christie & co feb 2010 newsletter

Business Outlook 2010 M A R K E T I N T E L L I G E N C E 2 0 0 9

“ 2009 was another diffi cult year in the business property sector, but one that also provided a number of encouraging highlights.” DAVID RUGG PAGE 2

Analysis of the movementin average pricesHaving inspected almost 15,000businesses for sale or valuation purposes during 2009, Christie+ Co is well placed to report onsector trends and prospectsfor 2010.

We publish average price indices annually and have done so since the 1970s, but credible evidence of business values is nevermore eagerly sought than in fi nanciallychallenging times. That’s why we believeour analysis of value movements – coupled with our experts' considered views on what creates long-term value – will help to inform and infl uence the market in 2010.

This year we have not only published average value movements for each of our sectors in 2009, we have also measured the change invalues since the markets peaked. Analysing our own transactional data, we identifi edthe peak in average prices, which occurred at a slightly different point in each sector– typically towards the end of 2007 – and calculated the overall reduction since then.

HOTELS PUBLIC HOUSES RESTAURANTS LEISURE CARE RETAIL

PARK INN ATTRACTS £1 BILLIONWORTH OF FUNDED OFFERS

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

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

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

Christie + Co’s BankSupport and BusinessRecovery team has worked with a growing

Chris DayInternational Managing Director

Hotel sectoroverview by Jeremy HillPage 5

Retail sectoroverviewby Tony EvansPage 23

list of clients over the last 12 months to reduceliability and enhanceasset value. The team assisted with more than350 distress cases in 2009, involving over 1,600 assets.

Although we have successfully handled a number of disposalprogrammes, ourspecialists are also ableto recognise distress at an early stage — providing practical

advice before asset salesbecome the only option.

The operational experience of membersof our consultancy team enables them to provideoptions appraisals tohelp identify the bestpossible solutions forstakeholders. We are geared up to providefurther assistance to banks and faltering businesses as additional cases emerge in 2010.

Business Outlook 2010 Market Intelligence 2009www.christiecorporate.com

2

Chairman's Overview2009 was another diffi cult year in the business property sector — a year that many were relieved to leave behind — but one that also provided a number of encouraging highlights. Transactional activity, which dropped from a frenetic peak in 2007, to a relative trickle at the end of 2008, fi nally found its base level during 2009, as buyers tentatively moved back into the market. The volume of single asset transactions was reasonably steady and frequent across all our offi ces, although funding and due diligence issues lengthened the process. Well priced businesses — from corporate disposal programmes in particular — were keenly sought-after, despite all the negative reports from the fi nancial sector.

David RuggOverview

Tough trading conditionsAlthough trading conditions proved tough in almostall our specialist sectors, operators successfullymitigated losses by focusing on reducing costs andproviding value for money goods and services. Notall businesses were fortunate enough to survivethe year, but the profusion of administrations that many industry commentators predicted for 2009did not materialise. It is worth noting that most of the business failures in our sectors were due to over leveraging, or unsustainable rent commitments,rather than as a result of poor trading. Many of the acquisitions that were made in the fi nal phase of thebull market were based on strong levels of trade andwere highly leveraged. Whilst these trading levels mayhave been sustainable across the previous decade,they unfortunately weren’t stress-tested against therealities of a recession.

Christie + Co’s Bank Support and Business Recoveryteam was busy throughout the year, providing practical advice to help reorganise businesses andalleviate distress. Where necessary, we also undertookdisposal programmes on behalf of administrators. During the year, the team handled more than 350 distress cases, involving over 1,600 assets.

Steady transactional activityIn a buoyant market, transactional activity is driven by acquisitive organisations and by vendors’ desireto take advantage of the prices achievable. As wediscovered in the last recession, when corporate

deals tailed off, there was always a steady stream of underlying activity, which was created by vendors’ requirement to sell. Analysis of our own transactions identifi ed the main motivations behind the sale of individual businesses in 2009, which demonstrate thatthere is little likelihood of current transaction volumesdeclining. One of the main motivations behind thesale of individual businesses in 2009 was retirement,although this was closely followed by fi nancialnecessity. Other reasons on the list included ill health,death and divorce. Although we recognise that these reasons are somewhat gloomy, they are drivingfactors, which will not disappear.

Reality kicks inAlthough there were some slight variances across oursectors, the peaks in our markets generally occurred towards the end of 2007. The heady prices achieved atthis point are fortunately beginning to fade in vendors' memory and reality is fi nally kicking in. There areencouraging signs that transactional activity is picking up, as normality gradually returns. Values are nowmuch lower than they were at the peak of the market,but this will drive buyer interest and ultimately restore transaction volumes.

Changing buyer profi lesThe profi le of buyers also changed in 2009, as thelarge corporates curbed their acquisition strategies in order to focus on improving operating effi ciencies.The absence of corporate buyers was commonacross all our specialist sectors, with just 5% of the

individual businesses we sold last year moving into corporate ownership. Independent buyers positively welcomed opportunities to acquire properties thatwere previously beyond their reach. Our own buyeranalysis told us that approximately 66% of theproperties we sold during 2009 were acquired byexperienced operators. It is also encouraging to note that fi rst-time buyers still accounted for around 34% of the transactions we analysed — demonstrating thatthere is still plenty of confi dence in our markets.

The distress sales that came through to the marketgenerated a large volume of enquiries throughout the year. We frequently witnessed competitive biddingfor assets that were perceived as bargains — simplybecause they were in the hands of administrators.

Corporate disposalsdrive demandThe large corporates, which were acquisitive when the market was buoyant — particularly in the pubsector — drove activity from a completely differentperspective in 2009. Having grown their estates at the height of the market, they were keen to offl oad large numbers of sites during 2009, in order togenerate cash and reduce debt. Corporate disposalscreated large peaks in transactional activity, asbidders quickly emerged to seize the best sites.Our marketing intelligence told us that the numberof potential buyers almost doubled when corporate disposal programmes were launched, with large peaks in website registrations and viewing activity.

Christie + Co was appointedby Richard Fleming, MickMcLoughlin and Ian Corfi eld of KPMG, Joint Administrators of First Quench Retailing (FQR) Limited, to advise on thedisposal of approximately 750 former First Quench stores.

FQR disposals attract large number of bidders

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

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

Business Outlook 2010 Market Intelligence 2009 www.christiecorporate.com

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1975 2004 2005 2006 2007 2008 2009

Hotels 100 771 854 966 1025 837 674

Public Houses 100 822 865 939 1000 884 706

Restaurants 100 865 906 950 1026 873 715

Care 100 677 775 910 1021 849 755

Retail 100 865 933 988 1043 975 880

Average Index 100 863 973 1021 1099 981 823

Retail Price Index 100 484 497 516 538 554 550

House Price Index 100 1411 1458 1598 1708 1471 1511

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

Christie + Co Price Indices

Ownership changesThe ownership structure noticeably shifted in some markets, as independent operators bought sites out of corporate ownership. The structure of the pub market was particularly subject to change, as pub companiesoffl oaded assets — back into a privately-owned freehouse market that spent the previous ten years shrinking rapidly. Although some of the properties wemarketed on behalf of administrators were acquired by buyers with an alternative use agenda — who wished to move them into a completely different area of the property market — the majority were sold toexperienced operators who were confi dent in their ability to breathe new life into them and retain theirexisting use. It is reassuring to know that a growing number of businesses are owner-operated — and that these owners will be actively involved in captainingbusinesses out of the recession.

Big business ownership structures were also subjectto change during 2009, as we witnessed a largenumber of debt for equity conversions and a move away from the once popular PropCo/OpCo splits. Bankers, who previously had no detailed knowledgeof the hospitality, care, leisure and retail sectors are suddenly taking an active interest in issues, trends andprospects, as they assist ailing businesses. Christie + Co’s Bank Support and Business Recovery team isaiding this education process, providing specialist advice and sector intelligence. The fact that ourspecialist sector teams comprise not only property experts, but also consultants with trading experience, puts us in a unique position to do so.

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

This year, we thought it would also be helpful toprovide average value falls from the peak of themarket, to illustrate the full impact of the recession. Since hotel values reached their peak in the third

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Hotels

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Restaurants

Care

Retail

Christie + Co Average Index

Retail Price Index

House Price Index

Christie + Co Price IndicesHotels

Public Houses

Restaurants

Care

Retail


Retail Price Index

House Price Index

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

A rise in value consciousnessValue consciousness was one of the big themesin 2009. Buyers sought exceptional value deals —regardless of whether they were purchasing pizza, overnight stays or the businesses themselves.Promotional offers were profuse, as business ownerssought to boost customer numbers or maintainoccupancy levels. Budget hotel operators andtakeaway restaurants were expected to grow marketshare as customers traded down. Although therewas growth in the budget sectors, it was perhaps not as great as expected, as customers chose to takeadvantage of some of the value deals on offer, in the middle and at the high end of the market.

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

What will 2010 bring?Funding will continue to be a key issue in 2010 andwe wait with interest to see how much money will be made available for investment in our sectors and whenit will really start to fi lter through. We are seeing the fi rst new-to-sector lenders emerging, which benefi tfrom not possessing satiated loan books. Independent buyers, with a good level of equity, successfully secured the funding they needed to do deals in 2009— often with the assistance of Christie Finance — and we are confi dent that individual transaction volumeswill be maintained in 2010.

Whilst the causes of the current recession are very different to those of previous recessions, there aremany extraordinary similarities when we compare thepaths of the two. In fact, the movement in transactionvolumes, seen since 2007, mirrors what we witnessed in the late ‘80s and early ‘90s. If the transactionalpattern continues to follow that of the previous recession, we have reached the bottom of the marketand a gradual recovery is in prospect.

Whilst I am unfortunately unable to confi rm thathistory will repeat itself, I am reasonably confi dent that transaction volume rises will occur in the earlypart of 2010 — largely as a result of the corporatedisposal projects we are currently undertaking. Thephenomenal levels of interest generated by the FQRdisposals show that there are plenty of potential buyers out there, who are willing to respond to new opportunities.

We can also expect to see an increase in the numberof distressed asset sales, post the General Election,which are likely to tempt experienced operators and fi rst-time buyers to make further acquisitions.

Christie + Co looks forward to 2010 with renewed optimism and I hope to be in a position to provide apositive review of the year in Business Outlook 2011.

David Rugg


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Percentage movement in average prices

04 05 06 07 08

09

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

9.2

5.2

8.5

6.5

-11.6

-20.1

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

3.3

4.7

4.9

8.0

-14.9

-18.1

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

14.5

17.4

12.2

-16.9

-11.0

16.9

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

4.5

7.9

5.9

5.6

-6.5

-9.8

Hotels-19.5% movement in average prices

Restaurants-18.1% movement in average prices 04 05 06 07 08 04 05 06 07 08

Public houses-20.1% movement in average prices

Care-11.0% movement in average prices

Retail-9.8% movement in average prices

10.9

10.8

13.1

6.1

4-18.4

-19.5


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Hotels“Trading fundamentals came under increasing pressure during the fi rst half of 2009, leading to a number of operator failures, whilst others faceduncertain futures. A near total lack of visibility interms of forward bookings contributed to an alreadychallenging trading environment.”

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

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

+ Rises in VAT and utility costs could affect the speed of the recovery outside the capital.

+ Further distressed assets will be brought to the market; supply issues will ease.

+ Emergence of new groups and opportunistic buyers.

+ Steady return of the hotel development market.

+ Return of confi dence and investor sentiment towards the sector.

+ A realignment of interests in the operator/investor relationship.

+ Operational margins under pressure from competitive room rates and increased costs.

+ Refi nancing requirements to impact on market activity.

+ Fallout from Dubai’s debt problems could impact London trophy hotel assets.

Jeremy Hill - Head of Hotels

BUSINESS OUTLOOKWhilst some initial signs of demand stabilisation emerged during the latterpart of the year, the ongoing uncertaintyamongst operators, owners and investorsforced the sector to focus on the basic principles of quality of service,range of guest facilities and location. Most operators realigned themselvesto the new challenges, throughrefocusing on operational effi cienciesand the introduction of signifi cant rate discounting.

Unlike previous recessions, Londonappears to be holding up signifi cantlybetter than most regional UK markets, with year-on-year growthobserved towards the end of the year. Unfortunately, a number of regionalmarkets have experienced signifi cantsupply additions in recent years, which has contributed to the current challenges that are likely to persist well into 2010.

Initial speculation that the budget sector would escape relatively unscathed, as customers tradeddown to more affordable accommodation, onlypartially materialised. Pressure was experiencedacross all sectors in 2009. Properties that wereable to resist some of the decline were those assets in prime locations that were well invested. Somebusinesses were exposed to the economic failure of their key clients, but others were able to diversifytheir demand base to avoid this. Assets in tertiary locations, with signifi cant exposure to the meeting& conference segment, appeared to suffer the most, as companies cut their meeting, travel and training budgets.

A weaker pound and staycations to the rescueAs corporate demand continued its inevitable decline during 2009, many hoteliers wondered how theywould replace this key segment of business. Asignifi cant decline in the value of the pound againstboth the dollar and the euro made the UK moreaffordable to continental Europeans and Americans


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Movement in hotel values

Christie + Co’s hotel price index, which uses average price information derived from hotel transactions brokered by the company, shows that hotel property values have fallen byapproximately 34% from theirpeak in the third quarter of 2007. Hotel property values for 2009 declined by 19.5% compared to a fall of 18.4% in the previous year. -20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

10.9

10.8

13.1

6.1

-18.4

-19.5


alike. Meanwhile, many British holidaymakers wereforced to reassess their European and long-haul vacations, with the ‘staycation’ becoming a popular option.

Consumers became more strategic in where theyplanned to stay, researching the best deals for that day, week or month, and switching between different operators/brands. Those hotel businesses that adapted to these changes – and continued to invest in raising their value proposition – were in thebest position to take advantage of increased leisuredemand. This leisure demand helped carry manybusinesses through the downturn, offsetting some of the drop-off in corporate trade.

Distressed cases boost transactional activityA number of groups collapsed during the year,including the Real Hotel Company and Folio Hotels. The majority of companies that struggled operatedunder a lease model, with insuffi cient headroom to meet their rental commitments.

Distress cases made up the majority of transactional activity that took place during the year, with the number of deals completed hampered by the lack of available debt in the marketplace – as well as wildlydifferent price expectations between buyersand sellers.

Investors continued to seek the ‘right’ deal, not just‘any’ deal, but the expectation by many opportunistic buyers that there would be a glut of distressed assets, offered to the market at rock bottom prices,failed to materialise. Banks were largely unwillingto crystalise signifi cant losses, opting to hold on toassets that were viewed as being only temporarilyimpaired, with a good chance of recovery in themid-term.

There continues to be strong demand for well-located hotels – especially in major cities – but there is an ongoing lack of opportunities. Although the bid/ask divide is narrowing, we believe that it is still too wide to enable the volume of transactions to acceleraterapidly over the coming months.

Whilst debt remained scarce, compared to the vastvolumes chasing deals at the peak of the market, there were indications, in the second half of theyear, that lenders were willing to underwrite sensiblypriced deals in the right location. A recognition thatperformance and value erosion had slowed, coupledwith more sensible LTV ratios, led a number of investors and lenders to seek out opportunitieswith a sensible risk profi le.

Diffi culties overseasProblems have not been limited to the UK by anymeans. From New York to Dubai, via Dublin, a largenumber of overseas markets experienced signifi cant shocks to their fi nancial systems, many of which had, or may have, an impact on the UK hotel sector.

The beginning of December brought a new problem for the global economy after Dubai World, which has business interests in many countries, including the UK, informed creditors that it intended topostpone the repayments on some of its $59 billion(£36 billion) in debts. The news brought fearsabout Dubai’s ability to service its signifi cant debt commitments and the knock-on impact any worsening of the situation could have on UK investors and lenders. Any impact is unlikely to be limited to Dubai,given the exposure of global sovereign wealth funds, which include London trophy hotel assets. Abu Dhabi stepped in, to temporarily stabilise the situation, but Dubai will remain a market to watch in 2010.

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

Developments not deadHotel development remained subdued in 2009, stuntedby the virtual withdrawal of fi nance. The continued fall in construction costs mean that it is attractive to set the development wheels in motion, but funders are mindful of the relatively low day one values, incomparison to development cost. Those few new projects that are able to forge ahead are likely toopen into a recovering market and benefi t from being able to offer the newest product.

As 2009 entered its fi nal quarter, we started to seesome life return to the development market. Demandfor feasibility studies increased as shrewd, well-funded owners, operators and developers identifi ed opportunities to grow their portfolios at much reduced costs. Developers and owners have also looked tomitigate risk by turning towards the seeming safety net of a brand, on which to anchor their new schemes and projects. The perfect combination of a rated operator and global fl ag is the aim of many investors.With operators having had no other option than tobecome more fl exible with the terms on offer, therealignment of owner and operator interests is likely to continue.

Investment outlookClearly, the overall investment volume is likely toremain subdued over the next six to 12 months,with a credit logjam yet to be removed and tradingperformance continuing to be impacted. However, hotels still appear of interest to investors, particularly those who take a longer-term view.

The investment fundamentals of location, covenantstrength, certainty of cash fl ow, growth prospects,and ability to meet payment obligations remain key.A number of investors continue to have a long-terminterest in prime assets, although it is a select group that is currently able to source funding, subject to reasonable terms. We believe that some companies will need to do more to persuade long-term institutional capital that hotels still have merit as an investment class.

A number of investment opportunities in the budget sector have been brought to market in recent monthsand have been met with considerable appetite fromthe investment community. Covenant strength is thekey infl uencing factor on the yield achieved.

Will 2010 bring renewed optimism?Despite the lack of signifi cant transactional activityand the challenging trading conditions, the mid-term outlook for the sector as a whole became morepositive during the second half of 2009. We believe this will continue over the next 12 months, unlessthere are further shocks to the wider economy.

UK-wide trading performance is likely to remainchallenging throughout 2010, with any real recovery inRevPAR not materialising until the second half of theyear at the earliest. London hotels are set to be at the forefront of the recovery, having so far weathered thestorm better than many expected. Market sentiment has improved from its low point in March 2009, aidedby the stabilisation in occupancy and we would expectthis trend to continue. Signifi cant rate discountingremains a concern and it is diffi cult to predict anyincrease in average rate for at least another sixmonths.

We may also see some initial signs of recovery intravel across Europe, with short-haul trips and leisurebreaks continuing to replace long-haul travel andextended vacations. The gradual re-emergence of thehard-hit corporate meetings market, will infl uencehoteliers' ability to stabilise and recover average rate.

The number of investors and opportunistic funds thatannounced their intention to circle the market in 2009 also suggests that transactional activity could increaseover the coming year — if there are suffi cientopportunities in which to invest. The emergence of new group Akkeron Hotels, which acquired the Folio name and eight properties at the end of the year, with plans to grow a 150-strong regional hotel group,highlights the fact that there are major opportunities for those who can obtain funding and act decisively.

LEARNING LESSONSDespite witnessing a number of hotel companiesfalling into administration in 2009, we have not seenthe same volume of distressed asset sales that we did at the comparable point in the last recession of the early 1990s.

Although banks have been more patient andsupportive than many imagined, in part due totheir own misfortunes, we are likely to see further distressed assets reaching the market. Trading conditions will remain challenging and signifi cant amounts of debt are due to be refi nanced in 2010.Distressed asset sales were limited in the early partof 2009, but the number of instructions received from


7

banks and insolvency practitioners steadily increased during the year, as teams were put in place to deal with the ever-increasing number of problem cases.

“State-owned” banks and non-government backedbanks are coming under pressure to recover thesubstantial amount of debt lent across the real estatemarkets — including hotels — and we expect the level of scrutiny from lenders to intensify. This pressure is coming either from taxpayers, via central government, or from shareholders, as banks seek to repair theircapital ratios.

The strategies implemented by the banks inaddressing distress cases vary from bank to bank and from case to case. From our experience to date,distressed debt teams are happy to release smaller assets to the market, which have proportionately lowdebt packages, whilst caretaking larger portfolios,where there is no permanent value impairment. Clearly the end goal for banks and their advisers is to maximise value recovery, but the hold periods deemed acceptable to lenders during this downturn appearto be exceeding those witnessed during previous recessions. This is giving a glimmer of hope to many companies that are currently under pressure.

However, we are witnessing various strategies — restructuring, cost reductions, and even investment and rebranding — being implemented on bothlarger assets and portfolios, which are coming under pressure as a result of weak/inexperienced management, poor trading and overleveraging, or acombination of all three.

Operational focus is the keyAs hotel assets established themselves as an acceptable investment class for mainstream propertyinvestors, there was a reduced focus on theoperational aspects, which provide the underlying value of these assets.

Private equity entered the hotel market with limitedprevious exposure to the sector, structuring highly-leveraged deals, with many believing they couldread or beat the market cycle. Investors continued to acquire large portfolios at the top of the market, whileothers, who had bought earlier in the cycle, failed tosell before the downturn took hold.

The lack of understanding, by some investors, of the operational intricacies of the hotel sector islikely to lead to a change in the investor profi le over the mid-term. Investors that have the required industry experience will remain in the market withthe opportunity to pick up operationally-challengedassets. There has to be a return to basic principlesand a key focus on the most vital ingredients of our industry — customer service, quality of product andthe underlying operational structure.

PROVINCES FEEL THE PINCHWhilst the London hotel market remained one of the most resilient in the world during 2009, UK regional operators felt the full force of the economic downturn. Regional hotels experienced RevPAR dropsof over 10%, for each of the fi rst three months of the year, compared to the same periods in 2008, withoccupancy impacted by a lack of both business andleisure travel.

Trading fundamentals across the provinces continuedto come under pressure throughout 2009, leading to anumber of individual business administrations, whilsta few national operators such as Real Hotel Company and Folio Hotels, also collapsed.

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

Case StudiesSector Experience

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

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

Imperial Hotel, Newcastle-upon-Tyne Heathlands Hotel, Bournemouth

Diversifi cation of demand base is keyAs a result of the challenging environment, themajority of regional operators used discounting anddeals to drive volume. The increase in domesticholidays and the favourable exchange rates, whichboosted leisure demand from overseas, helped many regional hotels to stay afl oat. However, thoseoperators who failed to diversify their demand baseand relied on a few corporate accounts have comeunder increasing pressure as the rate of businessfailure in the wider economy gathered pace throughout the year.

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

opportunities for others.

Operators such as Crerar Hotels, the Cairn Hotel Group, Macdonald Hotels & Resorts, and Peel Hotels all made additions to their portfolios last year. The budget sector has not fared as well as people expected in the downturn, with assets in tertiarylocations coming under signifi cant pressure. However,the main budget operators — Premier Inn and Travelodge — have continued to increase their room stock across the UK, with the tone of competitionintensifying, culminating in legal action relating to a Christmas advertising campaign.

Single asset transactions below £10 million remainedviable, as highlighted by Holidaybreak’s acquisition of the Liddington Hotel, through Christie + Co, for £9.44million in September.

Unfortunately, challenges to recovery in the regions remain. The increase in VAT and higher utility costswill squeeze margins for all operators, and whencoupled with the increase in property rates, this is likely to put further pressure on ever-shrinking bottomlines.


8

Date Property Total Bedrooms

Total Sale Price (£m) Purchaser Vendor

June New Connaught Rooms Undisclosed Undisclosed Principal Hayley BDO Stoy Hayward

September The Stafford Undisclosed 77.5 Britannia Hospitality Daniel Thwaites

October Lord Milner Hotel 11 Undisclosed Mantis Group Finisterre Holdings (PTY) Limited

December Park Inn London, Russell Square 214 45 plus Crimson Hotels Ernst & Young

LONDON SINGLE ASSET TRANSACTIONS 2009

Date Property Country City Total Bedrooms

Total Sale Price (¤m)

Purchaser Vendor

January Hotel Villa Rica Portugal Lisbon 171 Undisclosed VIP Hotels Group Fibeira SGPS

March The Hotel Frankfurt City Germany Frankfurt 256 Undisclosed Deka Immobilien Quinlan Private

Sheraton Brussels Belgium Brussels 511 UndisclosedInternational Real Estate PLC

Starwood Hotels & Resorts

Four Seasons Switzerland Geneva 103 Undisclosed Cedar Capital Starman Holdings

April Radisson Boulogne France Paris 170 32 Capital France Hotel Compagnie La Lucette

June Lapa Palace Portugal Lisbon 109 29.4 Private Portuguese Investor Orient Express Hotels

July Radisson Blu Poland Krakow 196 32 Union Investment UBM Realitätenentwicklung AG

Blue Sea Resort & Spa Greece Crete 225 Undisclosed Aquis Hotels and Resorts Private vendor

Vasia Hotel & Spa Greece Crete 300 Undisclosed Aquis Hotels and Resorts Private vendor

Novotel Netherlands The Hague 216 UndisclosedInvesco European Hotel Real Estate Fund

Dutch developer TCN

August Melia Madrid Princesa Spain Madrid 274 87.8 BBVA Renting Sol Melia

Kempinski Hotel Rotes Ross

Germany Halle 73 Undisclosed Aurum AG Private vendor

September Andel’s Poland Krakow 159 Undisclosed Deka Immobilien Warimpex

AC Som Spain Barcelona 102 Undisclosed Invisa Hotels AC Hotels

November Radisson Blu Germany Hamburg 560 155 Invesco Real Estate Azure Group

DecemberRenaissance Paris Hotel Le Parc Trocadero

France Paris 116 35.5 Private investment group Strategic Hotels & Resorts

EUROPEAN SINGLE ASSET TRANSACTIONS 2009

Date Portfolio Location No. of Properties

Total Bedrooms Sale Price (¤m) Purchaser Vendor

March Portfolio of H10 Hotels Spain 2 432 Undisclosed Nueva Rumasa H10 Hotels

AprilPortfolio of three former Purple Hotels

UK3 258 Undisclosed Travelodge

Administrators for Real Hotel Company

June Worldwide portfolio of hotels Worldwide 240 c.26,000 Undisclosed Starwood CapitalGolden Tulip Hospitality Group

July Portfolio of independent UK hotels UK 12 1,118 Undisclosed Travelodge Private vendors

AugustPortfolio of Western European and African-based hotels

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

81 14,890 UndisclosedTravco Group International

Steigenberger Hotels

September Portfolio of Formule 1 hotels France 158 12,300 272Consortium of French institutional investors

Accor

Portfolio of Western European hotels

Spain 51 Undisclosed Undisclosed NH Hoteles Hesperia

November Portfolio of independent UK hotels UK 10 857 52.8 Travelodge Private vendors

Portfolio of nine WesternEuropean hotels

France 9 c.600 Undisclosed Time-HotelsCompagnie Générale Hôtelière

December Portfolio of eight UK hotels UK 8 Undisclosed Undisclosed Akkeron Hotels Folio Hotels

EUROPEAN PORTFOLIO TRANSACTIONS 2009


9



January Holiday Inn Express, Crawley 216 8 Sojourn Hotels Mitchells & Butlers

The Golf View, Inverness 42 Undisclosed Crerar Hotels PRUPIM

February Close Hotel, Gloucestershire 15 Undisclosed Undisclosed Greene King

April Great Northern, Peterborough 36 3.025 Renelson Investment SA Receivers

MayNorfolk Royale, Bournemouth

95 8.25 Peel Hotels English Rose Hotels

June Quality Hotel, Birmingham 176 4.5 Cobden Hotel Ltd BDO Stoy Hayward

Best Western Popinjay, Clyde Valley 34 Undisclosed Clyde Valley Developments Private owner

Central Hotel, Glasgow 222 Undisclosed Principal Hayley BDO Stoy Hayward

Aviemore Highland ResortFour hotels/18 woodland lodges

UndisclosedMacdonald Hotels & Resorts

PricewaterhouseCoopers LLP

July Barnsley House, Circencester 18 6.5 Calcot Manor KPMG

Comfort Hotel, Kettering 41 Undisclosed Balaji Hotels Private owners

Heathlands Hotel, Bournemouth 115 2.5 Britannia Hotels BDO Stoy Hayward

August Southcrest Hotel, Redditch 53 Undisclosed Private buyer BDO Stoy Hayward

Yang Sing Oriental 48 Undisclosed RoomZZZ Begbies Traynor

September The Liddington, Swindon 192 9.44 Holidaybreak Grant Thornton

October Shendish Manor, Hertfordshire 70 7.5 Manor Groves Hotel KPMG

The Imperial, Newcastle 122 5.5 Cairn Hotel Group F&C Reit Asset Management

Forbury Hotel, Reading 23 7 Von Essen Hotels Baker Tilly

November Former Stop Inn, Hull 59 Undisclosed Private buyer EjendomsInvest

Pittodrie House Hotel and Estate

27Undisclosed (Purchase of remaining 50% stake)

Macdonald Hotels & Resorts

Theo Smith

December St Brelade’s Bay Hotel 82 Undisclosed Jayne Best The Frost family

UK REGIONAL TRANSACTIONS 2009

CAPITAL RETURNSAs one of the principal tourist destinations in theworld and with the 2012 Olympic Games on thehorizon, London is set to be at the forefront of a recovery across the UK, and indeed European,hotel markets.

The capital’s hotels remained resilient during 2009.Although RevPAR declined more than 10% in the fi rst three months of 2009, fi gures improved as the year progressed. According to the latest fi gures from Deloitte, RevPAR increased by 10% in November 2009 to £119, compared to the same period in 2008.

Price promotions — and the low value of sterlingduring the year — enabled London to remain apopular tourist destination in 2009. Leisure tourism, particularly from Europe, offset the fall in corporatebookings, which had continued from 2008. In thesecond half of the year, softer trading comparables and continued cost cutting also helped the capital’shotels mitigate the drop in profi tability witnessed inother key gateway cities.

The economic downturn has undoubtedly had an effect on high profi le transactions in London. However, interested parties, including sovereign wealth funds and high net worth individuals, havecontinued to circle the market, keen to acquire assetsin the capital. These would-be buyers have beenattracted by falling hotel values and further enticedby the decline in value of the pound against the

dollar and the euro. A growing perception that values have bottomed out has further added to the desire of well funded investors to become more acquisitive.

In November, Christie + Co agreed the sale of the Park Inn London, Russell Square to CrimsonHotel Group on behalf of Ernst & Young, for a sum reported to be in excess of £45 million. Two monthsprior to that, the Stafford Hotel in St James’s Place was acquired by Britannia Hospitality, from Daniel Thwaites, for £77.5 million.

More than 50 formal tours of the Russell Squarehotel were conducted in a period of just over a month. The marketing programme culminated in acombined £1 billion-worth of funded offers beingsubmitted, through a multi-stage bidding process. This highlighted the fact that there is still hugedemand for central London hotels, from well funded UK and overseas buyers.

Whilst demand for assets in the capital remainsstrong, the market has been impacted, and will continue to be affected, by a lack of stock beingbrought to the market. The lack of debt funding has also curtailed activity in the mid-market sector, but not the expansion plans of the budget operators. Weare currently advising Travelodge on a number of potential sites, whilst Whitbread is reportedly in talksto open a hotel at Stratford City.

The lure of the Olympics is continuing to draw operators and developers into the capital, which is predicted to experience a 12% increase in new rooms (13,300) by 2012. Hotel development needs to be

sustainable and assets that are developed largely for the 2012 Olympics are likely to suffer after theparticipants have left town, as many hoteliers in previous Olympic cities can testify.

With its high barriers of entry, London continues tobe an extremely competitive marketplace, but one — as the recovery gathers momentum — that willremain a target for the majority of hotel investors, developers and operators with their eye onlong-term gains.

Park Inn London, Russell Square


10

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


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

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

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

Quality Hotel, Glasgow

The Liddington, SwindonAldgate Serviced Apartments, London


11

Deal activity increased in 2009, comparedto the previous year, although transactionvolumes were nowhere near pre-creditcrunch levels. Buyers were tempted backinto the market by the attractive pricesand although it was diffi cult to raisefi nance, it wasn’t impossible.

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

Expansion and disposalsAs we predicted in last year’s Business Outlookpublication, regional brewers and multi-site operatorscontinued to take advantage of the lack of competition from national chains, to bolster their estates through freehold acquisitions — especially in the fi rst half of the year.

Groups, such as Charles Wells, Shepherd Neame,Frederic Robinson, Geronimo Inns and Peach PubCompany, all acquired sites from Punch Tavernsduring the fi rst half of 2009, as the company spentthe year exploring ways to pay down its debt. Aswell as selling a raft of small pub packages, Punch also sold a number of freeholds to its tenants, usingthe proceeds to buy back £millions in bonds.

At the end of September, Christie + Co was instructed by Punch to market more than 300 individual pubsfrom its turnaround division. In the fi rst month, wereceived signifi cant interest in the majority of thesesites from a wide range of buyers — more than 60%of whom were looking to continue operating theproperties as public houses.

Punch’s main rival Enterprise Inns, which has a £1 billion bank-syndicated facility to refi nance in 2011,reduced group net debt by £142 million — generating cash from trading and the disposal of non-core pubs.Late in the year, the company sold and leased-backthree packages at auction — a move that raised more than £35 million. The company announced that it mayconsider selling another 100 sites in total this way.

Public Houses + Restaurants

“The UK’s pub sector continues to fi nd itself impacted by some of the toughest trading conditions ever seen. However, companies that have been able toadapt to this environment and to the changing needsof the consumer, have been rewarded in 2009 withrobust sales fi gures.”

OUR PUB SECTOR PREDICTIONS FOR 2010+ Continued restructuring of businesses and further administrations involving the renegotiating and re-gearing of leases.

+ Continued growth of the freehouse market; reduction in the number of tenanted pubs.

+ Further convergence of the pub and restaurant sectors.

+ Continued use of deals and promotions to maintain customer numbers.

+ Regional brewers and multi-site operators will continue to grow their estates.

+ Pubcos will explore further disposal opportunities.

+ Increase in VAT and continued rise in youth unemployment is set to put further pressureon margins.

Neil Morgan - Head of Pubs & Restaurants

BUSINESS OUTLOOK


12

Movement in restaurant valuesChristie + Co’s restaurant priceindex, which uses average priceinformation from restaurant transactions brokered by the company, shows that restaurantproperty values have fallen byapproximately 30%, from theirpeak in the fi rst quarter of 2008.Restaurant property valuesfor 2009 dropped by 18.1%,compared to a decline of 14.9%in the previous year.

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

3.3

4.7

4.9

8.0

-14.9

-18.1

Restaurants-18.1% movement in average prices

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

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

9.2

5.2

8.5

6.5

-11.6

-20.1

Public Houses

Sector interest growsWhile regional brewers and multi-site operators were behind most of the transactional activity in the fi rsthalf of the year, there was a distinct increase in interest from other would-be buyers in the second-half. Opportunistic funds also started to circle themarket.

Corporate disposal programmes boosted activity for Christie + Co towards the end of 2009. We registered an 80% increase in pub viewings during Septemberand October, compared to the same period in 2008 and a 23% increase in deals agreed. Would-be buyerswere attracted by the quality of pub businesses, available at price levels not seen for some years.

As demand increased during 2009, the fall in freehold values slowed and the second half of the year broughtexamples of competitive bidding and contract races.Banks also started to show signs of being more receptive towards lending in the sector.

In November, Christie + Co announced that it was offering 19 free-of-tie leases, on vacant pubs, onbehalf Scottish & Newcastle Pub Company. Thetied model was an emotive subject during the year, highlighted by the BEC Report and CAMRA super complaint. We were encouraged to receive a considerable number of enquiries from a wide rangeof interested parties, as soon as the S&NPC pubs were placed on the market.

Challenges remain2010 is set to bring further challenges to the licensed sector, with the increase in VAT, likely interest rate rises and more unemployment. The lead up to aGeneral Election – and political posturing, over furtherindustry regulation – is also set to create uncertaintyfor the sector.

One piece of regulation, which the government is unwilling to face head-on, is below-cost selling in the off-trade, especially by the larger supermarkets. These cheap deals encourage the public to stay at home, orto “pre-load” on low cost drinks before bypassing the pub for the late-night bar and club circuit.

There are a number of positive factors that will help the trade during the year. These include a Football World Cup, with favourable kick-off times, and aresilient eating out market.

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

Unsurprisingly, the better managed operators, such as Mitchells & Butlers and JD Wetherspoon, have led the way in terms of like-for-like sales growth and both started acquisition campaigns before the end of 2009.

Eating into the restaurant marketThe advent of the smoking ban led many pub operators to enhance their food offering and it seems that this trend is helping many businesses combat the impact of the recession.

Whilst the food mix has not been the answer for every operator, the majority of pubs that have developeda successful food operation, which addresses theconsumers’ desire for quality and value, have foundthemselves in a better position to ride out the storm.

The futureWe believe the UK pub sector is set for a fragilerecovery during 2010. Distressed assets willcontinue to come to the market, but we also expecttransactional activity to increase steadily, as the banksstart to free up further funding and as more interestedparties return to the market.

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

We will continue to see pub closures in 2010. Whilstclosures are clearly unfortunate on an individual level, we fi rmly believe that a reduction from the current54,000 pubs is in the long-term interests of the sector. Businesses that survive the current economic diffi culties will be more robust and better placed tohave a long-term future.

THE CHANGING PUB LANDSCAPE The recession has already had a marked impact on themake-up of the UK’s pub industry and the ownershipprofi le is set to change even further over the comingmonths, as the freehold market continues to grow.

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

Punch Taverns, Enterprise Inns and Admiral Tavernsare all likely to bring further non-core pubs to themarket during the year. This will contribute to a dropin tenanted house numbers over the next 12 months,whilst the managed house sector will remain fairlyconstant.

Operators such as Peach Pub Company, GeronimoInns, Brunning & Price and Heartstone Inns will continue to take advantage of expansion opportunities, whilst managed operators such as Mitchells & Butlers, Orchid Pub Group and JD Wetherspoon will alsofollow the acquisition trail. We may see other national operators, such as Marston’s and Greene King, returnas buyers as the year progresses. Some groups will look at other avenues for expansion, and may even follow Marston’s joint venture with Travelodge, as a blueprint for future growth.

Although 2010 is unlikely to bring any signifi cant sector consolidation, the number of debt-for-equity swap deals that have taken place over the last 18 months could lead to a number of banks exploring exit strategies in two to three years’ time. The market would then be set for a number of IPOs and anotherround of private equity buyers circling the sector.


13

Date Vendor Purchaser Deal

January FishWorks Boparan Ventures Ltd Acquisition of four FishWorks restaurants, out of administration.

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

Gourmet Restaurants Anoup Treon (V8 Gourmet) Acquisition of Gourmet Restaurants, operator of Tiffi nbites and Bombay Bicycle club

February GlassHouse New Pub Company Acquisition, out of administration, of 12-strong pub company for an undisclosed sum.

Alphabet Bars Existing shareholders Acquisition, out of administration, of fi ve-strong London-based bar group

March Punch Taverns Fuller, Smith & Turner Acquisition of six London-based pubs for £21 million.

3D Entertainment Eminence Leisure Acquisition of 28 bars for an undisclosed sum.

April Cains Beer Company Amber Taverns Acquisition of 23 pubs based in the North West for an undisclosed sum.

Punch Taverns Peach Pub Company Acquisition of two freehold pubs for £2.85 million.

Punch Taverns Geronimo Inns Acquisition of six London-based pubs for an undisclosed sum.

May Punch Taverns Shepherd Neame Acquisition of 13 pubs for £15 million.

Punch Taverns Charles Wells Acquisition of 17 pubs for an undisclosed sum.

Punch Taverns Frederic Robinson Acquisition of eight pubs for an undisclosed sum

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

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

June Punch Taverns Greene King Acquisition of 11 pubs for £30 million.

Bar Room Bar Ltd Orchid Pubs Ltd Acquisition, out of administration, of 10 bars for an undisclosed sum.

Regent Inns Cavendish Bars Acquisition of seven Walkabout bars for an undisclosed sum.

July Punch Taverns St Austell Brewery Acquisition of four pubs for an undisclosed sum.

3D Entertainment JD Wetherspoon Acquisition of seven Chicago Rock Café sites for an undisclosed sum.

Enterprise Inns Food & Fuel Acquisition of four London-based pubs for an undisclosed sum.

Novus Leisure Royal Bank of Scotland Debt-for-equity swap with banks taking a greater stake in Novus Leisure.

Barracuda Group Babson Capital Europe Ltd, Debt-for-equity swap with banks and Babson Capital taking a greater

Paramount Restaurants Ltd HSBC Holdings/Barclays/ Debt-for-equity swap with banks and Santaky taking a greater stake in

Coffee Republic Arab Investments Ltd Acquisition of coffee shop chain, out of administration, for an undisclosed sum.

August V8 Gourmet Group Shilpa Shetty/Raj Kundra Acquisition of stake in V8 Gourmet Group, operator of Tiffi nbites, for £6 million.

September Daniel Thwaites Britannia Hospitality Acquisition of 105-room Stafford Hotel in London for £77.5 million.

Highgate Brewery David Lindol and Simon Toon Acquisition, out of administration, of Midlands-based brewer, by two

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

Clapham House Group Giraffe Acquisition, out of administration, of 11 Tootsies-branded restaurants for £2.5 million.

BB’s Coffee & Muffi ns UK Kapelad Acquisition, out of administration, of 16 company-operated stores by a new vehicle

Enterprise Inns A number of unnamed buyers Sale, through auction, of fi ve London-based pubs for a total consideration of

Regent Inns iNTERTAIN Ltd Acquisition of 60 bars, out of administration, by former Regents Inn management

Globe Pub Company EBP Pub Company Acquisition of 425 pubs for £180 million.

November Punch Taverns JD Wetherspoon Acquisition of fi ve freehold pubs for an undisclosed sum.

Surburban Style Bars; Pan- Cal Management Acquisition, out of administration, of 44 pubs for an undisclosed sum.

Helena Leisure RCapital Bar and nightclub operator rescued through a company voluntary agreement,

Mitchells & Butlers Greene King Acquisition of seven pubs in Scotland for £12.7 million.

December Enterprise Inns A number of unnamed buyers Sale, through auction, of seven London-based pubs for a total consideration of £11.58 million.

Premium Bars & Orchid Group Acquisition, out of administration, of 43 sites for an undisclosed sum.

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

PUBLIC HOUSE & RESTAURANT TRANSACTIONS 2009


14

CAUTIOUS OUTLOOK FOR RESTAURANT SECTORAdministrations and promotional offerstypifi ed the UK’s restaurant landscapeduring 2009, as many operatorsconcentrated on the latter to escape the former. The current mood in the marketis one of cautious optimism, as we head into a period of recovery, with like-for-like sales continuing to show resilienceand established operators set to return to the market in earnest, to seek out opportunities to grow market share.

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

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

Case StudiesSector ExperienceLoch Fyne Restaurant, MidhurstIn August, Christie + Co sold the leasehold interest of the Loch Fyne Restaurant unit in Midhurst, West Sussex, to the Reach for the Stars Group for an undisclosed sum.

Reach for the Stars Group was founded by Steve Cropper and David Stanton in 2004. The company currently operates four sites across Hampshire, employs 80 staff and has an annual turnover in the region of £2.5 million.

Loch Fyne Restaurant, Midhurst

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

Transactions and expansionTransactional activity, which had slowed in 2008,remained sluggish last year. Appetite for medium-sized packages remained modest and – until debtand credit markets reopen – there is little likelihoodof a return to the frenetic M&A activity, whichcharacterised the restaurant sector pre-2007.

Demand for prime sites in key locations, such as London, Manchester and Birmingham has remained strong. However, the lack of funding has also curtailed the volume of deals and number of developments in the sector.

The majority of national operators focused on payingdown debt, raising new funds and streamlining their operations in 2009. This left the door open for fl edgling brands to gain market share and forlocal operators to acquire additional sites. Emerging operators, such as Jamie’s Italian and Cote, have beenable to grow their estates and place their brandsfi rmly in the minds of consumers, giving them a basefrom which to expand even further over the next few years. The lack of competition for high street siteshas also allowed for modest regional expansion.

We also believe that we could see a number of smalleroperators exploring possible mergers this year, in order to create economies of scale. The continuedlack of private equity will hamper the chances of large scale consolidation. However, a stronger economicrecovery in the latter half of 2010 might encourage anumber of rumoured deals and IPOs to come back on the agenda.


15

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

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

+ Operators adapting to keep pace with consumers’ changing perception of value.

+ Merging of some smaller multiple -site operators.

+ Greater focus on healthy eating options and calorie labelling.

+ Stabilisation in the growth in popularity of takeaways.

+ Increasing use of technology to attract and retain customers.

+ Further convergence between the restaurant and pub markets.

BUSINESS OUTLOOKFewer casualties than predictedAlthough conditions remained challenging duringthe year, the forecast landslide of administrationsdid not materialise. Some well known brands, such as Tootsies and Old Orleans fell into trouble, while Paramount Restaurants — the owner of the CaffèUno and Chez Gérard brands — carried out a restructuring that saw banks taking a greater stake in the business.

The problems faced by some operators will continueto provide opportunities for others, with going concern businesses generating the greatest interest,as reopening costs are kept to a minimum.

The recent increase in VAT and continued rise inyouth unemployment is set to put further pressureon operators in 2010. Despite this, we hope that the steps taken by the majority of operators over theprevious 12 months — and the continued emergence of new concepts and entrepreneurs — will enablethe sector to remain resilient in the year ahead.

KEEPING PACE WITH CONSUMERS The UK’s restaurant sector faced many challenges during 2009 and the next 12 months will be equallytesting. Supermarkets, with their ‘restaurant style’meal packages, will continue to underpin thegrowing trend for dining at home. However, the mainfocus for the restaurant industry will be adapting to consumers’ changing perception of value, whichdoes not just mean offering cheaper dishes.

Restaurateurs need to concentrate on reducing the size of menus and portions, so that waste isminimised.

Consumers have become more strategic in where they plan to eat out. Brand loyalty is suffering,as consumers switch between operators, to take advantage of the best deal of the day or week.

Although the last 12 months has brought a surgein takeaway sales, we believe this growth willstart to stabilise as a recovery takes hold. Healthyeating and sustainability issues are still high on theconsumer agenda. The Food Standards Agency’s current consultation process regarding calorie labelling on menus and the forthcoming resultsof the scheme will also highlight the healthy eating issue.

Casual dining operators will also look to stripback services that customers no longer value.For example, Nandos allows customers to lay the table and select condiments as part of the dining experience. The growing demand for all-you-can-eat concepts will also continue — highlighted by thesuccess of Whitbread’s Taybarn pub/restaurants.

The eating out market is predicted to continue growing over the next 12 months and beyond.Operators will need to evolve and be suffi ciently agile to keep up with consumer expectations, if they want to take advantage of that growth.


16

HEALTH & FITNESSThe health & fi tness sector faced a number of challenges in 2009, includingan over-supply of clubs in some areas,high levels of membership attrition,signifi cant rental and property liabilities and increasing utility costs.

Attracting and retaining membersThe UK’s health & fi tness industry appears to havebeen more resilient to the downturn than most thought. Membership renewals remain an issuefor almost all clubs, although there is evidence tosuggest that attrition levels are much lower for family-orientated raquet facilities. The traditionallybuoyant secondary spend levels — for extra servicessuch as personal training, spa treatments and refreshments — came under pressure in 2009.

Member retention may be an issue but, in manycases, membership fi gures are increasing slowly. The2009 Fitness Index showed that, on a like-for-like basis, gym membership numbers grew by almost1% for the 12 months to the end of March 2009,compared to the previous year, while the total valueof the market increased by £108 million to £3.7billion. The number of new clubs opened betweenApril 2008 and March 2009 was 114, which expandedthe membership base by 119,000.

The Fitness Industry Association also reported thatmany public and private sites have seen the number of active members growing.

Investment and transactionalactivityTransactional activity during 2009 was againhampered by the lack of available funding and thescarcity of quality real estate-backed assets. Thesale, by JJB, of its 52-strong Fitness Club chain,back to founder David Whelan for £83.4 million, was the only deal of a signifi cant size.

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

Leisure“2009 was a challenging year in all segments of theleisure market, although some were more resilient than others. Late-night venues continued to feel the strain,whilst the UK’s health and fi tness industry fared better thanmost expected. Community sports clubs reported a rise in both adult and junior memberships and UK holiday parks benefi ted from the increase in domestic holidays.”

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

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

+ Ongoing rise in domestic holiday bookings.

+ Further distressed assets will be brought to the market.

+ Stabilisation in the snooker and pool hall sector.

Jon Patrick - Head of Leisure

BUSINESS OUTLOOK

Where clubs can show a strong historic trading profi le, or future opportunities for development, there continues to be strong interest in the marketplace. Well-located sites, with good catchments anddefendable positions, are highly sought-after.

Operators are also still willing to invest in their estates, with LA Fitness announcing in November 2009that it had earmarked £30 million for a comprehensive refurbishment programme in its 83-strong portfolio of UK health clubs.


17

DOWNTURN BRINGS SOME BENEFITS In the face of the recession and weak exchange rates,there has been an increase in domestic holidays. Anumber of holiday park operators benefi ted from theadvent of the aptly-named “staycation” in 2009.

Pontins, the holiday parks company, reported a 25% rise in bookings for the fi rst six months of the year, as cash-strapped holidaymakers turned to affordable, stay-at-home breaks. The company announced plans for a £50 million redevelopment of its six chalet parks across the UK, which would see 2,000 jobs createdin the process. The group said that demand was so strong, it was also looking to acquire other businesses to boost capacity.

Center Parcs is also looking to start work on its fi fth site in the UK, after it obtained permission for two public rights of way at its proposed holiday village, atWarren Wood, in Bedfordshire.Rival Butlins reported a10% rise in bookings during 2009, and a 30% increase for this summer.

Caravan park operator Park Resorts, which agreedwith its lenders on restructuring the terms of its £330million debt, is also understood to have shown signsof improved trading.

Low cost activitiesCheap forms of entertainment tend to do well inrecessions and cinemas reported a 15% rise inadmissions in the fi rst six months of 2009, to theirhighest level for seven years. Box-offi ce receipts werealso boosted by a run of crowd-pulling blockbusters and an unusually wet July.

In October, Cineworld Group reported revenues up by 6.5% for the 43 weeks to 22 October, compared to the previous year. The company also announced plans to expand its estate by two further cinemas by the endof the year.

UK sports clubs are also defying the recession, withcommunity activities coming to the fore during thedownturn. Figures produced at the end of last year, by the Central Council of Physical Recreation, from astudy of 3,000 clubs, showed a 34% increase in the number of adult memberships and a 40% rise in juniormemberships.

After going through a pre-pack administration processin April, Rileys the snooker and pool club operator,shorn of 30 loss-making sites, also started to seesome positive signs across the remainder of its circa 130-strong estate. The rise in unemployment has contributed to an increase in footfall at the clubsduring the week, whilst the introduction of newinitiatives led to a 60% increase in sales in the 12 weeks after they were introduced.

As predicted last year, we have continued to witnessthe growth of live music and entertainment businesses.Large and medium-sized venues have benefi ttedfrom the increasing popularity of touring concerts

and productions. Although it rarely provides a cheapform of entertainment, the live events industry haswitnessed the return of numerous “Super Groups”, which the British public has been eager to support.

The fragile state of the economy will continue toaffect the leisure sector for the foreseeable future,but customers continue to seek low cost activities tooccupy their recreational time. Operators who areable to provide value for money leisure breaks andactivities will be well placed to ride out the storm.

by Dragon’s Den entrepreneur James Caan, sees thedevelopment of a super-budget concept, with average monthly membership rates targeted at £20.

Compared to some leisure sectors, personal health and wellness is seen as an enduring value, particularly during an economic downturn. It will be interesting to see whether the market continues to polarise, as clubusers seek both value and high standards of facility,equipment and service in the future.

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

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


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

Fitness4LessOn behalf of budget health & fi tness operator Fitness4Less, Christie + Co has been appointed in an advisory capacity to oversee a major acquisition and development programme across the UK.

Walkabout bar— sold on behalf of Regent Inns

The industry continued to suffer a hangover from the “me too” years, where operators fl ooded to thehigh street in order to capture a slot on the drinkingcircuit — at any price. High street rental levels that are based on fl oor areas, or over-ambitious sale and leaseback deals, have proved infl exible and left manyretailers struggling to move their businesses forward.

Established high street operators, such as PremiumBars and Restaurants (PBR) and Regent Inns bothentered administration during 2009. Regent Inns quickly reappeared as part of a management buyout,whilst the Orchid Group acquired PBR at the end of the year.

Regional chains, such as Absolute Leisure in the North East, have also fallen by the wayside, as the squeeze on consumer spending has tightened and assetreinvestment remains under pressure.

Earlier in the year, the UK’s biggest nightcluboperator, Luminar Leisure, announced plans toraise £37.5 million in a share placing, to expand and develop its business and to take advantage of opportunities coming to the market. However, in October, Luminar announced that trading levels hadworsened during the second half of the year, withunemployment particularly impacting its core customerbase of young people.


18

The 3D Entertainment business, which was spun outof Luminar in 2007 for £95 million, was reportedly placed on the market in October, after claims that it tried, unsuccessfully, to merge with both PBR and Regent during the year. Luminar, which held a 49%stake in the business, was said to have slashed theprice for its interest to less than £5 million.

Despite the challenging trading environment, anumber of deals were completed in the sector duringthe year, including the disposal, by Luminar, of 27 sites to Cavendish Bars. In June, Christie + Coacted on behalf of Regent Inns in the sale of seven of its Walkabout sites, which were also acquired by Cavendish. The following month brought the sale

of Nexum Leisure’s Zanzibar nightclub in Stafford, through Christie + Co, to West Midlands operator, Utopia Clubs. In November, RCapital, the backer of Little Chef, completed the acquisition of 28 sites fromHelena Leisure.

Bingo operators continue to come under pressure,but the sector has shown some tentative signs of improvement, as smoking ban measures began to take effect. At the time of going to press, theGovernment had announced a 2% cut in bingo dutyto 20%, in an attempt to halt the rate of bingo hall closures. Although this measure was a step in theright direction, many saw it as being too little, too late. The future of operator Gala Coral was also set to


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

March 3D Entertainment Eminence Leisure Acquisition of 28 bars for an undisclosed sum.

X-Leisure Unit Trust Matterhorn Capital Acquisition of O2 Centre for £93 million.

Rileys Valiant Sports LtdAcquisition, out of administration, of 129 snooker, pool and sports clubs for an undisclosed sum.

JJB Sports Dave Whelan Sports Ltd Acquisition of 52-strong fi tness clubs chain for £83 million.

May Luminar Cavendish Bars Acquisition of 27 late-night venues for an undisclosed sum.

Britannia Parks Ltd Frogmore Real Estate Partners II Acquisition of 20 retirement and leisure parks for £17 million.

Drumaville Ltd Ellis Short Acquisition of 70% stake in Sunderland Football Club for an undisclosed sum.

June Regent Inns Cavendish Bars Acquisition of seven Walkabout bars for an undisclosed sum.

Bjoergolfur Gudmundsson

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

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

Esporta Group Société Générale de France SAAcquisition, out of administration, of UK-based health club operator and fi tness company for undisclosed sum.

July 3D Entertainment JD Wetherspoon Acquisition of seven Chicago Rock Café sites for an undisclosed sum.

Novus LeisureRoyal Bank of Scotland and Barclays

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

Independent News & Media PartyGaming Acquisition of Cashcade Ltd, the UK-based online gaming supplier, for £96 million.

Birmingham City Football Club

Grandtop International Holdings Ltd

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

Devondale Investments Ltd Al Fahim Asia Associates Acquisition of Portsmouth City Football Club for an undisclosed sum.

September LA Fitness Nuyuu Fitness Acquisition of three LA Fitness gyms by new fi tness club chain for an undisclosed sum.

October Regent Inns iNTERTAIN LtdAcquisition of 60 bars, out of administration, by former Regents Inn management for an undisclosed sum.

Park ResortsLenders including Lloyds Banking Group

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

Powerleague Group Patron Sports Leisure SarlAcquisition of 71% stake in the UK-based operator of fi ve-a-side football centres for £30.2 million.

Al Fahim Asia Associates Falcondrone Ltd Acquisition of 90% stake in Portsmouth City Football Club for an undisclosed sum.

Case Concepts Ltd Praesepe Plc Acquisition of 13 gaming centres for £6.3 million.

November Helena Leisure RCapital28 bars and nightclubs acquired through a company voluntary agreement in a deal led by RCapital.

December Blue Chip Casinos Casino 36 Acquisition of two casinos, out of administration, for £2.9 million.

Premium Bars &Restaurants

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

LEISURE TRANSACTIONS 2009

be decided by the end of the year, with the company hoping to complete a refi nancing — although thesituation had been complicated by an approach from Blackstone.

The late-night sector has the potential for recovery in the medium-term, especially as the licensed leisure market continues to evolve and greater interaction between landlords, investors and operators becomesmore widespread. The reality, we believe, is that the sector is set for another tough 12 months, with morepre-packs and administrations inevitable, as the bankscontinue to reappraise and reposition their exposure to what is recognised as a high-risk, high-reward market.


19

Limited transactional activityLeverage issues continued to inhibittransactional activity at a corporate level in2009, although a number of single assetschanged hands during the year. Private equitygroups did not abandon the sector altogether,but they were rarely able to fi nd suitableopportunities, or agree deals at an acceptableprice level.

Although demand for quality single assets was strong, volume and quality of stock were key issues — particularly in the elderly market— as owners held onto assets, realising thatthey couldn’t better their returns by investingelsewhere. Many of the properties that reachedthe market had some degree of distress,otherwise they simply wouldn’t have beensold. Buyers undertook more due diligencein order to satisfy funding requirements and, without suffi cient guarantees and warrantiesfrom the vendor, distressed assets proveddiffi cult to sell.

Christie + Co’s average price index shows an11% reduction in values for 2009. It shouldbe noted that this is refl ective of the quality of stock that actually transacted in 2009.Sales of high quality, purpose-built units have been extremely limited, but we fi rmly believevalues for such assets have remained robust.In a bullish market, the price differentialbetween poor and high quality stock narrows dramatically. However, in 2009, this pricedifferential has increased signifi cantly —skewing the value index.

Operators look inwardsMost of the larger operators spent the yearfocusing on enhancing operating effi ciency,

ratings. This commitment to improve quality prompted some companies to rid themselvesof bottom end assets that were unlikely tomake the grade.

Care + Childcare

OUR CARE SECTOR PREDICTIONS FOR 2010+ Further distressed cases brought to the market.

+ Uncertainty created by the lead up to and following the general election.

+ Further pressure on fee rates and occupancy levels.

+ Issues will be raised by the Care Quality Commission’s registration process.

+ Local authorities will continue to come under pressure to reduce costs, in the face of rapidly increasing levels of central government borrowing.

+ Return of signifi cant private equity activity.

+ An increase in confi dence and liquidity would quickly result in value increases.

BUSINESS OUTLOOK

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

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


20

Debt-laden deals from the pre-credit crunch era continued to haunt the sector and were broughtinto focus at the end of 2009, when Four Seasons’lenders, led by the Royal Bank of Scotland, wereforced to write off over £800 million of loans in thecompany in a debt-for-equity swap. It is hoped that this refi nancing will draw a line under one of Britain’sbiggest nursing chain’s troubled last few years.

Rival Southern Cross also pulled back from theacquisition trail during the year, following the turmoil surrounding the business in 2008, when it breachedits bank covenants. The company has announced that it has embarked on a period of consolidation, after several years of rapid growth. It is now concentratingon organic growth, through continuing improvements in service quality. To this end, the company launcheda new management initiative called New Horizons, whichis aimed at improving the quality of existing offers.

Learning disabilitiesThe specialist care market is generally more resilientthan elderly care, but it has been affected by theincrease in supported living facilities. Operators continue to explore different types of services andfacilities, in a move away from traditional registeredaccommodation.

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

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

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

The outlook for 2010The Care Quality Commission (CQC), will play a keyrole in shaping the progress of the UK’s care sectorin 2010.

According to the CQC’s fi rst report on adult social care in England, which was published in December2009, the general standard of care in the UK isgetting better. However, the Commission expressedconcern about the low quality of some care services.The report showed that almost 25% of homes forolder people continued to provide care that is of a poor or only adequate standard, with over 400 careservices rated poor. We have seen that, in most cases, a poor rating results in an immediate cessationof referrals by the Commissioning Authorities and causes severe fi nancial diffi culties for the operator.

Movement in care values

Christie + Co’s care price index, which uses average price information derived from care transactions brokered by the company, shows that careproperty values have fallen byapproximately 26%, from theirpeak in the third quarter of 2007. Care property values for2009 dropped by 11%, comparedto a decline of 16.9% in theprevious year. Whilst Care hasshown an overall reduction of 11%, this is exacerbated by thelack of sales of high-quality,purpose-built stock.

Care-11% movement in average prices

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

14.5

17.4

12.2

-16.9

-11.0

16.9

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


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

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

Orchar Nursing Home Vision UK


21

Between April and October 2010, all adult socialcare providers must re-register with the CQC toshow they meet a wide range of essential, commonquality standards. It is hoped that this process willrun smoothly, with care home operators taking thechance to register as soon as possible, in the early stages of the year.

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

ONGOING CONFIDENCE IN THE CHILDCARE SECTORThe continued lack of confi dence acrossthe banking sector remained the key factorin the ongoing low levels of transactionalactivity during 2009, especially in the fi rst six months. However, businesses that exhibited operational stabilitywere able to take advantage of lower property and business values and the curtailing of expansion plans by rivals, to grow their businesses via acquisitions.

This was highlighted by a number of signifi cant portfolio deals, which were successfully completedacross many child centric sectors during the year. In early 2009, the National Fostering Agency Ltd — the second largest fostering agency in the UK — acquiredAlliance Foster Care in Northampton, Alpha PlusFostering in Oldham, and an unnamed Essex-basedagency, for an undisclosed sum.

In February, Christie + Co acted on behalf of privateowners in the sale of Kingsclere Nurseries Ltd, theBerkshire-based care group, which operated seven nurseries, for an undisclosed sum, off a guide priceof £4 million.

During the summer, the UK’s two biggest nurseryoperators were both involved in signifi cant deals. In May, Christie + Co was invited, by Bright HorizonsFamily Solutions, to assist them with their acquisition of the Teddies Nurseries portfolio. This was followed,in June, by the management buy out of Busy Bees, the UK’s largest nursery chain, which was backed by Knowledge Universe, a Singaporean education fi rm. Christie + Co was responsible for providing vendor valuation advice in the lead up to this transaction.

Finally, in September, the Just Learning nursery groupacquired Nunu, a portfolio of 10 nurseries for a sumreportedly in excess of £7 million. These deals againhighlighted that operators and investors continued to have confi dence in the sector and an appetite forstrongly performing businesses with goodtrack records.

Alongside corporate portfolio acquisitions, therehave also been a number of smaller nursery group and single asset sales. Most notably, Christie + Co’sEdinburgh Offi ce completed three nursery deals inOctober alone.

The reduction of values across the childcare sector provided opportunities for regional and localoperators, who have been looking to acquire asecond business or grow local portfolios. A numberof examples of these types of transaction werewitnessed during the year, with further examplesset to follow in 2010, as values remain relatively low.

It is hoped that the UK will start to show signs of a recovery, albeit a fragile one, during the coming months. However, it is still diffi cult to build up a clear picture of how the economy will perform. It ishoped that the measures taken by the Governmentwill steady the rate of economic decline and lead toan upturn and weak growth during the fi rst six months of 2010.

We anticipate that transactional activity will remainsubdued, compared to pre-credit crunch levels andexpect availability of good quality nurseries with good levels of EBITDA to remain low. However,demand from buyers could exceed supply and result in multiples and values being driven forward.

We may also witness the possible development of management contracts, as banks seek to appointcompanies to operate and turnaround businesses thathave encountered problems due to poor management. With such agreements in place, the banks can waitfor the business performance and market to improvebefore selling, thus gaining a stronger opportunity forthe business to pay off its bank debt.

Those companies that can secure funding and have solid balance sheets are in the best position to takeadvantage of any opportunities that are sure to arise across what is still an attractive sector for investors.

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

+ An increase in opportunities for operators to acquire or tender for nurseries operated by organisations that are witnessing a tightening of purse strings — such as nurseries operated by local authorities, orthose that have gained government initiative funding, such as neighbour-hood nurseries and children’s centres.

+ Availability of good quality nurser-ies with good levels of EBITDA will remain low. However, demand could exceed supply and result in multiples and values being driven forward.

+ One or two very sizeable child-centric transactions could be completed during the fi rst half of the year.

+ Possible introduction of management contracts.

+ Real opportunity for regional groups to scale up by making strategic, selective acquisitions.

+ Uncertainty for operators, following recent comments by Children’sMinister Dawn Primarolo, that she is considering delaying the implementation of the Early Years Single Funding Formula (EYSFF) until 2011.

BUSINESS OUTLOOK


22

Whilst 2009 was a reasonably challenging year for the childcare sector, on both transactional and operational fronts, the last 12 months have provided a number of noteworthy landmarks that highlighted the continuing success of the sector.

The problems faced by the economy — and itsnegative effect on the amount of money in people’s pockets — led to more parents returning to work, orworking longer hours, which in turn drove reportedincreases in nursery occupancy. These increases were balanced, by drops in occupancy, in areas where parents faced redundancy. Parents who were unableto work were forced to curtail the number of days that their children attended nurseries, or completely withdraw them altogether. While we anticipate thatthis balance will remain reasonably constant duringthe year ahead, we do anticipate that there will be some new demand from parents, particularly in Q1 of 2010.

The UK also continues to be in the grip of a baby boom. According to the Offi ce of National Statistics,the total fertility rate was 1.96 children per woman in England and Wales in 2008, up from 1.63 in 2001. The number of live births in 2008 was 708,711 — thelargest fi gure since 1972. Whilst this is encouraging news for future nursery occupancy levels, a note of caution was sounded in the US. The birth rate in the US fell by 2% in 2008, which experts put down to a lack of job security and the impact maternity leavewould have on young families.

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

Political playgroundUnfortunately the fi rst six months of this year are setto be dominated by the run up to a General Election.

An example of the political uncertainty that the sector faces during the fi rst half of the year was highlightedby the Government’s back peddling, regarding its plan to scrap tax relief on childcare vouchers. The Labour Party had announced plans to fund an expansion of the Early Years Entitlement to two-year-old children, by abolishing tax relief on childcare vouchers forworking parents. The proposal whipped up a stormof debate across the sector, eventually forcing theGovernment to make what would appear, at the time of writing, to be a signifi cant policy U-turn.

The three political parties’ stance on the childcaresector continues to be unclear. It is expected that funds from the public sector will have to be cut tohelp ease the debt burden the country is facing.Therefore, the next six months of politicalpromises and the result of the General Electioncould have a signifi cant impact on the day nursery sector.

Away from political issues, economic downturnsand a fall in transactional activity, the sectorcelebrated a number of notable milestones during 2009. The year marked the 10th birthday of the National Day Nurseries Association, and “Auntie”,a nursery sector charity, set up by Russell Ford,former CEO of Asquith Nurseries, was launched. The charity is inviting UK day nurseries and pre-schools to offer support in helping children andfamilies in deprived South African townships.

Bringing up Baby, a pioneering, London-basedoperator celebrated its 20th anniversary duringthe year. The company, which was launched in Shepherd’s Bush after co-founders Anne de Zoysa and Sue Woodford struggled to fi nd suitable childcare for their own children, is ashining example of the level of quality service that can be provided in the sector and also what can be achieved from humble beginnings. Bringing up Baby now operates fi ve successful sites in London.

The UK’s childcare sector is set to be affectedby a number of different factors over the next12 months and beyond but, as operators such asBringing up Baby have proved, those with clear vision and a quality offering will remain at the forefront of the industry.

CARE & CHILDCARE TRANSACTIONS 2009

Date Vendor Purchaser(s) Deal

January Wood Berry Group CareTech Community Services Ltd Acquisition of Lyndhurst Psychiatric Residential Care Home for £6 million.

Private vendors National Fostering Agency Ltd Acquisition of three separate fostering agencies for undisclosed sums.

February Kingsclere Nurseries Ltd Private buyer Acquisition of seven-strong nursery chain for an undisclosed sum.

April Nuffi eld Hospitals Mezzanine Management Fund IVAcquisition of Vanguard Healthcare Solution Ltd as part of a management buyout for £31 million.

May Teddies Nurseries Bright Horizons Family SolutionsAcquisition of the seventh largest nursery chain in the UK for an undisclosed sum.

JuneReceivers of ABC Learning Centres

Management of Busy Bees, backed by Knowledge Universe

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

Private vendors Vision UK Acquisition of two Devon-based care homes for an undisclosed sum.

July Options Group Inc Ltd Option Group Holding LtdManagement buyout of the UK-based operator of autism schools andtransitional life skills colleges for an undisclosed sum.

August Care Aspirations GI PartnersAcquisition of UK-based mental health services group for an undisclosed sum.

September Clearwater Care Ltd Synova CapitalAcquisition of the UK-based provider of specialist residential care facilities and supported living services for an undisclosed sum.

Nunu Just Learning Holdings Acquisition of 10-strong nursery group for an undisclosed sum.

October Private vendors Carewise HomesAcquisition of fi rst Scottish care home by national operator for an undisclosed sum.

November Private vendors August Equity Acquisition of four domiciliary care businesses for an undisclosed sum.

Private vendors Lifeways Community CareAcquisition of two home service providers in two separate deals for undisclosed sums.

December Park Group (in administration) Private buyerAcquisition, out of administration, of three care homes in the East Midlands for an undisclosed sum.

Shirebrook Care Group GI PartnersAcquisition of Mansfi eld-based operators of adult nursing homes for an undisclosed sum.

BABY BOOM TO BOOST SECTOR?


23

BUSINESS OUTLOOK

Retail“The retail sector, like all sectors, has not been immune to the economic downturn. However, it has remained more robust, with property values falling lessthan in other markets. The recession has undoubtedly changed the way that we shop, with the accelerationof long-running trends, such as discounting and theintroductionof value ranges.”

OUR PREDICTIONS FOR 2010+ Downward pressure on gross profi t

margins, not helped by the increase in VAT.

+ The introduction of further value ranges by the larger operators e.g. Waitrose value range, to compete with value-orientated retailers.

+ Continuing growth of on-line grocery shopping.

+ Further consolidation, with private equity circling the sector.

+ Brands that have traditionally suffered will struggle to stay afl oat.

+ Increasing focus on locally-sourced products and food miles.

Tony Evans - Head of RetailConsumers have taken the opportunity to shop more frequently and locally, which has strengthened the resilience of the convenience store sector. The rise in interest in food miles and locally-sourced produce, highlighted by the increasing popularity of farm shops,is also benefi ting the sector.

The increase in promotions and value ranges hasallowed many operators to stabilise turnover levels,in line with a general shift from consumers, towards value-orientated retailers and ranges.

If and when the recovery starts, retailers willbe faced with the problem of pulling back on promotional activity, without losing footfall, inorder to increase gross profi t margins, which continue to come under severe pressure.

The increase in VAT and the continuing rise inunemployment mean that margins will remain underpressure for the foreseeable future. These factorswill also help discount chains to increase marketshare, whilst internet sales will continue to grow.

Trading updates, especially across the c-store sector, have remained encouraging, with the move towardsvalue ranges allowing several symbol groups and wholesalers to report increased levels of sales.

Unlike other commercial property sectors, the retailsector has not experienced a wave of administrationsduring the year. First Quench Retail was one of thefew examples in 2009 and certainly the most highprofi le casualty of the current downturn.

Estate building continuesWhilst transactional activity was hampered by thelack of available debt, regional and local operatorscontinued to build their estates last year. The Co-operative Group disposed of a number of Somerfi eld stores, in order to meet competition rules, andmany of these sites were acquired by regional groups. These corporate disposals also led to theintroduction of some new entrants to the sector, including Haldanes Stores and ASCO, which are the fi rst new supermarket names to launch in the UK for a quarter of a century. Indeed Haldanes has alreadygrown its estate to 18 stores, which stretch from theNorth of Scotland to the Midlands of England, with plans to open 50 outlets in total over the nextfour years.


24

The cancellation of the tender process for the PostOffi ce Card Account (POCA) and the conclusion of the consultation process for ‘Network Change’ have led to a rise in the interest shown in operating postoffi ces over the last 12 months, with a number of combi-sites changing hands. There is no shortageof buyers interested in the sector, with many becoming more opportunistic during the second half of the year.

However, those seeking to expand are struggling to fi nd competitively-priced, quality businesses, asretailers weigh-up their return on capital againstthe lack of investment returns they would attractin alternative markets.

Legislation continues to hamper the sector, with the ban on tobacco displays planned for 2011 and tougher licensing laws, particularly in Scotland, being two of the latest proposals, which will add further cost and disruption to retailers.

Despite the recession and further red-tape, the last12 months has again proved that well-run businesses,which afford a valuable offer to their local communities, including product availability andspeed of service with a personal touch, can stillgenerate sales, especially as consumers cut downon luxury items and concentrate on necessities.

A MATTER OF CONVENIENCEDespite the economic downturn, the UK’s convenience store sector continues to drive growth in the grocery market. Opportunities to expand — throughthe rise in the number of pub closures; a more secure future for post offi ces;and consumers continuing to shop more frequently — are all helping the sector remain resilient in the face of the recession.

The news, in the fi nal quarter of the year, that Waitrose is set to become the latest supermarketchain to expand into the convenience market and that Marks and Spencer has started selling branded goods at its stores across the UK, has also underpinned confi dence in the sector.

With the sector forecast to constitute 25% of all store-based food sales by 2012, many believe there has never been a better time to enter the market. As with the fi rst wave of supermarkets enteringthe convenience store market, this latest news from Waitrose will provide existing operators, andespecially independents, with further opportunities and challenges.

Still accounting for approximately 24% of the market, independent store numbers are in decline, with around 1,250 closing in the last year accordingto IGD, the retail analyst. The move by Waitrose into the sector will again put many under pressureto survive and will further anger campaigners, whobelieve the continued homogenization of the highstreet is driving out local independent businesses.

However, many independents, who weatheredthe initial rush of smaller supermarket formats,again believe that the move by Waitrose can only be healthy for the sector as a whole. Firstly, bydemonstrating its strength and improving its value, whilst also making independent businesses raisetheir own standards, with wider ranges, greaterdiversifi cation and enhanced services.

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

4.5

7.9

5.9

5.6

-6.5

-9.8

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


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


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

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

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

Nearby Stores

The Pharmacy, Portsmouth

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


25

The continuing strong performance of symbol groups and of the national wholesalers also points to a healthy sector. As in the previous 12 months, there continued to be a lack of signifi cant transactionalactivity. However, national groups, such as MartinMcColl and Costcutter, continued to seek opportunitiesto expand their estates. Whilst the sector has notexperienced a fl ood of business failures, some groups have fallen into administration —includingNearby Stores.

Challenges remain, in particular the growth of discount retailers such as Lidl, Aldi and Netto, whilstthe squeeze on independent operators continues.

However, for those who have adapted, through the diversifi cation of their offers, the raising of servicestandards and their importance to the localcommunity, the next year and the challenges it brings can be faced head on.

The sector continues to be robust and those with theright business model will be the ones who can reap the rewards when the inevitable upswing arrives.

Despite facing the multiple challenges of fl uctuating fuel prices, threats over rises

DRIVING THROUGH THE CHALLENGES


January Nearby Stores Costcutter Acquisition, out of administration, of seven convenience stores for an undisclosed sum.

Nearby Stores Southern Co-operative Acquisition, out of administration, of 13 convenience stores for an undisclosed sum.

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

The Co-operative Group Waitrose Acquisition of 13 supermarkets for an undisclosed sum.

March The Co-operative Group Sainsbury’s Acquisition of 24 stores for £83 million.

Somerfi eld Aldi Acquisition of Huddersfi eld-based store for an undisclosed sum.

April Somerfi eld Midlands Co-operative Society Acquisition of four supermarkets for £11 million.

Martin McColl Compass Group Acquisition of 27 hospital stores for £19 million.

May Somerfi eld Lidl Acquisition of two supermarkets for an undisclosed sum.

The Co-operative Group Asda Acquisition of three grocery stores for an undisclosed sum.

June The Co-operative Group Sainsbury’s Acquisition of nine stores for £29 million.

SeptemberPlymouth & South West Co-operative

The Co-operative GroupAcquisition of 66 food stores, 11 post offi ces, three forecourts and 30 funeral homes for an undisclosed sum.

The Co-operative Group Bite Technology Limited Acquisition of 18 stores for £5 million.

October Wine Cellar EFB Retail Acquisition, out of administration, of 109 off-licences for an undisclosed sum.

The Co-operative Group Haldanes Stores Acquisition of four supermarkets for an undisclosed sum.

November Private companies Eurogarages Acquisition of three forecourt sites in the North West for undisclosed sum.

The Co-operative Group Waitrose Acquisition of fi ve shops for an undisclosed sum.

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

First Quench RetailingVenus Wine & Spirit Merchants

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

First Quench Retailing SEP Properties Acquisition, out of administration, of eight stores for an undisclosed sum.

December First Quench RetailingR&M Swaine owners of Rhythm & Booze chain

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

The Co-operative Group Haldanes Stores Acquisition of 13 supermarkets for an undisclosed sum.

First Quench Retailing Wickham Vineyard Acquisition, out of administration, of 14 stores for an undisclosed sum.

RETAIL TRANSACTIONS 2009

in fuel duty, problems raised by fuel cards, and proposed legislation regarding tobacco display, the forecourt marketcontinues to be robust. This is largelydue to good business practice fromowners, who have recognised thebenefi ts of concentrating on foodretailing and the increased opportunities for proactive estate management.

After years of decline, site numbers have begunto show signs of stabilisation, helped by new operators entering the sector, further development of convenience offerings and the re-commissioning of sites that were previously mothballed. Many of the multi-site independent operators posted salesincreases during the year, despite the impact of the recession.

The convenience part of the forecourt industrycontinued to grow, with further diversity of offerbeing witnessed during the year. New entrants to the sector included Greggs, the High Street baker,through a link-up with Euro Garages. Martin McColl also made its fi rst move into the sector,after acquiring a site in Sheffi eld. The company iscurrently in negotiations to make further purchases across the country.

Although the majority of operators have sought to increase their convenience offering, some have

successfully grown sales through focusing on fuel.

Snax 24 took the decision to scale back on groceries to concentrate on fuel sales, a move that saw itssales grow by nearly 20%.

Signifi cant transactional activity has again beenabsent from the sector over the last 12 months,although many national, regional and local operators have taken advantage of the reduction in valuesto extend their estates, through a number of smallparcel and single asset acquisitions.

Despite continuing competition from the major multiples, forecourt operators, such as EuroGarages, George Hammond and MRH (GB) Ltd, have all taken advantage of the drop in askingprices for sites.

Lack of funding hampered multi-site transactions over the course of 2009 and will continue to doso in the fi rst half of 2010. It is hoped that the continued recovery of the economy will lead to a freeing-up of the lending markets and thatfurther consolidation of the sector will returnduring the second half of 2010.

The fact that sales remained resilient, despitethe challenges of the recession and volatilefuel prices during the year, gives grounds for optimism that operators can continue to show the adaptability needed for the sector to showfurther growth.


26

Out of all the segments in the retail market, theoff-licence sector has been the hardest hit. In whatshould have been a promising year, with the dramaticnumber of pub closures and the effects of the smokingban, it was envisaged that more people would opt todrink at home. However, the economic downturn and the incredibly aggressive alcohol pricing policy of thesupermarkets have ravaged the trade.

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

In September, Wine Cellar, the operator of 170 stores under the Booze Buster, Simply Drinks and SimplyFood & Drinks brands, entered administration. The majority of the stores were acquired by EFB Retail, but61 stores were closed.

This news was followed, a month later, by the collapseof First Quench Retailing (FQR), the operator of 1,300 stores under the Threshers, Wine Rack, Haddowsand Local brands. The company had warned earlier in the year that some of its shops would close if itwas unable to renegotiate rents with landlords, and it put in place a turnaround plan, which included cost savings, cutting of stock and further store closures.

As Business Outlook went to press, a number of the going concern stores had been acquired in smallpackages. These deals included the purchase of the Wine Rack trading name and 14 Wine Rack Stores, byVenus Wine & Spirit Merchants for an undisclosed sum.

Christie + Co was appointed in the middle of November, by administrators from KPMG, to advise on the sale of circa 700 former First Quenching Retailing(FQR) stores. Within the space of 10 days, we receivedin excess of 1,000 offers on more than 40% of thestores. At the time of going to press, we had beeninstructed to market a further 470 stores.

The majority of interested parties were seeking tocontinue operating the sites as off-licences, although

OFF-LICENCE SECTOR HIT HARDthe company has also received a number of enquiries relating to alternative use. The demise of FirstQuench Retailing provided a real opportunity forindependent operators to acquire ‘corporate-style’ off-licences and the phenomenal responses wereceived was testimony to this.

The sector has also had to deal with the threat of a minimum pricing level for alcohol, hanging over it during the year. Many commentators advocatea minimum price per unit as a means to tackle alcohol abuse.

While the majority of operators in the sector havestruggled, those who had the foresight to introduceconvenience products into their businesses over the last 18 months, such as Bargain Booze and theirSelect Convenience brand, have seen sales remainrobust and profi t margins increase.

The growing trend for independent retailers toconvert to a symbol group, in order to offer a widervalue range and regular promotions, supported by quality marketing literature and press campaigns, have allowed some off-licence operators to expandtheir estates during the year.

After the problems faced by FQR and Wine Cellarover the last 12 months, many have questioned whether off-licences have a future. Numbers will inevitably fall in the face of the growth of onlineretailers, wine warehouses, and the superiorbuying power of the multiples, without governmentintervention on supermarket pricing policies.

According to the latest fi gures, Britons are drinking more and more wine, with wine sales in the UK estimated to be worth £9.5 billion in 2009, with the off-trade outperforming the on-trade. These fi gures, and the phenomenal response regarding the formerFQR stores, shows that there is still a place forniche, well stocked off-licences, especially for those customer service driven operators who can provide a quality offer tailored to their local customer base.

PHARMACY SECTOR BOOSTED BY SWINE FLUThe UK’s pharmacy market was expectedto be one of the best performing in the retail sector in 2009. Market analyst Verdict forecast that, although overallretail spend was set to contract by 0.6%during the year, the retail pharmacy sector would expand by 4.4% to£14 billion.

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

Steady growth in pharmacy numbersPharmacy numbers have increased over the last tenyears, contrary to many other parts of the retail market. Whilst this growth has been gradual — withthe 2009 total estimate at around 13,000 — there hasbeen a signifi cant shift in ownership, through mergersand acquisitions. The leading nine players now account

for 58.2% of the pharmacy market —a rise of 11.8% onfi ve years ago. The expansion of pharmacy groups andsupermarkets has challenged the independent market, numbers of which have shrunk by approximately 15% over the last fi ve years. Although independent pharmacy numbers may be in decline, there are stillplenty of opportunities for successful growth, if operators focus on providing high levels of serviceto the local community.

The 100-hour pharmacyThe 100-hour pharmacy remains contentious withinthe sector. Whilst there is arguably demand for these“super surgeries”, which offer extended hours medicalfacilities, there is much more scepticism about theireffectiveness on the high street and in communities. The fl exibility of the opening hours and accessibilityare often outweighed by the high running costs,security issues and the ability to offer a trulypersonal service.

Pharmacies look to enhanced servicesFollowing the changes in Category M pricing over the last two years, most pharmacies have seen some

RETAILERS GIVEN ALTERNATIVEROUTE FORGROWTH

temporary pressure on gross profi t. We are seeing an increasing number of pharmacies offeringenhanced services to complement the prescriptionbusiness. These services include smoking cessation, emergency contraception, supervised consumptionand medicine use reviews. More and more pharmaciesare adding consulting rooms and other similarresources to boost revenues.

Strong demandWhen you look at the projected pharmacy incomesand consider that the population of over 65s is set to increase by 23.5% in the next ten years, it is hardly surprising that the pharmacy sectoris an attractive market. We are seeing very strong demand for pharmacy businesses, both from existingoperators and new entrants to the market. Many purchasers have experience in Christie + Co’s other sectors, such as healthcare or retail and they see opportunities for growth given the robust revenuestreams. Banks are generally supportive of thesector and to date it has weathered the storm of current economic conditions well.

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

The rise in the number of pub closures, coupled with the lack of activity fromresidential developers over the last12 months, has provided established retail operators and fi rst-time buyers with perfect opportunities to operate businesses in the hub of localcommunities, or to expand currentoperations.

Local community sites have come under the greatestpressure in the pub sector, with a signifi cant numberbeing forced to close due to a culmination of factors,including the impact of the economic downturn, below-cost selling by the supermarkets and the smoking ban.

Closed sites are often located at the centre of housingestates and local communities — prime locations for small convenience outlets. Such opportunities alsohave the advantage that, under current planninglegislation, consent is often not required for change of use from A4 (drinking establishment) to A1 (shops).

Pubs that are well located and designated foralternative use always generate a healthy interest from retailers, but the increase in pub closures has generated further enquiries and opportunities acrossthe country.

The locations of these closed pubs make themperfect for convenience store operators, who have acaptive local customer-base on their doorstep from day one. The ease in which change of use can be gained, without planning consent, also increases the attractiveness of these former pubs.


27

International

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

Airlines Hotel


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

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

Marciano Lafayette Hotel

K&K Kongress-und Kulturzentrum

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

FRANCE

Les Demeures du Ranquet

The last 12 months have proved challenging for all businesses acrossFrance — regardless of whether they arehotels, restaurants or cafés. No sector hasbeen immune to the challenges posed by the global recession.

Against this testing backdrop, Christie + Co’s offi cesin France have continued to sell a signifi cant number of small to medium-sized businesses inthe hotel sector.

These types of businesses have continued to show a resilient performance in the face of the downturnand have therefore proven increasingly attractive topotential buyers. Financing has also been easier for this kind of transaction, compared to corporateassets with a value above ¤10 million.

Location continues to be the main factor for buyersand is considered even more important than hotel category. Small businesses can catch the attentionof buyers in the South of France, even when they are hidden in the middle of the countryside — because of the desirability of the region.In the North of France, buyers favour hotels that are prominently located in city centres. The lackof available fi nance has meant that leasehold opportunities continue to generate the most interest.

It seems that trading conditions in 2010 could beas tough as the previous 12 months. However, in contrast to the start of 2009, sellers are becoming more realistic on price and banks are starting toshow signs of becoming more receptive towardslending. We are expecting a better year in France,particularly in terms of hotel transactional activity. Interested parties are likely to continue focusing onsmall to medium-sized businesses, where Christie+ Co France has a competitive advantage.

GERMANYAverage hotel values in Germany fell by around 15% during 2009, compared to the previous year, as theeffects of the global economic crisis fi nally fi lteredthrough to the country’s hotel market.

Whilst economic performance in Germany slowed down notably in 2008, the hotel market still remained relatively stable — demonstrating growth, or atleast stability. From the beginning of 2009, hotelprofi tability was affected by the ongoing challengingmacro-economic environment — with productivityfalling by around 20%. This clearly shows theprinciple of cause and effect between the developmentof an economy and its hotel industry — the latter reacting with a time lag to economic changes.

We have also witnessed increasing numbers of distresscases being brought to the market in recent months.Approximately half of the transactions we completed in 2009 had a distressed background. Christie + Co received a number of disposal instructions last yearfrom banks that wished to pay down debts with the sale proceeds from hotel assets.


28

Cases with distressed backgrounds are considered to to be more realistically priced and often generategreater demand — particularly from cash-rich private investors seeking good deals on medium-sized hotel assets.

Over the last year, two major groups of buyers have been active in Germany: traditional hotel property investors and cash-rich private investors. These two groups had been priced out of the market in recent years by the more aggressive and highly-gearedopportunistic private equity funds.

With banks becoming more restrictive in providingdebt, private equity buyers have left the market allowing traditional buyers and cash-rich investorsto take advantage of a lack of competition and lower values.

Unfortunately we don’t expect to see a positiveimprovement in values in the fi rst half of 2010 – even with increasing demand for German hotelproperties – as the inability to raise fi nance will continue to hamper the market.

The economic outlook remains unclear, although manyexperts predict that we have another challenging year ahead of us. Even if we start to witness a sustainable upward trend in the wider economy, this will take awhile to fi lter through to the hotel market. Any upturnin performance and activity will unfortunately have towait until the second half of 2010.

SPAINThe global fi nancial crisis has had a particularly hardimpact on Spain, which experienced a housing market collapse and growing levels of unemployment.

Spain was the hardest hit of Europe's top holiday destinations, with UK tourists deterred by theweakness of the pound against the euro andincreasing competition from destinations such asEgypt, Morocco and Tunisia.

The country’s two key cities — Barcelona and Madrid — both reported signifi cant RevPAR declines during the year. Occupancy levels and room rates in Valencia,Spain’s third largest city, continued their steep declineto unprecedented lows in 2009. RevPAR dropped by 31.2% for the fi rst six months of the year, due to a9.4 percentage point drop in occupancy and an 18.0% fall in ARR, according to fi gures from STR Global.

There was very little transactional activity in Spain during 2009 and developments have come to astandstill. Several small businesses changed hands, but most of them were lease agreements, with an option to buy. Hotels located in Madrid and Barcelona continued to generate the most interest, whilst thosein coastal areas suffered from a lack of demand.The Balearic Islands are still attractive to buyers if the price is right, as well as some areas on the Canary Islands.

Pricing and the lack of available fi nance were key issues in 2009. Only those buyers who required asmall amount of funding were in a position to make offers and in most cases these were not considered acceptable by the vendors. There is still a large gap between the expectations of vendors and those of buyers, so offers are typically 40% below the initial asking price.

Owners of distressed small to medium-sized hotels cannot secure suffi ciently high prices to repay loans so the businesses ultimately fail. Unfortunately, once the assets are in the hands of the banks, theystill tend to be overpriced when they are put onthe market — although there are some indications that this is starting to change. In corporate cases, the banks are refi nancing their clients, which might

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

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

On the other hand, we also expect to continue workingfor the fi nancial institutions, which are seekingprofessional advice from Christie + Co regarding a number of their assets that are likely to come to themarket over the next 12 months.

FINLANDThe economic downturn continued to impact theFinnish hotel market during 2009, with transactional activity coming to an almost complete halt.

Freehold property values have experienced a strong decline, but leasehold properties, which make up themajority of the hotel market, have in general remained unchanged. The downturn and its squeeze on tradingfundamentals has continued to place further pressureon operators.

The slowdown in transactional activity is also due tothe fact that many of the hotels were acquired at the top of the market. Owners are therefore reluctant tosell these assets below their balance sheet values.

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

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

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

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

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

Proposed 250-bedroom hotel, Helsinki Metropolitan Area


Proposed 150-bedroom hotel, Helsinki Metropolitan Area

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

www.christiecorporate.com or contact:Christie + Co39 Victoria StreetLondon SW1H 0EU

T: 020 7227 0700F: 020 7227 0701E: [email protected]

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

Market Intelligence2009

www.christiecorporate.comAGENCY | VALUATION SERVICES | INVESTMENT | CONSULTANCY


-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

10.9

10.8

13.1

6.1

-18.4

-19.5

Public Houses-20.1% movement in average prices

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

9.2

5.2

8.5

6.5

-11.6

-20.1

Restaurants-18.1% movement in average prices

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

3.3

4.7

4.9

8.0

-14.9

-18.1

Care-11.0% movement in average prices

-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

14.5

17.4

12.2

-16.9

-11.0

16.9


-20% -15% -10% -5% 0% 5% 10% 15%

2004

2005

2006

2007

2008

2009

4.5

7.9

5.9

5.6

-6.5

-9.8

Percentage movement in average prices

2

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

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

1800

1600

1400

1200

1000

800

600

400

200

Hotels

Public Houses

Restaurants

Care

Retail


Retail Price Index

House Price Index

Hotels

Public Houses

Restaurants

Care

Retail


Retail Price Index

House Price Index

1975 2004 2005 2006 2007 2008 2009

Hotels 100 771 854 966 1025 837 674

Public Houses 100 822 865 939 1000 884 706

Restaurants 100 865 906 950 1026 873 715

Care 100 677 775 910 1021 849 755

Retail 100 865 933 988 1043 975 880

Average Index 100 863 973 1021 1099 981 823

Retail Price Index 100 484 497 516 538 554 550

House Price Index 100 1411 1458 1598 1708 1471 1511

Christie + Co price indices

www.christiecorporate.com

Business Outlook 2010 | M

arket Intelligence 2009 | page 3

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

Chris Day International Managing Director

Indispensable business intelligence

Valuable experience2009 was a challenging year for businesses in our specialist sectors – a year in which we all reviewed our costs and examined our expenditure. Fortunately for Christie + Co, sector knowledge and transactional evidence is never more eagerly sought than in fi nancially challenging times. Our clients were easily able to justify the need to seek our assistance – whether they required informal marketing advice, a formal valuation, a feasibility study, an operational review, a market analysis report, or a disposal campaign.

For anyone seeking advice about hotels, pubs, bars, nightclubs, restaurants, health clubs, care homes, nurseries, convenience stores, off-licences, forecourts, post offi ces, pharmacy businesses or newsagents, Christie + Co has unrivalled knowledge of these sectors and should be the fi rst port of call.

Over the last 12 months we have worked with a variety of owners, operators, investors, banks, landlords, tenants, developers and insolvency practitioners on an array of projects. The value of our involvement can be measured by the results we deliver and by the repeat business we win.

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

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

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

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

Ongoing supportAs trading conditions toughened, 2009 tested the endurance of many businesses within our sectors. Our Bank Support and Business Recovery team assisted with more than 350 distress cases, involving over 1,600 assets. Although we have successfully handled a number of disposal programmes, our specialists are also able to recognise distress at an early stage – providing practical advice before asset sales become the only option.

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

4

Simon Hughes UK Managing Director

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

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

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

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

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

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




Business sectors

7 Hotels

10 Public Houses

10 Restaurants

12 Leisure

14 Care

16 Retail

+ We inspected almost 15,000 businesses in 2009, for sale or valuation purposes.

+ We arranged more than 16,000 viewings in 2009 – an average of more than 60 viewings a day.

+ We complete more than 2,000 “Red Book” valuations each year.

+ We choose to specialise in Hotels, Public Houses, Restaurants, Leisure, Care and Retail and we have detailed knowledge of these sectors.

+ We employ both property experts and sector specialists with practical operational experience – we are truly business intelligent.

+ Our people are the best in the business: professional, accurate, each a specialist in their fi eld and dedicated to getting the job done.

+ We were established in 1935 and have developed a wealth of advisory and transactional experience – in both challenging and buoyant markets.

+ We have 15 offi ces across the UK, providing us with a focused local presence, as well as a national overview.

+ Our local offi ce presence enables us to undertake large portfolio projects, to meet demanding client timescales.

+ We have established relationships with genuine buyers and we understand what they are looking for.

+ Our property search website – www.christie.com – offers more than 3,500 businesses for sale and has over 34,000 active users.

+ Our website and Intelligent Business Information System (IBIS) enables us to monitor the progress of marketing projects – detailing the number of sales details downloaded, viewings requested and offers made.

6Unrivalled business intelligence

“ Despite the lack of signifi cant transactional activity andthe challenging trading conditions, the mid-term outlookfor the sector as a whole became more positive duringthe second half of 2009. We believe this will continue overthe next 12 months, unless there are further shocks to thewider economy.”

Jeremy Hill Head of Hotels

Hotels

Transactions 2009



June New Connaught Rooms Undisclosed Undisclosed Principal Hayley BDO Stoy Hayward

September The Stafford Undisclosed 77.5 Britannia Hospitality Daniel Thwaites

October Lord Milner Hotel 11 Undisclosed Mantis Group Finisterre Holdings (PTY) Limited

December Park Inn London, Russell Square 214 45 plus Crimson Hotels Ernst & Young

LONDON SINGLE ASSET TRANSACTIONS 2009

Date Portfolio Location No. of Properties

Total Bedrooms Sale Price (¤m) Purchaser Vendor

March Portfolio of H10 Hotels Spain 2 432 Undisclosed Nueva Rumasa H10 Hotels

AprilPortfolio of three former Purple Hotels

UK3 258 Undisclosed Travelodge

Administrators for Real Hotel Company

June Worldwide portfolio of hotels Worldwide 240 c.26,000 Undisclosed Starwood CapitalGolden Tulip Hospitality Group

July Portfolio of independent UK hotels UK 12 1,118 Undisclosed Travelodge Private vendors

AugustPortfolio of Western European and African-based hotels

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

81 14,890 UndisclosedTravco Group International

Steigenberger Hotels

September Portfolio of Formule 1 hotels France 158 12,300 272Consortium of French institutional investors

Accor

Portfolio of Western European hotels

Spain 51 Undisclosed Undisclosed NH Hoteles Hesperia

November Portfolio of independent UK hotels UK 10 857 52.8 Travelodge Private vendors

Portfolio of nine WesternEuropean hotels

France 9 c.600 Undisclosed Time-HotelsCompagnie Générale Hôtelière

December Portfolio of eight UK hotels UK 8 Undisclosed Undisclosed Akkeron Hotels Folio Hotels

EUROPEAN PORTFOLIO TRANSACTIONS 2009




8

HotelsTrading fundamentals came under increasing pressure during the fi rst half of 2009, leading to a number of operator failures, whilst others faced uncertain futures. A near total lack of visibility in terms of forward bookings contributed to an already challenging trading environment.

Whilst some initial signs of demand stabilisation emerged during the latter part of the year, the ongoing uncertainty amongst operators, owners and investors forced the sector to focus on the basic principles of quality of service, range of guest facilities and location. Most operators realigned themselves to the new challenges, through refocusing on operational effi ciencies and the introduction of signifi cant rate discounting.

Unlike previous recessions, London appears to be holding up signifi cantly better than most regional UK markets, with year-on-year growth observed towards the end of the year. Unfortunately, a number of regional markets have experienced signifi cant supply additions in recent years, which has contributed to the current challenges thatare likely to persist well into 2010.

Initial speculation that the budget sector would escape relatively unscathed, as customers traded down to more affordable accommodation, only partially materialised.

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

David Matthews, Grant Thornton UK LLP, Joint Administrator of The Liddington.

The Liddington, Swindon

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

Park Inn London, Russell Square

Pressure was experienced across all sectors in 2009. Properties that were able to resist some of the decline were those assets in prime locations that were well invested. Some businesses were exposed to the economic failure of their key clients, but others were able to diversify their demand base to avoid this. Assets in tertiary locations, with signifi cant exposure to the meeting & conference segment, appeared to suffer the most, as companies cut their meeting, travel and training budgets.

As corporate demand continued its inevitable decline during 2009, many hoteliers wondered how they would replace this key segment of business. A signifi cant decline in the value of the pound against both the dollar and the euro made the UK more affordable to continental Europeans and Americans alike. Meanwhile, many British holidaymakers were forced to reassess their European and long-haul vacations, with the ‘staycation’ becoming a popular option.

Consumers became more strategic in where they planned to stay, researching the best deals for that day, week or month, and switching between different operators/brands. Those hotel businesses that adapted to these changes – and continued to invest in raising their value proposition – were in the best position to take advantage of increased leisure demand. This leisure demand helped carry many businesses through the downturn, offsetting some of the drop-off in corporate trade

Will 2010 bring renewed optimism?UK-wide trading performance is likely to remain challenging throughout 2010, with any real recovery in RevPAR not materialising until the second half of the year at the earliest. London hotels are set to be at the forefront of the recovery, having so far weathered the storm better than many expected. Market sentiment has improved from its low point in March 2009, aided by the stabilisation in occupancy and we would expect this trend to continue. Signifi cant rate discounting remains a concern and it is diffi cult to predict any increase in average rate for at least another six months.

We may also see some initial signs of recovery in travel across Europe, with short-haul trips and leisure breaks continuing to replace long-haul travel and extended

vacations. The gradual re-emergence of the hard-hit corporate meetings market, will infl uence hoteliers’ ability to stabilise and recover average rate.

The number of investors and opportunistic funds that announced their intention to circle the market in 2009 also suggests that transactional activity could increase over the coming year — if there are suffi cient opportunities in which to invest. The emergence of new group Akkeron Hotels, which acquired the Folio name and eight properties at the end of the year, with plans to grow a 150-strong regional hotel group, highlights the fact that there are major opportunities for those who can obtain funding and act decisively.

Transactions 2009

Date Property Country City Total Bedrooms

Total Sale Price (¤m)

Purchaser Vendor

January Hotel Villa Rica Portugal Lisbon 171 Undisclosed VIP Hotels Group Fibeira SGPS

March The Hotel Frankfurt City Germany Frankfurt 256 Undisclosed Deka Immobilien Quinlan Private

Sheraton Brussels Belgium Brussels 511 UndisclosedInternational Real Estate PLC

Starwood Hotels & Resorts

Four Seasons Switzerland Geneva 103 Undisclosed Cedar Capital Starman Holdings

April Radisson Boulogne France Paris 170 32 Capital France Hotel Compagnie La Lucette

June Lapa Palace Portugal Lisbon 109 29.4 Private Portuguese Investor Orient Express Hotels

July Radisson Blu Poland Krakow 196 32 Union Investment UBM Realitätenentwicklung AG

Blue Sea Resort & Spa Greece Crete 225 Undisclosed Aquis Hotels and Resorts Private vendor

Vasia Hotel & Spa Greece Crete 300 Undisclosed Aquis Hotels and Resorts Private vendor

Novotel Netherlands The Hague 216 UndisclosedInvesco European Hotel Real Estate Fund

Dutch developer TCN

August Melia Madrid Princesa Spain Madrid 274 87.8 BBVA Renting Sol Melia

Kempinski Hotel Rotes Ross

Germany Halle 73 Undisclosed Aurum AG Private vendor

September Andel’s Poland Krakow 159 Undisclosed Deka Immobilien Warimpex

AC Som Spain Barcelona 102 Undisclosed Invisa Hotels AC Hotels

November Radisson Blu Germany Hamburg 560 155 Invesco Real Estate Azure Group

DecemberRenaissance Paris Hotel Le Parc Trocadero

France Paris 116 35.5 Private investment group Strategic Hotels & Resorts

EUROPEAN SINGLE ASSET TRANSACTIONS 2009



January Holiday Inn Express, Crawley 216 8 Sojourn Hotels Mitchells & Butlers

The Golf View, Inverness 42 Undisclosed Crerar Hotels PRUPIM

February Close Hotel, Gloucestershire 15 Undisclosed Undisclosed Greene King

April Great Northern, Peterborough 36 3.025 Renelson Investment SA Receivers

MayNorfolk Royale, Bournemouth

95 8.25 Peel Hotels English Rose Hotels

June Quality Hotel, Birmingham 176 4.5 Cobden Hotel Ltd BDO Stoy Hayward

Best Western Popinjay, Clyde Valley 34 Undisclosed Clyde Valley Developments Private owner

Central Hotel, Glasgow 222 Undisclosed Principal Hayley BDO Stoy Hayward

Aviemore Highland ResortFour hotels/18 woodland lodges

UndisclosedMacdonald Hotels & Resorts

PricewaterhouseCoopers LLP

July Barnsley House, Circencester 18 6.5 Calcot Manor KPMG

Comfort Hotel, Kettering 41 Undisclosed Balaji Hotels Private owners

Heathlands Hotel, Bournemouth 115 2.5 Britannia Hotels BDO Stoy Hayward

August Southcrest Hotel, Redditch 53 Undisclosed Private buyer BDO Stoy Hayward

Yang Sing Oriental 48 Undisclosed RoomZZZ Begbies Traynor

September The Liddington, Swindon 192 9.44 Holidaybreak Grant Thornton

October Shendish Manor, Hertfordshire 70 7.5 Manor Groves Hotel KPMG

The Imperial, Newcastle 122 5.5 Cairn Hotel Group F&C Reit Asset Management

Forbury Hotel, Reading 23 7 Von Essen Hotels Baker Tilly

November Former Stop Inn, Hull 59 Undisclosed Private buyer EjendomsInvest

Pittodrie House Hotel and Estate

27Undisclosed (Purchase of remaining 50% stake)

Macdonald Hotels & Resorts

Theo Smith

December St Brelade’s Bay Hotel 82 Undisclosed Jayne Best The Frost family

UK REGIONAL TRANSACTIONS 2009




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

Head of Pubs & Restaurants

Public Houses + Restaurants

Transactions 2009

At the end of September, Christie + Co was instructed by Punch Taverns, the UK’s largest pub company, to market more than 300 individual pubs from its turnaround division.

In just over a month, we received signifi cant interest in the majority of these sites from a wide range of buyers, with many looking to continue operating the properties as public houses. We expect more than 60% of these pubs to continue to be operated as licensed premises, although a signifi cant number will provide ideal alternative-use opportunities across the residential, commercial and retail sectors.

In late 2008, Punch Taverns instructed Christie + Co to offer 50 of its managed houses either as freehold or lease opportunities. We successfully completed the marketing of this package during 2009.

Punch Taverns

Public HousesAlthough transaction volumes were nowhere near pre-credit crunch levels, demand increased as the year progressed. Corporate disposal programmes boosted activity for Christie + Co towards the end of 2009. We registered an 80% increase in pub viewings during September and October, compared to the same period in 2008, and a 23% increase in deals agreed. Would-be buyers were attracted by the quality of pub businesses, available at price levels not seen for a number of years.

As demand from buyers increased, the fall in freehold values slowed and the second half of the year brought examples of competitive bidding and contract races. Banks also started to show signs of being more receptive towards lending in the sector.

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

The economic downturn changed the roles of the national pub companies from buyers to sellers. Corporate disposals allowed private individuals and smaller groups to enhance their estates and prompted a reversal in ownership, as pubs returned to the privately-owned freehouse market.

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

RestaurantsAdministrations and promotional offers typifi ed the UK’s restaurant landscape during 2009, as many operators concentrated on the latter to escape the former. The current mood in the market is one of cautious optimism, with like-for-like sales continuing to show resilience.

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

Transactional activity, which had slowed in 2008, remained sluggish last year. Appetite for medium-sized packages was

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

10

PUBLIC HOUSE + RESTAURANT TRANSACTIONS 2009


January FishWorks Boparan Ventures Ltd Acquisition of four FishWorks restaurants, out of administration.

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

Gourmet Restaurants Anoup Treon (V8 Gourmet)Acquisition of Gourmet Restaurants, operator of Tiffi nbites and Bombay Bicycle clubbrands, by care home entrepreneur, for an undisclosed sum.

February GlassHouse New Pub Company Acquisition, out of administration, of 12-strong pub company for an undisclosed sum.

Alphabet Bars Existing shareholdersAcquisition, out of administration, of fi ve-strong London-based bar group for an undisclosed sum.

March Punch Taverns Fuller, Smith & Turner Acquisition of six London-based pubs for £21 million.

3D Entertainment Eminence Leisure Acquisition of 28 bars for an undisclosed sum.

April Cains Beer Company Amber Taverns Acquisition of 23 pubs based in the North West for an undisclosed sum.

Punch Taverns Peach Pub Company Acquisition of two freehold pubs for £2.85 million.

Punch Taverns Geronimo Inns Acquisition of six London-based pubs for an undisclosed sum.

May Punch Taverns Shepherd Neame Acquisition of 13 pubs for £15 million.

Punch Taverns Charles Wells Acquisition of 17 pubs for an undisclosed sum.

Punch Taverns Frederic Robinson Acquisition of eight pubs for an undisclosed sum

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

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

June Punch Taverns Greene King Acquisition of 11 pubs for £30 million.

Bar Room Bar Ltd Orchid Pubs Ltd Acquisition, out of administration, of 10 bars for an undisclosed sum.

Regent Inns Cavendish Bars Acquisition of seven Walkabout bars for an undisclosed sum.

July Punch Taverns St Austell Brewery Acquisition of four pubs for an undisclosed sum.

3D Entertainment JD Wetherspoon Acquisition of seven Chicago Rock Café sites for an undisclosed sum.

Enterprise Inns Food & Fuel Acquisition of four London-based pubs for an undisclosed sum.



Barracuda GroupBabson Capital Europe Ltd, Royal Bank of Scotland

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

Paramount Restaurants LtdHSBC Holdings/Barclays/Royal Bank of Scotland/Sankaty Advisors

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

Coffee Republic Arab Investments Ltd Acquisition of coffee shop chain, out of administration, for an undisclosed sum.

August V8 Gourmet Group Shilpa Shetty/Raj Kundra Acquisition of stake in V8 Gourmet Group, operator of Tiffi nbites, for £6 million.

September Daniel Thwaites Britannia Hospitality Acquisition of 105-room Stafford Hotel in London for £77.5 million.

Highgate Brewery David Lindol and Simon ToonAcquisition, out of administration, of Midlands-based brewer, by two property developers, for an undisclosed sum.

OctoberO’Briens Irish Sandwich Bars Ltd

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

Clapham House Group Giraffe Acquisition, out of administration, of 11 Tootsies-branded restaurants for £2.5 million.

BB’s Coffee & Muffi ns UK and Ireland

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

Enterprise Inns A number of unnamed buyersSale, through auction, of fi ve London-based pubs for a total consideration of approximately £13.15 million.

Regent Inns iNTERTAIN LtdAcquisition of 60 bars, out of administration, by former Regents Inn management for an undisclosed sum.

Globe Pub Company EBP Pub Company Acquisition of 425 pubs for £180 million.

November Punch Taverns JD Wetherspoon Acquisition of fi ve freehold pubs for an undisclosed sum.

Surburban Style Bars; Panther Bar Company; Classic Bar Holdings

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

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

Mitchells & Butlers Greene King Acquisition of seven pubs in Scotland for £12.7 million.

December Enterprise Inns A number of unnamed buyers Sale, through auction, of seven London-based pubs for a total consideration of £11.58 million.



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




“ Some segments of the leisure market were more resilientthan others in 2009. Late-night venues continued to feel the strain, whilst the UK’s health and fi tness industry faredbetter than most expected. Community sports clubs reporteda rise in both adult and junior memberships and UK holiday parks benefi ted from the increase in domestic holidays.”

Jon Patrick Head of Leisure

Leisure

Transactions 2009

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

Transactional activity during 2009 was again hampered by the lack of available funding and the scarcity of quality real estate-backed assets. Where clubs can show a strong historic trading profi le, or future opportunities for development, there continues to be strong interest in the marketplace. Well-located sites, with good catchments and defendable positions, are highly sought-after.

Over the last 12 months, we have seen the development of a number of “budget” concepts, providing “dry” clubs, with a 24-hour trading profi le, which offer memberships for around £10-15 per month. Examples of such operations include the likes of The Gym Group, Pure Gym, Fitness4Less and Fitness4all.

Holidays and entertainmentA number of holiday park operators benefi ted from the advent of the aptly-named “staycation” in 2009, reporting rises in bookings as cash-strapped holidaymakers turned to affordable, stay-at-home breaks.

Cheap forms of entertainment tend to do well in recessions and cinemas reported a 15% rise in admissions in the fi rst six months of 2009, to their highest level for seven years. Box-offi ce receipts were also boosted by a run of crowd-pulling blockbusters and an unusually wet July.

UK sports clubs are also defying the recession, with community activities coming to the fore during the downturn. Figures produced at the end of last year, by the Central Council of Physical Recreation, from a study of 3,000 clubs, showed a 34% increase in the number of adult memberships and a 40% rise in junior memberships.

We continued to witness the growth of live music and entertainment businesses, as large and medium-sized venues benefi ted from the increasing popularity of touring concerts and productions.

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

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


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

March 3D Entertainment Eminence Leisure Acquisition of 28 bars for an undisclosed sum.

X-Leisure Unit Trust Matterhorn Capital Acquisition of O2 Centre for £93 million.

Rileys Valiant Sports LtdAcquisition, out of administration, of 129 snooker, pool and sports clubs for an undisclosed sum.

JJB Sports Dave Whelan Sports Ltd Acquisition of 52-strong fi tness clubs chain for £83 million.

May Luminar Cavendish Bars Acquisition of 27 late-night venues for an undisclosed sum.

Britannia Parks Ltd Frogmore Real Estate Partners II Acquisition of 20 retirement and leisure parks for £17 million.

Drumaville Ltd Ellis Short Acquisition of 70% stake in Sunderland Football Club for an undisclosed sum.

June Regent Inns Cavendish Bars Acquisition of seven Walkabout bars for an undisclosed sum.

Bjoergolfur Gudmundsson

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

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

Esporta Group Société Générale de France SAAcquisition, out of administration, of UK-based health club operator and fi tness company for undisclosed sum.

July 3D Entertainment JD Wetherspoon Acquisition of seven Chicago Rock Café sites for an undisclosed sum.



Independent News & Media PartyGaming Acquisition of Cashcade Ltd, the UK-based online gaming supplier, for £96 million.

Birmingham City Football Club

Grandtop International Holdings Ltd

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

Devondale Investments Ltd Al Fahim Asia Associates Acquisition of Portsmouth City Football Club for an undisclosed sum.

September LA Fitness Nuyuu Fitness Acquisition of three LA Fitness gyms by new fi tness club chain for an undisclosed sum.

October Regent Inns iNTERTAIN LtdAcquisition of 60 bars, out of administration, by former Regents Inn management for an undisclosed sum.

Park ResortsLenders including Lloyds Banking Group

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

Powerleague Group Patron Sports Leisure SarlAcquisition of 71% stake in the UK-based operator of fi ve-a-side football centres for £30.2 million.

Al Fahim Asia Associates Falcondrone Ltd Acquisition of 90% stake in Portsmouth City Football Club for an undisclosed sum.

Case Concepts Ltd Praesepe Plc Acquisition of 13 gaming centres for £6.3 million.

November Helena Leisure RCapital28 bars and nightclubs acquired through a company voluntary agreement in a deal led by RCapital.

December Blue Chip Casinos Casino 36 Acquisition of two casinos, out of administration, for £2.9 million.



LEISURE TRANSACTIONS 2009

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

Walkabout bars

Christie + Co is currently marketing a portfolio of seven highly-profi table health and fi tness clubs on a confi dential basis on behalf of a private company.

Health and fi tness club portfolio

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

Boston Utd Football Club


Business Outlook 2010

| Market Intelligence 2009 | page 13

“ The major care operators turned their backs on thetransactional market in 2009, in order to focus on improvingoperating effi ciency and addressing debt levels. The creationof the Care Quality Commission – and its new key lines of regulatory assessment – turned the spotlight on quality.”

Richard LunnHead of Care

Care + Childcare

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

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

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

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

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

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

14

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

Clearwater Care

Transactions 2009

CARE + CHILDCARE TRANSACTIONS 2009

Date Vendor Purchaser(s) Deal

January Wood Berry Group CareTech Community Services Ltd Acquisition of Lyndhurst Psychiatric Residential Care Home for £6 million.

Private vendors National Fostering Agency Ltd Acquisition of three separate fostering agencies for undisclosed sums.

February Kingsclere Nurseries Ltd Private buyer Acquisition of seven-strong nursery chain for an undisclosed sum.

April Nuffi eld Hospitals Mezzanine Management Fund IVAcquisition of Vanguard Healthcare Solution Ltd as part of a management buyout for £31 million.

May Teddies Nurseries Bright Horizons Family SolutionsAcquisition of the seventh largest nursery chain in the UK for an undisclosed sum.

June Receivers of ABC Learning CentresManagement of Busy Bees, backed by Knowledge Universe

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

Private vendors Vision UK Acquisition of two Devon-based care homes for an undisclosed sum.

July Options Group Inc Ltd Option Group Holding LtdManagement buyout of the UK-based operator of autism schools andtransitional life skills colleges for an undisclosed sum.

August Care Aspirations GI Partners Acquisition of UK-based mental health services group for an undisclosed sum.

September Clearwater Care Ltd Synova CapitalAcquisition of the UK-based provider of specialist residential care facilities and supported living services for an undisclosed sum.

Nunu Just Learning Holdings Acquisition of 10-strong nursery group for an undisclosed sum.

October Private vendors Carewise HomesAcquisition of fi rst Scottish care home by national operator for an undisclosed sum.

November Private vendors August Equity Acquisition of four domiciliary care businesses for an undisclosed sum.

Private vendors Lifeways Community CareAcquisition of two home service providers in two separate deals for undisclosed sums.

December Park Group (in administration) Private buyerAcquisition, out of administration, of three care homes in the East Midlands for an undisclosed sum.

Shirebrook Care Group GI PartnersAcquisition of Mansfi eld-based operators of adult nursing homes for an undisclosed sum.

We have seen that, in most cases, a poor rating results in an immediate cessation of referrals by the Commissioning Authorities and causes severe fi nancial diffi culties for the operator.

Between April and October 2010, all adult social care providers must re-register with the CQC to show they meet a wide range of essential, common quality standards. It is hoped that this process will run smoothly, with care home operators taking the chance to register as soon as possible, in the early stages of the year. We fear, however, that this registration process may cause a logjam in transactional activity during this period, as the regulator attempts to cope with the scale of the task, whilst also dealing with the requirements of individuals and companies looking to transfer registration as part of a normal sale process.

Childcare sectorThe continued lack of confi dence across the banking sector restricted transactional activity in 2009, especially in the fi rst six months of the year. However, businesses that exhibited operational stability were able to take advantage of lower property and business values and the curtailing of expansion plans by rivals, to grow their businesses via acquisitions. This was highlighted by a number of signifi cant portfolio deals, which were successfully completed across many child-centric sectors during the year. Alongside these corporate portfolio acquisitions, there were also a number of smaller nursery group and single asset sales.

We anticipate that transactional activity in the childcare sector will remain subdued, compared to pre-credit crunch levels and we expect availability of good quality nurseries, with good levels of EBITDA,

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

Busy Bees

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


Business Outlook 2010

| Market Intelligence 2009 | page 15

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

Tony EvansHead of Retail

Retail

Transactions 2009

Retail resilienceConsumers took the opportunity to shop more frequently and locally, which strengthened the resilience of the convenience store sector. The rise in interest in food miles and locally-sourced produce, highlighted by the increasing popularity of farm shops, also benefi ted the sector.

Whilst transactional activity was hampered by the lack of available debt, regional and local operators continued to build their estates. The Co-operative Group disposed of a number of Somerfi eld stores, in order to meet competition rules, and many of these sites were acquired by regional groups.

These corporate disposals also led to the introduction of some new entrants to the sector, including Haldanes Stores and Asco, which were the fi rst new supermarket names to launch in the UK for a quarter of a century. Indeed Haldanes has already grown its estate to 18 stores, which stretch from the North of Scotland to the Midlands of England, with plans to open 50 outlets in total over the next four years.

With the convenience sector forecast to constitute 25% of all store-based food sales by 2012, many believe there has never been a better time to enter the market. It is perhaps unsurprising that Waitrose is set to become

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

ForecourtsDespite facing the multiple challenges of fl uctuating fuel prices, threats over rises in fuel duty, problems raised by fuel cards, and proposed legislation regarding tobacco display, the forecourt market continues to be robust. This is largely due to good business practice from owners, who have recognised the benefi ts of food retailing and proactive estate management.

Signifi cant transactional activity was absent from the sector in 2009, although many national, regional and local operators took advantage of the reduction in values to extend their estates, through a number of small parcel and single asset acquisitions.

The fact that sales remained resilient, despite the challenges of the recession and volatile fuel prices during the year, gives grounds for optimism in 2010.

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

First Quench Retailing (FQR)

RETAIL TRANSACTIONS 2009


January Nearby Stores Costcutter Acquisition, out of administration, of seven convenience stores for an undisclosed sum.

Nearby Stores Southern Co-operative Acquisition, out of administration, of 13 convenience stores for an undisclosed sum.

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

The Co-operative Group Waitrose Acquisition of 13 supermarkets for an undisclosed sum.

March The Co-operative Group Sainsbury’s Acquisition of 24 stores for £83 million.

Somerfi eld Aldi Acquisition of Huddersfi eld-based store for an undisclosed sum.

April Somerfi eld Midlands Co-operative Society Acquisition of four supermarkets for £11 million.

Martin McColl Compass Group Acquisition of 27 hospital stores for £19 million.

May Somerfi eld Lidl Acquisition of two supermarkets for an undisclosed sum.

The Co-operative Group Asda Acquisition of three grocery stores for an undisclosed sum.

June The Co-operative Group Sainsbury’s Acquisition of nine stores for £29 million.

SeptemberPlymouth & South West Co-operative

The Co-operative GroupAcquisition of 66 food stores, 11 post offi ces, three forecourts and 30 funeral homes for an undisclosed sum.

The Co-operative Group Bite Technology Limited Acquisition of 18 stores for £5 million.

October Wine Cellar EFB Retail Acquisition, out of administration, of 109 off-licences for an undisclosed sum.

The Co-operative Group Haldanes Stores Acquisition of four supermarkets for an undisclosed sum.

November Private companies Eurogarages Acquisition of three forecourt sites in the North West for undisclosed sum.

The Co-operative Group Waitrose Acquisition of fi ve shops for an undisclosed sum.

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

First Quench RetailingVenus Wine & Spirit Merchants

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

First Quench Retailing SEP Properties Acquisition, out of administration, of eight stores for an undisclosed sum.

December First Quench RetailingR&M Swaine owners of Rhythm & Booze chain

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

The Co-operative Group Haldanes Stores Acquisition of 13 supermarkets for an undisclosed sum.

First Quench Retailing Wickham Vineyard Acquisition, out of administration, of 14 stores for an undisclosed sum.

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

PharmaciesThe UK’s pharmacy market was one of the best performing in the retail sector in 2009.

Market analyst Verdict forecast that, although overall retail spend was set to contract by 0.6% during the year, the retail pharmacy sector would expand by 4.4% to £14 billion.

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

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

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

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

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

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

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

Sai Pharmacy

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




David Rugg Chairman

Complementary services

18

Christie + Co is a memberof the Christie Group, which provides a comprehensiverange of complementaryprofessional services.

Christie FinanceChristie Finance is a specialist commercial fi nance consultancy, which negotiates funding solutions for customers in the hospitality, leisure, care and retail sectors. Focusing on the same specialist sectors as Christie + Co, Christie Finance knows which lenders are more likely to fund particular business types and understands how well they are able to meet client needs.

As a specialist fi nance consultancy, Christie Finance knows what is happening in both the fi nancial markets and the business property markets, which is particularly important in a challenging and rapidly changing environment.

Increasing buyers’ chancesChristie Finance is often able to increase clients’ prospects of securing fi nance, by working with them to develop and present a well-researched and structured business case. Lenders know that an application from Christie Finance represents a compelling lending proposition and are often able to offer bespoke products to suit client needs.

Christie Finance has consultants in each of Christie + Co’s offi ces who work closely

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

Christie Insurance is an independent insurance broker operating in the care, hotel, pub, restaurant, leisure and retail markets – offering intelligent insurance solutions to business owners.

The company has developed a comprehensive knowledge of these business sectors and a thorough understanding of their insurance needs. As an independent insurance broker, Christie Insurance is able to secure some of the best solutions available – which are always tailored to suit individual business needs.

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

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

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

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

Venners

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

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

Auditing and Profi t Control Venners team of stock auditors are experts in helping clients identify and eliminate losses. The effi cient and unique structure of the Venners operation enables them to assist customers at all levels to increase profi ts.

In addition, Venners can provide a range of stock control systems, which when augmented by its traditional services, help all businesses, big or small, to further improve profi tability and control.

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

Compliance AuditCompliance Audit is a specifi c and in-depth analysis of the operational effi ciency of a business and includes a bespoke audit of employees’ ability to adhere to agreed operating protocols.

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

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

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

www.christiegroup.com

www.christiefi nance.com

www.christieinsurance.com

www.venners.com

www.orridge.co.uk




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www.christiecorporate.comAGENCY | VALUATION SERVICES | INVESTMENT | CONSULTANCY

1. BirminghamEdgbaston House, 3 Duchess PlaceHagley Road, Birmingham B16 8NHT: 0121 456 1222F: 0121 455 0114E: [email protected]

2. BristolEmbassy House, Queens AvenueClifton, Bristol BS8 1SBT: 0117 946 8500F: 0117 946 8501E: [email protected]

3. Edinburgh5 Logie Mill, Beaverbank Offi ce ParkLogie Green Road, Edinburgh EH7 4HGT: 0131 557 6666F: 0131 557 6000E: [email protected]

4. Enfi eldLough Point, 2 Gladbeck WayEnfi eld EN2 7JAT: 020 8370 3100F: 020 8370 3101E: enfi [email protected]

5. ExeterKings Wharf, The QuayExeter EX2 4ANT: 01392 285 600F: 01392 285 601E: [email protected]

6. Glasgow120 Bath StreetGlasgow G2 2ENT: 0141 352 7300F: 0141 352 7301E: [email protected]

7. IpswichWolsey House, 16-18 Princes StreetIpswich IP1 1QTT: 01473 256 588F: 01473 230 071E: [email protected]

8. LeedsAquis House, Greek StreetLeeds LS1 5RUT: 0113 389 2700F: 0113 389 2701E: [email protected]

9. London39 Victoria StreetLondon SW1H 0EUT: 020 7227 0700F: 020 7227 0701E: [email protected]

10. MaidstoneVaughan Chambers, 4 Tonbridge RoadMaidstone ME16 8RPT: 01622 656 000F: 01622 656 001E: [email protected]

11. ManchesterAcresfi eld, St. Ann’s SquareManchester M2 7HAT: 0161 833 3311F: 0161 835 2949E: [email protected]

12. Milton KeynesChancery House, 199 Silbury BoulevardMilton Keynes MK9 1JLT: 01908 300 950F: 01908 300 951E: [email protected]

13. NewcastleShakespeare House18 Shakespeare StreetNewcastle-upon-Tyne NE1 6AQT: 0191 222 1740F: 0191 222 1749E: [email protected]

14. NottinghamAlan House, Clumber StreetNottingham NG1 3EDT: 0115 948 3100F: 0115 948 3865E: [email protected]

15. WinchesterStar Lane House, Staple GardensWinchester SO23 8SRT: 01962 844 455F: 01962 840 171E: [email protected]

16. Christie Finance10 Finsbury SquareLondon EC2A 1ADT: 0844 412 4944F: 0844 412 4925E: info@christiefi nance.com

16. Christie Insurance10 Finsbury SquareLondon EC2A 1ADT: 0844 412 4924F: 0844 412 4925E: [email protected]

17. VennersEssex House, Astra CentreEdinburgh Way, Harlow CM20 2BNT: +44 (0) 1279 620 820F: +44 (0) 1279 620 821E: [email protected]

17. OrridgeUnit 4, Essex House, Astra CentreEdinburgh Way, Harlow CM20 2BNT: +44(0) 1279 775 600F: +44(0) 1279 775 644E: [email protected]

UK OFFICES: INTERNATIONAL OFFICES:9. London39 Victoria StreetLondon SW1H 0EUT: +44 (0) 20 7227 0700F: +44 (0) 20 7227 0712E: [email protected]

18. BarcelonaPaseo de Gracia, 11, Esc B, 4O 3a08007 Barcelona, SpainT: +34 93 343 61 61F: +34 93 343 61 60E: [email protected]

19. BerlinMarkgrafenstraße 3210117 Berlin, GermanyT: +49 (0) 30 / 2 0 00 96-0F: +49 (0) 30 / 2 0 00 96-10E: [email protected]

20. FrankfurtBockenheimer Landstraße 9360325 Frankfurt, GermanyT: +49 (0) 69 / 90 74 57-0F: +49 (0) 69 / 90 74 57-10E: [email protected]

21. HelsinkiTammasaarenlaituri 300180 Helsinki, FinlandT: +358 (0) 9 4137 8500F: +358 (0) 9 4137 8510E: [email protected]

22. Marseilles35 Cours Pierre Puget13006 Marseilles, FranceT: +33 (0) 4 91 29 12 40F: +33 (0) 4 91 29 12 41E: [email protected]

23. MunichPlatzl 380331 Munich, GermanyT: +49 (0) 89 / 2 00 00 07-0F: +49 (0) 89 / 2 00 00 07-10E: [email protected]

24. Paris25 rue d’Artois75008 Paris, FranceT: +33 (0) 1 53 96 72 72F: +33 (0) 1 53 96 72 82E: [email protected]

25. RennesImmeuble “Artemis”Parc Monier167 Route de Lorient35000 Rennes, FranceT: +33 (0) 2 99 59 83 30F: +33 (0) 2 23 46 08 95E: [email protected]

christie & co feb 2010 newsletter

Documents

business outlook

business property sector

average value movements

e t i n t e

dif cult year

enhanceasset value

longterm value

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