Volume 5 No.02

Everything that makes pubs tick

Mental Health Pub Real Estate 2019 In Hospitality

Proudly Sponsored by: Contents

6 16 24 INDUSTRY MAJOR FEATURE TRENDING NEWS 6. Not waving, drowning 16. Hot Property 2019 24. February’s greatest clicks Mental health problems are After another record-setting The trending PubTIC newsletter alarmingly prevalent in the year of transactions around the stories deemed most important hospitality industry. Emma country, we crunch the data and by our discerning readers. Castle looks into the risks, and look to the future of pub real how pub operators can address estate. them in the workplace. 10. Anzac Day Legacy – by Australian Brewery Now under the protective cloak of ASX-listed Redcape, the nationalistic Rouse Hill brewery continues its history of innovation. 12. To Be Sure Thing A thousand years in the making, the Irish pub concept is the most successful globally, with fresh incarnations of craic opening still. Clyde Mooney reports

2 | March 2019 PubTIC

EDITOR’S RANT

From time to time the stars align in the arena of real estate to the point where we look into our crystal balls and decide it’s time for another major feature on what’s been going on. This inevitably brings about poring over past stories and statistics, teasing out tid-bits of analytic treasure. Going back to the beginning of 2018, up until this feature, we had available to consider no less than 127 articles on pubs coming to market, and 87 on sale transactions. Furthermore, the unofficial superhero of Australian gaming pubs both bought and sold and finally took its lot to the ASX. Also, the once thriving Publican Group slipped into financial purgatory, where it was snapped up by the other major mover in the market, Australian Venue Company. The trials and successes of pub real estate are staples of PubTIC’s semi-daily content line-up, and overwhelmingly the highest traffic topic in our game. It is hoped that some ‘big picture’ commentary on major events in this area will add to the benefit enjoyed by our readers. In other news, the most Irish day of the year has just taken place, spawning green beer and red wigs and a reminder that the ever-present Irish pub is far from dead. Industry stalwart Pat Gallagher opened a very considered new PJs instalment in time for St Pat’s Day, and the indomitable and very international Gold Coast found room for another Finn McCool’s legend just prior to Christmas. These prophetic projects and the associated annual revelry seemed ample excuse to be chasing the rainbow all the way to the Irish pub concept pot of gold. In the spirit of the occasion, even I donned a foot-tall black felt hat emblazoned with Guinness, and tipped a pint to my familial and occupational ancestors. Good times.

PUBLISHED BY: PUBLISHING EDITOR: GRAPHIC DESIGN: The Information Collective Clyde Mooney Therese Lloyd Granville, NSW [email protected] PRODUCTION: Australia 2142 Clyde Mooney NATIONAL SALES: Peter Wiedemann DISCLAIMER: This publication is published by The Information Collective Pty Ltd (the “Publisher”).Your The thoughts Publisher accepts noon liability, the to the matter extent permitted are by law, welcome for materials appearing in this publication supplied by outside parties. All material is protected by Australian intellectual property laws. Duplication of any part of the publication is prohibited without the written consent of the Publisher. Clyde Mooney – pub media die-hard Reference to products or services in the publication does not amount to the Publisher’s endorsement. Views expressed in the publication do not necessarily represent those of the Publisher, its agents or employees. Use of the information contained within this publication is the sole risk of the person using the information. All terms, conditions, warranties, assurances, statements and representations in relation to the Publisher, its publications and its services, whether express or implied, are expressly excluded, save for those which must be implied under the laws of any State of Australia, or the provisions of Division 2 of Part V of the Trade Practices Act 1974 and any subsequent statutory modification or re-enactment thereof. The Publisher will not be liable, to the extent permitted by law, for any damages including special, exemplary, punitive or consequential (including but not limited to economic loss, or loss of profit, revenue or opportunity) or and indirect loss or damage, even if advised of the possibility of such loss of profits or damages. While every attempt is made to ensure accuracy, to the extent permitted by law, the Publisher excludes all liability for loss resulting from any inaccuracies or false or misleading statements that may appear in this publication. 4 | March 2019 PubTIC Copyright © 2019 - The Information Collective Pty Ltd Where gaming technology meets hospitality.

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Not waving, drowning Mental health in hospitality

A recent report found that mental health problems are alarmingly prevalent in the hospitality industry. Emma Castle looks into the risks, are and how pub operators can address them in the workplace.

It is my belief people should not be denied employment because of mental health “issues … that would be dreadful. We have been fighting that attitude for a long time, and secure employment is very important for them. Such vulnerable people should be offered more extensive education and support around the difficulties and pressures in such an industry, so they can thrive.“ – Dr Gwenyth Francis 6 | March 2019 PubTIC FEATURE

UK pub trade publication The Morning Advertiser recently reported that of 700 hospitality workers surveyed by drinks industry charity The Benevolent, only 46 per cent said they were ‘on top of’ their mental health. The worrying implication being that 56 per cent are not.

Half of all surveyed workers said they didn’t think their workplace had any mental health mechanisms in place, and a third said that they had experienced high levels of stress, anxiety and fatigue.

While this research was conducted in the UK, the parallels are clear, and local research conducted by the team at R U OK Day found that 80 per cent of hospitality workers in Australia said that mental health issues were a challenge in the industry.

Cause and effect So why is there such a relationship between this industry and mental health issues? What is it about hospitality that is causing so much stress? Or are people already susceptible to instability drawn to lifestyles such as found in hospitality?

The answers are multi-faceted.

The age range with the highest suicide rate in Australia is 15 - connections to others in the same industry, so a form of social 24 years. This is also the age group most likely to find work in isolation or limitation develops. hospitality. “This social seclusion often results in taking time out with the Dr Gwenyth Francis, general practitioner and mental health group, after work or at other times and, if the use of alcohol professional*, says that hospitality workers are exposed to a is involved as a socialiser and stress reliever, it can become range of emotional triggers. These include: conflict and abuse a serious problem. Likewise, if there is a drug culture in that from patrons, potentially involving physical violence, extreme particular hospitality arena, drug addictions can become of verbal abuse and spitting; personality clashes and even concern.” workplace bullying with work colleagues and management; It’s pertinent then that Safe Work Australia is conducting an extreme work pressure in order to serve patrons efficiently independent review into model Workplace Health & Safety and successfully; dealing with rejection of service or goods by (WHS) laws that highlight the importance of mental health. patrons; and dealing with complaints. The review is being conducted by Ms Marie Boland, former Additional stressors are biological. For a lot of hospitality Executive Director of SafeWork SA. workers, it’s hard to maintain a healthy diet, quality sleep and In her preliminary report, Boland states, “I found that there is a regular exercise when they are working busy shifts at odd general acceptance that the definition of ‘health’ in the model hours, and eating what’s available when they are on a break. WHS Act explicitly includes psychological health. There is also hospitality’s reputation for being a ‘party hard’ “There is a widespread view that psychological health is industry. When people aren’t working, there is a culture of neglected in the model WHS Regulations and Codes. after-work ‘staffies’ or Sunday and Monday ‘industry nights’ where hospitality professionals can let their hair down “The feedback from small businesses in particular was that after having worked to serve others through conventional they wanted more prescription and practical guidance to help socialising times. them identify and manage psychosocial risks and hazards,” said Boland. Dr Francis says, “It is well documented in research that shift work and irregular hours do have a negative impact on mental The key message being: it’s time for employers to take mental wellbeing. These irregular hours can also confine your social health seriously.

* Dr Francis MB. BS. Hons II, MPM, Dip CSP, FAAPM, EMDR. Masters of Psychological Medicine, Diploma of Contemporary Somatic Psychotherapy, Fellow of the Australian Association of Psychological Medicine, Schapiro Institute EMDR, also Bachelor of Medicine and Surgery with Honours II.

March 2019 PubTIC | 7 FEATURE

Beyond the straight forward ‘duty of care’ that is outlined in the WHS act, it’s likely that new laws will come into play regarding psycho-social duty of care.

This legislation follows in the footsteps of laws around workforce diversity, ageism, sexual conduct and bullying. Moving Ahead As with other advancements in the workplace, consideration of employees’ mental wellbeing is likely to result in happier, more productive and ultimately loyal and reliable staff. So what can proactive employers do to support their employees?

In response to the R U OK Day research findings, French restaurant guide Gault & Millau published a list of workplace support activities.

Gault & Millau suggested: giving new staff members a mentor to support them while they settle in, ensure that healthy staff meals are available on-site, and that staff are encouraged to take their breaks.

Their suggestions also included ensuring that negative feedback is delivered constructively, and that staff are encouraged to be aware of their colleagues’ mental states and aren’t afraid to reach out and offer support.

This final suggestion is critical, as a study conducted by Medibio, a mental health technology company, found that 47 per cent of employees would not be comfortable revealing their mental health issues to their manager.

Dr Francis agrees, saying, “The presence of older people in the ccording to Medibio, mental health workforce who can mentor and also watch out for those at A risk and provide appropriate guidance would be of ongoing warnings signs can be: benefit.” • Out-of-character behaviour, such as irritability, mood swings or social withdrawal Having a peer-to-peer support system in place, would significantly boost the likelihood that staff members who • Unusual decline in performance are struggling with their mental health, will actually talk to • Unplanned absences someone in the workplace.

• Tension or issues with colleagues Furthermore, Medibio recommends appointing a Mental • Easily distracted or reduced concentration levels Health ‘First Aider’.

• Loss of confidence Janie McCullagh, Red Cross Regional Lead QLD/NT, First Aid & • Indecisiveness Mental Health explains, “Mental Health First Aiders are valuable in providing early intervention help for someone who may • Frequently tired be developing a mental health issue or is in a crisis situation. • Sick and ‘rundown’ Mental Health First Aiders are not trained to be therapists or psychiatrists, but they can offer initial support through non- • Insomnia or difficulty sleeping judgemental listening and guidance. • Headaches McCullagh says that Mental Health First Aiders are as • Dishevelled appearance important as a physical First Aid Officer, because they know • Gastro-intestinal disorders how to assist with a crisis/emergency, assess and assist, and • Unexplained weight loss or gain know how to refer people to the most appropriate supporting mechanism.

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The Red Cross offers two accredited courses to train Mental Dr Francis recommends an open-door management policy Health First Aiders. They are: so that staff can drop in or make an appointment to discuss issues of concern, privately and respectfully. - Mental Health Matters (https://www.redcross.org.au/ get-involved/learn/first-aid/training-for-mental-health- “A really focussed employer, aware of these concerns, may in-the-workplace), which is specifically designed for like to consider periodic routine staff meetings to debrief the workplace situations, and stresses of the job and discuss ways to manage any problems, such as conflict issues with patrons, and to hear if anyone is - Mental Health First Aid (https://www.redcross.org.au/ particularly struggling or vulnerable,” she says. get-involved/learn/first-aid/mental-health-first-aid-training- course-mhfa), which is training for individuals over the “They may then like to take aside privately any staff age of 18. This course teaches people how to provide member they are concerned about and offer support, initial support to adults who are developing a mental further educational assistance, alterations of roster, time off, illness or experiencing a mental health crisis. counselling, etc. A respectful and supportive approach as well as privacy would be essential.

McCullagh says that if you don’t have a Mental Health First “An employer may also consider periodic staff meetings where Aider, there are still plenty of things you can do. there are educational presentations on conflict resolution with colleagues and customers, information on drug and alcohol “Initially, devising an effective action plan for implementing issues, information on good self-care and running a balanced mental health and wellbeing, then through good management life, managing family life in the context of difficult hours and that creates a culture of reducing stigma of mental health so on – whatever is applicable to that particular environment.” problems. It’s important to have supportive staff who are empathetic to people that may be affected by a mental health If you, or someone you know, is experiencing mental health problem, an Employee Assistance Program and a supportive issues, you can contact Lifeline 13 11 14, beyondblue 1300 224 HR department.” 636 or Suicide Call Back Service on 1300 659 467.

March 2019 PubTIC | 9 INDUSTRY

Trans-Tasman XPA Leaves a Legacy on Anzac Day

Redcape’s Australian Brewery continues to test the waters of craft beer trends, serving up a special edition for the country’s day of respect.

James Howie

As the nation gets ready to mark the national day notorious for having the big hop profile of an IPA of remembrance on the 25th of April, Redcape’s but the leaner malt bill of a Pacific-style pale ale. Australian Brewery in Rouse Hill plans to help commemorate the Anzacs with a one-off beer. “It is a real honour to be given the opportunity to brew a beer for a day so close to home. It is Trans-Tasman XPA has been brewed specifically fantastic to be able to give punters a beer to enjoy, using all Australian and New Zealand malt and whilst giving them that opportunity to give back to hops and will be released simultaneously at a a great cause, supporting so many ex-servicemen number of Australian Brewery tap takeovers on and women.” – James Howie. Anzac Day. The brewery will also be donating fifty cents from every litre sold to Legacy.

James Howie – brewer and former rifleman at 5RAR – brewed the beer using Australian Galaxy and Vic Secret hops, famous for tropical fruit and mild resin characters. He also used New Zealand Wakatu and Taiheke hops known for big lime and citrus flavours. The beer is five per cent ABV and has an IBU of 20-25.

Trans-Tasman XPA will be launching throughout craft beer specialty venues in Sydney as well as Redcape Hotel Group. The beer will be joined on tap by the Australian Brewery’s core range beers, like the Australian Pale Ale, All Star IPA, New World Pilsner and recent winner of NSW’s best beer Seis Hermanos Lager (Royal Sydney, 2018).

This will be the first XPA that Australian Brewery has brewed, the style recently sky-rocketing in popularity. While vaguely defined, the style is

10 | March 2019 PubTIC

TRADE FEATURE

ToTo BeBe SureSure ThingThing More than a millennium in the making, some say the Irish pub concept has had its day … But as the most successful style around the world, continuing to open fresh incarnations, there is clearly craic left in it yet. Clyde Mooney reports

12 | March 2019 PubTIC TRADE FEATURE

Ireland’s first pubs date back to the 10th century in Athlone, County Westmeath, around 100 kilometres west of Dublin. AUSSIE IRISH From these humble beginnings they have gone on to become Long before Irish pubs became common in Australia, there the most common and successful hospitality theme globally. was Mickey Bourkes, established in 1853 in Koroit, on Victoria’S west coast. Many Irish immigrants arrived in the area in the The modern concept as it is known stems largely from efforts 1800s, and this home-away-from-home offered real Guinness by Guinness to increase beer sales. It has been known as the on tap, traditional music, and large servings of cheap meals, Guinness Irish Pub Concept (GIPC). Founded 1789, Guinness including Irish stew and oysters Kilpatrick. went on to merge with Grand Metropolitan to become Guinness UDV, and later Diageo. The classic Irish establishment has gone on in Australia to have continued success in various iterations, spawning In the 1970s Guinness noted the rising popularity of Irish pubs successful chains that surpass Australians’ natural aversion to in Ireland, and speculated as to why sales were poor in other cookie-cutter venues. countries. The company determined that tourists to Ireland – particularly Americans – loved the ‘craic’ (good times) and Hallmark Group was established in 2014, building a portfolio atmosphere of the Irish pub, so packaging that concept was of restaurants, bars and nightclubs. Hallmark means a researched and developed. “distinguishing characteristic” and shortly following their success with Retro Cocktail lounge in Brisbane’s Fortitude The traditional pubs that existed for centuries across Ireland Valley, they determined to open an Irish-themed pub two are often grouped in the styles: Victorian, Country Cottage, or doors away, ushering in the first Finn McCool’s. The name Shop. Guinness expanded on these with two more: Gaelic and comes from a mythical giant of Irish folklore, who is said to Brewery-style (not to be misconstrued with a brew-pub). have protected Ireland in ancient times.

Since rollout began, GIPC Irish pubs installed around the world The plan was for an authentic Irish watering hole, with great are said to now number more than 15,000. beer, mouth-watering menus, sporting action and live music.

Finn McCool’s Surfers Paradise March 2019 PubTIC | 13 TRADE FEATURE

This base is combined with a modern spark, with less dark timbers and a lot of open, sunlit areas. The group’s owners spent time in the UK, and long dreamed of running their own Irish pub. The launch sparked a competition to find the ‘Hottest Ginger’, to increase awareness and hype around the opening.

Finn McCool’s Brisbane has enjoyed continued success, including going on to win the QHA Award in 2016 for Best Redeveloped Venue over $2 million.

Just an hour’s drive south of Brisbane, the Gold Coast boasts travellers from all over the world. The Group saw Surfers Paradise as an ideal location for the next Finn McCool’s and settled on a site in retail hotspot Cavill Ave, where they have executed another two million-dollar makeover of a site that Finn McCool’s Surfers Paradise was previously a Fiddler’s Green. the “best recovery Sunday” feed, with a $12 roast coupled with a pint, and traditional dancers in the evening. Specialising in family dinners, there are colouring-in packs for the kids, bursting with little Leprechans and rainbows.

The menu features the Irish classics, such as Beef & Guinness Pie, Irish Stew and Chicken Curry, as well as the pub classics. There is a traditional Irish breakfast, bringing bacon, eggs, mushroom, pork sausage, black pudding, beans and Barry’s tea.

On tap are the obligatory Guinness and Kilkenny, alongside a broader range of beers, ciders, wines, spirits, and cocktails.

Finn McCool’s also strives to be the “go-to venue” for live sport, boasting an array of TVs. The entertainment regularly provides live music by some of Queensland’s best, with touring Irish acts throughout the week. Finn McCool’s Surfers Paradise In keeping with the traditional theming, there are ‘nooks’ Working to the Gold Coast scene of families on vacation, the and booths in the main bar, but upstairs in the mezzanine, venue offers a welcoming atmosphere throughout the day, catering to large groups and big celebrations as well as more intimate date nights. A big launch with media took place late 2018, featuring live entertainment The Gathering, and the Queensland Irish Pipe Band and Irish dancers.

“There’s not a city in the world without an Irish pub, and we want Finn McCool’s to be the best Irish bar, which you can rely on for a good feed, a good pint and most importantly good craic,” says group marketing manager Tammy Wood, who has been with Hallmark almost since the beginning.

“It worked so well in Fortitude Valley, so the next place to put a stamp on Finn McCool’s was the Gold Coast. When that opportunity came up the boys jumped on it.

“Cavill Ave was a spot the Group had always liked, and there were a lot of happy regulars saying ‘thank goodness it’s going to continue as an Irish bar’.

Opening just before Christmas, a Sunday roast made its way onto the menu, and the pub has become proud to serve up Patrick Gallagher, group executive chef Ronnie Ghantous

14 | March 2019 PubTIC

TRADE FEATURE as well as featuring more booths, larger groups can be accommodated. This area overlooks the dancefloor and live entertainment and can be reserved for events.

The Gold Coast launch saw a trip given away for two people to Ireland and the Guinness brewery, building awareness and the Group’s database.

Hallmark engaged hospitality specialist builder Leigh Weber of ClubBar Concepts to build both of its Finn McCool’s pubs, bringing Weber’s years of experience working with London’s Match Group.

The Brisbane build brought particular challenges, requiring a lot of reconfiguration of what was a former bank, integrating it with an adjacent building and converting the vault into a private dining room. The whole structure had to be pots and pans and the like, often accepting an offer for a subsequently propped to facilitate the basement becoming a drink or a meal or a bed for the night, in the spirit of his Irish laneway bar. forbears.

Both Finn McCool’s used bespoke joinery made by ClubBar The PJ Gallaghers-branded pubs are classic iterations of the and Irish styling to create the desired look. Finishes worked to Guinness-moulded concept, proudly decked with original emulate the traditional through use of old materials, such as furnishings and fit-out directly from the Emerald Isle, imported stone, wood, pressed metal and lead-lighting. and reassembled.

Gallagher has researched Irish pubs around the world. He GROUNDED IN CRAIC prefers what he calls the ‘earthy’ style, highly authentic, The feeling of hospitality embodied in a great Irish pub has its and believes the brand is very flexible. To him they are so foundations in the fact that the phenomenon arose out of real universally popular because they are the essence of people Irish folk sharing their lodgings with travellers and merchants. feeling welcome. Many became shops and public houses as natural extensions “The look and feel is important, but the heart of it is the sense of the frequent guests to the family living space. of hospitality and where it comes from,” he says. “Whilst we Patrick Gallagher’s great grandfather was in his ancestral can’t always have Irish staff, we try to make sure we’ve got element as he travelled the towns of New South Wales selling people that are warm and friendly and enjoy talking to people,

PJ Gallaghers Enfield 16 | March 2019 PubTIC TRADE FEATURE and try to recreate that type of atmosphere. It’s not something “In the main bar it’s local Aussies of all walks of life, and the you can fake. Irish. If there’s Irish in the area you’ll pull them.

“The Irish have a unique outlook on hospitality. If you’re lucky “Generally speaking, it’s as broad a market as we can manage. enough to build an Irish pub and have it run by Irish staff, you We get families during the day and night to eat. I think the don’t have to teach them. They just get it. quality of the food is important, the quality of the Guinness is important, and the treatment by the staff is important. Those “You might have to explain to a staff member about greeting are the things that are paramount.” somebody: make sure you say hello when they walk in, ask how their day has been. You don’t have to teach the Irish that, Architect Peter Jay has worked with Gallagher on several they just walk in and do it. It’s in their DNA.” of his PJs-branded pubs. His background was the preferred designer for Diageo in Japan from the late 90s until 2012, Gallagher Hotel Management opened a new PJ’s on St during which time he frequented Ireland, and rolled out more Patrick’s Day weekend, in the former Royal Hotel at Ryde, than 100 Irish pubs in Japan, as well as China, Korea and other which it has held for a few years. This joined PJs in the parts of Asia. Many of these fit-outs were manufactured in group at multiple Sydney locations, including the thriving Brisbane and shipped to Asia by container. PJs Criterion, in the heart of the CBD, where the temptation to cater to ‘suits’ was shunned in favour of an offering with The Irish pub concept was actually pitched at the local broader appeal. population. If foreigners visited they simply enhanced the atmosphere and confirmed to the locals that it must be good. The Japanese love to drink, several times a week, and 85 per cent of business is repeat, at 75/25 per cent beverage and food, with no gaming.

Guinness provided, through Jay, ‘instruction manuals’ on how to run an Irish pub and “be outgoing” in Japan. While the locals couldn’t tell the difference between real and fake, most Australian patrons do, and Jay says the atmosphere is critical to the Irish pub’s success.

“Skimp on budget and authenticity, and suffer with sales,” he proclaims. “When you visit an Irish pub, you have to feel like you have just arrived in Ireland. It’s that simple. It’s not any one element, but a combination of atmosphere, service, music, food and beverage.

“With my clients in Australia, operations training is not required. Publicans know how to look after patrons and run a pub. Australian clients want unique design and build. They want an edge over their competitors.

Ryde is the result of long-term planning, now seeing an Irish “Irish pubs have a heart, which is another way of saying their instalment as progress on what it was. Gallagher says they owners are passionate about the business of running a pub.” don’t work everywhere, and he tries to “go with the gut” on where one feels right. PJs at Enfield attracted masses of unknown Irish from the area, and after some time getting to know the precinct, Ryde felt right too.

“That pub is a real local person’s hotel. It’s old-school. And I think PJ’s only enhances the customer base that were there. They feel that pub’s their home, and that’s exactly what a pub is in Ireland, an extension of people’s lounge room. Everybody that comes in feels welcome, not alienated or intimidated.”

As central to Sydney’s greater west, populated with medium- density apartments and classic Australian homes on a quarter- acre, Ryde displays the kind of ethnic diversity that relates to PJs. PJ Gallaghers Criterion

March 2019 PubTIC | 17 MAJOR FEATURE

HOT PROPERTY 2019

The state of the Australian hotel real estate sector is such that publicans continue to compete with professional institutional investors for lucrative assets. Both classes of investor actively sought quality assets and opportunities for value- add throughout 2018, inevitably pushing yields lower, around the country. Clyde Mooney takes a look at trends and prospects on the horizon.

18 | March 2019 PubTIC MAJOR FEATURE

Punctuating the steady stream of high-value sales and long- is increasingly scrutinised and presently challenging for most term owners being tempted to market, the sector continues industry stakeholders. We are trading in an aggressive, yet to observe large financial entities making plays at pubs. This vigilant environment.” most notably came in the form of the KKR-backed Australian Operators and investors are returning to the time-proven Venue Company (AVC), slated to be headed for a run at the fundamentals of site strength, being: a high-profile location stock exchange in 2019, and the Moelis-backed Redcape, with foot traffic, nearby transport, off-street parking, and a which successfully took the plunge into listed entities in good demographic with not too many pubs in the precinct. November. “Pubs have been around hundreds of years. The good ones Redcape also achieved the highest value sale of last year, generally always have those fundamentals,” suggests HTL negotiating the Colosimo’s Australian Hotel and Brewery for Property director Dan Dragicevich. $50 million. Importantly, this sale also represented a concerted move by Redcape to diversify its revenues, looking to expand “They’re the ones that are improving, with value accretion laterally through interests in and operation of a craft brewery. year after year. When they do sell they get a big uptick in price.” It has been furtive times in the world of money as the Banking Royal Commission threatened to shake the foundations of These A-grade properties have been of particular interest to finance. Whether prompted or precautionary, banks have the large private and public groups, looking to scale and to tightened lending practices and caution may have some ‘bolt-on’ earnings through acquisitions. impact on the number of transactions. The Federal Election in May bodes similar reticence. Acquisitive groups are buoyed by the reported signs of consumer confidence, with discretionary spending, F&B The cost of debt remains relatively inexpensive, but banks spending and liquor retailing all showing positive growth year are adopting a renewed focus on the parameters of debt on year. securitisation, bringing a more measured and preparatory approach on acquisitions. This has meant more ‘strategic’ site selection, often looking to improve returns through development upside, and actively looking for opportunities to NSW increase cashflows swiftly. CBRE’s recent Australian Pub Trends report cites that strong demand for top-tier Sydney metropolitan pubs saw yields “We are seeing hoteliers take a more strategic approach to the trade at pre-GFC levels (7.5 - 8.5 per cent). This prompted underlying land and buildings of the asset, looking at potential investors to cross intra-state boundaries and head to the large third-party lease agreements, the development of surplus land regional centres in their search for what are seen to be better- and/or subdivision of particular land parcels in order to drive value opportunities. initial yields and improve long term returns,” explains CBRE’s Ben McDonald. “This fact also dovetails into bank lending Competition for these prized assets has brought about practises and debt guidelines and can be the difference something of a re-emergence of leaseholds in the capitals. between funding an acquisition or not.” “We are already seeing a flight to yield, and the cash variance JLL director John Musca concurs, noting that “buying is not between cost of debt and leasehold hotel business returns is indiscriminate, because securitisation and refinancing of debt compelling for experienced operators,” notes JLL’s Musca.

March 2019 PubTIC | 19 MAJOR FEATURE

QLD Demand for hotel assets in south-east Queensland remains strong, but the pivotal limit in stock has pushed some to consider portfolio expansion elsewhere in the state.

CBRE report cap rates in the Queensland pub market remain stable, along with transaction volumes, but demand continues to centre around the south-east, particularly for A-grade gaming pubs of considerable size.

The shortage of hotels coming to market is decidedly limiting transactions, with buyers greatly outnumbering sellers. This creates a supply and demand problem that has pushed up prices.

The barriers to entry into Sydney pubs, particularly for new entrants to the sector, remain high – exacerbated by the frequency of ‘off-market’ sales.

“Vendors shy of being seen as vendors means established players are presented opportunities without the broader market offering perspective,” offers Manenti Quinlan’s Nick Butler. “This limits the ultimate sales price and sooner or later those selling will revert to public campaigns to maximise their returns.”

MQ recently saw new publicans Paul and Corinne Murphy into the leasehold interest of Balmain’s lauded Riverview Hotel.

“The sale confirms the preference for new players in the Sydney market for leaseholds, with barriers to entry – both cost and competition – far more balanced in that space.” Many (approaching 200) quality assets in s-e Queensland are owned and/or operated by major players ALH or the The ongoing migration out of Sydney has bolstered interest Coles venture, now shared with AVC. Many of the remaining in Newcastle, which has been undergoing wide-scale public locations are held by multi-generational institutional hoteliers infrastructure investment. The area saw its biggest ever deal uninterested in selling, adding to the pent-up demand. completed in 2018, with the Rogers’ portfolio selling to the ever-rising Iris for around $30 million. Adding to the competitive mix, hotels that do come to market in Queensland typically have greater tangible appeal and Cap rates have inevitably tightened on coastal properties, potential development opportunities. seeing ranges of 8.5 - 10.5 per cent. “You’re picking up a bigger property. Hard asset value items,” explains HTL’s Dragicevich. “For example, the Coolangatta Sands, which is 1,000sqm, has 40 machines, with an 84-metre height limit, in the middle of Coolangatta.”

Also seen as some measure of operational certainty, Queensland does not allow any smoking inside venues, even gaming rooms, and gaming revenue taxes are already relatively high. These facts provide some surety for operators looking to future stability.

“It is a tightly-held market in south-east Queensland, as business has proven to be robust over a long period, with a relatively stable legislative environment,” notes CBRE director Paul Fraser.

Record sale prices and valuations may see hesitant buyers

20 | March 2019 PubTIC MARCH 2019 - CURRENTLY FOR SALE

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www.htlproperty.com.au MAJOR FEATURE emerge, as has occurred in and around Sydney, but the low volume of assets changing hands means the process is slow.

“I suspect [vendors] need to continue to see transactions,” suggests HTL’s Dragicevich. “It’s been historically a far less transactional market, so it’s got to continue to click through the gears, people seeing groups buying and selling, trading in and out.”

Emerging from the mining slowdown, resource-centric areas are seeing renewal and revitalisation, providing a “potential countercyclical play” for operators with an appetite for higher yield, and the ability to capitalise on scope for bottom line improvement.

“This partly explains the increase in the number of deals in 2018, including the sale of Grand Hotel Cairns for $8.5 million, Demand for freehold going concern assets remains high, and the Mackay Grand Suites for S20 million,” adds Fraser. with only two notable transactions since December 2017. The Brighton Hotel, Mandurah sold at auction for $3.75 million, and the Parade Hotel, Bunbury, sold for S4.2 million in May 2018.

VIC CBRE reports WA yields typically range at 12 - 13 per cent for Long suffering the burdens of limited opportunity for metropolitan venues, and 15 - 25 per cent for regional. acquisition, metropolitan Melbourne continues to experience high levels of demand, including for passive freehold Although investors are reported to be remaining cautious, opportunities. The ongoing limit to stock has naturally resulted as F&B trading conditions have yet to stabilise, there is still in increasingly tighter yields. interest in leasehold assets located in high-traffic areas, as seen in the December sale of the Breakwater Hotel, Hillarys. CBRE’s Pub Trends report cites returns on Melbourne leasehold sales in 2018 ranging from 28 - 30 per cent, Further complicating matters for WA operators, the state equating to 3 - 3.5 times EBITDA. Regional Victoria is seeing government has proposed restrictions to retail liquor outlets, 40 - 50 per cent, which has been the case for some time. banning new liquor stores larger than 400sqm within a five- kilometre radius of existing stores. This puts additional risk on High levels of demand for passive freehold opportunities in larger publicans and groups looking to expand in the state, by the hotel sector have pushed yields down to levels where reducing potential economies of scale in purchasing. investors are greatly affecting valuations on freehold going concerns. This can be seen in the likes of South Melbourne’s “We have seen turnover increasing in a number of CBD venues Montague Hotel, which recorded a yield of just 3.25 per cent, in the past few months,” reports McGinnity. “We hope that with or the Park Hotel Abbotsford, sold on a yield of just 2.88 per the start of the AFL season, concerts planned and other world- cent. Similarly, freehold vacant possession opportunities also class events, that this trend will continue.” attract significant interest from investors. HARD NUMBERS WA *All figures taken from CBRE’s H2 2018 Australia Pub Trends Still readjusting from the deflation of the mining sector, Discretionary Spending operators in WA are faced with rising costs in rent and utilities, NSW: UP creating strain on many to stay afloat. On top of that, the state 2.6 per cent year-on-year growth – an improvement on 2017 reports an ongoing decline in discretionary spending. (1.1 per cent).

Some landlords have proven reluctant to work with operators QLD: UP to revise ratcheting rent rates, which could create win-win 2.6 per cent year-on-year growth to September 2018, scenarios for both parties, instead holding to stale agreements averaging 3.0 per cent over the past year, being a marked that has resulted in the forced closures of a number of venues. improvement on 1.3 per cent in 2017.

“Many rents were set in more buoyant economic times, VIC: UP with fixed increasing review mechanisms,” says CBRE’s Ryan 3.6 per cent year-on-year growth to September 2018. McGinnity. “These increases are now putting pressure on Growth has averaged 3.5 per cent across the past three years, tenants as the economy has cooled.” exceeding the long-term trend of 3.1 per cent p/a.

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WA: DOWN investment markets, with all states and regions experiencing Discretionary spending contracted 1.5 per cent year-on-year notable yield compression over the last three years,” says to September 2018, but F&B spending rose 1.1 per cent in Q4. Dragicevich. Gaming “We will continue to see a healthy level of transactional activity, however given some of the recent shocks to the NSW Permits: $275 - 300,000 banking and residential real estate sectors, as well as the Entitlements: $165 - 180,000 upcoming NSW state and Federal elections, we don’t see a further sharpening of cap rates in the short term.” Due to changes in NSW transfer laws, entitlements arc now being valued per machine rather than as a ‘block’ of three. Looking to the next five years, JLL expects continued transactional appetite amid legislative certainty, bringing An overhaul of the ‘Local Impact Assessment’ (LIA) has further pursuit of aggregation, the return of leasehold brought about an increase in the sale and transfer of poker opportunities nationally, and likely a re-engineering of machine entitlements and permits between hotels. Larger industry movers, ALH and Coles/AVC. Musca sees the injection groups are expected to continue to expand their portfolios in of new expertise into the Coles portfolio as auguring well for 2019. both the portfolio’s earnings, but potentially the industry as a whole. QLD gaming machine operating authorities: “There can be a wide range of consequences emanating from South-east $187,954 (up nine per cent) the recapitalisation of either of these behemoths, and/or any Coastal $48,400 (down five per change in their ownership composition, potentially bringing, cent) for example, a change in strategic business direction for either, Western $36,737 (up five per cent) or a catalytic increase in transaction volumes via further asset aggregation or non-core divestments. VIC The planned and ongoing exodus from the gaming industry “We have different stakeholders with a fresh set of eyes and a by many of Victoria’s AFL clubs has provided an opportunity singular strategy ultimately driving towards an IPO liquidation event in the short term. That is quite likely to create some for other operators to grow. reverberation across the industry at large.” MQ’s Butler poses ongoing demand, including further consolidation of existing group portfolios to maximise ON THE HORIZON efficiencies and buying power, as well as a renewed focus Agents concur that 2019 will continue to see bank lending on pub accommodation “set to re-invigorate metro and rural parameters tighten, and the cost of debt increase. These hotels”. factors will increase the challenge for smaller groups without KKR’s clinching the deal to operate the Coles collection could big balance sheets and/or a proven track record to access prompt others to explore alternative structures in Queensland, credit facilities. and is a positive indicator for the hotel sector’s credence. The search for opportunities will continue to bring lesser “The successful 87 pub deal recently announced between the assets in emerging areas into focus, and trailblazing operators $550bn stock exchange listed US private equity fund KKR & Co, build greenfield sites in anticipation of demographic shifts, as it’s local partner AVC and Vendor Coles, is further illustration seen at the Maloufs’ Gregory Hills and Chris Feros’ The Prince, of the strength and sophisticated investor magnetism to the Kirrawee. Australian hotel market,” concludes HTL Property Asia-Pacific Despite the shortage of listings, sales volumes in 2019 are director Andrew Jolliffe. expected to remain healthy, as investors remain keen to expand in the sector. “I don’t believe sales transaction levels will hit the heights of the last two years, but we are still seeing assets come to market as many publicans believe we are close to – if not at – the top of the market, and they choose to exit,” furthers CBRE’s Fraser. Queensland-based Fraser says approval of the Coles/AVC joint venture, which was something of a surprise to the industry, may prompt other ‘outside the square’ solutions, such as more leasehold acquisitions with call options on freeholds, as a two- stage process. HTL agrees with the strength of the market, noting the inevitable effect on valuations and returns. “We believe it will be a year of consolidation across the major

March 2019 PubTIC | 23 TRENDING NEWS

REILLY CRUCIFIED OVER STAFF north of $50 million to a Sydney-based group, brokered by PAY GAFFE MUCK-RAKING HTL Property. Similarly, Mick Doughan sold his Royal Exchange Hotel at Ray Reilly battled a tsunami of criticism of his group and Marrickville to another unnamed Sydney group for circa $33 himself, following a muck-raking article in News.com.au million, which was the first time the pub had transacted in claiming “ongoing and systematic” wage theft from minimum more than 20 years, sold off-market through JLL Hotels. wage workers. *** The story – sensationally headlined “Sydney pub empire February kicked off with Newtown stalwart the Coopers Hotel, underpaid staff by $100k” – saw re-prints across the country, at the northern end of King Street, just a few blocks from and scores of people taking to social media condemning the Solotel’s thumping Marlborough Hotel, selling to new entrants. group over the one-sided portrayal of events. Matt Williams’ King Tide group taking on their first pub for Largely arising from complications with the Group’s around $13.5 million, representing yield below nine per cent beginnings, including the fact that The Henson was on FY18 revenues of $4.7 million. technically a restaurant for the first few years, a collective of 31 Matt Williams is son of Geoff Williams, long-time owner of staff lodged a grievance that they were being underpaid – on Ashfield’s Crocodile Farm Hotel. His entry to pubs comes via Grade 1 hourly rate, when they should have been paid Grade an off-market campaign through HTL Property. 2 and in some cases Grade 3. The Hospitality Award in NSW specifies 41 different categories of staff. *** Newcastle region continues its run of hot sales, with two transactions totalling a reported $20 million in the Belmont Hotel and Salamander Tavern.

The large-format Belmont is on 3,753sqm on the Pacific Highway, with multiple bars, restaurant, accommodation, and 23 EGMs. It has been part of Paul Irvin Hotels, which owns hotels in Sydney and throughout Queensland.

An off-market campaign with HTL Property resulted in sale to Sydney-based publican Don Hodge, whose group includes pubs in Forbes, the East Hills in Sydney, and at Warners Bay, just seven kilometres north of Belmont.

Unrelated, the off-market sale of Port Stephens’ Salamander Tavern, went to an undisclosed buyer.

The AHA’s Hospitality Legal assisted an independent review, HTL would not disclose further information on the sale, finding the staff to be owed $59,00, tabulated over four years. except to say that the two transactions approached a total of The staff disputed the amount, so the Group paid out their $20 million, noting that the “appetite for A-grade properties full request of $102,796, including interest, citing an “honest in significant regional markets such as Newcastle, Northern mistake”. Coastal NSW and South-East Qld has never been as strong”. The one-sided article failed to mention how the Group paid *** over $4.5 million in wages last year to its staff of 105 workers, nor Ray Reilly’s beginnings in hospitality two decades ago as Former Drink n Dine head Jaime Wirth and associates took a backpacker, working up to owning his first pub. The group on a third operation, the lease on the Old Fitzroy – a century- reports it has overhauled its procedures and processes. old corner local in the narrow backstreets of Woolloomooloo, which famously contains The Old Fitz Theatre, doing live EARLY YEAR ASSET MOVERS entertainment to a near-cult following since 1997. News of the sale of two massive inner western pubs heralded Since on-selling his portfolio in early 2016, Wirth planned a a strong start to the year, with the Lidcombe Hotel and Royal come-back into pubs, finally settling on Enmore’s The Duke in Exchange Hotel Marrickville fetching a combined $80+ million. October 2018, with partners Joel Amos, Mike Delany and Chris Deadman, then Waterloo’s George Hotel in January. The off-market sale of the Lidcombe was by Monarch Hotels, which last year was tempted to market with its Banksia Hotel The Old Fitzroy has been owner-operated by the Pasfield by publican Patrick Ryan for around $26 million. Both pubs family for close to two decades, and looking to retire, Gary had seen significant gains on the Liquor & Gaming list of NSW Pasfield agreed to a new lease with Wirth and partners. venues. “We’re not there to change it, just freshen it up a bit, give it Lidcombe is currently ranked Top25, and brought sale price some new life. We’re doing it because we love the pub.”

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to have been falling off stools, and one player seen vomiting ALH TRIALS AND TRIBUTES outside. Woolworths-backed Australian Leisure & Hospitality (ALH) is facing fresh allegations out of an investigation on many of Poignantly, the duty manager was reported to have been its NSW venues by Liquor & Gaming. The NSW regulator has complicit, “clapping and cheering with the crowd” according been investigating over 50 pubs operated by ALH for more to the regulator’s compliance manager, John Coady. He has than a year, and ahead of any findings,told the ABC it is digging since been dismissed. deep into the group’s practices in gaming rooms – particularly supplying gaming patrons with free drinks in an attempt to get them to stay and play longer.

L&G says it has issued notices to “obtain a significant volume of information and records, and formally interviewed current and former ALH staff and patrons”.

Testimony includes one whistleblower, former ALH gaming room attendant Emma Pearson, who speaks of the systemic practice of both providing preferred gaming room patrons with complimentary drinks, and deliberately putting these through the main bar till as promo’s, to avoid suspicion. Licensee John Watt pleaded mitigating circumstances, Anti-gaming independent politician Andrew Wilkie broke particularly that no minors, women or members of the public the news a year ago that whistle-blowers had told him how were present, as guests or staff, and that there was no violence ALH staff tracked patron interests and commonly provided nor complaints. free drinks in the gaming rooms, which is illegal in Australian ILGA nonetheless issued a strike and says there may yet be venues although commonplace in casinos around the world. more penalties to come, due to “the seriousness of harm”. ALH operates around 330 pubs, occupying every Australian The NRL fined the Canterbury Bulldogs $250k over the state. incident. Earlier in February, Charter Hall continued its confidence in the sector with acquisition of the ALH-tenanted Austral Hotel FIRST RESULTS FOR ASX- in Mackay for a reported $25 million. LISTED REDCAPE Charter Hall began its investment in blue-chip pub assets Redcape Hotel Group Management Ltd – responsible entity for in 2014, acquiring a $600 million portfolio leased to ALH, in publicly listed Redcape Hotel Group (ASX:RDC) – announced partnership with Hostplus. It has since proven selective of results for the first six months of FY19, its first since its listing in properties leased to Woolworths-backed ALH and Coles- November, showing strong outcomes on the back of a string backed Liquorland pubs, typically holding secure long-term of acquisitions. triple-net leases on ratcheted rentals, as seen when it secured the Coles-tenanted Club Hotel in Brisbane for $22 million in Highlights of the “1H19” report includes EBITDA up 13.8 per September 2018, reflecting a yield around 5.6 per cent. cent, and a lift in overall portfolio value to $1.06 billion.

The Austral was divested by Alex Jacques’ Gold Coast-based Key to this was the divestment of the Belrose Hotel, for a Lotana Property, which paid around $19 million for it in 2013, reported 5.1 per cent premium to book value, and acquisition representing annual appreciation averaging around 5.5 per of six venues, with total purchase price of $158 million. cent. The acquisitions represent a 17.52 per cent addition to the portfolio by value, and are noted as largely responsible for the 17.5 per cent increase in revenue over the period compared to STRIKE FOR HARBOUR VIEW 1H18, to $142.6 million. OVER BULLDOGS’ MAD Gaming produces the lion’s share, representing 63.6 per MONDAY cent of total revenue, up slightly on 1H18. On-premise (bar) The NSW independent Liquor and Gaming Authority (ILGA) earnings have increased more than two per cent, to 18.79 this handed down a strike for the Harbour View Hotel, over the time around. infamous “Mad Monday” antics by Canterbury Bulldogs players last November. A hearing heard how players stripped naked, Successfully listing 30 November, debuting at $1.04 per share, dancing on tables and performing sex acts on themselves and RDC closed at time of announcement at 1.035, while Net Asset others, and dousing themselves with alcohol. People were said Value stands at $1.13 per security.

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