom, Christie + Co sold Orchar Nursing Home in Dundee, to Carewise Homes Group for an undisclosed sum. The acquisition marked Carewise’s debut in Scotland.

Acting on behalf of private owners, Christie + Co sold two Devon-based care homes to Vision UK, the fastexpanding, care-focused group. The company, which is headed by Dennis Grifﬁth, acquired the freehold interests of the Langford Park Nursing Home and Sainthill House care home.

The outlook for 2010 The Care Quality Commission (CQC), will play a key role in shaping the progress of the UK’s care sector in 2010. According to the CQC’s first report on adult social care in England, which was published in December 2009, the general standard of care in the UK is getting better. However, the Commission expressed concern about the low quality of some care services. The report showed that almost 25% of homes for older people continued to provide care that is of a poor or only adequate standard, with over 400 care services rated poor. We have seen that, in most cases, a poor rating results in an immediate cessation of referrals by the Commissioning Authorities and causes severe financial difficulties for the operator.

-5%

Case Studies

Macro-economic concerns for fee inﬂation in 2010 remain, including pressures on public sector funding. The sector may also be impacted by the uncertainty generated by the lead up to the General Election and the political posturing of the three main parties. However, as a needs-driven sector, care may not be as dramatically affected as other parts of the economy.

The slowdown in the residential property market has opened up a range of opportunities for care operators. The reduction in land and construction costs has enabled those who are able to obtain funding to develop new facilities in prominent locations. Care homes are now able to occupy prime sites, with main road frontage, that would have been snapped up by the residential market two years ago. Operators are commissioning new facilities that are often well ahead of National Minimum Standards and provide services of a higher quality than those offered by older competition. New service developments have included hairdressing salons, spas and cinema rooms, within these homes.

-15%

Orchar Nursing Home

Vision UK

Business Outlook 2010 Market Intelligence 2009

Between April and October 2010, all adult social care providers must re-register with the CQC to show they meet a wide range of essential, common quality standards. It is hoped that this process will run smoothly, with care home operators taking the chance to register as soon as possible, in the early stages of the year.

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BUSINESS OUTLOOK

We fear, however, that this registration process may cause a logjam in transactional activity during this period, as the regulator attempts to cope with the scale of the task, whilst also dealing with the requirements of individuals and companies looking to transfer registration as part of a normal sale process.

ONGOING CONFIDENCE IN THE CHILDCARE SECTOR The continued lack of confidence across the banking sector remained the key factor in the ongoing low levels of transactional activity during 2009, especially in the first six months. However, businesses that exhibited operational stability were able to take advantage of lower property and business values and the curtailing of expansion plans by rivals, to grow their businesses via acquisitions. This was highlighted by a number of significant portfolio deals, which were successfully completed across many child centric sectors during the year. In early 2009, the National Fostering Agency Ltd — the second largest fostering agency in the UK — acquired Alliance Foster Care in Northampton, Alpha Plus Fostering in Oldham, and an unnamed Essex-based agency, for an undisclosed sum. In February, Christie + Co acted on behalf of private owners in the sale of Kingsclere Nurseries Ltd, the Berkshire-based care group, which operated seven nurseries, for an undisclosed sum, off a guide price of £4 million. During the summer, the UK’s two biggest nursery operators were both involved in significant deals. In May, Christie + Co was invited, by Bright Horizons Family Solutions, to assist them with their acquisition of the Teddies Nurseries portfolio. This was followed, in June, by the management buy out of Busy Bees, the UK’s largest nursery chain, which was backed by Knowledge Universe, a Singaporean education firm. Christie + Co was responsible for providing vendor valuation advice in the lead up to this transaction. Finally, in September, the Just Learning nursery group acquired Nunu, a portfolio of 10 nurseries for a sum reportedly in excess of £7 million. These deals again highlighted that operators and investors continued to have confidence in the sector and an appetite for strongly performing businesses with good track records.

OUR CHILDCARE SECTOR PREDICTIONS FOR 2010 + Likely increase in distressed sales, primarily due to over-gearing or poor management.

+ One or two very sizeable childcentric transactions could be completed during the ﬁrst half of the year.

+ An increase in opportunities for operators to acquire or tender for + Possible introduction of management nurseries operated by organisations contracts. that are witnessing a tightening of + Real opportunity for regional groups purse strings — such as nurseries to scale up by making strategic, operated by local authorities, or selective acquisitions. those that have gained government initiative funding, such as neighbour- + Uncertainty for operators, following recent comments by Children’s hood nurseries and Minister Dawn Primarolo, that she children’s centres. is considering delaying the + Availability of good quality nurserimplementation of the Early Years ies with good levels of EBITDA will Single Funding Formula (EYSFF) remain low. However, demand could until 2011. exceed supply and result in multiples and values being driven forward.

Alongside corporate portfolio acquisitions, there have also been a number of smaller nursery group and single asset sales. Most notably, Christie + Co’s Edinburgh Office completed three nursery deals in October alone. The reduction of values across the childcare sector provided opportunities for regional and local operators, who have been looking to acquire a second business or grow local portfolios. A number of examples of these types of transaction were witnessed during the year, with further examples set to follow in 2010, as values remain relatively low. It is hoped that the UK will start to show signs of a recovery, albeit a fragile one, during the coming months. However, it is still difficult to build up a clear picture of how the economy will perform. It is hoped that the measures taken by the Government will steady the rate of economic decline and lead to an upturn and weak growth during the first six months of 2010.

We anticipate that transactional activity will remain subdued, compared to pre-credit crunch levels and expect availability of good quality nurseries with good levels of EBITDA to remain low. However, demand from buyers could exceed supply and result in multiples and values being driven forward. We may also witness the possible development of management contracts, as banks seek to appoint companies to operate and turnaround businesses that have encountered problems due to poor management. With such agreements in place, the banks can wait for the business performance and market to improve before selling, thus gaining a stronger opportunity for the business to pay off its bank debt. Those companies that can secure funding and have solid balance sheets are in the best position to take advantage of any opportunities that are sure to arise across what is still an attractive sector for investors.

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CARE & CHILDCARE TRANSACTIONS 2009 Date

Vendor

Purchaser(s)

Deal

January

Wood Berry Group

CareTech Community Services Ltd

Acquisition of Lyndhurst Psychiatric Residential Care Home for £6 million.

Private vendors

National Fostering Agency Ltd

Acquisition of three separate fostering agencies for undisclosed sums.

February

Kingsclere Nurseries Ltd

Private buyer

Acquisition of seven-strong nursery chain for an undisclosed sum.

April

Nufﬁeld Hospitals

Mezzanine Management Fund IV

Acquisition of Vanguard Healthcare Solution Ltd as part of a management buyout for £31 million.

May

Teddies Nurseries

Bright Horizons Family Solutions

Acquisition of the seventh largest nursery chain in the UK for an undisclosed sum.

June

Receivers of ABC Learning Centres

Management of Busy Bees, backed by Knowledge Universe

Acquisition, out of administration, by the founders of Busy Bees, backed by Knowledge Universe, of the majority share in the Busy Bees chain for an undisclosed sum.

Private vendors

Vision UK

Acquisition of two Devon-based care homes for an undisclosed sum.

July

Options Group Inc Ltd

Option Group Holding Ltd

Management buyout of the UK-based operator of autism schools and transitional life skills colleges for an undisclosed sum.

August

Care Aspirations

GI Partners

Acquisition of UK-based mental health services group for an undisclosed sum.

September

Clearwater Care Ltd

Synova Capital

Acquisition of the UK-based provider of specialist residential care facilities and supported living services for an undisclosed sum.

Nunu

Just Learning Holdings

Acquisition of 10-strong nursery group for an undisclosed sum.

October

Private vendors

Carewise Homes

Acquisition of ﬁrst Scottish care home by national operator for an undisclosed sum.

November

Private vendors

August Equity

Acquisition of four domiciliary care businesses for an undisclosed sum.

Private vendors

Lifeways Community Care

Acquisition of two home service providers in two separate deals for undisclosed sums.

Park Group (in administration)

Private buyer

Acquisition, out of administration, of three care homes in the East Midlands for an undisclosed sum.

Shirebrook Care Group

GI Partners

Acquisition of Mansﬁeld-based operators of adult nursing homes for an undisclosed sum.

December

BABY BOOM TO BOOST SECTOR? Whilst 2009 was a reasonably challenging year for the childcare sector, on both transactional and operational fronts, the last 12 months have provided a number of noteworthy landmarks that highlighted the continuing success of the sector. The problems faced by the economy — and its negative effect on the amount of money in people’s pockets — led to more parents returning to work, or working longer hours, which in turn drove reported increases in nursery occupancy. These increases were balanced, by drops in occupancy, in areas where parents faced redundancy. Parents who were unable to work were forced to curtail the number of days that their children attended nurseries, or completely withdraw them altogether. While we anticipate that this balance will remain reasonably constant during the year ahead, we do anticipate that there will be some new demand from parents, particularly in Q1 of 2010. The UK also continues to be in the grip of a baby boom. According to the Ofﬁce of National Statistics, the total fertility rate was 1.96 children per woman in England and Wales in 2008, up from 1.63 in 2001. The number of live births in 2008 was 708,711 — the largest ﬁgure since 1972. Whilst this is encouraging news for future nursery occupancy levels, a note of caution was sounded in the US. The birth rate in the US fell by 2% in 2008, which experts put down to a lack of job security and the impact maternity leave would have on young families.

Published in November, the latest annual report from Ofsted showed that quality in early years’ provision continued to improve, with nearly twothirds of settings rated as good or outstanding. Figures for 2008/09 show 95% of early years providers rated satisfactory or better.

Political playground Unfortunately the first six months of this year are set to be dominated by the run up to a General Election. An example of the political uncertainty that the sector faces during the first half of the year was highlighted by the Government’s back peddling, regarding its plan to scrap tax relief on childcare vouchers. The Labour Party had announced plans to fund an expansion of the Early Years Entitlement to two-year-old children, by abolishing tax relief on childcare vouchers for working parents. The proposal whipped up a storm of debate across the sector, eventually forcing the Government to make what would appear, at the time of writing, to be a significant policy U-turn. The three political parties’ stance on the childcare sector continues to be unclear. It is expected that funds from the public sector will have to be cut to help ease the debt burden the country is facing. Therefore, the next six months of political promises and the result of the General Election could have a significant impact on the day nursery sector.

Away from political issues, economic downturns and a fall in transactional activity, the sector celebrated a number of notable milestones during 2009. The year marked the 10th birthday of the National Day Nurseries Association, and “Auntie”, a nursery sector charity, set up by Russell Ford, former CEO of Asquith Nurseries, was launched. The charity is inviting UK day nurseries and preschools to offer support in helping children and families in deprived South African townships. Bringing up Baby, a pioneering, London-based operator celebrated its 20th anniversary during the year. The company, which was launched in Shepherd’s Bush after co-founders Anne de Zoysa and Sue Woodford struggled to ﬁnd suitable childcare for their own children, is a shining example of the level of quality service that can be provided in the sector and also what can be achieved from humble beginnings. Bringing up Baby now operates ﬁve successful sites in London. The UK’s childcare sector is set to be affected by a number of different factors over the next 12 months and beyond but, as operators such as Bringing up Baby have proved, those with clear vision and a quality offering will remain at the forefront of the industry.

Business Outlook 2010 Market Intelligence 2009

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Retail “

The retail sector, like all sectors, has not been immune to the economic downturn. However, it has remained more robust, with property values falling less than in other markets. The recession has undoubtedly changed the way that we shop, with the acceleration of long-running trends, such as discounting and the introductionof value ranges. Consumers have taken the opportunity to shop more frequently and locally, which has strengthened the resilience of the convenience store sector. The rise in interest in food miles and locallysourced produce, highlighted by the increasing popularity of farm shops, is also beneﬁting the sector.

Tony Evans - Head of Retail

”

BUSINESS OUTLOOK

The increase in promotions and value ranges has allowed many operators to stabilise turnover levels, in line with a general shift from consumers, towards value-orientated retailers and ranges. If and when the recovery starts, retailers will be faced with the problem of pulling back on promotional activity, without losing footfall, in order to increase gross proﬁt margins, which continue to come under severe pressure. The increase in VAT and the continuing rise in unemployment mean that margins will remain under pressure for the foreseeable future. These factors will also help discount chains to increase market share, whilst internet sales will continue to grow. Trading updates, especially across the c-store sector, have remained encouraging, with the move towards value ranges allowing several symbol groups and wholesalers to report increased levels of sales. Unlike other commercial property sectors, the retail sector has not experienced a wave of administrations during the year. First Quench Retail was one of the few examples in 2009 and certainly the most high proﬁle casualty of the current downturn.

Estate building continues Whilst transactional activity was hampered by the lack of available debt, regional and local operators continued to build their estates last year. The Cooperative Group disposed of a number of Somerﬁeld stores, in order to meet competition rules, and many of these sites were acquired by regional groups. These corporate disposals also led to the introduction of some new entrants to the sector, including Haldanes Stores and ASCO, which are the ﬁrst new supermarket names to launch in the UK for a quarter of a century. Indeed Haldanes has already grown its estate to 18 stores, which stretch from the North of Scotland to the Midlands of England, with plans to open 50 outlets in total over the next four years.

OUR PREDICTIONS FOR 2010 + Downward pressure on gross proﬁt margins, not helped by the increase in VAT. + The introduction of further value ranges by the larger operators e.g. Waitrose value range, to compete with value-orientated retailers. + Continuing growth of on-line grocery shopping.

+ Further consolidation, with private equity circling the sector. + Brands that have traditionally suffered will struggle to stay aﬂoat. + Increasing focus on locally-sourced products and food miles.

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The cancellation of the tender process for the Post Office Card Account (POCA) and the conclusion of the consultation process for ‘Network Change’ have led to a rise in the interest shown in operating post offices over the last 12 months, with a number of combi-sites changing hands. There is no shortage of buyers interested in the sector, with many becoming more opportunistic during the second half of the year. However, those seeking to expand are struggling to find competitively-priced, quality businesses, as retailers weigh-up their return on capital against the lack of investment returns they would attract in alternative markets. Legislation continues to hamper the sector, with the ban on tobacco displays planned for 2011 and tougher licensing laws, particularly in Scotland, being two of the latest proposals, which will add further cost and disruption to retailers. Despite the recession and further red-tape, the last 12 months has again proved that well-run businesses, which afford a valuable offer to their local communities, including product availability and speed of service with a personal touch, can still generate sales, especially as consumers cut down on luxury items and concentrate on necessities.

A MATTER OF CONVENIENCE Despite the economic downturn, the UK’s convenience store sector continues to drive growth in the grocery market. Opportunities to expand — through the rise in the number of pub closures; a more secure future for post offices; and consumers continuing to shop more frequently — are all helping the sector remain resilient in the face of the recession. The news, in the final quarter of the year, that Waitrose is set to become the latest supermarket chain to expand into the convenience market and that Marks and Spencer has started selling branded goods at its stores across the UK, has also underpinned confidence in the sector. With the sector forecast to constitute 25% of all store-based food sales by 2012, many believe there has never been a better time to enter the market. As with the first wave of supermarkets entering the convenience store market, this latest news from Waitrose will provide existing operators, and especially independents, with further opportunities and challenges. Still accounting for approximately 24% of the market, independent store numbers are in decline, with around 1,250 closing in the last year according to IGD, the retail analyst. The move by Waitrose into the sector will again put many under pressure to survive and will further anger campaigners, who believe the continued homogenization of the high street is driving out local independent businesses. However, many independents, who weathered the initial rush of smaller supermarket formats, again believe that the move by Waitrose can only be healthy for the sector as a whole. Firstly, by demonstrating its strength and improving its value, whilst also making independent businesses raise their own standards, with wider ranges, greater diversification and enhanced services.

Movement in retail values Christie + Co’s retail price index, which uses average price information derived from retail transactions brokered by the company, shows that retail property values have fallen by approximately 16% from their peak in the ﬁnal quarter of 2007. Retail property values for 2009 dropped by 9.8% compared to a decline of 6.5% in the previous year.

Retail -9.8% movement in average prices 4.5

2004 2005 2006 2007 2008 2009

7.9 5.9 5.6 -6.5 -9.8

-20%

-15%

-10%

-5%

10%

15%

Case Studies Sector Experience Forecourt

Richmond Road Service Station, Kent

Acting on behalf of C & K Watts, Christie + Co sold the freehold interest of the Richmond Road Service Station in Herne Bay, Kent, to Niza Enterprises Ltd, which currently operates three petrol filling stations and two stores across Middlesex and Kent. The site was sold for an undisclosed sum, off an asking price of £1 million. Despite the challenging market conditions, the Richmond Road Service Station attracted significant interest from both established operators and first-time buyers.

Convenience Stores

The Pharmacy, Portsmouth

At the end of 2008, Christie + Co was appointed by administrators KPMG to sell 33 convenience stores previously operated by Nearby Stores. The majority of stores were sold by the end of January this year, with 13 acquired by Southern Co-operative for an undisclosed sum.

Acting on behalf of David Appleby, Christie + Co secured a new partner for Medication Every Day Services Ltd (operating from The Pharmacy in Portsmouth, Hampshire), which will allow the business to expand. The Pharmacy, which is based in the North End area of the city, had a proven new system for the distribution of medication to the residents of local care homes. A new partnership was created with Randeep Laly, an existing pharmacy operator in Farnham.

Acting on behalf of a private owner, Christie + Co sold the leasehold interest of the Mills convenience store in Sutton Coldﬁeld to local operator Rambhai Madhvdia, for an undisclosed sum. The acquisition of the 1,000sq ft unit, which has an average weekly turnover of £10,000 plus commissions, took Rambhai’s portfolio of stores in the West Midlands to four. He currently operates another unit in Sutton Coldﬁeld, plus further stores in Leamington Spa and Droitwich.

The Pharmacy, Portsmouth

Double Finance Deal

Nearby Stores

Christie Finance assisted Mr Baldev Bhathal, a buyer from Middlesex, with the purchase of two established stores located in Carshalton, Surrey. Loans were secured with two separate High Street lenders to enable Mr Bhathal to buy the Costcutter and Londis businesses simultaneously.

Business Outlook 2010 Market Intelligence 2009

The continuing strong performance of symbol groups and of the national wholesalers also points to a healthy sector. As in the previous 12 months, there continued to be a lack of significant transactional activity. However, national groups, such as Martin McColl and Costcutter, continued to seek opportunities to expand their estates. Whilst the sector has not experienced a flood of business failures, some groups have fallen into administration —including Nearby Stores. Challenges remain, in particular the growth of discount retailers such as Lidl, Aldi and Netto, whilst the squeeze on independent operators continues. However, for those who have adapted, through the diversification of their offers, the raising of service standards and their importance to the local community, the next year and the challenges it brings can be faced head on. The sector continues to be robust and those with the right business model will be the ones who can reap the rewards when the inevitable upswing arrives.

DRIVING THROUGH THE CHALLENGES Despite facing the multiple challenges of ﬂuctuating fuel prices, threats over rises

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in fuel duty, problems raised by fuel cards, and proposed legislation regarding tobacco display, the forecourt market continues to be robust. This is largely due to good business practice from owners, who have recognised the benefits of concentrating on food retailing and the increased opportunities for proactive estate management. After years of decline, site numbers have begun to show signs of stabilisation, helped by new operators entering the sector, further development of convenience offerings and the re-commissioning of sites that were previously mothballed. Many of the multi-site independent operators posted sales increases during the year, despite the impact of the recession. The convenience part of the forecourt industry continued to grow, with further diversity of offer being witnessed during the year. New entrants to the sector included Greggs, the High Street baker, through a link-up with Euro Garages. Martin McColl also made its first move into the sector, after acquiring a site in Sheffield. The company is currently in negotiations to make further purchases across the country. Although the majority of operators have sought to increase their convenience offering, some have

successfully grown sales through focusing on fuel. Snax 24 took the decision to scale back on groceries to concentrate on fuel sales, a move that saw its sales grow by nearly 20%. Signiﬁcant transactional activity has again been absent from the sector over the last 12 months, although many national, regional and local operators have taken advantage of the reduction in values to extend their estates, through a number of small parcel and single asset acquisitions. Despite continuing competition from the major multiples, forecourt operators, such as Euro Garages, George Hammond and MRH (GB) Ltd, have all taken advantage of the drop in asking prices for sites. Lack of funding hampered multi-site transactions over the course of 2009 and will continue to do so in the ﬁrst half of 2010. It is hoped that the continued recovery of the economy will lead to a freeing-up of the lending markets and that further consolidation of the sector will return during the second half of 2010. The fact that sales remained resilient, despite the challenges of the recession and volatile fuel prices during the year, gives grounds for optimism that operators can continue to show the adaptability needed for the sector to show further growth.

RETAIL TRANSACTIONS 2009 Date January

March

Vendor

Purchaser

Deal

Nearby Stores

Costcutter

Acquisition, out of administration, of seven convenience stores for an undisclosed sum.

Nearby Stores

Southern Co-operative

Acquisition, out of administration, of 13 convenience stores for an undisclosed sum.

Woolworths

Iceland Foods

Acquisition, out of administration, of 51 stores for an undisclosed sum.

The Co-operative Group

Waitrose

Acquisition of 13 supermarkets for an undisclosed sum.

The Co-operative Group

Sainsbury’s

Acquisition of 24 stores for £83 million.

Somerﬁeld

Aldi

Acquisition of Huddersﬁeld-based store for an undisclosed sum.

Somerﬁeld

Midlands Co-operative Society

Acquisition of four supermarkets for £11 million.

Martin McColl

Compass Group

Acquisition of 27 hospital stores for £19 million.

Somerﬁeld

Lidl

Acquisition of two supermarkets for an undisclosed sum.

The Co-operative Group

Asda

Acquisition of three grocery stores for an undisclosed sum.

June

The Co-operative Group

Sainsbury’s

Acquisition of nine stores for £29 million.

September

Plymouth & South West Co-operative

The Co-operative Group

Acquisition of 66 food stores, 11 post ofﬁces, three forecourts and 30 funeral homes for an undisclosed sum.

April

May

October

November

December

The Co-operative Group

Bite Technology Limited

Acquisition of 18 stores for £5 million.

Wine Cellar

EFB Retail

Acquisition, out of administration, of 109 off-licences for an undisclosed sum.

The Co-operative Group

Haldanes Stores

Acquisition of four supermarkets for an undisclosed sum.

Private companies

Eurogarages

Acquisition of three forecourt sites in the North West for undisclosed sum.

The Co-operative Group

Waitrose

Acquisition of ﬁve shops for an undisclosed sum.

St Modwen

Acquisition of 2,500-acre land portfolio for an undisclosed sum.

First Quench Retailing

Venus Wine & Spirit Merchants

Acquisition, out of administration, of Wine Rack trading name and 14 stores for an undisclosed sum.

First Quench Retailing

SEP Properties

Acquisition, out of administration, of eight stores for an undisclosed sum.

First Quench Retailing

R&M Swaine owners of Rhythm & Booze chain

Acquisition, out of administration, of 34 stores for an undisclosed sum.

The Co-operative Group

Haldanes Stores

Acquisition of 13 supermarkets for an undisclosed sum.

First Quench Retailing

Wickham Vineyard

Acquisition, out of administration, of 14 stores for an undisclosed sum.

Business Outlook 2010 Market Intelligence 2009

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OFF-LICENCE SECTOR HIT HARD Out of all the segments in the retail market, the off-licence sector has been the hardest hit. In what should have been a promising year, with the dramatic number of pub closures and the effects of the smoking ban, it was envisaged that more people would opt to drink at home. However, the economic downturn and the incredibly aggressive alcohol pricing policy of the supermarkets have ravaged the trade. During the second half of 2009, we witnessed two of the sector’s biggest names fall into administration, whilst a number of others reported that sales levels had fallen compared to the previous year. In September, Wine Cellar, the operator of 170 stores under the Booze Buster, Simply Drinks and Simply Food & Drinks brands, entered administration. The majority of the stores were acquired by EFB Retail, but 61 stores were closed. This news was followed, a month later, by the collapse of First Quench Retailing (FQR), the operator of 1,300 stores under the Threshers, Wine Rack, Haddows and Local brands. The company had warned earlier in the year that some of its shops would close if it was unable to renegotiate rents with landlords, and it put in place a turnaround plan, which included cost savings, cutting of stock and further store closures. As Business Outlook went to press, a number of the going concern stores had been acquired in small packages. These deals included the purchase of the Wine Rack trading name and 14 Wine Rack Stores, by Venus Wine & Spirit Merchants for an undisclosed sum. Christie + Co was appointed in the middle of November, by administrators from KPMG, to advise on the sale of circa 700 former First Quenching Retailing (FQR) stores. Within the space of 10 days, we received in excess of 1,000 offers on more than 40% of the stores. At the time of going to press, we had been instructed to market a further 470 stores. The majority of interested parties were seeking to continue operating the sites as off-licences, although

the company has also received a number of enquiries relating to alternative use. The demise of First Quench Retailing provided a real opportunity for independent operators to acquire ‘corporate-style’ off-licences and the phenomenal responses we received was testimony to this. The sector has also had to deal with the threat of a minimum pricing level for alcohol, hanging over it during the year. Many commentators advocate a minimum price per unit as a means to tackle alcohol abuse. While the majority of operators in the sector have struggled, those who had the foresight to introduce convenience products into their businesses over the last 18 months, such as Bargain Booze and their Select Convenience brand, have seen sales remain robust and profit margins increase. The growing trend for independent retailers to convert to a symbol group, in order to offer a wider value range and regular promotions, supported by quality marketing literature and press campaigns, have allowed some off-licence operators to expand their estates during the year. After the problems faced by FQR and Wine Cellar over the last 12 months, many have questioned whether off-licences have a future. Numbers will inevitably fall in the face of the growth of online retailers, wine warehouses, and the superior buying power of the multiples, without government intervention on supermarket pricing policies. According to the latest figures, Britons are drinking more and more wine, with wine sales in the UK estimated to be worth £9.5 billion in 2009, with the off-trade outperforming the on-trade. These figures, and the phenomenal response regarding the former FQR stores, shows that there is still a place for niche, well stocked off-licences, especially for those customer service driven operators who can provide a quality offer tailored to their local customer base.

RETAILERS GIVEN ALTERNATIVE ROUTE FOR GROWTH The rise in the number of pub closures, coupled with the lack of activity from residential developers over the last 12 months, has provided established retail operators and ﬁrst-time buyers with perfect opportunities to operate businesses in the hub of local communities, or to expand current operations. Local community sites have come under the greatest pressure in the pub sector, with a signiﬁcant number being forced to close due to a culmination of factors, including the impact of the economic downturn, belowcost selling by the supermarkets and the smoking ban. Closed sites are often located at the centre of housing estates and local communities — prime locations for small convenience outlets. Such opportunities also have the advantage that, under current planning legislation, consent is often not required for change of use from A4 (drinking establishment) to A1 (shops). Pubs that are well located and designated for alternative use always generate a healthy interest from retailers, but the increase in pub closures has generated further enquiries and opportunities across the country. The locations of these closed pubs make them perfect for convenience store operators, who have a captive local customer-base on their doorstep from day one. The ease in which change of use can be gained, without planning consent, also increases the attractiveness of these former pubs.

temporary pressure on gross profit. We are seeing an increasing number of pharmacies offering enhanced services to complement the prescription for 58.2% of the pharmacy market —a rise of 11.8% on business. These services include smoking cessation, five years ago. The expansion of pharmacy groups and emergency contraception, supervised consumption supermarkets has challenged the independent market, and medicine use reviews. More and more pharmacies numbers of which have shrunk by approximately are adding consulting rooms and other similar 15% over the last five years. Although independent resources to boost revenues. pharmacy numbers may be in decline, there are still plenty of opportunities for successful growth, if operators focus on providing high levels of service to the local community. When you look at the projected pharmacy incomes and consider that the population of over 65s is set to increase by 23.5% in the next ten years, it is hardly surprising that the pharmacy sector The 100-hour pharmacy remains contentious within is an attractive market. We are seeing very strong the sector. Whilst there is arguably demand for these demand for pharmacy businesses, both from existing “super surgeries”, which offer extended hours medical operators and new entrants to the market. Many facilities, there is much more scepticism about their purchasers have experience in Christie + Co’s other effectiveness on the high street and in communities. sectors, such as healthcare or retail and they see The flexibility of the opening hours and accessibility opportunities for growth given the robust revenue are often outweighed by the high running costs, streams. Banks are generally supportive of the security issues and the ability to offer a truly sector and to date it has weathered the storm of personal service. current economic conditions well.

PHARMACY SECTOR BOOSTED BY SWINE FLU The UK’s pharmacy market was expected to be one of the best performing in the retail sector in 2009. Market analyst Verdict forecast that, although overall retail spend was set to contract by 0.6% during the year, the retail pharmacy sector would expand by 4.4% to £14 billion. The outbreak of swine ﬂu during the year helped increase pharmacy incomes and sales of over-thecounter (OTC) products, with Verdict estimating that incomes would grow by £83 million and OTC products would experience their fastest growth for 14 years.

Steady growth in pharmacy numbers

Strong demand

The 100-hour pharmacy

Pharmacy numbers have increased over the last ten years, contrary to many other parts of the retail market. Whilst this growth has been gradual — with the 2009 total estimate at around 13,000 — there has been a signiﬁcant shift in ownership, through mergers Following the changes in Category M pricing over and acquisitions. The leading nine players now account the last two years, most pharmacies have seen some

Pharmacies look to enhanced services

We have good reason to believe that the pharmacy sector will continue to outperform other areas of the retail market in 2010 and we expect appetite for pharmacy businesses to continue growing at a steady pace.

Business Outlook 2010 Market Intelligence 2009

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International FRANCE The last 12 months have proved challenging for all businesses across France — regardless of whether they are hotels, restaurants or cafés. No sector has been immune to the challenges posed by the global recession.

Case Studies Sector Experience

Airlines Hotel Hamburg

Against this testing backdrop, Christie + Co’s ofﬁces in France have continued to sell a signiﬁcant number of small to medium-sized businesses in the hotel sector.

Acting on behalf of a Mr Klaus Reents, Christie + Co sold the Airlines Hotel Hamburg, at Hamburg Airport, to Fattal Hotels, the Israeli hotel company, for an undisclosed sum. The Airlines Hotel Hamburg was the second property in Hamburg acquired by Fattal Hotels through Christie + Co, following its purchase of the Leonardo Hotel Hamburg-Stillhorn (formerly Le Méridien) at the start of 2008.

These types of businesses have continued to show a resilient performance in the face of the downturn and have therefore proven increasingly attractive to potential buyers. Financing has also been easier for this kind of transaction, compared to corporate assets with a value above ¤10 million. Location continues to be the main factor for buyers and is considered even more important than hotel category. Small businesses can catch the attention of buyers in the South of France, even when they are hidden in the middle of the countryside — because of the desirability of the region. In the North of France, buyers favour hotels that are prominently located in city centres. The lack of available ﬁnance has meant that leasehold opportunities continue to generate the most interest. It seems that trading conditions in 2010 could be as tough as the previous 12 months. However, in contrast to the start of 2009, sellers are becoming more realistic on price and banks are starting to show signs of becoming more receptive towards lending. We are expecting a better year in France, particularly in terms of hotel transactional activity. Interested parties are likely to continue focusing on small to medium-sized businesses, where Christie + Co France has a competitive advantage.

Airlines Hotel

France – Marciano Lafayette Hotel

Germany – K&K Kongress-und Kulturzentrum

Acting on behalf of a private individual, Christie + Co sold the freehold interest of the Marciano Lafayette Hotel in Paris, to Holiday Villa Hotels and Resorts, a division of Malaysian company Advance Synergy Berhad, for an undisclosed sum, off an asking price of ¤6 million. Located in the heart of the French capital, the 38-bedroom hotel marked the ﬁrst acquisition in the country for Holiday Villa Hotels and Resorts, which operates or manages 18 hotels around the world, including the Holiday Villa Hotels and Suites London, in Bayswater.

Christie + Co sold the K&K Kongress-und Kulturzentrum, a mixed-use complex in Halle, Germany, which includes the luxury Kempinski Hotel Rotes Ross, to Aurum AG, a company owned by German entrepreneur Hans Rudolf Wöhrl, on behalf of an NPL servicer, for an undisclosed sum.

GERMANY Average hotel values in Germany fell by around 15% during 2009, compared to the previous year, as the effects of the global economic crisis ﬁnally ﬁltered through to the country’s hotel market.

K&K Kongress-und Kulturzentrum

Les Demeures du Ranquet Christie + Co’s Marseilles ofﬁce sold the freehold interest of this 4-star, 10-bedroom hotel restaurant for an undisclosed sum, on behalf of a private client, to a Miss Chazal and a Mr Gayet. The property is located near the national park of Les Cévennes, in the South East of France.

Whilst economic performance in Germany slowed down notably in 2008, the hotel market still remained relatively stable — demonstrating growth, or at least stability. From the beginning of 2009, hotel proﬁtability was affected by the ongoing challenging macro-economic environment — with productivity falling by around 20%. This clearly shows the principle of cause and effect between the development of an economy and its hotel industry — the latter reacting with a time lag to economic changes. We have also witnessed increasing numbers of distress cases being brought to the market in recent months. Approximately half of the transactions we completed in 2009 had a distressed background. Christie + Co received a number of disposal instructions last year from banks that wished to pay down debts with the sale proceeds from hotel assets.

Marciano Lafayette Hotel

Les Demeures du Ranquet

Business Outlook 2010 Market Intelligence 2009

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Cases with distressed backgrounds are considered to to be more realistically priced and often generate greater demand — particularly from cash-rich private investors seeking good deals on mediumsized hotel assets. Over the last year, two major groups of buyers have been active in Germany: traditional hotel property investors and cash-rich private investors. These two groups had been priced out of the market in recent years by the more aggressive and highly-geared opportunistic private equity funds. With banks becoming more restrictive in providing debt, private equity buyers have left the market allowing traditional buyers and cash-rich investors to take advantage of a lack of competition and lower values. Unfortunately we don’t expect to see a positive improvement in values in the first half of 2010 – even with increasing demand for German hotel properties – as the inability to raise finance will continue to hamper the market. The economic outlook remains unclear, although many experts predict that we have another challenging year ahead of us. Even if we start to witness a sustainable upward trend in the wider economy, this will take a while to filter through to the hotel market. Any upturn in performance and activity will unfortunately have to wait until the second half of 2010.

SPAIN The global ﬁnancial crisis has had a particularly hard impact on Spain, which experienced a housing market collapse and growing levels of unemployment. Spain was the hardest hit of Europe's top holiday destinations, with UK tourists deterred by the weakness of the pound against the euro and increasing competition from destinations such as Egypt, Morocco and Tunisia.

become a problem within the next few years if the market recovery is slow.

The lack of debt availability from the leading banks has also hampered the volume of completed deals.

We expect that the market will continue to suffer in 2010, with any recovery likely to take time. We also expect that more businesses in the hotel segment will close down, especially in areas where there is too much hotel supply.

Despite the current market conditions, developers are taking a long-term view, with a number of feasibility studies currently being commissioned on proposed projects or those that are under development.

On the other hand, we also expect to continue working for the ﬁnancial institutions, which are seeking professional advice from Christie + Co regarding a number of their assets that are likely to come to the market over the next 12 months.

FINLAND The economic downturn continued to impact the Finnish hotel market during 2009, with transactional activity coming to an almost complete halt. Freehold property values have experienced a strong decline, but leasehold properties, which make up the majority of the hotel market, have in general remained unchanged. The downturn and its squeeze on trading fundamentals has continued to place further pressure on operators. The slowdown in transactional activity is also due to the fact that many of the hotels were acquired at the top of the market. Owners are therefore reluctant to sell these assets below their balance sheet values.

The Helsinki metropolitan market is still lacking the presence of international hotel brands, especially within the branded limited-service sector. Lapland is attracting increasing numbers of visitors and the market is responding to this with requests for a more modern supply of room stock and a wider product offer.

Scandinavia & the Baltic States Market conditions remain very challenging throughout Scandinavia and the Baltic States, with most of the region expected to experience a prolonged downturn. Although the region has not suffered an extensive banking crisis, the underlying expectation is that the next 12 months will continue to be a challenging, with a gradual recovery not forecast to commence until 2011. The recovery of both the Stockholm and Copenhagen hotel markets have further been affected by an increase in new room supply, that has yet to be absorbed.

Case Studies Sector Experience

The country’s two key cities — Barcelona and Madrid — both reported significant RevPAR declines during the year. Occupancy levels and room rates in Valencia, Spain’s third largest city, continued their steep decline to unprecedented lows in 2009. RevPAR dropped by 31.2% for the first six months of the year, due to a 9.4 percentage point drop in occupancy and an 18.0% fall in ARR, according to figures from STR Global. There was very little transactional activity in Spain during 2009 and developments have come to a standstill. Several small businesses changed hands, but most of them were lease agreements, with an option to buy. Hotels located in Madrid and Barcelona continued to generate the most interest, whilst those in coastal areas suffered from a lack of demand. The Balearic Islands are still attractive to buyers if the price is right, as well as some areas on the Canary Islands.

Proposed upscale hotel Christie + Co has been commissioned by a local developer to conduct a feasibility study for an upscale 17-storey, 250room hotel on the seafront in Helsinki’s Metropolitan Area. Furthermore, the company has conducted an operator search for the proposed hotel, and negotiations with a major international hotel brand are currently ongoing.

Proposed 250-bedroom hotel, Helsinki Metropolitan Area

Proposed mid-market hotel Christie + Co has been commissioned by a national construction company to conduct a feasibility study for a 150room, mid-market hotel in the Helsinki Metropolitan Area. We were also instructed to carry out an operator search for the proposed hotel, with negotiations currently taking place with a major international hotel brand.

Pricing and the lack of available finance were key issues in 2009. Only those buyers who required a small amount of funding were in a position to make offers and in most cases these were not considered acceptable by the vendors. There is still a large gap between the expectations of vendors and those of buyers, so offers are typically 40% below the initial asking price. Owners of distressed small to medium-sized hotels cannot secure sufficiently high prices to repay loans so the businesses ultimately fail. Unfortunately, once the assets are in the hands of the banks, they still tend to be overpriced when they are put on the market — although there are some indications that this is starting to change. In corporate cases, the banks are refinancing their clients, which might

Proposed 150-bedroom hotel, Helsinki Metropolitan Area

Christie + Co has 15 ofﬁces in the UK and eight ofﬁces in France, Germany, Spain and Finland. For further information, please visit

www.christiecorporate.com or contact: Christie + Co 39 Victoria Street London SW1H 0EU

T: 020 7227 0700 F: 020 7227 0701 E: enquiries@christie.com

Market Intelligence

2009

AGENCY | VALUATION SERVICES | INVESTMENT | CONSULTANCY

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2 Percentage movement in average prices Hotels -19.5% movement in average prices

2004 2005 2006 2007 2008 2009

10.9 10.8 13.1 6.1 -18.4 -19.5

-20%

Public Houses -20.1% movement in average prices

2004 2005 2006 2007 2008 2009

10%

15%

8.5 6.5 -11.6 -20.1

-15%

-10%

-5%

10%

15%

10%

15%

3.3 4.7 4.9 8.0 -14.9 -18.1

2004 2005 2006 2007 2008 2009

-15%

-10%

-5%

16.9 14.5 17.4 12.2 -16.9 -11.0

-20%

Retail -9.8% movement in average prices

-5%

5.2

-20%

Care -11.0% movement in average prices

-10%

9.2

-20%

Restaurants -18.1% movement in average prices

-15%

2004 2005 2006 2007 2008 2009

-10%

-5%

10%

15%

10%

15%

4.5 7.9 5.9 5.6 -6.5 -9.8

-20%

-15%

-10%

-5%

Christie + Co price indices Hotels Public Houses Restaurants Care 1800

Retail Christie + Co Average Index Retail Price Index House Price Index

Hotels Public Houses Restaurants Care Retail Christie + Co Average Index Retail Price Index House Price Index

1600

1400

1200

1000

800

400

200

1986

1987

1988

1989

1990

1991

1992

1993 1994

1995

1996 1997

1998

1999 2000

2001 2002 2003

2004 2005 2006 2007

2008 2009

Index based on average sale prices (from a base of 100 in 1975) 1975

2004

2005

2006

2007

2008

2009

Hotels

100

771

854

966

1025

837

674

Public Houses

100

822

865

939

1000

884

706

Restaurants

100

865

906

950

1026

873

715

Care

100

677

775

910

1021

849

755

Retail

100

865

933

988

1043

975

880

Average Index

100

863

973

1021

1099

981

823

Retail Price Index

100

484

497

516

538

554

550

House Price Index

100

1411

1458

1598

1708

1471

1511

Business Outlook 2010 | Market Intelligence 2009 | page 3

600

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4 Indispensable business intelligence

“Anyone who seeks professional advice needs to be conﬁdent that the guidance they receive is informative and actionable. At Christie + Co, we fully understand how businesses in the hospitality, leisure, care and retail sectors operate. Having inspected almost 15,000 businesses for sale or valuation purposes in 2009, we are well placed to provide the advice and support our clients need.” Chris Day International Managing Director

Valuable experience

Local knowledge, national view

2009 was a challenging year for businesses in our specialist sectors – a year in which we all reviewed our costs and examined our expenditure. Fortunately for Christie + Co, sector knowledge and transactional evidence is never more eagerly sought than in ﬁnancially challenging times. Our clients were easily able to justify the need to seek our assistance – whether they required informal marketing advice, a formal valuation, a feasibility study, an operational review, a market analysis report, or a disposal campaign.

As the UK’s leading business property advisor and agent, Christie + Co has a panoramic view of the markets, understands industry issues and is able to analyse sector trends. We employ sector experts in each of our UK ofﬁces, to provide regional knowledge and gather local intelligence. In fact, our experts are able to familiarise themselves with almost all the businesses operating in their local area.

For anyone seeking advice about hotels, pubs, bars, nightclubs, restaurants, health clubs, care homes, nurseries, convenience stores, off-licences, forecourts, post ofﬁces, pharmacy businesses or newsagents, Christie + Co has unrivalled knowledge of these sectors and should be the ﬁrst port of call. Over the last 12 months we have worked with a variety of owners, operators, investors, banks, landlords, tenants, developers and insolvency practitioners on an array of projects. The value of our involvement can be measured by the results we deliver and by the repeat business we win.

Wherever possible, our advice is underpinned by solid transactional evidence but, in a challenging market, there is often a lack of recent comparable deals. Our local ofﬁces gather intelligence on a daily basis and can provide evidence of off-market activity, including information about the number and value of bids submitted – even when a vendor has chosen not to accept them.

Timely advice is vital, particularly in distress cases, where swift action has the potential to turn a faltering business around. Christie + Co’s specialist agents and valuers are accustomed to responding rapidly to requests for discreet business inspections,

portfolio reviews and formal valuations. We successfully co-ordinated a number of substantial agency and advisory projects during 2009, which involved hundreds of assets, in locations across the UK. Utilising the expertise in all our local ofﬁces, we are frequently asked to complete inspections and provide initial recommendations within a matter of days.

Ongoing support As trading conditions toughened, 2009 tested the endurance of many businesses within our sectors. Our Bank Support and Business Recovery team assisted with more than 350 distress cases, involving over 1,600 assets. Although we have successfully handled a number of disposal programmes, our specialists are also able to recognise distress at an early stage – providing practical advice before asset sales become the only option. The operational experience of members of our consultancy team enables them to provide options appraisals to help identify the best possible solutions for stakeholders. We are geared up to provide further assistance to banks and faltering businesses as additional cases emerge in 2010.

Business sectors 7 Hotels 10 Public Houses 10 Restaurants 12 Leisure 14 Care 16 Retail

Simon Hughes UK Managing Director

Agency

Investment

Christie + Co’s average price indices, which are based on analysis of our own transactions for the year as a whole, show a reduction in average business property values across all our sectors in 2009. Values within the hotel sector reduced by 19.5%, whilst in the pub and restaurant sectors, they reduced by 20.1% and 18.1% respectively. The care sector reported a negative value movement of 11%, whilst the retail sector recorded a reduction of 9.8%.

There is much more to business agency than setting a price and ﬁnding a buyer. In fact, agreeing a deal that meets the expectations of both vendor and buyer is challenging in a buoyant market, so it is even more protracted when trading is tough and funding is hard to secure. Christie + Co’s reputation was built on brokering transactions and even in today’s marketplace, we are conﬁdent in our ability to facilitate deals. We manage the entire transaction process carefully, right through to completion, by ensuring that funding is in place and potential hurdles are eliminated.

Christie + Co’s specialist investment team focuses on identifying and developing investment opportunities across all our business sectors. Our experts provide advice on investment sales and acquisitions, sale and leaseback/manage-back opportunities, forward funding and forward commitment requirements. The team also works with developer clients on site sales and acquisitions, operator search and selection processes, and branding, management contract and lease negotiations.

This year, we thought it would also be helpful to provide average value falls from the peak of the market, to illustrate the full impact of the recession. Since hotel values reached their peak in the third quarter of 2007, our analysis tells us that they have fallen by approximately 34% overall. Values in the pub and restaurant sectors peaked in the ﬁnal quarter of 2007 and in the ﬁrst quarter of 2008 respectively. They have since fallen by 29% in the pub sector and by 30% in the restaurant sector. In the care sector, the peak in average values occurred in the third quarter of 2007 and they have fallen by 26% overall. Finally, values in the retail sector also peaked in the last quarter of 2007 and have subsequently fallen by 16%.

Business Outlook 2010 | Market Intelligence 2009 | page 5

Movement in property values

Consultancy Valuation services Our experienced team of Chartered Surveyors and valuers undertakes a variety of projects – from discreet individual property reviews, to complex formal corporate valuations. Recognising that a formal valuation is not always what the client requires, we tailor the service to match the need. Time is always of the essence and the size and geographical spread of our team enables us to manage major portfolio valuation projects as effectively as individual asset valuations – within demanding timescales.

Combining an analytical and results driven approach, our consultancy team provides a broad range of services across all market segments and is able to advise clients throughout the project lifecycle. The team’s access to unparalleled operational and performance data allows for timely and actionable advice. From market assessments, feasibility studies and projection evaluations, to bespoke strategic, operational and recovery projects – our advice is focused on maximising the value of opportunities and providing implementable solutions to complex problems.

www.christiecorporate.com

6 Unrivalled business intelligence + We inspected almost 15,000 businesses in 2009, for sale or valuation purposes. + We arranged more than 16,000 viewings in 2009 – an average of more than 60 viewings a day. + We complete more than 2,000 “Red Book” valuations each year. + We choose to specialise in Hotels, Public Houses, Restaurants, Leisure, Care and Retail and we have detailed knowledge of these sectors. + We employ both property experts and sector specialists with practical operational experience – we are truly business intelligent. + Our people are the best in the business: professional, accurate, each a specialist in their field and dedicated to getting the job done. + We were established in 1935 and have developed a wealth of advisory and transactional experience – in both challenging and buoyant markets. + We have 15 offices across the UK, providing us with a focused local presence, as well as a national overview. + Our local office presence enables us to undertake large portfolio projects, to meet demanding client timescales. + We have established relationships with genuine buyers and we understand what they are looking for. + Our property search website – www.christie.com – offers more than 3,500 businesses for sale and has over 34,000 active users. + Our website and Intelligent Business Information System (IBIS) enables us to monitor the progress of marketing projects – detailing the number of sales details downloaded, viewings requested and offers made.

Transactions 2009

Hotels

Head of Hotels

EUROPEAN PORTFOLIO TRANSACTIONS 2009 Date

Portfolio

Location

No. of Properties

Total Bedrooms

Sale Price (¤m)

Purchaser

432

Undisclosed

Nueva Rumasa

H10 Hotels

March

Portfolio of H10 Hotels

Spain

April

Portfolio of three former Purple Hotels

June

Worldwide portfolio of hotels

July

Vendor

258

Undisclosed

Travelodge

Administrators for Real Hotel Company

Worldwide

240

c.26,000

Undisclosed

Starwood Capital

Golden Tulip Hospitality Group

Portfolio of independent UK hotels

1,118

Undisclosed

Travelodge

Private vendors

August

Portfolio of Western European and African-based hotels

Austria, Egypt, Germany, Italy, the Netherlands and Switzerland

14,890

Undisclosed

Travco Group International

Steigenberger Hotels

September

Portfolio of Formule 1 hotels

France

158

12,300

272

Consortium of French institutional investors

Accor

Portfolio of Western European hotels

Spain

Undisclosed

NH Hoteles

Hesperia

Portfolio of independent UK hotels

857

52.8

Travelodge

Private vendors

November

Portfolio of nine Western European hotels

France

c.600

Undisclosed

Time-Hotels

Compagnie Générale Hôtelière

December

Portfolio of eight UK hotels

Undisclosed

Akkeron Hotels

Folio Hotels

Date

Property

Total Bedrooms

Total Sale Price (£m)

Purchaser

Vendor

June

New Connaught Rooms

Undisclosed

Principal Hayley

BDO Stoy Hayward

September

The Stafford

Undisclosed

77.5

Britannia Hospitality

Daniel Thwaites

October

Lord Milner Hotel

Undisclosed

Mantis Group

Finisterre Holdings (PTY) Limited

December

Park Inn London, Russell Square

214

45 plus

Crimson Hotels

Ernst & Young

Business Outlook 2010 | Market Intelligence 2009 | page 7

Jeremy Hill

“Despite the lack of signiﬁcant transactional activity and the challenging trading conditions, the mid-term outlook for the sector as a whole became more positive during the second half of 2009. We believe this will continue over the next 12 months, unless there are further shocks to the wider economy.”

LONDON SINGLE ASSET TRANSACTIONS 2009

www.christiecorporate.com

8 Transactions 2009 Hotels Trading fundamentals came under increasing pressure during the first half of 2009, leading to a number of operator failures, whilst others faced uncertain futures. A near total lack of visibility in terms of forward bookings contributed to an already challenging trading environment. Whilst some initial signs of demand stabilisation emerged during the latter part of the year, the ongoing uncertainty amongst operators, owners and investors forced the sector to focus on the basic principles of quality of service, range of guest facilities and location. Most operators realigned themselves to the new challenges, through refocusing on operational efficiencies and the introduction of significant rate discounting. Unlike previous recessions, London appears to be holding up significantly better than most regional UK markets, with year-onyear growth observed towards the end of the year. Unfortunately, a number of regional markets have experienced significant supply additions in recent years, which has contributed to the current challenges that are likely to persist well into 2010. Initial speculation that the budget sector would escape relatively unscathed, as customers traded down to more affordable accommodation, only partially materialised.

Pressure was experienced across all sectors in 2009. Properties that were able to resist some of the decline were those assets in prime locations that were well invested. Some businesses were exposed to the economic failure of their key clients, but others were able to diversify their demand base to avoid this. Assets in tertiary locations, with signiﬁcant exposure to the meeting & conference segment, appeared to suffer the most, as companies cut their meeting, travel and training budgets. As corporate demand continued its inevitable decline during 2009, many hoteliers wondered how they would replace this key segment of business. A signiﬁcant decline in the value of the pound against both the dollar and the euro made the UK more affordable to continental Europeans and Americans alike. Meanwhile, many British holidaymakers were forced to reassess their European and longhaul vacations, with the ‘staycation’ becoming a popular option. Consumers became more strategic in where they planned to stay, researching the best deals for that day, week or month, and switching between different operators/brands. Those hotel businesses that adapted to these changes – and continued to invest in raising their value proposition – were in the best position to take advantage of increased leisure demand. This leisure demand helped carry many businesses through the downturn, offsetting some of the drop-off in corporate trade

Will 2010 bring renewed optimism?

Park Inn London, Russell Square Acting on behalf of F.L Taylor, C.P Dempster and A.J Davison of Ernst & Young, Joint Administrators for W G Mitchell (Guernsey) No.10 Limited, Christie + Co sold the Park Inn London, Russell Square to Crimson Hotels Group, the privately-owned, UK-based hotel company, for an undisclosed sum. We accompanied more than 50 formal tours of the hotel in just over a month, culminating in a multi-stage competitive bidding process, which attracted a combined £1 billion-worth of funded offers.

UK-wide trading performance is likely to remain challenging throughout 2010, with any real recovery in RevPAR not materialising until the second half of the year at the earliest. London hotels are set to be at the forefront of the recovery, having so far weathered the storm better than many expected. Market sentiment has improved from its low point in March 2009, aided by the stabilisation in occupancy and we would expect this trend to continue. Signiﬁcant rate discounting remains a concern and it is difﬁcult to predict any increase in average rate for at least another six months. We may also see some initial signs of recovery in travel across Europe, with short-haul trips and leisure breaks continuing to replace long-haul travel and extended

The Liddington, Swindon “I was aware of Christie + Co’s experience in the hotel property market, so I was conﬁdent that they would be able to assist us with the sale of the Liddington. Recognising that the Liddington was not only a hotel, but also a major conference centre, Christie + Co were able to think laterally about who might have a use for the property and appreciate its potential. They were able to access prospective buyers, both in the UK and in Europe, quickly generating interest and prompting bids from a number of parties. Although the opportunity appealed to some traditional hotel operators, four of the top bidders were more interested in an alternative use for the property — proving that Christie + Co’s efforts to target a wider audience paid off. The successful bidder was PGL, the activity course and adventure holiday provider.” David Matthews, Grant Thornton UK LLP, Joint Administrator of The Liddington.

vacations. The gradual re-emergence of the hard-hit corporate meetings market, will inﬂuence hoteliers’ ability to stabilise and recover average rate. The number of investors and opportunistic funds that announced their intention to circle the market in 2009 also suggests that transactional activity could increase over the coming year — if there are sufﬁcient opportunities in which to invest. The emergence of new group Akkeron Hotels, which acquired the Folio name and eight properties at the end of the year, with plans to grow a 150-strong regional hotel group, highlights the fact that there are major opportunities for those who can obtain funding and act decisively.

EUROPEAN SINGLE ASSET TRANSACTIONS 2009 Date

Property

Country

City

Total Bedrooms

Total Sale Price (¤m)

Purchaser

January

Hotel Villa Rica

Portugal

Lisbon

171

Undisclosed

VIP Hotels Group

Fibeira SGPS

March

The Hotel Frankfurt City

Germany

Frankfurt

256

Undisclosed

Deka Immobilien

Quinlan Private

Sheraton Brussels

Belgium

Brussels

511

Undisclosed

International Real Estate PLC

Starwood Hotels & Resorts

Four Seasons

Switzerland

Geneva

103

Undisclosed

Cedar Capital

Starman Holdings

Radisson Boulogne

France

Paris

170

Capital France Hotel

Compagnie La Lucette

April

Vendor

June

Lapa Palace

Portugal

Lisbon

109

29.4

Private Portuguese Investor

Orient Express Hotels

July

Radisson Blu

Poland

Krakow

196

Union Investment

UBM Realitätenentwicklung AG

August

September

Blue Sea Resort & Spa

Greece

Crete

225

Undisclosed

Aquis Hotels and Resorts

Private vendor

Vasia Hotel & Spa

Greece

Crete

300

Undisclosed

Aquis Hotels and Resorts

Private vendor

Novotel

Netherlands

The Hague

216

Undisclosed

Invesco European Hotel Real Estate Fund

Dutch developer TCN

Melia Madrid Princesa

Spain

Madrid

274

87.8

BBVA Renting

Sol Melia

Kempinski Hotel Rotes Ross

Germany

Halle

Undisclosed

Aurum AG

Private vendor

Poland

Krakow

159

Undisclosed

Deka Immobilien

Warimpex

Spain

Barcelona

102

Undisclosed

Invisa Hotels

AC Hotels

November

Radisson Blu

Germany

Hamburg

560

155

Invesco Real Estate

Azure Group

December

Renaissance Paris Hotel Le Parc Trocadero

France

Paris

116

35.5

Private investment group

Strategic Hotels & Resorts

Date

Property

Total Bedrooms

Total Sale Price (£m)

Purchaser

Vendor

January

Holiday Inn Express, Crawley

216

Sojourn Hotels

Mitchells & Butlers

UK REGIONAL TRANSACTIONS 2009

The Golf View, Inverness

Undisclosed

Crerar Hotels

PRUPIM

February

Close Hotel, Gloucestershire

Undisclosed

Greene King

April

Great Northern, Peterborough

3.025

Renelson Investment SA

Receivers

May

Norfolk Royale, Bournemouth

8.25

Peel Hotels

English Rose Hotels

June

Quality Hotel, Birmingham

176

4.5

Cobden Hotel Ltd

BDO Stoy Hayward

Best Western Popinjay, Clyde Valley

Undisclosed

Clyde Valley Developments

Private owner

Central Hotel, Glasgow

222

Undisclosed

Principal Hayley

BDO Stoy Hayward

Aviemore Highland Resort

Four hotels/18 woodland lodges

Undisclosed

Macdonald Hotels & Resorts

PricewaterhouseCoopers LLP

Barnsley House, Circencester

6.5

Calcot Manor

KPMG

Comfort Hotel, Kettering

Undisclosed

Balaji Hotels

Private owners

Heathlands Hotel, Bournemouth

115

2.5

Britannia Hotels

BDO Stoy Hayward

Southcrest Hotel, Redditch

Undisclosed

Private buyer

BDO Stoy Hayward

Yang Sing Oriental

Undisclosed

RoomZZZ

Begbies Traynor

The Liddington, Swindon

192

9.44

Holidaybreak

Grant Thornton KPMG

July

August

September October

November

December

Shendish Manor, Hertfordshire

7.5

Manor Groves Hotel

The Imperial, Newcastle

122

5.5

Cairn Hotel Group

F&C Reit Asset Management

Forbury Hotel, Reading

Von Essen Hotels

Baker Tilly

Former Stop Inn, Hull

Undisclosed

Private buyer

EjendomsInvest

Pittodrie House Hotel and Estate

Undisclosed (Purchase of remaining 50% stake)

Macdonald Hotels & Resorts

Theo Smith

St Brelade’s Bay Hotel

Undisclosed

Jayne Best

The Frost family

Business Outlook 2010 | Market Intelligence 2009 | page 9

Andel’s AC Som

www.christiecorporate.com

10 Transactions 2009

Public Houses + Restaurants

Neil Morgan

“Deal activity in the pub sector increased in 2009, compared to the previous year, as buyers were tempted back into the market by the freehold opportunities that were offered at attractive prices. Meanwhile, transactional activity in the restaurant sector was sluggish, as operators focused on boosting customer numbers and maintaining trade at healthy levels.”

Head of Pubs & Restaurants

Public Houses Although transaction volumes were nowhere near pre-credit crunch levels, demand increased as the year progressed. Corporate disposal programmes boosted activity for Christie + Co towards the end of 2009. We registered an 80% increase in pub viewings during September and October, compared to the same period in 2008, and a 23% increase in deals agreed. Would-be buyers were attracted by the quality of pub businesses, available at price levels not seen for a number of years. As demand from buyers increased, the fall in freehold values slowed and the second half of the year brought examples of competitive bidding and contract races. Banks also started to show signs of being more receptive towards lending in the sector. The recession has had a marked impact on the makeup of the UK’s pub industry and the ownership proﬁle is set to change even further over the coming months, as the freehold market continues to grow. The economic downturn changed the roles of the national pub companies from buyers to sellers. Corporate disposals allowed private individuals and smaller groups to enhance their estates and prompted a reversal in ownership, as pubs returned to the privately-owned freehouse market.

modest and – until debt and credit markets reopen – there is little likelihood of a return to the frenetic M&A activity, which characterised the restaurant sector pre-2007.

Restaurants Administrations and promotional offers typiﬁed the UK’s restaurant landscape during 2009, as many operators concentrated on the latter to escape the former. The current mood in the market is one of cautious optimism, with like-forlike sales continuing to show resilience. Although trading conditions were challenging, an abundance of special deals and promotions helped to maintain trade at healthy levels. The low interest rates left many restaurant-goers feeling better off, with disposable income signiﬁcantly higher for some than it was two years ago. However, value consciousness is here to stay and customer expectations of value will ensure that promotional activity continues well into 2010, with margins set to remain tight. Transactional activity, which had slowed in 2008, remained sluggish last year. Appetite for medium-sized packages was

Punch Taverns At the end of September, Christie + Co was instructed by Punch Taverns, the UK’s largest pub company, to market more than 300 individual pubs from its turnaround division. In just over a month, we received signiﬁcant interest in the majority of these sites from a wide range of buyers, with many looking to continue operating the properties as public houses. We expect more than 60% of these pubs to continue to be operated as licensed premises, although a signiﬁcant number will provide ideal alternative-use opportunities across the residential, commercial and retail sectors. In late 2008, Punch Taverns instructed Christie + Co to offer 50 of its managed houses either as freehold or lease opportunities. We successfully completed the marketing of this package during 2009.

PUBLIC HOUSE + RESTAURANT TRANSACTIONS 2009 Date

Vendor

Purchaser

Deal

January

FishWorks

Boparan Ventures Ltd

Acquisition of four FishWorks restaurants, out of administration.

Village du Pain

Le Pain Quotidien

Acquisition of UK arm of Le Pain Quotidien, by parent company, for an undisclosed sum.

Gourmet Restaurants

Anoup Treon (V8 Gourmet)

Acquisition of Gourmet Restaurants, operator of Tifﬁnbites and Bombay Bicycle club brands, by care home entrepreneur, for an undisclosed sum.

GlassHouse

New Pub Company

Acquisition, out of administration, of 12-strong pub company for an undisclosed sum.

Existing shareholders

Acquisition, out of administration, of ﬁve-strong London-based bar group for an undisclosed sum.

February

Alphabet Bars March

April

May

June

Fuller, Smith & Turner

Acquisition of six London-based pubs for £21 million.

Eminence Leisure

Acquisition of 28 bars for an undisclosed sum.

Cains Beer Company

Amber Taverns

Acquisition of 23 pubs based in the North West for an undisclosed sum.

Punch Taverns

Peach Pub Company

Acquisition of two freehold pubs for £2.85 million.

Punch Taverns

Geronimo Inns

Acquisition of six London-based pubs for an undisclosed sum.

Punch Taverns

Shepherd Neame

Acquisition of 13 pubs for £15 million.

Punch Taverns

Charles Wells

Acquisition of 17 pubs for an undisclosed sum.

Punch Taverns

Frederic Robinson

Acquisition of eight pubs for an undisclosed sum

Amano

Rondanini

Acquisition of Amano name and two London-based units, out of administration, for an undisclosed sum.

Luminar

Cavendish Bars

Acquisition of 27 late-night venues for an undisclosed sum.

Punch Taverns

Greene King

Acquisition of 11 pubs for £30 million.

Bar Room Bar Ltd

Orchid Pubs Ltd

Acquisition, out of administration, of 10 bars for an undisclosed sum.

Regent Inns

Cavendish Bars

Acquisition of seven Walkabout bars for an undisclosed sum.

Punch Taverns

St Austell Brewery

Acquisition of four pubs for an undisclosed sum.

3D Entertainment

JD Wetherspoon

Acquisition of seven Chicago Rock Café sites for an undisclosed sum.

Enterprise Inns

Food & Fuel

Acquisition of four London-based pubs for an undisclosed sum.

Novus Leisure

Royal Bank of Scotland and Barclays

Debt-for-equity swap with banks taking a greater stake in Novus Leisure.

Barracuda Group

Babson Capital Europe Ltd, Royal Bank of Scotland

Debt-for-equity swap with banks and Babson Capital taking a greater stake in Barracuda Group.

Paramount Restaurants Ltd

HSBC Holdings/Barclays/ Royal Bank of Scotland/ Sankaty Advisors

Debt-for-equity swap with banks and Santaky taking a greater stake in Paramount Restaurants.

Coffee Republic

Arab Investments Ltd

Acquisition of coffee shop chain, out of administration, for an undisclosed sum.

August

V8 Gourmet Group

Shilpa Shetty/Raj Kundra

Acquisition of stake in V8 Gourmet Group, operator of Tifﬁnbites, for £6 million.

September

Daniel Thwaites

Britannia Hospitality

Acquisition of 105-room Stafford Hotel in London for £77.5 million.

Highgate Brewery

David Lindol and Simon Toon

Acquisition, out of administration, of Midlands-based brewer, by two property developers, for an undisclosed sum.

O’Briens Irish Sandwich Bars Ltd

Impless Ltd

Acquisition, out of administration, of the O’Briens Sandwich Bars chain for an undisclosed sum.

Clapham House Group

October

November

December

Giraffe

Acquisition, out of administration, of 11 Tootsies-branded restaurants for £2.5 million.

BB’s Coffee & Mufﬁns UK and Ireland

Kapelad

Acquisition, out of administration, of 16 company-operated stores by a new vehicle led by former management team.

Enterprise Inns

A number of unnamed buyers

Sale, through auction, of ﬁve London-based pubs for a total consideration of approximately £13.15 million.

Regent Inns

iNTERTAIN Ltd

Acquisition of 60 bars, out of administration, by former Regents Inn management for an undisclosed sum.

Globe Pub Company

EBP Pub Company

Acquisition of 425 pubs for £180 million.

Punch Taverns

JD Wetherspoon

Acquisition of ﬁve freehold pubs for an undisclosed sum.

Surburban Style Bars; Panther Bar Company; Classic Bar Holdings

Cal Management

Acquisition, out of administration, of 44 pubs for an undisclosed sum.

Helena Leisure

RCapital

Bar and nightclub operator rescued through a company voluntary agreement, in a deal led by Little Chef backer RCapital.

Mitchells & Butlers

Greene King

Acquisition of seven pubs in Scotland for £12.7 million.

Enterprise Inns

A number of unnamed buyers

Sale, through auction, of seven London-based pubs for a total consideration of £11.58 million.

Premium Bars & Restaurants

Orchid Group

Acquisition, out of administration, of 43 sites for an undisclosed sum.

Coffeeheaven

Whitbread

Acquisition of 90 Eastern European-based coffee shops for a sum in the region of £36 million.

Business Outlook 2010 | Market Intelligence 2009 | page 11

July

Punch Taverns 3D Entertainment

www.christiecorporate.com

Transactions 2009

Leisure

Jon Patrick

“Some segments of the leisure market were more resilient than others in 2009. Late-night venues continued to feel the strain, whilst the UK’s health and ﬁtness industry fared better than most expected. Community sports clubs reported a rise in both adult and junior memberships and UK holiday parks beneﬁted from the increase in domestic holidays.”

Head of Leisure

Health and ﬁtness

Holidays and entertainment

Late-night sector

The UK’s health and ﬁtness industry is apparently more resilient to the downturn than most thought. Member retention may be an issue for almost all clubs but, in many cases, membership ﬁgures are increasing slowly and the number of active members is growing.

A number of holiday park operators beneﬁted from the advent of the aptlynamed “staycation” in 2009, reporting rises in bookings as cash-strapped holidaymakers turned to affordable, stay-at-home breaks.

The late-night industry continued to suffer a hangover from the “me too” years, where operators flooded to the high street in order to capture a slot on the drinking circuit – at any price. High street rental levels that are based on floor areas, or over-ambitious sale and leaseback deals, have proved inflexible and left many retailers struggling to move their businesses forward.

Transactional activity during 2009 was again hampered by the lack of available funding and the scarcity of quality real estate-backed assets. Where clubs can show a strong historic trading proﬁle, or future opportunities for development, there continues to be strong interest in the marketplace. Well-located sites, with good catchments and defendable positions, are highly sought-after. Over the last 12 months, we have seen the development of a number of “budget” concepts, providing “dry” clubs, with a 24-hour trading proﬁle, which offer memberships for around £10-15 per month. Examples of such operations include the likes of The Gym Group, Pure Gym, Fitness4Less and Fitness4all.

Cheap forms of entertainment tend to do well in recessions and cinemas reported a 15% rise in admissions in the first six months of 2009, to their highest level for seven years. Box-office receipts were also boosted by a run of crowd-pulling blockbusters and an unusually wet July. UK sports clubs are also defying the recession, with community activities coming to the fore during the downturn. Figures produced at the end of last year, by the Central Council of Physical Recreation, from a study of 3,000 clubs, showed a 34% increase in the number of adult memberships and a 40% rise in junior memberships. We continued to witness the growth of live music and entertainment businesses, as large and medium-sized venues benefited from the increasing popularity of touring concerts and productions.

The late-night sector has the potential for recovery in the medium-term, especially as the licensed leisure market continues to evolve and greater interaction between landlords, investors and operators becomes more widespread. However, the next 12 months is set to be tough, in what is recognised as a high risk, high-reward market.

LEISURE TRANSACTIONS 2009 Vendor

Purchaser

Deal

January

MAMA Group

HMV Group

Acquisition of 50% stake in Mean Fiddler Group Ltd for £22 million.

March

3D Entertainment

Eminence Leisure

Acquisition of 28 bars for an undisclosed sum.

X-Leisure Unit Trust

Matterhorn Capital

Acquisition of O2 Centre for £93 million.

Rileys

Valiant Sports Ltd

Acquisition, out of administration, of 129 snooker, pool and sports clubs for an undisclosed sum.

JJB Sports

Dave Whelan Sports Ltd

Acquisition of 52-strong ﬁtness clubs chain for £83 million.

Luminar

Cavendish Bars

Acquisition of 27 late-night venues for an undisclosed sum.

Britannia Parks Ltd

Frogmore Real Estate Partners II

Acquisition of 20 retirement and leisure parks for £17 million.

Drumaville Ltd

Ellis Short

Acquisition of 70% stake in Sunderland Football Club for an undisclosed sum.

Regent Inns

Cavendish Bars

Acquisition of seven Walkabout bars for an undisclosed sum.

Bjoergolfur Gudmundsson

CB Holding

Acquisition of West Ham United Football Club for £101 million.

Shipley Estates Ltd

Talarius Ltd

Acquisition of the UK-based leisure and gaming venues company for £13 million.

Société Générale de France SA

Acquisition, out of administration, of UK-based health club operator and ﬁtness company for undisclosed sum.

3D Entertainment

JD Wetherspoon

Acquisition of seven Chicago Rock Café sites for an undisclosed sum.

Novus Leisure

Royal Bank of Scotland and Barclays

Debt-for-equity swap with banks taking a greater stake in Novus Leisure.

Independent News & Media

PartyGaming

Acquisition of Cashcade Ltd, the UK-based online gaming supplier, for £96 million.

Birmingham City Football Club

Grandtop International Holdings Ltd

Acquisition of 79% stake in Birmingham City Football Club for £62 million.

May

June

Esporta Group July

Devondale Investments Ltd

Al Fahim Asia Associates

Acquisition of Portsmouth City Football Club for an undisclosed sum.

September

LA Fitness

Nuyuu Fitness

Acquisition of three LA Fitness gyms by new ﬁtness club chain for an undisclosed sum.

October

Regent Inns

iNTERTAIN Ltd

Acquisition of 60 bars, out of administration, by former Regents Inn management for an undisclosed sum.

Park Resorts

Lenders including Lloyds Banking Group

A £325 million debt-for-equity swap deal by the caravan park operator with its lenders.

Powerleague Group

Patron Sports Leisure Sarl

Acquisition of 71% stake in the UK-based operator of ﬁve-a-side football centres for £30.2 million.

November December

Al Fahim Asia Associates

Falcondrone Ltd

Acquisition of 90% stake in Portsmouth City Football Club for an undisclosed sum.

Case Concepts Ltd

Praesepe Plc

Acquisition of 13 gaming centres for £6.3 million.

Helena Leisure

RCapital

28 bars and nightclubs acquired through a company voluntary agreement in a deal led by RCapital.

Blue Chip Casinos

Casino 36

Acquisition of two casinos, out of administration, for £2.9 million.

Premium Bars & Restaurants

Orchid Group

Acquisition, out of administration, of 43 sites for an undisclosed sum.

Health and ﬁtness club portfolio

Walkabout bars

Boston Utd Football Club

Christie + Co is currently marketing a portfolio of seven highly-profitable health and fitness clubs on a confidential basis on behalf of a private company.

Acting on behalf of Regent Inns, Christie + Co sold a package of seven Walkabout-branded sites, which are spread across the UK, to Cavendish Bars, for an undisclosed sum. The sites, which were all leasehold, were the Walkabouts in Brighton, Bromley, Durham, Oldham, Putney, Southampton and Swindon.

Christie + Co carried out a rent review of Boston United Football Club’s ground, the Jakemans Stadium, on behalf of the private landlord.

Business Outlook 2010 | Market Intelligence 2009 | page 13

Date

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14 Transactions 2009

Care + Childcare “The major care operators turned their backs on the transactional market in 2009, in order to focus on improving operating efﬁciency and addressing debt levels. The creation of the Care Quality Commission – and its new key lines of regulatory assessment – turned the spotlight on quality.” Richard Lunn Head of Care

The care market

Developments

Leverage issues continued to inhibit transactional activity at a corporate level in 2009, although a number of single assets changed hands during the year. Demand for quality single assets was strong, but volume and quality of stock were key issues – particularly in the elderly market – as owners held onto assets, realising that they couldn’t better their returns by investing elsewhere. Many of the properties that reached the market had some degree of distress, otherwise they simply wouldn’t have been sold. Buyers undertook more due diligence in order to satisfy funding requirements and, without sufﬁcient guarantees and warranties from the vendor, distressed assets proved difﬁcult to sell.

Christie + Co’s average price index shows an 11% reduction in values for 2009. It should be noted that this is reflective of the quality of stock that actually transacted in 2009. Sales of high quality, purpose-built units have been extremely limited, but we firmly believe values for such assets have remained robust. In a bullish market, the price differential between poor and high quality stock narrows dramatically. However, in 2009, this price differential has increased significantly – skewing the value index.

Most of the larger operators spent the year focusing on enhancing operating efﬁciency, improving quality standards and reducing debt. The creation of the Care Quality Commission (CQC) put the spotlight on quality of care, as operators endeavoured to achieve the best possible star ratings.

Quality improvements

The CQC will play a key role in shaping the progress of the UK’s care sector in 2010. According to the CQC’s ﬁrst report on adult social care in England, which was published in December 2009, the general standard of care in the UK is getting better. However,

Clearwater Care Christie + Co provided valuation advice to Synova Capital LLP, the private equity fund, in its acquisition of Clearwater Care, the leading provider of specialist residential care facilities and supported living services for people with learning disabilities. Clearwater Care operated 14 care homes, predominantly situated in South East England. This deal represented Synova’s entry into the care market, from which it is looking to expand the operation by way of acquisition and organic growth.

the Commission expressed concern about the low quality of some care services. The report showed that almost 25% of homes for older people continued to provide care that is of a poor or only adequate standard, with over 400 care services rated poor.

CARE + CHILDCARE TRANSACTIONS 2009 Date January

February

Vendor

Purchaser(s)

Deal

Wood Berry Group

CareTech Community Services Ltd

Acquisition of Lyndhurst Psychiatric Residential Care Home for £6 million.

Private vendors

National Fostering Agency Ltd

Acquisition of three separate fostering agencies for undisclosed sums.

Kingsclere Nurseries Ltd

Private buyer

Acquisition of seven-strong nursery chain for an undisclosed sum.

April

Nufﬁeld Hospitals

Mezzanine Management Fund IV

Acquisition of Vanguard Healthcare Solution Ltd as part of a management buyout for £31 million.

May

Teddies Nurseries

Bright Horizons Family Solutions

Acquisition of the seventh largest nursery chain in the UK for an undisclosed sum.

June

Receivers of ABC Learning Centres

Management of Busy Bees, backed by Knowledge Universe

Acquisition, out of administration, by the founders of Busy Bees, backed by Knowledge Universe, of the majority share in the Busy Bees chain for an undisclosed sum.

Private vendors

Vision UK

Acquisition of two Devon-based care homes for an undisclosed sum.

July

Options Group Inc Ltd

Option Group Holding Ltd

Management buyout of the UK-based operator of autism schools and transitional life skills colleges for an undisclosed sum.

August

Care Aspirations

GI Partners

Acquisition of UK-based mental health services group for an undisclosed sum.

Clearwater Care Ltd

Synova Capital

Acquisition of the UK-based provider of specialist residential care facilities and supported living services for an undisclosed sum.

Nunu

Just Learning Holdings

Acquisition of 10-strong nursery group for an undisclosed sum. Acquisition of ﬁrst Scottish care home by national operator for an undisclosed sum.

September

Private vendors

Carewise Homes

November

Private vendors

August Equity

Acquisition of four domiciliary care businesses for an undisclosed sum.

Private vendors

Lifeways Community Care

Acquisition of two home service providers in two separate deals for undisclosed sums.

Park Group (in administration)

Private buyer

Acquisition, out of administration, of three care homes in the East Midlands for an undisclosed sum.

Shirebrook Care Group

GI Partners

Acquisition of Mansﬁeld-based operators of adult nursing homes for an undisclosed sum.

December

We have seen that, in most cases, a poor rating results in an immediate cessation of referrals by the Commissioning Authorities and causes severe ﬁnancial difﬁculties for the operator. Between April and October 2010, all adult social care providers must re-register with the CQC to show they meet a wide range of essential, common quality standards. It is hoped that this process will run smoothly, with care home operators taking the chance to register as soon as possible, in the early stages of the year. We fear, however, that this registration process may cause a logjam in transactional activity during this period, as the regulator attempts to cope with the scale of the task, whilst also dealing with the requirements of individuals and companies looking to transfer registration as part of a normal sale process.

Childcare sector The continued lack of confidence across the banking sector restricted transactional activity in 2009, especially in the first six months of the year. However, businesses that exhibited operational stability were able to take advantage of lower property and business values and the curtailing of expansion plans by rivals, to grow their businesses via acquisitions. This was highlighted by a number of significant portfolio deals, which were successfully completed across many child-centric sectors during the year. Alongside these corporate portfolio acquisitions, there were also a number of smaller nursery group and single asset sales. We anticipate that transactional activity in the childcare sector will remain subdued, compared to pre-credit crunch levels and we expect availability of good quality nurseries, with good levels of EBITDA,

to remain low. However, demand from buyers could exceed supply and result in multiples and values being driven forward.

Business Outlook 2010 | Market Intelligence 2009 | page 15

October

Busy Bees In June 2009, Christie + Co provided valuation advice to Busy Bees, the UK’s largest nursery chain, in the lead up to the company’s management buyout, which was backed by Knowledge Universe, a Singaporean education ﬁrm.

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16 Transactions 2009

Retail

Tony Evans

“Convenience retail proved more resilient than other sectors in 2009 and the introduction of convenience ranges also boosted the performance of some forecourt and off-licence operators. The pharmacy sector was one of the best performing, as the outbreak of swine ﬂu increased incomes and sales of over-the-counter products.”

Head of Retail

Retail resilience Consumers took the opportunity to shop more frequently and locally, which strengthened the resilience of the convenience store sector. The rise in interest in food miles and locally-sourced produce, highlighted by the increasing popularity of farm shops, also benefited the sector. Whilst transactional activity was hampered by the lack of available debt, regional and local operators continued to build their estates. The Co-operative Group disposed of a number of Somerfield stores, in order to meet competition rules, and many of these sites were acquired by regional groups. These corporate disposals also led to the introduction of some new entrants to the sector, including Haldanes Stores and Asco, which were the first new supermarket names to launch in the UK for a quarter of a century. Indeed Haldanes has already grown its estate to 18 stores, which stretch from the North of Scotland to the Midlands of England, with plans to open 50 outlets in total over the next four years. With the convenience sector forecast to constitute 25% of all store-based food sales by 2012, many believe there has never been a better time to enter the market. It is perhaps unsurprising that Waitrose is set to become

the latest supermarket chain to expand into convenience – providing existing operators, and especially independents, with further opportunities and challenges.

Forecourts Despite facing the multiple challenges of fluctuating fuel prices, threats over rises in fuel duty, problems raised by fuel cards, and proposed legislation regarding tobacco display, the forecourt market continues to be robust. This is largely due to good business practice from owners, who have recognised the benefits of food retailing and proactive estate management. Significant transactional activity was absent from the sector in 2009, although many national, regional and local operators took advantage of the reduction in values to extend their estates, through a number of small parcel and single asset acquisitions. The fact that sales remained resilient, despite the challenges of the recession and volatile fuel prices during the year, gives grounds for optimism in 2010.

First Quench Retailing (FQR) Christie + Co was appointed by Richard Fleming, Mick McLoughlin and Ian Corﬁeld of KPMG, Joint Administrators of First Quench Retailing (FQR) Limited, to advise on the disposal of approximately 750 former First Quench stores. First Quench, which was placed into administration in October, operated circa 1,200 stores under the wellknown Threshers, The Local, Wine Rack, Bottoms Up, Victoria Wine and Haddows brands, located across England, Scotland and Wales. After marketing the properties for just a week, we received in excess of 1,000 offers. As Business Outlook went to press, we had been instructed to market a further 470 stores from the former FQR estate.

RETAIL TRANSACTIONS 2009 Date

Vendor

Purchaser

Deal

January

Nearby Stores

Costcutter

Acquisition, out of administration, of seven convenience stores for an undisclosed sum.

Nearby Stores

Southern Co-operative

Acquisition, out of administration, of 13 convenience stores for an undisclosed sum.

Woolworths

Iceland Foods

Acquisition, out of administration, of 51 stores for an undisclosed sum. Acquisition of 13 supermarkets for an undisclosed sum.

March

April

May

The Co-operative Group

Waitrose

The Co-operative Group

Sainsbury’s

Acquisition of 24 stores for £83 million.

Somerﬁeld

Aldi

Acquisition of Huddersﬁeld-based store for an undisclosed sum.

Somerﬁeld

Midlands Co-operative Society

Acquisition of four supermarkets for £11 million.

Martin McColl

Compass Group

Acquisition of 27 hospital stores for £19 million.

Somerﬁeld

Lidl

Acquisition of two supermarkets for an undisclosed sum.

Asda

Acquisition of three grocery stores for an undisclosed sum.

The Co-operative Group

Sainsbury’s

Acquisition of nine stores for £29 million.

September

Plymouth & South West Co-operative

The Co-operative Group

Acquisition of 66 food stores, 11 post ofﬁces, three forecourts and 30 funeral homes for an undisclosed sum.

The Co-operative Group

Bite Technology Limited

Acquisition of 18 stores for £5 million.

Wine Cellar

EFB Retail

Acquisition, out of administration, of 109 off-licences for an undisclosed sum.

The Co-operative Group

Haldanes Stores

Acquisition of four supermarkets for an undisclosed sum.

Private companies

Eurogarages

Acquisition of three forecourt sites in the North West for undisclosed sum.

The Co-operative Group

Waitrose

Acquisition of ﬁve shops for an undisclosed sum.

St Modwen

Acquisition of 2,500-acre land portfolio for an undisclosed sum.

First Quench Retailing

Venus Wine & Spirit Merchants

Acquisition, out of administration, of Wine Rack trading name and 14 stores for an undisclosed sum.

First Quench Retailing

SEP Properties

Acquisition, out of administration, of eight stores for an undisclosed sum.

First Quench Retailing

R&M Swaine owners of Rhythm & Booze chain

Acquisition, out of administration, of 34 stores for an undisclosed sum.

The Co-operative Group

Haldanes Stores

Acquisition of 13 supermarkets for an undisclosed sum.

October

November

December

First Quench Retailing

Wickham Vineyard

Acquisition, out of administration, of 14 stores for an undisclosed sum.

MCR

Mountford Pharmacy Ltd

Acquisition, out of administration, of Sai Pharmacy in East London for an undisclosed sum.

Pharmacies The UK’s pharmacy market was one of the best performing in the retail sector in 2009. Market analyst Verdict forecast that, although overall retail spend was set to contract by 0.6% during the year, the retail pharmacy sector would expand by 4.4% to £14 billion.

have experience in Christie + Co’s other sectors, such as healthcare or retail and they see opportunities for growth given the robust revenue streams. Banks are generally supportive of the sector and to date it has weathered the storm of current economic conditions well.

The outbreak of swine ﬂu during the year helped increase pharmacy incomes and sales of over-the-counter (OTC) products, with Verdict estimating that incomes would grow by £83 million and OTC products would experience their fastest growth for 14 years.

Off-licences

When you look at the projected pharmacy incomes and consider that the population of over 65s is set to increase by 23.5% in the next ten years, it is hardly surprising that the pharmacy sector is an attractive market. We are seeing very strong demand for pharmacy businesses, both from existing operators and new entrants to the market. Many purchasers

During the second half of 2009, we witnessed two of the sector’s biggest names fall into administration, whilst a number of others reported that sales levels had fallen compared to the previous year.

introduce convenience products into their businesses, such as Bargain Booze with their Select Convenience brand, saw sales remain robust and proﬁt margins increase.

Business Outlook 2010 | Market Intelligence 2009 | page 17

The Co-operative Group June

Out of all the segments in the retail market, the off-licence sector was the hardest hit. The economic downturn and the incredibly aggressive alcohol pricing policy of the supermarkets ravaged the trade.

While the majority of operators in the sector struggled, those who had the foresight to

Sai Pharmacy Acting on behalf of Administrator MCR, Christie + Co sold the freehold interest of Sai Pharmacy in East Ham, London, which comprises an independent pharmacy with attached medical centre, to established operator Mountford Pharmacy Ltd, for an undisclosed sum.

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18 Complementary services

David Rugg Chairman

Christie + Co is a member of the Christie Group, which provides a comprehensive range of complementary professional services. Christie Finance Christie Finance is a specialist commercial finance consultancy, which negotiates funding solutions for customers in the hospitality, leisure, care and retail sectors. Focusing on the same specialist sectors as Christie + Co, Christie Finance knows which lenders are more likely to fund particular business types and understands how well they are able to meet client needs. As a specialist finance consultancy, Christie Finance knows what is happening in both the financial markets and the business property markets, which is particularly important in a challenging and rapidly changing environment.

Increasing buyers’ chances Christie Finance is often able to increase clients’ prospects of securing ﬁnance, by working with them to develop and present a well-researched and structured business case. Lenders know that an application from Christie Finance represents a compelling lending proposition and are often able to offer bespoke products to suit client needs. Christie Finance has consultants in each of Christie + Co’s ofﬁces who work closely

with the agency team to help clients identify the perfect new business opportunity and secure the funding to make the acquisition possible. Finance consultants are made aware of all the new instructions Christie + Co receives so that they can inform interested clients as soon as they come to the market. The slowdown in the transactional markets has presented many individuals with a chance to compete with corporate buyers when the very best opportunities become available. The knowledge that they are able to secure funding gives Christie Finance’s clients a real edge in negotiations.

Christie Insurance is an independent insurance broker operating in the care, hotel, pub, restaurant, leisure and retail markets – offering intelligent insurance solutions to business owners. The company has developed a comprehensive knowledge of these business sectors and a thorough understanding of their insurance needs. As an independent insurance broker, Christie Insurance is able to secure some of the best solutions available – which are always tailored to suit individual business needs.

Provision of speciﬁc solutions Choosing to focus on speciﬁc sectors, Christie Insurance is able to understand how businesses operate and identify the risks arising therefrom. Businesses should never

be underinsured, but there’s no need for them to be overinsured either – particularly in the current economic climate, when it is important to manage costs. By understanding the insurance market and identifying the particular risks businesses face, Christie Insurance can provide speciﬁc, appropriate and cost-effective solutions.

Ensuring that cover is appropriate One of Christie Insurance’s most popular services is the free protection audit, which enables clients to check whether their current insurance policy is appropriate. There is often no need to change an existing policy, but Christie Insurance can quickly provide advice if protection needs to be extended, or if there is a more cost-effective solution available. In the current climate, many businesses are choosing to sell assets, or acquire new property and Christie Insurance works with existing clients on an ongoing basis to ensure that the level of cover is suitable and make any necessary adjustments.

Managing claims In the event of a claim, Christie Insurance reacts quickly to client calls, working with them and with the insurer, to make certain that it is settled quickly.

Health & Safety

Orridge

Established in 1896, Venners is the UK’s largest and longest established stock audit company servicing the hospitality and leisure sector. Renowned for improving proﬁtability and control, the company’s services include consultancy; liquor and food stocktaking; inventory listings and valuations; compliance audit; and a range of health and safety services including food safety and ﬁre safety.

Venners Health & Safety Division works with clients to ensure compliance with all Health & Safety regulations and to improve and/or maintain high standards as required. Further specialisation within this division is available for Food Safety and Fire Safety. The company provides a range of services including risk assessments, policy development and action plan formulation.

Inventory Listing & Valuations

Compliance Audit

Orridge was founded in 1846 as a stocktaking provider to the pharmacy sector. The company now employs more than 1,000 employees and supports clients in a number of different sectors including pharmacy, retail, warehouse/distribution, supply chain and supermarkets. Orridge’s services have expanded in line with the growth of the business and two of the company’s latest offerings include on-shelf availability and supply chain optimisation. Orridge operates in 18 countries throughout Europe.

When buying, selling or transferring ownership of a business, an up-to-date and independently produced inventory listing and/or valuation of all the ﬁxtures ﬁttings and effects is an essential part of the transaction. Venners provide a nationwide, timely and cost effective service to vendors, purchasers and receivers alike.

Auditing and Profit Control Venners team of stock auditors are experts in helping clients identify and eliminate losses. The efficient and unique structure of the Venners operation enables them to assist customers at all levels to increase profits. In addition, Venners can provide a range of stock control systems, which when augmented by its traditional services, help all businesses, big or small, to further improve profitability and control.

Compliance Audit is a speciﬁc and in-depth analysis of the operational efﬁciency of a business and includes a bespoke audit of employees’ ability to adhere to agreed operating protocols.

Business Outlook 2010 | Market Intelligence 2009 | page 19

Venners

Tenancy Division Venners has always provided a bespoke service to tenants, landlords and pub companies and has formed this separate division to further cater to the increasingly speciﬁc and unique needs of their clients.

Event Consultancy Venners services are also applicable to all manner of events (stadia, arenas, festivals etc) allowing clients to leverage their experience, expertise and reporting pre-live and/or post event.

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