CHALLENGING TIMES STILL AHEAD AS BUYERS CONTINUE TO LOOK FOR VALUE

31 January 2014

After several years in the economic doldrums, the licensed and leisure industry enjoyed a relatively good year during 2013 characterised by an increased level of transactions and increased operator demand. That stated, it would be very premature to describe the year as heralding any major recovery. While the volume of sales has increased since 2012, the majority of vendors are still receivers and administrators. Recent press reports that pubs are shutting up shot at a rate of three per week is, in my opinion, incorrect as many are re-opening under new management.

During 2013, we were actively involved in the sale of 30 licensed premises. Many of these properties had been in administration or receivership and lying vacant for considerable periods of time. Encouragingly, they are now all under the control of new owners who are likely to refurbish and revitalize their properties. There are several examples of new pubs opening such as The National and The Dirty Onion in the Cathedral Quarter and others that have been refurbished extensively, notably The Harp Bar, (formerly Nick’s), Albany, (ex-Lilly’s) and the Chelsea Bar on the Lisburn Road.

Among Osborne King’s most noteworthy sales of 2013 were those of two large portfolios, CHA and Kurkova. The Cha portfolio ( Diamond public houses) comprising 14 licensed outlets was sold in the first quarter of 2013, and more recently we sold the Kurkova portfolio (formerly owned by Botanic Inns) which consisted of seven licensed outlets featuring several landmark Belfast city centre premises including The Kitchen Bar, McHugh’s and The Apartment. Other significant sales during 2013 included The Marine Hotel, Ballycastle, The Carlton Hotel, Belleek and Highways Hotel in Larne, the latter which we sold at auction for 50% over its maximum reserve price 

Although it is most encouraging to see healthy operator demand returning to the market and translating into sales, it must be acknowledged that these are derived from a low value base. And while city centre pubs in Belfast have attracted very keen interest from buyers, interest in rural pubs has been declining steadily. Last year, we commented upon the fact that life would continue to be challenging for the licensed trade unless banks and other financial institutions made finance more readily available to operators and investors. It would be gratifying to report that the situation had improved significantly one year later; regrettably, this has not happened and it may be some time before the finance taps start to flow again.

We can report that demand for liquor licences continues to be reasonable if sporadic. The solitary purchaser continues to emanate from the convenience food sector as an additional anchor or footfall driver for his or her store. The supply of licences remains low as purchasers continue to buy up the limited stock. Many pubs that closed and failed to renew their licences over the last 12 months or so are likely to have safeguarded its worth. Meanwhile, current publicans seeking to sell their licences should note that in order to secure a sale, the licence must be valid and subsisting. This will ultimately preserve its financial value and the business should continue to trade until completion takes place with the surrender and granting of a new licence.

Another notable issue prevalent within the market and relevant to existing licensed outlets is the rating revaluation scheduled to take place on the 1st of April 2015. The purpose of the revaluation is to redistribute the rates burden and will be based on valuation levels as at 1st of April 2013. The Net Annual Value (NAV) for public houses and hotels is based on the trading accounts otherwise known as the Fair Maintainable Trade (FMT). Operators who wish to appeal their assessment should take professional rating advice in this regard. Local authorities need to maintain levels of revenue for public services so there will always be winner and losers following the reassessment.

In terms of general property values, it would appear that these have “bottomed out” finally and that we can look forward to some modest growth. Indeed, if our latest auction is anything to go by, values seem to have risen slightly during the past six months. For instance, we recently sold a semi-detached property on a development in Portadown for £71,000 whereas five months previously, we sold a detached house on the same development for £63,000. Our next auction is on the 21st of March 2014. To those of you who may have been attending these property auctions, please note that the auctioneer has no right to charge a buyer’s fee. We have never done this, so take my advice and refuse to pay it!

Looking ahead to 2014, we are expecting a number of new opportunities to come to the market, and if 2013 is anything to judge by there will be buyers looking for value.