Australia’s beleaguered pub sector is set to receive a boost after the family of veteran hotel operator Arthur Laundy announced it is in negotiations to buy 20 pubs from struggling owners Redcape Property Fund and National Leisure and Gaming.
Under the terms of an agreement announced yesterday, a company related to the Laundy family has started a one-month exclusive bargaining period with Redcape and National Leisure and Gaming.
It is believed that the eventual deal will be worth more than $300 million.
Redcape, which owns the actual properties the pub sits on, was founded by failed pub baron Tom Hedley, whose Cairns-based business empire collapsed spectacularly in mid-2009. The company has been under pressure to sell assets for more than 18 months, and remains mired in $700 million of debt.
National Leisure and Gaming is similarly weighed down with debts. It owes about $150 million, although main lender National Australia Bank has forgiven $40 million of that.
National Australia Bank and NLG’s shareholders will have to approve the deal, which would leave NLG as the operator of 15 pubs.
The deal should be something of a fillip for the pub operators, who will be pleased to see a veteran stepping in with what is a big vote of confidence in the outlook for the sector.
The hotel industry has been hit by a wave of collapses since the beginning of the GFC, when lenders drastically cut back their support for pub owners and operators who had borrowed heavily to buy into the sector during a boom in 2005 and 2006.
In January, the Australian Hotels Association secretary Colin Waller predicted up to 20% of NSW’s hotels – around 300 properties – could be put on the sale block this year as banks finally lost patient with pub owners.
That dire prediction is yet to come true, but there have been some big collapses in 2011, most notably that of Icon Hospitality, which owned 11 pubs around Sydney and was placed in the hands of receivers in late January.
Laundy isn’t the only big-name buyer hunting for bargain assets.
Last year, veteran investor John Singleton pumped $20 million into a $100 million fund set up by investment firm Lazard Carnegie Wylie with the express purpose of hunting for bargain pub assets.
So far the fund has bought several pubs in Sydney, including the Bellevue Hotel, the Kinselas Hotel and Steyne Hotel.
But hotel broker Nick Tinning says it is too early to tell if Laundy’s big deal will come off, or whether the veteran is positioning himself alongside other investors to grab some bargains as pub prices continue to fall.
“All of the big investors are popping their heads up and saying to the market ‘we’re still here’. They just want to remind the banks that when they get desperate, they should give these investors a call.
“I don’t what’s going to be the signal to say we’ve reached the bottom.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
