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BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISUrE CArE CHILDCARE RETAIL MEdIcAL 2014

CONTENTS
04 06 08 09 10 12 14 16 26 30 34 36 40 42 46 50 54 Overview of Christie+Co Chairmans overview View from the Managing Director Price indices Consultancy Valuation Bank Support & Business Recovery Hotels Pubs Restaurants Leisure Care Childcare Retail Medical Transaction tables Contact details

Business Outlook 2014 03

BUSINESS OUTLOOK OVERVIEW CHRISTIE + CO 2014

Make the right connections Theres a knack to getting things done. Some think its about being in the right place at the right time. Some think its about luck. Others think its about doing what theyve always done. We know success is built on making the right connections and using them exibly to meet your specic needs. That way youre able to powerfully collaborate with innovators, experts and specialists to achieve the perfect results. Weve been providing market-leading, innovative advice to clients for over 75 years. Our team of sector specialist advisers, chartered surveyors, brokers and consultants support owners, operators, investors and backers to make informed decisions with condence.

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Business Outlook 2014 05

BUSINESS OUTLOOK CHAIRMANS OVERVIEW 2014

Looking back on 2013, we predicted that we were at the bottom of the value trough, but that opportunities to acquire assets were still present. Today, we can say that whilst there are variations between sectors, on the whole our assertion was vindicated on both counts. Indeed today, were now experiencing regular examples of businesses selling for in excess of the striking price.

We have, however, identied 12 billion of assets in our sectors which are still controlled by banks. This suggests that around 20 per cent of the assets securing commercial property that remain to be disposed are in our trade sectors. The good news, however, is that we believe the markets in which we operate are now strong enough to absorb this overhang through a well co-ordinated disposal programme over the next two years.

Distress opportunities set to continue Whilst the number of businesses coming to the market as a result of distress fell signicantly across 2013, as our Director of Bank Support & Business Recovery Stephen Jacobs reports on page 14, we believe there will be further such investment opportunities in 2014. Weve read much of the impact of interest rate swaps, but we now have a number of clients who can look forward to receiving compensation during the course of the year. Many of these business owners will reect, after ve years of struggle to maintain their businesses, that there is now a good opportunity for change. We therefore predict that many businesses will come to market following this period of reection by their owners. A report by De Montfort University highlighted an outstanding 62 billion of commercial property loans carrying a loan-tovalue ratio of greater than 100 per cent and 46bn carrying an income to interest cover of less than 1:1. Our estimate is that the sectors in which Christie + Co trades account for approximately ve per cent of the commercial property market.

M&A upswing could encourage IPOs At the corporate level, recent years have been marked by a substantial disappearance of the quoted sector in areas like hotels and the care home market. The upswing in M&A activity is once again creating portfolios that could very well be quoted businesses coming to market as IPOs in the period ahead. This undoubtedly is a route that will be considered by private equity investors currently acquiring large tranches of debt portfolios secured on such assets through a loan-to-own strategy. Weve been fortunate to experience substantial demand for our services in conducting purchaser due diligence, in respect of these loan portfolios, from private equity investors who remain catholic in their areas of investment and who, therefore, appreciate our sector knowledge and expertise. It is interesting to note that overseas REITs are nding UK assets for instance, in the care home sector particularly attractive, whereas we have yet to see the real emergence of trade-sector-specic property REITs, but this could well follow.

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Our assertion last year that we were at the bottom of the value trough but that opportunities to acquire businesses were still present, was vindicated in 2013. In future years, business owners and entrepreneurs will look back at this period as being a cyclically outstanding opportunity for acquiring well-priced assets.
David Rugg, Chairman

First-time and lifestyle buyer boost Across our business sectors we have been able to report a signicant increase in the percentage of rst-time buyers entering our markets which has certainly doubled since 2008. This is, perhaps, not surprising given the Governments incentives to stimulate the residential market. The relevance of this market is, of course, that the rst-time buyer will invariably sell a residential property in order to provide his or her seed-corn capital. The rst-time buyer also has a considerable impact on the market mechanism and liquidity as a whole, as business owners trade up in the size of businesses they own and operate. You will also read in these pages of a resurgence in the demand for lifestyle businesses typically in coastal and country areas. It is a sign of renewed condence in the economy when individuals often in mid-life are prepared to relocate from their homeland origins in order to embark on a new business venture. The increasing returns sought for funding of small businesses by banks is likely to be a permanent xture, given the tiering of capital, but the good news is that nance continues to be available from an ever-widening range of sources albeit at prudent loan-to-value ratios.

This change is coupled with a recognition in the profession that the valuation of businesses is a specialist discipline that cannot be undertaken on an ad hoc basis by a general practice surveyor.

An outstanding opportunity in retrospect Whilst the base rate has doubled, loans, where available, are still attractively priced by any historic yardstick. Our prediction is that, in future years, business owners and entrepreneurs will look back at this period as being a cyclically outstanding opportunity for acquiring well-priced assets.

Christie Group inspiring Britain Christie + Co is of course part of Christie Group plc which was delighted to have been identied as one of 1,000 Companies to Inspire Britain in a recently published report compiled for the London Stock Exchange (LSE) by Growth Intelligence. The report identied Christie Group among 1,000 UK companies in a celebration of some of the fastest-growing and most dynamic small and medium-sized enterprises (SMEs) in the UK. We are delighted to have been recognised by the LSE, afrming our belief in both the rst-class services our teams provide to our clients, and the strength of our businesses.

Professional skills shortage could be a concern In our own profession, we predict something of a skills shortage as European banking regulations will mandatorily require more regular revaluation of businesses against which loans are secured against the historic practice of leaving the original loan origination value in place (unless a review or change to the loan was required).

Business Outlook 2014 07

BUSINESS OUTLOOK MANAGING DIRECTOR STATEMENT 2014

Chris Day, Managing Director

Christie + Cos track record of best-inclass deal-making, combined with the consultancy and advisory expertise weve built in our near-80-year history, will see us well positioned to meet the needs of clients, both at home and internationally, in the more positive times that surely lie ahead.
Flexibility the key in Europe Internationally, our European ofces once again were at the mercy of the recessionary inuences. The extent of the recession/recovery is quite variable across our European markets, but again our exibility and local knowledge, combined with our pan-European expertise and experience, meant we were able to deliver world-class service to clients. And when recovery delivers growth to these markets, we will be ideally positioned to capitalise. In 2013, we re-structured our UK regional operation to provide even better geographical coverage and service to clients. We integrated our newest sector proposition medical into our business, adding dental brokerage services to our market-leading pharmacy operation.

Weve seen a signicant upswing in the Christie + Co average price index in the hotels, pubs and restaurant sectors in 2013. A slight decline in care and retail belies a recovery in the second half of the year. These encouraging signs, combined with an economy that appears to be growing albeit at a snails pace proves that we were right this time last year in forecasting that we were at the bottom of the value curve. The average price curves move upwards is more than just an indicator that the economy is moving at last, its also a signal that the transactional marketplace, while not returned to its peak, was still functioning through 2013. Furthermore, this was an indicator that the quality of stock that came to market in our sectors was much higher than in the previous years. And as we move into a year where the banks are disposing of loan portfolios, we are sure to witness a further uplift in the transactional market as we move into quarter two and beyond. Alongside this, were almost certain to see a further improvement in the quality of asset coming to market.

Return to Wales After 22 years, Christie + Co returned to Wales to open an ofce in the centre of Cardiff. Whilst we have continued to serve the Welsh market from our Bristol and Manchester ofces, we recognised an increased demand for our services coupled with an increase to the volume of businesses in the Principality. So, a move to open a Cardiff ofce was a natural progression for us. Our ability to do deals, even in the most troubling economic circumstances that most of us can remember, remains undiminished. Earlier in 2013, and for the third consecutive year, Christie + Co was the overwhelming winner of the EGi Deals Award for the hotel and leisure sectors. Moreover, in addition to the national award, we were the top adviser in 12 out of 14 UK regions. Our track record of best-in-class deal-making, combined with the consultancy and advisory expertise weve built up in our near-80-year history, will see us well positioned to meet the needs of clients, both at home and overseas, in the more positive times that surely lie ahead.

Intelligent working for business Yet whatever the economic climate, Christie + Co is intelligent and adaptable enough to deliver an excellence of service to clients, over and above deal brokerage. In 2012, we signalled an upscaling of our consultancy and advisory proposition. We continued that work in 2013 and by the close of the year our work with clients, including banks and private equity and US funds, for whom we undertook vendor due diligence had paid dividends in terms of instructions to dispose of assets from distressed portfolios. Indeed, as our Head of Childcare Courteney Donaldson outlines on page 40, we were once again the pre-eminent adviser. Our work with Bright Horizons and latterly with Busy Bees meant that we retained our record of advising on every single major childcare deal since 2006. This speaks volumes for our consultancy and advisory capabilities, which allow us into the heart of client thinking and more often than not, inuences it.
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Hotels
Movement in average prices year on year in per cent

6.1 0.1 -18.4 2007 2008 -19.5 2009 2010 2011 2012 -5.1 -3.1

5.7

2013

Pubs
Movement in average prices year on year in per cent

6.5 -11.6 2007 2008 -20.1 2009

-0.9

-1.1

-3.3

3.3

2010

2011

2012

2013

Restaurants
Movement in average prices year on year in per cent

8.0

-14.9

-18.1

4.6

-4.1

-1.4

4.7

2007

2008

2009

2010

2011

2012

2013

Care
Movement in average prices year on year in per cent

12.2

-16.9

-11.0

0.4

-3.3

-0.7

-1.1

2007

2008

2009

2010

2011

2012

2013

Retail
Movement in average prices year on year in per cent

5.6

-6.5 -9.8

2.1

-3.6

-0.9

-1.0

2007

2008

2009

2010

2011

2012

2013
Business Outlook 2014 09

BUSINESS OUTLOOK CONSULTANcY 2014

24
in strategic advice over the past 24 months

bn

The corner is turned, but the terrain is till rough 2013 was the year that nally saw us emerge from the bottom of the business cycle, but the expectations of some of plain sailing and business back to normal needs to be tempered by the reality of the recovery. While improvements to the trading environment are still to fully ow through, many of the markets in which Christie + Co operates are recording a positive shift in performance with the hotel sector, at least, genuinely out of the recession. As we continue the move forward, the markets are certain to be heavily inuenced by increasing private equity and hedge fund participation, and the ongoing disposal of nonperforming loan portfolios by some banks. This latter inuence will see the development of a secondary transactional market in the second half of 2014. Outside of this, the better trading environment will also see a more normalised ow of individual assets to the market during the course of the year.

30
dedicated consultants

OVER

Market predictions 2014


Loan disposals will see creation of secondary transactional market Buyers will look to recovering markets in Europe for opportunities Some assets, particularly in leisure, in tertiary locations will become increasingly obsolete

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Andreas Scriven, Director and Head of Consultancy

While the leisure, healthcare and retail sectors have gone through a period of stabilisation, the winners and losers from the past years of recession have still to fully emerge. There will be greater consolidation to come across all sectors and, particularly where operators have allowed the capex timebomb to explode without investment intervention, some further distress.

Winners, losers and the capex-timebomb While the leisure, healthcare and retail sectors have gone through a period of stabilisation, the winners and losers from the past years of recession have still to fully emerge. There will be greater consolidation to come across all sectors and, particularly where operators have not diffused the capex timebomb through appropriate investment intervention, some further distress. Certain assets, especially in the leisure eld, will become operationally obsolete given their tertiary locations and, in many cases, inconsistent product offering. Those that have invested and innovated through the recession are likely to be among the winners.
Q Q
January 2014

European Airport Hubs In Perspective

Some business operators are uncomfortable with steady and stable growth, preferring to operate at the extremes, and it will be the deal chasers that risk being the losers without recourse to expert advice the like of which is offered by Christie + Cos consultancy offering.

Looking to Europe As London preserves its status as the global city, opportunities for private equity, pension funds and high net worth individuals to invest will diminish. As such, many will start to look at the recovering markets in continental Europe such as Spain, Portugal and Italy. And just as in the UK, those looking to Europe will need the same level of expert advice and counsel. What our proposition offers is the experience of European markets, particularly in leisure and care, and especially in markets like Spain where legislation and business practices can be opaque. Workable comparisons with other markets, identifying those practical solutions that work, and highlighting how investors need to adapt for local environments transactional and legal, for example are all essential elements of the investment process. And all of which demand the very best of advice. Christie + Cos Consultancy team has developed a new regular communications platform, including informative and inuential market reports the rst of which, on the top ve European airport hotel markets was published recently. For further information, see www.christiecorporate.com

Business Outlook 2014 11

What appears to be getting lost in the increasingly optimistic discussions of what 2014 may hold is the fact that a material number of business owners are still likely to face potential enforcement either from their incumbent bank or, more likely, from the opportunity funds who have acquired a debt position in their business.

BUSINESS OUTLOOK VALUATION 2014

3,739
number of businesses valued

40 4
registered valuers

OVER

bn

value of all businesses valued in 2013

Market predictions 2014


Owners and operators will increasingly see value of capex investment Valuers will be challenged to factor future investment into calculations Values will increase in most sectors as improving economy coincides with competitive bidding

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Darren Bond, Director and Head of Valuation Services

The second half of 2013 was positively frenetic in terms of M&A activity and portfolio valuation work, compared with 2012, driven by a much improved economic environment, increased condence amongst both buyers and vendors, and the selling off of non-performing loan (NPL) portfolios by the banks. Working through these loan disposals in the rst quarter of 2014 will result in increasing transactional activity.

Ongoing bank deleveraging will boost activity in 2014 When 2013 dawned in much the same subdued way as 2012 closed, with a lack of M&A activity and portfolio valuation work, we originally looked forward to a second consecutive relatively at year. However, the second half of 2013 was positively frenetic by comparison, driven by a much improved economic environment, increased condence amongst both buyers and vendors across all the sectors in which Christie + Co works, and the selling off of non-performing loan (NPL) portfolios by the banks. As part of ongoing bank deleveraging, we are seeing a continuation of banks revisiting their security and instructing property valuations, as they continue to strengthen their balance sheets. While it is difcult at the time of writing to prove how the NPLs are driving activity, it is beyond doubt that the working through of these loan disposals in the rst quarter of 2014 will result in increasing transactional activity through the middle period of the year. Distress reduced but pricing buoyed Activity was undermined, for a second year in turn, by a shortage of good quality stock to the market. Distress may have been reduced, but this was more or less driven by owners hanging on to assets in order to see out the nal stages of the recession. The shortage of transactions at the quality end of the spectrum made valuation a difcult task when higher quality stock did come to the market. A distinct lack of comparable sales of better quality, performing assets has been boosted by a return to competitive bidding which has started to buoy pricing.

Trading performance has been fairly at across the board, except where operators and owners have invested in capital expenditure there were real performance advantages for those that did invest. In general, the drivers of business valuation revenue, prot and EBITDA remained under pressure.

Investment focus welcomed Encouragingly, in 2013, we saw many more of our clients understand the need to invest in their properties albeit well after the capex timebomb had gone off. The economic downturn had seen many businesses starved of capital expenditure so one hopes this trend towards 11th hour investment is not too late. Those that have invested too late or not at all will nd themselves on the receiving end of a second hit from the recession. This leaves a question for valuers as to how to factor future capex investment into a valuation today. How do we value this promissory investment? Valuers will need to take a proactive approach to this as we inch towards the recovery. Generally, the upturn in the economy leaves us optimistic for this year and beyond. Trading performance should improve across the board, as should the transactional market if the marginal improvements in pipelines are to be trusted. We have experienced glimpses of green shoots in recent years, but at long last, there appears to be genuine hope of a strengthening recovery.

Business Outlook 2014 13

BUSINESS OUTLOOK BANK SUPPORT & BUSINESS RECOVErY 2013

Despite recovery, decline in distress may only be temporary The decline in business distress and in businesses being sold out of distress continued in 2013 as an inevitable consequence of the continuing economic recovery and the subsequent maintenance, if not increase, in consumer spending. However, the spectre of the fall-out from interest rate swap mis-selling, a tougher approach by banks seeking to dispose of bad bank debt, including non-performing loan portfolios combined with distress caused by the recovery itself, as some businesses nd it challenging to raise nance for working capital due to increased consumer demand means that we may see a spike in distress cases before the level of distress declines to pre-recessionary levels. A number of scenarios would have to coincide for us to be certain of this.

Banks will get tougher on some customers and will begin to move aged cases on despite the Tomlinson Report and the subsequent media furore, this is a legitimate strategy which will stimulate activity, provide funding for fresh investment and allow businesses to continue to function under new, viable, ownership. The level of the banks toughness, however, will be a determining factor in whether there will be greater activity in the distressed marketplace.

Rates could see some fall off the perch Interest rates will, of course, be a vital inuence on the distressed market. In his forward guidance in summer 2013, Bank of England Governor Mark Carney asserted that the Bank would not consider raising interest rates until unemployment fell to seven per cent, which he stated might take three years. Since then, growth has picked up speed and unemployment has fallen faster than the Bank expected. The gathering recovery has raised the prospect of interest rates rising sooner than late 2016 with some forecasting a rate rise in early 2015. If that transpires, we may well see many companies fall off the perch.

Completed swap sales reviews will drive sales Weve only just touched the tip of the iceberg with interest rate swaps. As at 28 November 2013 only 2,359 sales of 18,395 loans assessed as non-sophisticated were at the redress offer and acceptance stage ie, an initial redress outcome had been communicated to the customer. Results for the remainder of 2013 and the rst half of 2014 should see this gather pace and compensations will be agreed and paid. Some cases under review will inevitably result in exit strategies through administrations, receiverships and some consensual sale activity.

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Stephen Jacobs, Director, Bank Support & Business Recovery

While 2013 saw a decline in business distress and businesses being sold out of distress, we may see a further spike in cases in 2014 before the level of distress declines to pre-recession levels. How banks deal with aged distress cases, plus the prospect of an increase in interest rates in 2015, will be determining factors in whether more companies fall off the perch.

Business distress - I
Distressed assets as a percentage of all assets instructed for disposal
25 24 22 20 16 15 15

10

2009

2010

2011

2012

2013

Business distress - II
Distessed assets instructed for disposal by sector in 2013

19% Hotels 61% Pubs 1% Restaurants 4% Leisure 10% Care 5% Retail

Business Outlook 2014 15

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014
Transactions advance but threat to operating margins remains Within weeks of 2013 dawning, it shaped up to be the year of the major deal in the hotel sector. And while the early urry of major activity could never be sustained throughout the year, it was a 12 months that reasserted the transactional marketplace on the UK hotels scene. Amidst the growing trend of activity with overall transactional volumes some 50 per cent-plus ahead of the preceding year we saw a blitz of high prole deals in the years early weeks. Starwood Capitals 400 million acquisition of Principal Hayley, KSL Capital Partners purchase of Malmaison/Hotel du Vin for 180 million, the 250 million acquisition of 20 Queens Moat House (Germany) hotels by a consortium of investors led by Fattal Hotels (through Christie + Cos Corporate teams in the UK and Germany, see page 21), and the sale of 42 Marriott Hotels to Abu Dhabi Investment Authority for a reported 620 million all of which happened in Q1 set the tone for the year which was subsequently framed by the acquisition of Menzies Hotels, out of administration, by Topland Group in November. The hotels were sold by Christie + Co in excess of the 80 million guide price. This portfolio deal activity provided for a really positive start to the year, signalling to the market that if intelligent investors were entering the sector then stimulus and growth were achievable. There remains, as we move into 2014, a good deal of money out there looking for opportunity new hotel development continues apace, fuelled by the institutional lease model available from Premier Inn and Travelodge, as the dust settles on the latters CVA. BPRA schemes have given rise to substantial increase in room inventory in provincial markets and notably there have been some HMA funded developments provincially. Lease investment yields in prime markets achieved sub ve per cent NIY in some cases. The sums now add up for transactions if not so much for development, where in 2013 we saw yields compressed by a couple of percentage points and where the opportunity window for hotel development based on land values appeared to be over.

Values maintained in London and the regions London, with its micro-economic climate and safe-haven status, remained at the forefront of the major deals with the highest prices being attained, but even in the regions especially where quality assets were put to market values were maintained. Indeed, the regions saw improved trading for the rst time in many years, attracting buyers into the provincial markets, enticed by prospects of capital appreciation. The banks strategies seem set to boost the hotel market still further into 2014 with the disposal by RBS and Lloyds of nonperforming loan portfolios. Factor in the ongoing disposals from IBRC bad bank and we are likely to see a fair number of reasonable quality assets reach the market through the course of the year. As loan portfolios are disposed of, so too will the banks release funding for hotel investment albeit far more selectively than in pre-recessionary times.

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Case Study
Metropolitan by COMO Hotel, Park Lane
A Park Lane freehold investment comprising the majority of The Metropolitan by COMO hotel owned by Canada Life was sold to a UK-based investor for well in excess of the 40 million asking price in August, having been brought to the market by Christie + Co just over a month earlier. This prime piece of London real estate, rarely available to market, is adjacent to both Park Lane and Piccadilly and also houses the Colony Club Casino and Nobu Restaurant.

Jeremy Hill, Director and Head of Hotels

There is still fervent demand from those with cash to invest in the UK hotel sector. This, and the improving economic situation, should see the potential for selective hotel value increases, both in and outside of London in 2014, even if the trading market remains in a fairly at position.

Hotels
Movement in average prices year on year in per cent

6.1 0.1 -18.4 2007 2008 -19.5 2009 2010 2011 2012 -5.1 -3.1

5.7

2013
Business Outlook 2014 17

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014

948 5.2 267


number of new hotel instructions received by Christie + Co in 2013

number of hotel inspections conducted for sale or valuation purposes in 2013

average number of offers per hotel sold by Christie + Co in 2013

Market predictions 2014


OTAs will strengthen their grip and affect margins while operators look for equitable solutions Debt availability will be easier as banks dispose of loan portfolios and underperforming assets There is increased likelihood of consolidation in the sector There will be further brand roll-out through the franchising model We will see selective value increases in the regions amidst a continuing at market There will be substantial equity looking for opportunity in 2014 Opportunities will emerge from completed Non Performing Loan deals as the purchasers enforce their securities

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Debt available as investor condence maintained In 2013, debt was increasingly available for those seeking to invest, largely for portfolios and syndicates in the regions as well as in the capital. The question of which deals to back saw the banks (and private equity investors, for that matter) look to portfolios and single assets that had excellent incumbent management or to bring in a management team to help boost the trading performance. Allied to the, still, low value point, this gave investors the condence that there were returns to be made in the sector. Some new brands emerged in 2013 on the back of product development Accor changing Ibis, Premier Inns introduction of Hub, Z Hotels, Sleeperz and Citizen M, for instance. Certain brands focused on the airline model, adopting basic price models for rooms, with all other hotel services being additionally charged. Innovation of this nature will be increasingly vital in the hotel environment if operators are to see off the growing threat of the online travel agents (OTAs) grip on pricing and, therefore, hotel margins. This is a threat that will continue to erode the trading performance of hotels and groups while they seek a solution to the problem that many operators we speak to will admit was of their own making. While the OTA spectre will hang over the hotel sector into 2014, there are reasons for optimism as we look forward. The extent of this condence will much depend on the levels to which the banks are inclined to take part, of course, but the transactional environment will see some further upturn as more consolidation looms and further brand roll-out through franchise modelling takes place. This, in tandem with the still fervent demand from those with cash to invest, and the improving economic situation, should see the potential for selective hotel value increases, both in and outside of London, even if the trading market remains in a fairly at position in these still transitional times.

Case Study
Menzies Hotels, UK portfolio
Christie + Co was instructed to assist in the ongoing review of options for the Menzies Hotels portfolio in June. The hotels within the group have a combined bedroom count of over 1,500 in locations stretching from Aberdeen to Bournemouth including high prole assets such as the Welcombe Hotel Spa and Golf Club in Stratford-upon-Avon (pictured). In November, following a highly competitive process driven by Christie + Cos marketing of the estate, the portfolio was acquired by Topland Group, with Bespoke Hotels appointed to manage the hotels. The price achieved was well ahead of market expectations.

Business Outlook 2014 19

BUSINESS OUTLOOK HOTELS - FRANCE 2014

Philippe Souterbicq, Managing Director France

Despite a difcult economic situation France remains Europes number one destination With 38 UNESCO-listed World Heritage sites, France remains Europes number one destination with 83 million tourists a year. Hotel occupancy rates have been strongly supported by international visitors (up 7.2%*) while internal visitor numbers remained relatively stable (down 0.4%*). With 33.2 per cent of jobs set in the tourism sector, Paris and its suburbs increasingly present a different market from other parts of the country. Indeed, the difcult economic situation has seen many small companies in the country suffer, with corporate clientele under pressure. On the contrary, Paris continues to attract new visitors from the BRICS.

The market is taxing The market has been depressed by the new levels of capital gain taxes (up to 64.5%) for directly-owned assets. Christie + Cos French team saw cases where owners stopped the sales process for tax reasons when offers were over asking price. For the second year new tax regulations have been implemented with negative effects, freezing the market. Also for tax reasons, legal holding structures have to reinvest capital gains in order to keep their tax niches, and the market has been supported by portfolio transactions, such as the Rezidor portfolio (a process managed by Christie + Co). Newcomers, having sold companies in other sectors, are also showing an interest in investing in the hotel sector. Due to the high proportion of budget assets on the market in the regions, there are a number of investment opportunities available which offer returns on investment of between 15 and 20 per cent.

Paris stands tall Hotel buyers and sellers remain aware of the long-term opportunities to be had in Paris. Key individual buyers have sold some of their assets in other parts of the country in order to invest in the capital city. Investment funds have taken similar decisions and several main portfolios have been sold or sales processes are on-going. Freehold opportunities are rare due to the fact that sellers are happy to retain the bricks and mortar for the present. Nonetheless, the market seems to support multiples of around 18 to 20-times EBITDA. Several examples of overpriced assets, however, remain unsold on the market. Leaseholds are also capped to ve-times the turnover if buildings are in reasonable condition. Trophy assets, hotels with over 100-rooms, or in top locations are outside of the scope of this due to the fact that several international key players are looking for investment opportunities.

Case Study
Algonquin Rezidor, France
Christie + Co was appointed by Algonquin Rezidor to sell a portfolio of Park Inn by Radisson hotels located in cities across France. The ve 3-Star hotels are in Macon, Lyon, Nancy, Orange and Arcachon (pictured) with a total of 486 rooms.

*in July & August in terms of room nights based on the (DGCIS) survey

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BUSINESS OUTLOOK HOTELS - GERMANY AND POLAND 2014

Markus Beike, Managing Director Germany

Adam Konieczny, Business Development Manager Poland & Ukraine

German hotel market remains positive In 2013 the productivity of Germanys key hotel markets continued with the positive development it rst demonstrated in 2010. The key winning markets were once again found in Hamburg, Munich and Frankfurt, with these cities performing 15-32 per cent above the European RevPAR average. This positive development was mirrored in transaction volumes. The reported volume reached up to 925m (to September 2013) and with a deal pipeline in the region of a further 300 to 500m until year end, the total volume should reach the same level of 1.3bn as in 2012 (basis: deals over 10m). Christie + Cos contribution to the result of the rst six months amounted to an amazing 50 per cent, with the main drivers for this being the successfully completed sale of the German Queens Portfolio to Fattal Hotels and other single asset or group sales such as the package of two Park Plaza hotels in Berlin.

Poland: Activity driven by investment transactions In 2013 Polish hotels in the main cities experienced a higher occupancy but unfortunately lower average daily rate. Some iconic hotels opened including Double Tree by Hilton in Ldz, Mera Hotel & Spa in Sopot, Sound Garden Hotel in Warsaw and Puro Hotel in Krakw. Signicant hotel transactions were thin on the ground, however the Sheraton Krakw did come to the market. It is likely that 2014 will be a less active year in new developments and more active in terms of investment transactions in Poland. Due to the asset-light strategy of hotel chains there may be opportunities for sale and management/ franchise-back transactions. Equally likely is that the potential buyers will be opportunistic funds and high net worth individuals from Poland and Russia.

Case Study
Who is buying? Money is cheap but many banks remain reluctant when it comes to hotel nancing. Consequently, cash-rich buyers such as high net worth individuals, private placements and private equity with good contacts to their lending desks are in the drivers seat. However, it has been observed that loans-to-value are not that stiff anymore which could mean positive news for 2014.

Queens Portfolio, Germany


On exclusive instruction Christie + Co sold a portfolio of 20 branded hotels in Germany (Holiday Inn, Moenchengladbach, pictured) to the Israeli hotel company Fattal Hotels and an international investor consortium. The portfolio comprises approximately 3,600 rooms and offers a protable trading prole with good prospects for further growth.

Whats next? At least two spectacular portfolio transactions are bubbling under the surface and are expected to complete in the rst half of 2014. One is Christie + Cos co-instruction with Goldman Sachs regarding the sale of the Interhotel portfolio in the east of Germany. This scale of deal will fuel transaction volumes in 2014.

Business Outlook 2014 21

BUSINESS OUTLOOK HOTELS - AUSTRIa aND CEE 2014

Lukas Hochedlinger, Director & Business Development Manager Austria & CEE

Single asset transactions will continue to dominate While 2012 ended with a brilliant result for the Austrian hotel investment market, partly due to a large portfolio transaction at year end, 2013 began at a somewhat slower pace. In the rst half of the year, hotel properties with a total volume of approximately 135 million changed owners, which was in line with the rst half of 2012. The Austrian hotel investment market in 2013 was characterised by several single asset transactions. Examples include the sale of Austria Trend Hotel beim Theresianum, MGallery Hotel, the Hilton Danube and the Motel One development at Viennas new Central train station. Buyers were mainly nancially-sound funds and smaller real estate companies or developers. As in recent years we also saw several Eastern European and Russian buyers acquiring hotels in Vienna, which once again led the way in terms of transactions. There was also some activity in provincial capitals such as Linz and Salzburg, where the Austria Trend Hotel Schillerpark Linz and the Amedia Hotel Salzburg, respectively, were sold. Both hotels were acquired by Austrian high net worth individuals. Across the Eastern borders, investors also showed renewed interest in the CEE hotel market. The volume of hotel investment activity in 2013 in this region increased by 38 per cent in the rst half of the year compared to the same period in 2012. Most of the activity was in Poland. Investors expectations have not really changed over recent years, concentrating on quality and upside potential. While Poland is still seen as the key investment market within the region, investors also are turning back to prime hotel properties in Prague and Budapest.

As noted, the most notable transactions in the Central and Eastern European hotel market included the sales of the Hotel Bristol in Warsaw, the Sheraton Krakow, and the Mercure hotel Kasprowy in Zakopane. Outside Poland, the Hilton Soa and the Hilton Palace in Prague were also notable deals.

Vienna set to lead the way again The year ahead is likely to bring further condence that deals can be done, both in Austria and in Central and Eastern Europe, due to the banks and receivers exit strategies. In our opinion there will also be more transactions in Austria, with Vienna again leading the way in terms of transactions, as in previous years. Many investors will also remain on the hunt for attractive investment opportunities in the Danube metropolis.

Case Study
RAMADA Podgorica, Montenegro
Christie + Co is instructed by the owner to sell the RAMADA Podgorica Hotel in Montenegro. With 111 contemporary guestrooms and suites it is the largest internationally branded hotel in Montenegros capital city Podgorica. In addition, the hotel has the citys largest meeting facilities for corporate and leisure events. The stylishly decorated restaurant on the top oor features panoramic views over the city.

22 christiecorporate.com

BUSINESS OUTLOOK HOTELS - SPAIN 2014

Inmaculada Ranera, Managing Director Spain & Portugal

Spanish market shows resilience and signs of recovery The economic downturn and uncertainties that have affected Spain in recent years started to show some signs of abating in 2013. Spain remains one of the key tourist destinations in Europe and its tourism sector is proving to be resilient to the ongoing economic crisis. As we went to press it was anticipated that 2013 would end with an annual increase in visitor numbers of around three per cent over the previous year. The key source markets continue to be the United Kingdom, Germany and France, with a notable increase of Scandinavian and Russian visitors. The regions with the highest number of visitors were Catalonia, the Balearics, the Canaries, Andalucia, Valencia and Madrid. In 2013, internal demand declined, especially affecting hotels in secondary cities as well as small country hotels which have seen a dramatic drop in their operating results. Tourist consolidated areas have remained resilient as the number of foreign visitors has increased again this year. Of the city destinations, Barcelona remains a consolidated destination in Europe while Madrid has suffered due to its dependency on internal demand.

In Barcelona, international chains retained their appetite, as the potential conversion of AGBAR tower into a Grand Hyatt hotel demonstrates. Opportunistic investment funds are concentrating efforts in vacational assets located in well consolidated areas, where distressed opportunities can be found and we expect more to come in 2014. The SAREB creation this year impacted market prices, but as they have a 15-year window to sell their assets, we are not expecting the sale to have much impact on transactional prices. Last year was the year of the franchise, with Barcelona seeing most of the deals. Hilton, Intercontinental and Crowne Plaza were very active. We foresee that this trend will continue to grow. This gives owners the opportunity to retain freehold properties and obtain the advantages of being afliated with international hotel chains, which in turn bring international clients to their businesses.

Case Study
Hotasa portfolio, Spain
Christie + Co was appointed by the Administrators of Hotasa to produce the sales brochure and data room relating to the sale of a portfolio of ve hotels in the Balearic Islands (Majorca and Menorca) totalling 1,029 rooms. This opportunity generated great interest in the market from both local and international investors and operators. The deal is expected to complete during the rst quarter of 2014.

Transactions up as investor condence returns From a transaction perspective, the rst nine months of 2013 saw an increase in the volume of transactions of almost 60 per cent over 2012, indicating a return in investor condence. Investor appetite was different for city hotels and those located in traditional vacation resorts. Barcelona saw the big deal with the sale of W Hotel to Qatari Diar investment fund for 200 million. The city also saw the sale of Vincci Area to the Portuguese hotel chain Pestana, for 15 million. This was Pestanas rst hotel in the city. On the other hand, trading numbers in Madrid demonstrate that the city is suffering but, conversely, this makes for great opportunities for investors if prices continue to fall, especially as operating results can only improve.

Business Outlook 2014 23

BUSINESS OUTLOOK HOTELS - FINLAND AND NORDIC REGION 2014

Kimmo Virtanen, Director, Scandinavia, Russia & the Baltic States

Positive forecast for Nordic regions despite relatively at trading The relatively strong performance of the Finnish hotel market continues despite the nationwide slowing occupancy growth and minor decline in average room rates (ARR). The Helsinki metropolitan region has absorbed recent room supply increases and maintains good level of occupancy and almost at room rate performance during 2013. The recent announcement of a large investment programme at Helsinki-Vantaa Airport, the increasing number of direct ights to Far Eastern destinations and continuously developing business parks around the airport, have created an attractive base for hotel operations in Vantaa. As a result, there are a handful of new hotel developments in the pipeline. Equally, there is increasing interest among international operators to gain a presence in Helsinki where several new hotels are planned. A recently announced new brand entering Finland is Indigo, which has secured a prime location on Bulevardi and is expected to open in early 2015. The overall outlook for the Finnish market remains positive despite persisting economic uncertainties and increasingly weak export forecasts. Growth expectations are fuelled by increasing visitation from Russia and the Far East and gradually improving ARR.

Meanwhile, Oslo hotel performance remains at compared to 2012 with only marginal ination adjusted RevPAR growth.

Positive pipelines All three cities have substantial hotel development pipeline with over 1,600 rooms in Stockholm, over 1,000 in Copenhagen and some 600 in Oslo. This is likely to have a negative impact on short-term trading levels.

Case Study
Tallinn, Estonia
Christie + Co conducted a feasibility study for a proposed 250-room full-service hotel in the city centre of Tallinn, Estonia for Olympic Entertainment Group. The client, one of the largest casino operators in the Baltic States, requested Christie + Co to advise and assist in negotiating contract terms with an international hotel chain. The agreement to operate the hotel as a Hilton was signed in the latter part of 2013.

Nordic capitals perform well Despite the rather pessimistic outlook for the Nordic capital cities at the beginning of the year, these hotel markets performed rather well in 2013. In particular, the Copenhagen market recorded substantial RevPAR growth compared to 2012 by the end of Q3, fuelled by better-than-expected occupancy levels. The Stockholm hotel market persisted despite the weak trading environment and consistently yields the highest average room rates and RevPAR amongst the Nordic capitals.

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BUSINESS OUTLOOK HOTELS - IRELAND 2014

Maureen Doyle, Director & Location Manager Ireland

Market prospects set to improve after turbulent years Banks continued to hold a substantial amount of hotel-related debt on their books in Ireland in 2013. Following many receivership announcements in 2012 and the early part of 2013, the focus for many lenders shifted to renancing and supporting future value recovery in tandem with the market recovery. For the 100-plus Irish hotels that went into receivership during the downturn, a number have been, and continue to be, sold. Although many more remain in a hold position, the route to market is in sight.

Throughout the downturn, new supply announcements have been weak. However reports of continued inward investment and expansion of the ITC sector in Dublin, coupled with the strength of Convention Centre Dublin (CCD) and remarkably high occupancies in the city, suggest a requirement for continued evolution of hotel supply. Outside Dublin, some locations continue to absorb supply which entered during the boom years, and there are few locations where a requirement for new supply is evident.

Professional advice to market entrants Christie + Cos Dublin ofce recorded a busy 2013, as many hotels and non-performing loan portfolios which included hotel real estate, came to market. Christie + Cos advisory team was called in to provide advice to private equity houses and investment funds looking to enter the Irish market, either via straight property acquisitions or loan acquisitions. Meanwhile, Christie + Cos valuations team provided advice for the purpose of renancing deals which had become considerably more accessible than they had been in previous years.

Transactions bring new pricing base After a prolonged ebb in the hotel transactional market, 2012 saw a number of hotels being brought to market, followed by many more in 2013. With these transactions, a new pricing base is shaping one which is no longer based on alternative use, tax incentives or land value as was the case during the peak. Following the trend of 2012, the commonality in 2013 was that virtually all hotels being brought to market were marked as distressed. Major deals recorded in 2013 included the 66-room Sheen Falls Lodge for 5m, the former Ormonde Quay Hotel for 2.5m, the 83-room Ashford Castle for 20m, the 123-room Fota Island for 20m, the 195-room Trinity Capital Hotel for 35m and Irelands largest hotel at Citywest for 30m. International investors have emerged as the most common buyers for transactions over 4m, with the exception of the Radisson Blu Cork which sold for 8m to Irish set up iNua Hospitality. Hotel transactions outside the capital have unveiled considerably low prices, due mainly to a weakness in trading and limited availability of bank debt, with loans calculated on an EBITDA multiple rather than the historically reliable loan-to-value ratio.

Future prospects 2014 is likely to bring further condence that deals can be done. Dublin remains at the forefront of the minds of investors, however as trading performance picks up around the country, other locations will continue to interest selective investors. Dublin city is no longer showing evidence of over supply and new hotel development would be a welcome addition to the citys tourism infrastructure and economy.

Business Outlook 2014 25

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014
Number of pubs sold for ongoing use sees record rise While estate churn is a perpetual state in the pubs marketplace, there were signs in 2013 that this slowed as the pubcos reached a point of satisfaction with their estates, having disposed of the majority of their bottom-end assets. A side-effect of this, and an all-round improvement in trading performance by the major operators, boosted condence in the pub sector throughout the year. And despite the continued warnings about the rate of pub closures from some pressure groups (and from some inside Parliament), there was clear evidence that the rate of closures has greatly declined. Evidence gathered by Christie + Co from its tally of sold pubs in 2013, showed that the percentage of pubs acquired to remain as pubs reached 67 per cent a massive ve per cent up on 2012. Elsewhere, the UK regions rather reected the recessionrecovery effect the belief that recession starts in the north and recovery in the south was certainly mirrored in the trading performance of pub companies. Food remains the driver for the pub sector, along with cask ales, and as the quality of provision and service improves and with pubs set to become an intrinsic part of the Governments drive for new residential development the future for the sector looks bright.

Better quality boosts transactions The transactional landscape seemed unaffected by the slow recovery, though, as experienced operators, returning entrepreneurs and rst-time, lifestyle, buyers ocked to acquire the higher quality of pub that came to the market during the year. Smaller operators sought to pick-off individual, regional sites to add to their burgeoning estates and there was a real appetite for pubs from tenanted lease estates again reective of higher quality pubs coming to market. Tenanted pub disposals generally declined to sensible levels as the pubcos sought to improve the tenant relationship rather than continuing to ght over the beer-tie battleground. The beer tie is going through a natural evolution anyway, and the pubcos understand there is more to be gained by managing the tenant relationship better and encouraging new tenants into the sector. Beyond Cerberus 200 million acquisition of Admiral Taverns at the very outset of 2013, major deals were lacking, and while there may be one or two major deals in the ofng in 2014, many more would come as something of a surprise.

Experienced operators and entrepreneurs are back Add to this the continuing trend towards acquisition of pubs by experienced operators and entrepreneurs returning to the sector, and we are condent that the pub sector is in as healthy a position as it has been for many a long year. We should remain slightly cautious amidst this wave of optimism, however. While trading performance seemed to improve in general terms, the better results were geographically predicated. London remained in its own bubble, trading-wise, and also saw most of the higher premiums paid for pubs. Christie + Cos sale of six superb London pubs on behalf of Convivial London Pubs plc saw the estate sold for signicantly above the 16.9m guide price four of the pubs being acquired by Mitchells & Butlers.

26 christiecorporate.com

Case Study
Convivial London Pubs
Six high quality London pubs ve of them ultrarare freeholds were taken to market in late July by Christie + Co on behalf of Convivial London Pubs plc. By October, four of the freeholds The Lamb Brewery, The Crown and Anchor, The Botanist Brewery and The Mitre Hotel (pictured) were sold in a package to Mitchells & Butlers, with the remaining two sites The Clifton and The Hansom Cab sold later in the year. The swift sale by Christie + Co highlighted the demand for freehold pubs, especially in the capital.

Neil Morgan, Director and Head of Pubs

More sold pubs remaining as pubs than ever before, plus the continuing trend towards the acquisition of pubs by experienced operators and entrepreneurs returning to the sector, leaves us condent that the pub sector is in as healthy a position as it has been for many a long year.

Pubs
Movement in average prices year on year in per cent

6.5 -11.6 2007 2008 -20.1 2009

-0.9

-1.1

-3.3

3.3

2010

2011

2012

2013

Business Outlook 2014 27

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014

67% 5% 3553
percentage of pubs sold by Christie + Co in 2013 remaining as pubs percentage increase in pubs sold remaining as pubs number of viewings of pubs marketed by Christie + Co in 2013

Market predictions 2014


We expect to see at least one tenanted group deal in 2014 However, there will be a slowdown in tenanted disposals generally as the pubcos become satised with their estates As we exit recession, we will see a further wave of administrations and bank-led disposals as pub values continue to increase The trend seeing more sold pubs remaining as pubs will continue upwards There will be accelerated appetite in the managed house sector and managed operators will look to expand estates Private equity will target smaller, multiple pubcos, but lifestyle buyers may also return

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Distress remains a xture in pub sector Distress disposals continue to be something of a way of life in the pubs sector. In late 2013, Christie + Co was instructed by administrators to sell the 103 pubs remaining in the Bramwell Pub Company estate, after Stonegate had acquired over 70 sites. As Business Outlook went to press, wed received rm offers on the vast majority of pubs and deals have already been agreed on many of them a further indication that the appetite in the pub sector is as healthy as it has been for some time. We should not expect Bramwell to be the last word in distress. As we moved towards the close of 2013, the banks announced their intentions to dispose of billions of pounds worth of non-performing loans, signalling a lessening of their exposure to bad property loans including some, inevitably, in the pub sector. The loan disposals will see some signicant portfolio selloffs, as the banks attitude to bad debt becomes signicantly tougher. This renewed tough-guy approach will again see some debtors from the pub sector placed under pressure and, potentially, hastened into administration or insolvency. Conversely, the huge interest being shown in the Bramwell Pub Company disposals, a symptom of the rising market in pubs, may also in its way signal further distress the banks, seeing a way out of their exposure, possibly foreclosing on bad debt sooner in the knowledge that they will get a better return from disposals than in previous years. Contrary though it may appear, this is a genuine signal that the pub sector is picking up, both in the trading performance of single units and companies, and in the values being achieved by pubs that are being placed on the market even those that are in distress. And as we move into 2014, this state of affairs will alert, and offer encouragement to, those who are looking to either add to their estates, or seeking a return or rst-footing in a sector which is looking to grow ever-more-vibrant and stable.

Case Study
Pubs n Bars, UK portfolio
Thirty-one Pubs n Bars sites were marketed by Christie + Co in 2013 on behalf of the administrators. The pubs comprised a mixture of freeholds with vacant possession, long leaseholds, tenanted investment opportunities and managed houses, included 13 sites in London but with others as far aeld as Loughborough, Brighton, Southend-on-Sea and the Rhondda (the Foresters Arms in Bagshot, Surrey, pictured). Demonstrating both the increasing appetite for good quality pubs, and Christie + Cos ability to transact them, all 31 pubs had deals agreed on them by the end of the year.

Business Outlook 2014 29

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS RESTAURANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014
The future in the regions looks far more palatable Much of the focus on the restaurant sector in 2013 centred on a thriving London market, and particularly on the growing inuence of the branded chains. As we look ahead, however, there is more than a glimmer of hope that this enthusiasm for the sector is going to be replicated throughout the country. Brands, buoyed by their experience in the capital, will increasingly take their condence into the UK regions. Private equity, which invested heavily in the sector in 2013, also looks set to repeat the dose in 2014. The restaurant sector was probably less affected by the recession than even it had possibly expected. Like for like sales increased across the board, new restaurant openings increased by over 11 per cent through 2013 and then there was the growing private equity activity in the likes of Byron and Cte. The rush of private equity to occupy the restaurant space in the last 12 months has been at a level not seen since the pre-recessionary period prior to 2008. Sector condence was driven by the aftermath of the Olympic-slowdown, the expansion of brands outside of the capital and their move into new retail developments, as well as the UK consumers reluctance to stop dining out. Individual, independent restaurants still struggled while their branded counterparts with a national presence and sound nancial infrastructure continued to do well. There was some corporate disposal activity, as in the example of Pizza Hut, but this was largely to ward off the threat of distress prior to Rutland Partners investment in late 2012 and future disposals, of which there are several rumoured, are likely to be in support of the new owners turnaround strategy. With low interest rates and lowish ination, the consumer continued to support the sector buoyed by prices remaining at affordable levels. With the signal that the customer was not going away, many restaurants chose to eschew the voucher culture that had so dominated the sector in recent times, in favour of investing in, and refreshing, their proposition most notably, Strada and Bella Italia appeared to want to offer their customers something fresh.

Variety is the spice of the market Also of some advantage to the sector is the expanding palate of cuisines offered to the consumer. Diners have never had so much regional and geographical choice. And at the time of writing, it is to be hoped that central Londons only Hungarian specialist restaurant, the Gay Hussar, on the market to much interest with Christie + Co, retains its unique identity. But with the traditional high street still struggling, retail and leisure parks have become the new high street for restaurateurs and investors. The older high street is still well-populated with restaurants, but if they are to continue to survive and thrive, many will need to work hard to maintain their loyal customer base, or seek to explore opportunities to expand their local brands more regionally. Alternatively, some may seek to diversify their offering in order to compete with brands in retail parks, or with the pub sector, where the food proposition has improved exponentially over the last decade.

30 christiecorporate.com

Case Study
Gay Hussar, London

One of the most iconic restaurants in London, especially favoured by the political left, was put to market by Christie + Co late in 2013. The Gay Hussar, in Greek Street, Soho has provided the nest in Hungarian cuisine and wines since being opened by the esteemed restaurateur Victor Sassie in 1953. The restaurant is famous as the restaurant of choice for the political left as early as the 1950s the socialist MP Aneurin Bevan became a devotee of the restaurants large, rich meals. Christie + Cos marketing saw the sale featured on radio and in the national press generating dozens of enquiries within 24 hours of being placed on the market. As 2013 closed, a sale was imminent.

Simon Chaplin, Director and Head of Restaurants

While the London restaurant scene shone once again in 2013, there is more than a glimmer of hope that this enthusiasm for the sector is going to be replicated throughout the country in the year ahead. Brands will thrive, but brandless, imageless and dated traditional restaurant concepts may nd themselves under yet further pressure in 2014.

Restaurants
Movement in average prices year on year in per cent

8.0

-14.9

-18.1

4.6

-4.1

-1.4

4.7

2007

2008

2009

2010

2011

2012

2013
Business Outlook 2014 31

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014

14.8% 899 3.7


percentage increase in restaurants sold by Christie + Co in 2013 number of viewings of restaurants marketed by Christie + Co in 2013 average number of offers per restaurant sold by Christie + Co in 2013

Market predictions 2014


The condence of corporate operators will see them expand out of London and into the regions far more frequently during the year We can expect a new generation of fast-casual dining to rival McDonalds, KFC and Burger King Celebrity chefs will focus increasingly on maintaining high quality sites rather than expanding brands Restaurants will become increasingly specialised in their offering, with more chains emerging at the fringes of cuisine We will see the growth of regional chains, following the lead of Loungers Brandless, imageless and dated traditional independent restaurants will come under increasing pressure from higher quality pub chains

32 christiecorporate.com

Brands set to dominate Looking forward, it is likely that the brands (and private equity) will increasingly come to dominate the restaurants scene in 2014. With the condence that many have gained from their experience in London, we should see far more growth of the branded product in the regions. Whether independent operators, and small local and regional groups, can keep pace and compete with the power of the private-equity-backed brands will be interesting to observe. One hopes, for the sake of diversity, that consumers spoilt for choice like never before will nd enough choice and quality in their local independent establishments. The fast casual setting is likely to see further competition to the likes of McDonalds, Burger King, KFC and the pizza chains emerge from the new titans like Chipotle and Five Guys. Other, equity backed players may also seek to occupy this space in 2014. The demise of the Little Chef brand over the last two or so years has largely removed one type of competitive threat though of the roadside restaurants sold by Christie + Co in 2013, we were reassured and, to an extent, surprised that many were being retained to operate in a similar format and style. One, Sheilas Kitchen, on the A2 near Faversham in Kent, was acquired by the former manager of the Little Chef it succeeded, in response to customer demand.

Case Study
Rock Inn, Watterow

Warning for independents Elsewhere, we forecast an increase in the number of restaurants that offer regionally and culinary-specialist cuisines, with the prospect that a new array of brands will emerge in these specialist areas. The London scene reects this cosmopolitan and eclectic approach already, but we envisage these tastes of the unique moving increasingly into the regions throughout 2014. Brandless, imageless and dated traditional restaurant concepts will nd themselves under yet further pressure in 2014 not just from branded rival restaurants but from the broader food offering emanating from the higher quality pub chains.

The Rock Inn at Waterrow, near Taunton in Somerset is widely regarded as one of Somersets best dining experiences in the South West. It was sold by Christie + Cos ofce in Exeter. The purchasers, recently-married Daren and Ruth Barclay, were just one of a number of people who took the opportunity to acquire lifestyle businesses through Christie + Co in 2013.

Business Outlook 2014 33

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014
Private equity shows its hand as prospect of opportunity looms from bad bank restructure The inuence of private equity in the leisure sector, evident for many years and as weve reported in past issues of Business Outlook, was once again to the fore in 2013. We witnessed increased activity from overseas players, including the ever-more-acquisitive US and Canadian pension funds, boosted by the availability of larger leisure assets with strong operational businesses underpinning their value. A number of new entrants sought a major platform for growth, providing complicated capital and debt structuring. And whilst trade buyers remain active for synergistic acquisitions, buyers at the corporate level are becoming increasingly sophisticated in their approach trends included the re-emergence of the sale and leaseback model, derided by some, but a mechanism by which operators that owned estate could re-gear their businesses or renance their debt. As we predicted last year, some segments of the leisure eld remained difcult, and while distress was not as overwhelming a feature as in previous years, we did see some corporate level administrations and pre-pack disposals such as Atmosphere Bars & Clubs where, in May, Deloitte LLP transferred 10 units and the head ofce function to Chicago Group an afliate of Sun European Partners LLP . Landlords are often one of the primary targets for preadministration negotiations in respect of rents where property costs may have risen to unsustainably high percentages of protability. In the tenpin bowling market for example, the post-recession CVAs of Bowlplex, Newbury Leisure and Essenden, as well as the activities of Garland Leisure have led to a virtual unilateral recalibration of property rents as the market nds a new level.

Market predictions 2014


London will continue to be the focus of leisure & hospitality investment, particularly where new build development is concerned The budget health club sector will continue to expand with the potential for consolidation Landlords will continue to bear the brunt of corporate restructure as the creditor of least resistance Distressed golf course assets could return to agricultural use as land and business values converge The US and Canadian Private Equity and Pension Funds will continue to target asset backed UK leisure businesses The ongoing restructuring of distressed banks will continue to offer a variety of renance and acquisition opportunities for operators and opportunity funds alike

34 christiecorporate.com

Jon Patrick, Director and Head of Leisure

No saturation but beware short-termism In health and tness, warnings that the budget gym sector would become saturated were a little wide of the mark. Competition for the 67-strong Fitness First portfolio was strong and operators like Gym Group and Pure Gym were able to grow organically thanks to private equity backing. The major deal of the year, of course, saw TDR Capital acquire David Lloyd Leisure for around 750 million. We remain concerned however, that the industry remains quite short-termist with competitive bidding driving up rental deals on new sites, which may come back to haunt operators in the future as the market matures. Cinemas were a further area which saw major deal activity most notably Vue Cinemas acquisition by Omers & AIM Co for over 900m, while late in the year LondonMetric Property exchanged contracts to acquire a portfolio of ten out-of-town Odeon multiplex cinemas from Odeon Property Group LLP for 80.6m. In the wider sense, leisure (including fast casual dining and hospitality) will continue to be increasingly important to the success of retail development.

The inuence of private equity in the leisure sector was once again to the fore in 2013. Looking ahead, London will continue to be the focus of leisure and hospitality investment, while the ongoing restructuring of distressed banks will continue to offer a variety of renance and acquisition opportunities for operators and opportunity funds alike.

Business Outlook 2014 35

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014
Money talked in the care sector in 2013 and will do so again in 2014 In a year which saw the decline in average prices for care homes sold by Christie + Co stabilised, the accent was very much on nance in all its forms be it investment in the sector, the availability of debt lending and the old sore of care home fees. The likelihood is that 2014 will shape up to offer more of the same. Transactionally, as we predicted in Business Outlook 2013, the volume market was driven by sales from the bottom end of the corporate estates, with buyers able to do cash deals beneting from the reluctance of banks to offer lending to any great degree. At the top end, overseas investors took a rm grip on the sector. This acted as a counterweight to the continued lack of domestic debt nance that rather hamstrung those looking to acquire. This was rather against our prediction in Business Outlook 2013 as the banks, rather than returning to the care sector, continued to remain selective. The pessimism at the mid-market level was replaced by optimism at the top end, with some major players re-nancing during the year Barchester Healthcare and Caring Homes most notably. We also witnessed the growing inuence of Healthcare Real Estate Investment Trusts (REITs) with Health Care REITs acquisition of Willowbrook Care from Graphite Capital. However, the reality in 2014 for private equity investors and the invading REITs and pension funds is that the availability of the type of care home stock they seek is limited. Even new home development, a staple of the big guns activity over previous years saw a slowdown. The pressure on housing supply in the UK also saw land values increase to levels where care developers lost the advantage that they had had in recent years compared to their residential counterparts. This reverses a trend that we had witnessed for the last three-to-four years.

Christie + Co dominant In a sector which showed some signs of slowing down transactionally in the rst half of 2013 due to a decline in stock coming to the market, Christie + Co maintained its position as the leading seller of care homes. At a micro level, pressure was once again placed on operator margins by insufcient levels of local authority fee a situation further exacerbated by a slight downward trend in occupancy in the elderly sector, as domiciliary care held sway with commissioners of services.

36 christiecorporate.com

Case Study
Mount Eveswell/ Priory Group
Mount Eveswell is a market leading specialist facility offering high quality care to younger adults with acquired brain injuries. The vendors of the Newport, Wales, facility wanted a discreet sale to enable them to retire. Christie + Cos off-market process created competitive bidding before being sold to the world-renowned Priory Group.

Richard Lunn, Director and Head of Healthcare

The market in 2013 was driven by two ends of the quality spectrum sales from the bottom end of the corporate estates, and signicant transactional and renancing deals through the American REITS for the top end private pay, purpose-built portfolios. Care remains one of the more secure marketplaces for owners, operators and investors and while the transactional trend is steady, sentiment remains optimistic.

Care
Movement in average prices year on year in per cent

12.2

-16.9

-11.0

0.4

-3.3

-0.7

-1.1

2007

2008

2009

2010

2011

2012

2013
Business Outlook 2014 37

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014

4.8 1619 1062


average number of offers per care business sold by Christie + Co in 2013 number of viewings of care homes marketed for sale by Christie + Co in 2013 number of care home inspections conducted for sale or valuation purposes in 2013

Market predictions 2014


There will be more corporateestate churn and regional operator growth Major deals will be the exception rather than norm, though a handful of larger transactions should not be ruled out Discussions around the development of the affordable private pay model will emerge Politically, care could be kicked into the long grass ahead of the 2015 General Election The trend towards new builds is likely to slow as competition for land from housing developers heats up, though this is likely to be regionally predicated

38 christiecorporate.com

What does all this mean for the year ahead? Fees, funding and the political will to bring care to the agenda prior to the 2015 General Election will be the dominant factors shaping the care sector in 2014. For the main part, we can expect 2014 to largely deliver more of the same. The major corporates will continue to churn from the bottom end of their estates, which will give the transactional market something to play with. Christie + Co has already undertaken several disposal programmes for the major operators to sell the initial phase of closed or poorly trading homes. This process is now maturing into more selective disposal of older style or strategically challenged assets which are trading reasonably but are no longer seen as core businesses within the portfolio. Pricing and appetite for these homes reects the strong regional demand for these opportunities and as values improve through greater regional appetite, then we are likely to see more disposals as the major providers capitalise on this demand. A further factor will be the role of the banks. While the banks may be able to free greater funds for lending in the care sector as a result of debt sales in the latter half of 2013, the likelihood is that they will remain cautious. Therefore, cash will be king for those wishing to acquire the best of the stock that becomes available. We expect that the improvement in sentiment witnessed in the latter stages of 2013 will continue to grow in 2014. Once again, it is impossible to reect on the care sector without mention of the pressures placed on operators margins by the lower-than-cost local authority fees. There is no great succour on the horizon for providers in 2014 and as we head towards a General Election in 2015, healthcare is likely to be a virtual no-go area for the political parties. The search for a solution to the ills of the UK healthcare system goes on without much joy. In this context, the development of alternative methods of funding long-term care will remain a major topic amongst hard-pressed providers. The scramble for the nite private pay market may lead to some debate around top-ups, copayments or even an affordable private pay model. As with the current debate on housing, however particularly in London and the south-east the denition of what constitutes affordable may take some time to emerge, and even then is likely to be subject to interpretation and re-interpretation. Meanwhile, the NHS continues to be incentivised to keeping hospitals as full as possible with older patients a ready-source of budget fullment. The prospects for a real health and social care partnership, therefore, remain dim. Despite this, care remains one of the more secure marketplaces for owners, operators and investors. While the transactional trend is steady, sentiment remains more optimistic.

Case Study
Old Deanery/August Equity
Christie + Co acquired the Old Deanery Care Village in Bocking, near Braintree, Essex on behalf of private equity rm August Equity, one of the most prolic investors into the care market in recent years. The village consists of a ten-acre site which includes the 93-bed Old Deanery and St Marys a 90-bed home for specialist care services. The site is the platform for August Equity to deliver high quality care for people with dementia in the south of England.

Business Outlook 2014 39

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014
Activity set to increase in the UK regions in 2014, but regulatory burden still highly inuential Complexities, as experienced by heavily regulated and legislated businesses, were much in evidence across the childcare and education sectors in 2013. While there was clear evidence of increased operational challenges, especially across early years businesses, the nursery sector continued to attract suitors, resulting in very competitive transactional activity. The most notable portfolio transactions of the year were the acquisition of Busy Bees by Ontario Teachers Pension Fund in the autumn, which followed Bright Horizons spring acquisition and addition of kidsunlimited to its expanding portfolio. Both groups have dominated the marketplace in both 2013 and the prior year, with Bright Horizons previously acquiring Casterbridge Care and Education, while Busy Bees acquired Just Learning Nurseries, as a prelude to its own acquisition. Christie + Co provided advice on each of these major transactions, the aggregate transaction values of which totalled in excess of 400 million. Alongside corporate acquirers, it was cash-rich, and experienced, decisive buyers that remained to the fore. Their ability to provide large cash deposits, reducing loan to value ratios, provided the banks greater comfort to back transactions. Banks and investors attracted to the day nursery and educational sectors have gained condence and comfort, thus they continue to place increased weight and reliance on the expert advice, Christie + Co, as the widely acknowledged market leaders, provides. Quality remained a dominant transaction component with prices remaining subdued for assets which were underinvested, poorly resourced and/or had become tired. This was particularly the case for businesses reliant on funded places.

Market predictions 2014


We are likely to witness an increase in sales of regional nursery groups Paralleled with improving condence amongst banks and investors, we anticipate increased demand from buyers Investors will increasingly look for niche education investments, especially in London and the south-east Demand will remain for businesses that provide specialist care and education for children with complex needs The nursery ratio issue could rear its head again Ahead of the 2015 Election, some parties proposals to increase free entitlement will be subject to much debate among providers, particularly in respect of funding and deliverability

40 christiecorporate.com

Courteney Donaldson, Director of Childcare

While there was clear evidence of increased operational challenges, the nursery sector continued to attract suitors, resulting in very competitive transactional activity. In 2014, banks, investors and buyers will increasingly see value outside of the major conurbations and regional groups will use the opportunity to expand.

Regions will drive activity in 2014 Not least of the local authorities problems is the requirement for them to deliver 260,000 new and sustainable two-year-old places by September 2014. Many operators, were hindered by Ofsteds continuing struggles with inspections compounded, it must be said by the increase in the number of complaint-led inspections to which their energies were devoted and for many operators issues with the inspection process, teamed with changes in Ofsted inspection outcomes and implications thereof, compromised many providers attempts to operate coherently and effectively. In education, there was also some major deal activity in 2013, not least August Equitys acquisition of Eton Square Schools. Elsewhere, independent schools did continue to struggle, but there was no great increase in distress in the sector. As we look forward to 2014, activity across the major transactional market will take a back seat as activity, especially in the nursery arena, will become more regionally driven. Banks, investors and buyers will increasingly see value outside of the major conurbations and regional groups will use the opportunity to expand. There will undoubtedly be an increase in regional nursery groups, and owners of high quality single asset nurseries, being in receipt of direct approaches from prospective buyers. With such buyers seeking to agree deals via off-market, noncompetitive discussions, we would urge all participants in the transactional marketplace to seek the best available expert advice, thus ensuring that the best possible deal terms, and price are secured.

Case Study
Bright Horizons/ kidsunlimited
Christie + Cos record of having advised on every major childcare transaction over the last eight years was preserved in 2013. Bright Horizons was advised by Christie + Co on its acquisition of kidsunlimited, 64 operational nurseries and several development sites. The acquisition brought Bright Horizons UK presence up to 203 nurseries, and further emphasised Christie + Cos pre-eminence in the child-centric sectors.

Business Outlook 2014 41

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014
Dawn of the discounters fuels small format frenzy The rise of the discount store, the race by the grocers to become small format king, and the hastening of fuel supply into a virtual monopoly by the supermarkets, made the convenience retail sector one of the more exciting markets to watch in 2013. Not for the rst time, fuel and petrol forecourt businesses grabbed the headlines in 2013 with the future of the independent fuel retailers (dealers) in question. The shift in fuel volume share to the supermarkets, described as a massacre of independent retailers by Petrol Retailers Association chairman Brian Madderson, saw dealer volumes down to 1.8 million litres per annum per site, compared to 12m litres for supermarkets. Not only did this signal that dealers were being overtaken by the supermarkets, but it also raised serious questions about fuel resilience in many UK regions. On a more positive note, the continuing disposal of forecourts by oil companies looking to concentrate on the supply-side created many opportunities for dealers, who continued responding to the supermarket threat through diversication. Site redevelopment to include franchises such as Subway and Greggs will enhance the customer offer and increase footfall during 2014. However, the threat will remain considerable as Christie + Co research shows that for every 50 new forecourts opened each year, 40 are opened by the supermarkets. Similar pressures apply to independent convenience retailers. As a consequence of intense competition from discounters including the likes of Aldi, Lidl and 99p Stores, the grocers have shifted focus onto convenience as a channel to deliver click and collect strategy and enhanced prots. Morrisons, from a low penetration, spent 2013 catching up with the other major players, averaging three M Local openings a week and intending to have 200 by the end of 2015. Later in the year Asda announced its intention to engage in the convenience race.

Business rates hinder investment The much publicised focus on the high street, once championed by Mary Portas and now Bill Grimsey, may see further migration back to the high street. Once again independents found themselves locking horns with the supermarkets. All retailers continue to be frustrated by the delay in the business rates revaluation. Many traders nd themselves stuck with business rates based on pre-recession rents hindering the ability or desire to invest in sites.

42 christiecorporate.com

Case Study
Lawrence Garages (London) Ltd
The Firs and Drayton Service Stations (Drayton pictured) near Norwich were let by Christie + Co to Top 50 Indie operator Petrogas UK (trading as Applegreen). The two deals along with a third Christie + Co letting in Shropshire contributed to Petrogas nearly doubling the size of its UK operation to 40 during 2013. The Norwich lettings resulted from a strategic operational review of the Lawrence Garages estate conducted by the Christie + Co retail team. This involved not only individual site assessments and valuations but also board level discussions to establish business aims and objectives. A further result of the review saw the sale of Clapham Common Service Station (let to BP) developed by Lawrence Garages when the company was established in London.

Steve Rodell, Director and Head of Retail

The rise of the discount operator, the march of the supermarkets into high street small format operations, the continuing demise of the high street and doubts about fuel resilience all exercised our minds in 2013. The year ahead promises more of the same but independent retailers looking for options on the high street or the forecourt arena will not be lacking in opportunity.

Retail
Movement in average prices year on year in per cent

5.6

-6.5 -9.8

2.1

-3.6

-0.9

-1.0

2007

2008

2009

2010

2011

2012

2013
Business Outlook 2014 43

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014

6.4 2527 1619


average number of offers per retail business sold by Christie + Co in 2013 number of viewings of retail businesses marketed for sale by Christie + Co in 2013 number of retail business inspections conducted for sale or valuation purposes in 2013

Market predictions 2014


Discounters will increase their share of the grocery market Oil company forecourt disposals will increase in quality Demand for site conversion (especially pubs) into retail will continue as pub leases come to an end Post Ofces likely to migrate from stand-alone units into larger stores that offer greater footfall potential If housing market improves, expect more convenience retail businesses to be acquired by rst-time, lifestyle purchasers

44 christiecorporate.com

Safety in numbers for independents? There was further nancial distress on the high street and an increase in vacancy rates though this was subject to a marked north-south divide, as landlords found themselves with high-rented assets that they were unable to re-let. As we move into 2014, independent convenience store operators will again seek strength in numbers afforded by symbol branding. Forty-seven per cent of all forecourt shops (Forecourt Shop Check 2013) do not trade under a recognisable brand. To attract more transient business we expect to see operators move to and switch between brands in a compare the market type exercise in order to secure the best deals. Signicantly, the symbols are moving ever more into the forecourt space, with Spar and Nisa now offering branded-forecourt fuel and retail services. The Post Ofce market in 2013 was signicantly inuenced by the Network Transformation programme. Although the Prime Minister stated late in 2013 that no Post Ofces will close, he almost certainly meant no net-closures. There has been a noticeable shift from small stand alone ofces to incorporating the new Post Ofce Local format into larger convenience stores often operated by multiples. The mandatory switch to a new Local or Mains contract and subsequent reduction in guaranteed income has rendered some small leasehold ofces unsaleable. However, experienced postmasters are taking on new contracts to incorporate PO as a footfall generator in store. However, where the Local model has been adopted, weve yet to see evidence that it is positively impacting on retail sales. Looking ahead we will see the discount retailers strengthen particularly as the large grocers amplify their focus on the small format battleground. For independents this will mean looking for the right opportunities where market share can be maintained.

Case Study
Research for Petrol Retailers Association
Fears over fuel resilience have led to an extensive lobbying campaign by the RMI Petrol Retailers Association (PRA) over the course of the last year or two. The PRA leant heavily on research undertaken by Christie + Co into petrol forecourt planning applications. Our evidence that supermarkets were trying to open 50 new forecourts each year for the next four years, led to some big headlines in the national media.

No shortage of site options Convenience retailers seeking stores of around 2,000 sq ft will certainly not be lacking options, but nding sites and purchasing them are two very different matters much will depend on the strength of the location, rent expectation of the landlord and whether the landlord requires a strong covenant that a multiple can offer. There was a slowdown in the rate of pub conversions to convenience retail perhaps caused by planning frustrations. However, the sale of 200 Marstons pubs to retail developer New River Retail is likely to result in a further slug of conversions over the next 18 months.

Business Outlook 2014 45

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014
Medical markets set for excellent levels of activity in 2014 The high volume of deal activity continued across the medical sectors in 2013, albeit against a backdrop of further legislative and regulatory intervention. And looking ahead, we see no reason for this level of activity to reduce. 2013 was an important year for Christie + Co too as we consolidated our activity across pharmacy, dental, veterinary and GP sectors by creating a new Medical division and launched our brokerage services into the dental sector in the second half of the year where we see a huge opportunity for growth. remains ercely independent and any merger activity in 2014, like the preceding year, is likely to be at the very top end of the market. In the independent market Christie + Co boosted by its acquisition of Orridge Business Sales in 2012 increased its sales of pharmacies more than three-fold. With stock availability at a low, we are likely to see further growth in distance selling contracts bringing a new threat of competition to traditional community pharmacies. Pharmacy businesses operating via distance selling contracts increased their market share in 2013 as those seeking to enter the market including record-levels of newly-qualied pharmacists seeking an outlet were thwarted in their attempts to acquire 100-hour pharmacy businesses and now see obtaining distance selling contracts as being the most cost effective way into ownership. Declining pharmacist salaries will continue to be a factor driving rst-time buyers into the market. Elsewhere, Category M clawbacks had little impact on the transactional market despite cash ow concerns at the beginning of 2013. The episode has highlighted how pharmacies and pharmacists have become better at managing uctuations caused by Category M pricing. While larger groups already made provision for clawbacks there remains a need for smaller owner operator businesses to make suitable provision for the future. We will see an increasing inuence from NHS reforms and the proposed GPhC environmental standards if only from the perspective of adding further layers of bureaucracy. These additional responsibilities for operators may have the effect of decelerating deal times while pharmacies settle into the new regulatory and legislative outlook.

Pharmacy The anticipated increase in the number of pharmacy businesses coming to market in 2013 failed to materialise, despite a boisterous beginning to the year and a sense that the banks appetite towards community pharmacy remained strong. As the year drew to a close, demand outstripped supply with multiple bids on the better quality pharmacies coming to the market. The lack of substantial group opportunities also meant that private equity took something of a watchful approach their ability to leverage on smaller, stand-alone deals left them virtually absent from the sector. MedicX Pharmacys acquisition (through Christie + Co) of ve Hall & Stevens pharmacies in the north-west of England, backed by Cabot Sq Capital was one of the few portfolio deals to complete in 2013. Despite the relative security of income that the pharmacy business offers an investor, it seems that other less specialist and asset backed sectors may offer a more natural place for substantial private equity to invest. The opportunity for private equity deals in the pharmacy sector in 2014 remain the same, although the culture of pharmacy

46 christiecorporate.com

Simon Hughes, Director and Head of Medical

Dental The dental sector was a frenetic market place in 2013 and as with pharmacy, the independent sector and expanding multiple operators counted for much of the activity. However, there is an increasingly competitive corporate market with IDH, Oasis, BUPA and Smiles all actively seeking opportunities at single asset and group level. Bridgepoint Capitals acquisition of Oasis Healthcare in 2013 conrmed its intention as a major investor in the sector and a major competitor for the Carlyle-backed IDH which itself continued its rapid growth through group and single asset acquisitions. The market was demand led, and ready bank funding was available supported by a good supply of rst-time buyers meaning that there were multiple offers on most practices which were put onto the open market. Looking forward, demand will continue to outstrip supply for NHS led businesses, the buyer-pool swollen by newlyqualied dentists unable to secure places in existing practices. With practice values rising and a limited number of opportunities coming to market, 2014 is likely to see continued high levels of demand for dental businesses.

Pharmacies, dental and GP practices all remained in high demand in 2013 while supply continued to be relatively scarce. Values and average prices for those units that were placed on the market, particularly those of a higher quality, were forced up as corporates and private investors came up against a strong and determined independent market.

Case Study
100-hour pharmacy, Raynes Park
Acting on behalf of MedicX, Christie + Co was instructed to market a 100-hour pharmacy contract in a newly developed Health Centre in Raynes Park, south-west London. After a brief marketing campaign and competitive bidding a sale was quickly agreed to Medipharmacy Group, a multiple operator in south London. Following the development the sale was completed in May 2013.

Business Outlook 2014 47

BUSINESS OUTLOOK HOTELS PUBS RESTAUrANTS LEISURE CARE CHILDCARE RETAIL MEDICAL 2014

6.5 323% 420


average number of offers per medical business sold by Christie + Co in 2013 percentage increase in medical businesses sold by Christie + Co in 2013 number of medical businesses inspections conducted for sale or valuation purposes in 2013

Market predictions 2014


Pharmacy values will continue to increase due to continued investor appetite and a nite pool of available stock Corporate pharmacy operators will return to acquisitive strategies as private equity takes a back seat The process of bringing pharmacy businesses up to speed with the GPhC standards will gather momentum ahead of implementation The NHS dental market will continue to attract very high levels of interest especially with the delay to changes in the NHS contract into 2014 Demand for private dental practices will increase as the gap in value between NHS and private markets widens Corporates will seek to add to their portfolios with NHS-led practices but may diversify into private dentistry

48 christiecorporate.com

Increased demand for private practices? The value gap that is now emerging between NHS and private practices may make the latter more attractive to purchasers. Although the risk of buying into the private market is higher, there will come a point at which the returns for doing so become justied and this could see an increase in demand for quality private practices. Such demand is likely to be restricted to quality trading locations, and comes at a time when the general improvement in the economy should lead to increased demand for private dentistry. The proposed changes to the NHS contract will become an increasingly important factor in the market as the reported start date of 2015 looms closer without a nal decision on what the new framework will look like. Whilst the changes may be fundamental to the way NHS dentists are remunerated, most operators are taking the view that the overall funding to the sector will not be signicantly different.

GP surgeries Development was the key area of growth in this eld of primary care during 2013 and will continue to be so as we move into the new year. This is being driven by the increasing need of practices to be seen as t for purpose. Doctors will continue to seek ways of maximising their practices through the provision of complementary services and, where achievable, new facilities. The Medical team at Christie + Co is being asked to advise an increasing number of doctors on the merits of creating a pharmacy unit within their surgery. Banks will also reassert their appetite for the sector Christie + Co knows this from the volume of valuation work on new developments it was asked to conduct on behalf of the banking fraternity.

Case Study
Dental Health Care, Hertford

Christie + Co launched its full-service dental proposition in 2013, immediately showing its intentions with the sale of the Dental Health Care practice in Hertford. The practice was acquired by DHC D3ntal Ltd. Experienced practitioner Dr Rajesh Varma, who has been practising in the county for 12 years will be the practices Clinical Director.

Business Outlook 2014 49

BUSINESS OUTLOOK MAJ0R TRANSACtIONS 2013


HOTELS Date February March April July August Vendor Apex Hotels InterContinental Hotels Group Isseyegh family Canada Life Berkeley Homes Joint LPA Receivers Jon Cookson & Richard Compton September Residential Land Messrs Mazabi and Henzada HOTELS PORTFOLIO September March Marriott Hotels (in administration) Hotel du Vin/Malmaison Prinicpal Hayley November Menzies Hotels (in administration) Abu Dhabi Investment Authority KSL Capital Partners Starwood Capital Topland Group Acquisition of 42 hotels in administration from RBS for reported 700m Acquisition of 27 hotels for a reported 200m 23 city centre hotels, conference and training venues acquired for 360m 12 hotels acquired out of administration for 86m Purchaser Standard Life Constellation Hotels Group Thornstone Developers Condential Standard Life Henderson Global Investors Deal Acquisition of 179-room Apex Hotel for 18.625m Acquisition of the 447-room Intercontinental Park Lane for 250m Acquisition of 31-bed Westland Hotel, Bayswater for 18m Acquisition of 144-bed Metropolitan by COMO Hotel in Old Park Lane for an undisclosed sum Acquisition of the 250-room Premier Inn Goodmans Field for 39m Acquisition of the 408-room Travelodge Royal Scot Hotel for 54.1m Acquisition of 198 Grand Plaza serviced apartments for 98m Acquisition of 90-room Abba Hotel in Queens Gate for 40m

Felda Investment Corp Grecian Hotels

HOTELS INDIVIDUAL ASSETS January February March May De Vere Group Apex Hotels Administrators Menzies Hotels Menzies Hotels August Cerberus Edward Woya Axa Real Estate English Cities Fund September October Simon Lowe Lioncourt Capital Westmont Hospitality CBRE Global Investors Westmont Hospitality Britannia Hotels La Salle Investment Management The Cowell Group Tonstate Reef Estates La Salle Investment Management Hand Picked Hotels Undisclosed Acquisition of De Vere Grand Harbour Hotel in Southampton for 18m Acquisition of Apex Hotel Edinburgh for 10m Acquisition of Marriott Victoria & Albert in Manchester for 15m Acquisition of Travelodge Edinburgh West End Hotel for 6.5m Acquisition of Travelodge Bath Waterside Hotel for 11.2m Acquisition of Hilton Garden Inn Hotel in Luton for 7.8m Acquisition of Cardiff Hilton for 13m Acquisition of Premier Inn Winchester for 9.2m Acquisition of Premier Inn Salford Central for 12.5m Acquisition of Fawsley Hall in Northamptonshire for 10.5m Acquisition of Ramada Plaza Gatwick for 7.2m

50 christiecorporate.com

PUBS Date January Vendor Admiral Taverns (LBG) Real Beer Company April May Bramwell/ Marstons/ Star Pubs & Bars Peel Hunt Marstons August October November Premium Bars & Restaurants Convivial London Pubs plc Bramwell Pub Company (in administration) Marstons December Head of Steam Bramwell Pub Company (in administration) Purchaser Cerberus Capital Management St Austell Brewery Amber Taverns City Pub Company Legal & General Property Stonegate Mitchells & Butlers Stonegate Pub Company New River Retail Camerons Brewery Various Deal 1,100 tenanted by pubco acquired from Lloyds Banking Group for 200m Acquisition of specialist drinks wholesale company Acquisition of four pubs two from Bramwell, one each from Marstons and Star Pubs & Bars Acquisition of two freehold London pubs in a deal reportedly just under 3m Sale and leaseback of 27 new build pubs in a deal reportedly just under 70m Acquisition of 13 Living Room sites for a reported 10m Acquisition of four pubs for reported 13.3m Acquisition out of administration of 78 pubs for reported consideration of 35m Acquisition of 202 pubs for 90m Acquisition of seven strong Head of Steam group by Camerons 51/67 remaining public houses

RESTAURANTS Date March Vendor Giraffe Paul Langans Restaurants April Imbida Partnership D&D Restaurants Purchaser Tesco Patisserie Valerie Various Bowmark Capital Conran Holdings/Caird Capital The Restaurant Group TRG & TFI Fridays Kouts Food Group CBPE Hutton Collins EuroGarages McDonalds Deal 47-site family based chain acquired by Tesco for 48m Luke Johnson backed chain takes seven sites in London stations previously operated by Paul Langans close three sites to concentrate on agship Langans Brasserie. Buyers include Cte Jillian MacLean, backed by Bowmark Capital, bought out the London-based chain Drake & Morgan for 30m 50 million management buyout of premium restaurant group D&D London, which owns over 30 restaurants in London, Leeds, Paris, New York, Istanbul and Tokyo Further site acquired for TRGs Brunning & Price chain which become the Bull at Mottram The Restaurant Group and TGI Friday acquire sites in the Riverside Leisure Park Norwich 81 remaining Little Chef sites sold for 15m to Middle Eastern backed food operator 45 sites. Private equity backing 100m management buyout Private investment rm buys the 35 strong Byron Burger chain for 100m Last one of 11 former Little Chef sites acquired by EuroGarages for Starbucks franchise Former Little Chef site in Dunchurch acquired by McDonalds for a new build drive-through restaurant

Osterio Mauro, Cheshire July August September October November December Spirit Pub Company Little Chef Cte Gondola Travelodge Travelodge

Business Outlook 2014 51

BUSINESS OUTLOOK MAJ0R TRANSACtIONS 2013


LEISURE Date January February March May June Vendor X-Leisure Unit Trust Team Sport Gala Coral Group Pure Gym Vue Cinemas Atmosphere Bars & Clubs Gym Group September November London & Regional/ Caird Capital Graphite Capital Odeon Property Group LLP Purchaser Land Securities MBO Rank Group CCMP Partners AIMCo & OMERS Chicago Group Phoenix Equity Partners TDR Capital Caledonia Investments LondonMetric Property plc Deal Land Securities acquired majority interest in X-Leisure Unit Trust and 100% interest in X-Leisure Ltd for 111.9m 9m MBO led by Dominic Gaynor and backed by Connection Capital Acquisition of 19 casinos Acquisition for undisclosed sum Acquisition of 146-site cinema chain for 935m by private equity arm of Canadian pension funds Acquisition of ten former Atmosphere Bars & Clubs sites Acquisition valuing the Gym group at 90m Acquisition of David Lloyd Leisure in a deal for a reported 750m Acquisition of Park Holidays UK for 172m Acquisition of ten out-of-town Odeon multiplexes for 80.6m

CARE Date January March Vendor Sunrise Senior Living Independent Living Group Ideal Homes July August Myriad Healthcare Ltd Choice Care Richmond Care Villages September Barchester Healthcare Castlebeck November Optimum Care Purchaser Health Care REIT Voyage Target Healthcare REIT Grifns American REIT II Caledonia Investments Bupa Ravenshill International Ltd Danshell Four Seasons Health Care Deal Completed acquisition of Sunrise Senior Living by Health Care REIT for $3.4bn. International portfolio included ve UK assets Acquisition of portfolio of 28 homes for an undisclosed sum Acquisition of four Ideal Homes for reported consideration of 18m Sale of property portfolio by Myriad for reported 298.5m Acquisition of Choice Care by Caledonia Investments for reported consideration of 86m Acquisition of Richmond Care Villages by Bupa for an undisclosed sum Sale and leaseback enabling repayment of 1.48bn debt Acquisition of Castlebeck by Danshell for a reported consideration of 35m Acquisition of Optimum Care (operating as Avery) by FSHC for an undisclosed sum

52 christiecorporate.com

CHILDCARE Date January Vendor Compass Services i-graduate March April Educomp Solutions Bregal Capital kidsunlimited June July October Sovereign Capital Minerva Education Busy Bees Group Purchaser August Equity LLP Tribal Group Investors led by GPE India KKR Bright Horizons Nord Anglia Education August Equity Ontario Teachers Pension Fund Deal Acquisition of fostering group for an undisclosed sum Acquisition of educational benchmarking and analytics group for total reported consideration of 7.5m Sale of entire 50% stake in Eurokids International Mumbai-based pre-school franchiser for an undisclosed sum Sale of 49% stake in Cognita schools (UK and international) to private equity rm for an undisclosed sum Acquisition of the 64-setting portfolio for a reported 45m Acquisition of 11 international schools of World Class Learning (WCL) Group for an undisclosed sum Acquisition of Eaton Square School Group and Ravenstone School for an undisclosed sum Acqusition of majority shareholding in Busy Bees Group operator of 213 nurseries in a deal reported to be 220m

RETAIL Date January February July August Vendor Exxon Mobil Corporation (Esso) Costcutter/ Palmer & Harvey Alfred Jones Scotmid/Penrith Co-operative Society Lawrence Garages The Co-Operative Group Murco November December Marstons PLC Midlands Co-operative Society/Anglia Co-operative Society Purchaser Euro Garages Costcutter/ Palmer & Harvey One Stop Stores Scotmid/Penrith Co-operative Society Petrogas UK Petrogas UK Patron Capital New River Retail Midlands Co-operative Society/Anglia Co-operative Society Deal 45 petrol stations across the North and Wales acquired by Euro Garages Joint venture established with a combined turnover of around 5 billion from the supply of c.2,500 symbol stores 33 convenience stores acquired by One Stop The two societies merged taking Scotmid into England for the rst time. Penrith has nine stores in Cumbria and County Durham. Two Sites leased to Petrogas at Norwich and Drayton 12 leasehold sites acquired from the Co-operative Group Investment sale of 54 former Petrol Express sites let to Murco in a deal reported to be worth over 50 million 200 pub sites sold by Marstons to specialist retail developer New River Retail with many expected to be converted into c-stores. The two societies merged in Dec 2013 resulting in an estate of 227 food stores in 16 counties across the Midlands and East of England

MEDICAL Date April Vendor Medex Healthcare Purchaser ABC Pharmacy Deal Acquisition of portfolio of ve pharmacies in the West Midlands

July

Safehands Healthcare

MedicX Pharmacy

Acquisition of ve pharmacies in north-west of England, trading as Hall & Stevens, for an undisclosed sum Acquisition of Bearwood Pharmacy, West Howe Pharmacy and Talbot Pharmacy in south of England for 2.05m Acquisition of Bay Pharmacy & Quay Pharmacy for 1.3m Acquisition of three community pharmacies in mid-Glamorgan for an undisclosed sum

August September October

Peter Burnett CSPC Ltd G & EJ Morris Ltd

Avicenna Ltd Day Lewis Ltd A & JM Sheppard Ltd

Business Outlook 2014 53

BUSINESS OUTLOOK CONTACTS 2014


UK OFFICES London Whitefriars House 6 Carmelite Street London EC4Y 0BS T: +44 20 7227 0700 E: enquiries@christie.com Birmingham Edgbaston House 3 Duchess Place Hagley Road Birmingham B16 8NH T: +44 121 456 1222 E: birmingham@christie.com Bristol Embassy House Queens Avenue Bristol BS8 1SB T: +44 117 946 8500 E: bristol@christie.com Cardiff 15th Floor Brunel House 2 Fitzalan Road Cardiff CF24 0EB T: +44 2920 023123 E: cardiff@christie.com Edinburgh 5 Logie Mill Beaverbank Ofce Park Logie Green Road Edinburgh EH7 4HG T: +44 131 557 6666 E: endinburgh@christie.com Exeter Kings Wharf The Quay Exeter EX2 4AN T: +44 1392 285600 E: exeter@christie.com Glasgow 120 Bath Street Glasgow G2 2EN T: +44 141 352 7300 E: glasgow@christie.com Ipswich Wolsey House 16-18 Princes Street Ipswich IP1 1QT T: +44 1473 256588 E: ipswich@christie.com Leeds Aquis House, Greek Street Leeds LS1 5RU T: +44 113 389 2700 E: leeds@christie.com Maidstone Vaughan Chambers 4 Tonbridge Road Maidstone ME16 8RP T: +44 1622 656000 E: maidstone@christie.com Manchester Acreseld, St Anns Square Manchester M2 7HA T: +44 161 833 3311 E: manchester@christie.com Newcastle Shakespeare House 18 Shakespeare Street Newcastle Upon Tyne NE1 6AQ T: +44 191 222 1740 E: newcastle@christie.com Nottingham Suite 402, Bridlesmith House 38 Bridlesmith Gate Nottingham NG1 2GQ T: +44 115 948 3100 E: nottingham@christie.com INTERNATIONAL OFFICES Barcelona Paseo de Gracia 11 Esc B, 4 3 08007 Barcelona Spain T: +34 93 343 6161 E: barcelona@christie.com Berlin Kurfrstendamm 182 10707 Berlin Germany T: +49 30 20 00 960 E: berlin@christie.com Dublin 51a/51b Dawson Street Dublin 2 Ireland T: +353 1 618 2000 E: dublin@christie.com Frankfurt Bockenheimer Landstrae 93 60325 Frankfurt Germany T: +49 69 90 74 570 E: frankfurt@christie.com Helsinki Tammasaarenlaituri 3 00180 Helsinki Finland T: +358 9 4137 8500 E: helsinki@christie.com Winchester Star Lane House Staple Gardens Winchester SO23 8SR T: +44 1962 844455 E: winchester@christie.com Lyon Immeuble Danica B 21 avenue Georges Pompidou 69486 Lyon cedex 03 France T: +33 4 72 91 30 50 E: lyon@christie.com Marseilles 35 cours Pierre Puget 13286 Marseilles cedex 06 France T: +33 4 91 29 12 40 E: marseille@christie.com Munich Psterstrae 6 80331 Munich Germany T: +49 89 2 00 00 070 E: munich@christie.com Paris 5 rue Meyerbeer 75009 Paris France T: +33 1 53 96 72 72 E: paris@christie.com Rennes Immeuble Artemis, Parc Monier 167 route de Lorient 35000 Rennes France T: +33 2 99 59 83 30 Vienna Stallburggasse 2/3a 1010 Vienna Austria T: +43 1 8 90 53 570 E: vienna@christie.com Warsaw Plocka 10/23, 01-231 Warsaw Poland T: +48 501 522 913 54 christiecorporate.com E: warsaw@christie.com

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