Leisure Mid-Year Review 2021

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Following a turbulent year in 2020, the first half of 2021 proved to be another challenging period for the UK Leisure sector, as a second wave of the virus took hold and forced us into a third national lockdown, causing further disruptions to trade and placing immense pressure on operators. However, once the government’s roadmap out of lockdown kicked off on 12 April and businesses began to reopen, we saw clear signs that consumer confidence was returning and that demand for leisure activities was strong, underpinned by the success of the vaccination programme and the public’s desire to regain some sense of normality after the long winter lockdown.

As a result, many businesses reported a strong return to trading, which has retained investor interest in the alternatives sector and driven a healthy level of activity across the market, particularly amongst holiday park and visitor attraction operators.

Notable deals since January 2021 included Blackstone’s attainment of a majority stake in Bourne Leisure, the company behind Butlin’s Holiday Parks, along with The Snow Centre Group’s acquisition of the long leasehold interest in Beyond, Manchester incorporating the UK’s longest indoor ski operation, The Chill Factore for a consideration believed to be in the region of £15 million.

Away Resorts expanded their portfolio to a total of eight sites with the purchase of St Ives Holiday Park in Cornwall and a few months later, secured the backing of private equity giant, CVC Capital Partners, via the sale of a £250 million majority share in the business, to aid in their further expansion plans. Pure Leisure Group also completed a trio of acquisitions: the Country Holiday Parks and Doe Wood Lodges, Six Arches in Scorton and Cockerham Sands and Coniston View, which sits on the Furness peninsula near Ulverston, taking their portfolio to 19 parks across the UK.

Encouragingly, a number of late-night operators also pushed forward with expansion plans, which is a hugely positive sign for the hard-hit market and demonstrates the long-term view that investors hold towards opportunities and recovery across the sector. During June, we were instructed by Rileys Sports Bars to acquire multiple new sites in more densely populated areas of cities. Our work with Electric Group to find new city-centre live music venues in and outside of London also continued.

For Christie & Co, the first completion of the year was the sale of iconic UK visitor attraction, Skegness Pier, in the same hands for nearly 45 years, to Mellors Group. Brought to the open market in the middle of September 2020, the opportunity to purchase such a landmark business generated phenomenal interest, which led to a competitive bidding process, multiple cash offers and a deal agreed significantly in excess of the £3 million guide price within four weeks of launch. The sale emphasised the huge interest in quality leisure assets which offer an opportunity for further investment or development, particularly those in coastal tourist locations, due to the current strength of the UK’s staycation market.

This was followed with the sale of Boothferry Golf Club, which included the adjacent Howden Footgolf and Golf Centre, to business entrepreneurs, Jonathan and Lynn Spencer from Cheshire. The transaction attracted a high level of interest, despite being conducted on a confidential basis, due to the ongoing surge in demand for outdoor leisure sites, which we predicted would be the case at the beginning of the year.

During March, the freehold, long-income investment of the National Horseracing College (NHC) was sold on behalf of the owners of Rossington Hall near Doncaster, to the Hogarth family. Occupied under the residue of a 99-year lease from January 1996, the investment was sold off an asking price of £1,350,000, achieving a net initial yield of 3.5%. The long income investment market continues to be particularly active at present, with strong investor appetite specifically targeting the “alternatives” investment space with land opportunities.

Encouragingly, these transactions have all been at or above the asking prices, which is a reflection of the continuing demand/supply imbalance for quality operational real estate and is a cross-sector phenomenon.

 

Whilst there has been extensive financial support and activity across the banking sector during the pandemic, the vast majority of this has taken the form of CBILS and bounce back loans for existing customers. As a result, new lending has been more challenging for purchasers to access unless additional security has been available to underpin this, so we have seen many freeholds purchased with cash resources. We anticipate that the lending landscape may free up towards the end of 2021/early 2021 but will still be lower than pre-pandemic levels.

 

The need for ongoing social distancing measures to control the pandemic has fundamentally altered consumers’ ability to freely engage with leisure activities. This has accelerated much of the change that was anticipated for the sector in coming years, such as the way businesses deliver their offer or service through the use of technology. Over the past twelve months we have seen many companies, who may not have previously considered ‘tech’ a fundamental part of their operating model, adapt to a digitally integrated, online booking platform with cash-free customer transactions. This is turn, will have improved their ability to communicate with their existing and potential new audiences and may actually have led indirectly to a better overall experience for customers, whilst improving trade and profitability.

The shift in the way consumers have been able to access leisure activities is driving investors to favour opportunities that have increased capabilities to trade with less adverse impact when social distancing restrictions are in place. As such, the appetite for outdoor businesses such as golf courses, adventure golf, amusement parks and outdoor activities which emerged in 2020 has carried over into H1 2021. Assets positioned to capture trade from domestic tourism ‘hotspots’ have also remained particularly sought-after in the first half of the year, likely due to investors looking to reap the benefits of the booming UK staycation market, which is expected to continue in light of international travel restrictions.

The need to engage in activities which positively contribute towards an individual’s health and wellbeing has never been more prevalent than following the third national lockdown. As such, during H1 the Health & Fitness market has emerged as a new winner which is set to experience a strong come-back, due to the huge consumer demand for the return to gyms following lockdown restrictions easing on April 12. This was highlighted in The Gym Group’s positive trading results and exponential membership growth in the first six weeks of operations following the reopening of its 180+ clubs. Trading significantly outperformed the brand’s expectations and their total membership increased from 547,000 at the end of February 2021 to 729,000 by 24 May 2021, with a placing of shares on 1st July raising £31.2m towards accelerating the roll-out of a further 40 clubs over the next 18 months.

 

Having now passed ‘Freedom Day’ on July 19^th, the shape of the post-Covid UK leisure sector remains under a hopefully receding shadow of future lockdowns and social distancing measures to curb new variants. The successful vaccination process roll-out will help the sector to get fully back up and running, but we will need to wait to see the extent of the revival that takes place. Encouragingly, there have been early signs that consumer spending for leisure activities is on the rise, which should help boost recovery.

In the meantime, extensions to the level of government financial support in place will have assisted the worst affected businesses in keeping their heads above water but with the winding down of the furlough scheme in Q3 we anticipate an increase in distress activity. Conversely, there remains a significant wall of capital amongst private equity investors still waiting to be deployed as more opportunities materialise.

Over the next six months, we expect prices to largely remain resilient, at or close to pre-pandemic levels, due to a combination of the dearth of stock leading to competitive bidding, buyer demand and the amount of capital that is ready to be invested.

 

The staffing crisis engulfing the sector, a result of Brexit and Covid combined, poses a real threat to operators’ ability to reap the benefits of pent-up demand. Over 1.5 million European workers returned to their home countries this year following the UK’s exit from the European Union, which has left a huge gap in the leisure and hospitality workforce. In addition, many UK workers on furlough have abandoned their jobs for alternative work and this seems to have caught the industry off guard.

Further still, it is reported that up to a third of the workforce could be required to self-isolate this summer unless changes to the current track and trace versus testing systems are made. This is already adding another layer of pressure on businesses, which find themselves with insufficient staff to be able to service customers.

Key trade body, UKHospitality has released a 12-point plan with solutions on how to tackle the issue but until the UK government confirms a strategy, it remains to be seen the extent to which this will impact the sector.

 

The recent government announcement that the rent moratorium banning evictions for unpaid commercial rent is to be extended for another nine months until March 2022 is very welcome news for the leisure sector. It is hoped that this will pave the way for negotiated and equitable settlements to be made that will also  help rebalance the landlord-tenant relationship which has been greatly tested by the pandemic.

We know that many landlords have long been actively engaged with their tenants with a view to reaching mutually acceptable solutions to the issue of back rent, but the involvement of the government will hopefully ensure reasonable outcomes as neither landlord or their tenants have been to blame for the extensive hardships that Covid-19 has brought to many.

Inevitably, we envisage that many more landlords will need to gain more specific understanding and awareness of their tenants’ businesses, as well as the challenges they face. As a result, we may begin to see more performance-monitoring type roles take shape.

Operators in the leisure space are typically wary of sharing trading data, but this may well become either necessary or indeed the norm going to some extent in the future, as landlords and tenants seek work-around solutions to the financial havoc created by the pandemic.

In a number of situations, we have witnessed a collaborative approach to the problem, with rent concessions being offered in return for extensions to the term of a lease with the aim of preserving long term value.

We’re also seeing a considerable amount of empty retail space being offered in the market for repurposing to leisure use. Together with the significant downward pressure on rents and lease terms, those operators who are able to take advantage of these and existing leisure opportunities can find themselves in a position to drive attractive rent concessions and capital contributions from landlords in return for their commitment.

 

 

Jon Patrick
Head of Leisure & Development
T: 07831 263 529
E: jon.patrick@christie.com