Pub group in receivership, blames onerous leases for collapse

Pub owner National Leisure & Gaming, which operates 35 hotels in New South Wales and Queensland, has blamed "onerous leases" for its collapse and handed receivers the daunting prospect of trying to recover more than $150 million in debt.

NLG, which operated well-known venues including The Brewhouse at Belmore, Bridgeview Hotel at Willoughby, Bankstown Club Hotel and Hermit Park in Townsville, has been teetering on the brink of collapse for the best part of 12 months, and called Ian England and Guy Edwards of PricewaterhouseCoopers as administrators on Friday.

NLG's banking syndicate then appointed Stephen Longley, Jack Bournelis and Marcus Ayres of PPB Advisory as receivers and managers.

Longley said in a brief statement that the board of NLG had "performed admirably" despite the difficult conditions in the pub sector, which in recent years has battled fragile consumer confidence, smoking bans and problem gambling initiatives.

"However, despite NLG's strong operational performance, it has not been possible for the company to address long-term structural issues relating to onerous leases at certain venues."

Hotel broker Nick Tinning, of Chris Tinning & Company, says there is no doubt that NLG were operating on unsustainable leases and the collapse of the company may actually be welcomed by some in the sector.

"We now have a signal to say we are the bottom of the hotel cycle – NLG is the signal we've been waiting for."

Tinning says the fact NLG was locked into these high leases goes back to 2005 and 2006, when pub owners and operators borrowed heavily to buy into the sector during the pre-GFC boom. These landlords still have to service large debts and so must charge tenants what are seen as exorbitant rents given economic conditions.

These high debt loads have claimed a series of pub owners in recent years, including Cornerstone Hotels, Compass Hotel Group, Munday Group and Icon Hospitality.

Tinning says there are few pub tenants still to collapse, as most have renegotiated onerous leases. But he says there will still be "natural attrition" among pub owners who bought pubs on 80% debt and have since had to reduce debt ratios to 60%.

One pub owner that has been battling to stay out of the hands of receivers for some time is Redcape Group, which owns the freeholds to several hotels operated by NLG and is labouring under almost $600 million of debt.

Tinning says it will be interesting to see whether PPB can actually sell those leasehold pub operations owned by NLG that were being hit with unsustainable rents.

If PPB decides these hotels are unsaleable, the valuations on the freeholds pubs owned by Redcape could decrease sharply, as many of these pubs have been valued based on high rents. Such a drop would inevitably put further pressure on Redcape, Tinning says.

NLG also owns several freehold hotels and Tinning expects interest in these to be strong, although some potential buyers will want to see whether the Federal Government's plan to introduce mandatory pre-commitment rules for gaming machines comes to pass.

Tinning says the pre-commitment issue is a major source of uncertainty for the sector.

"Everyone will stand back to see if gaming drops. Why would you buy a hotel based on last year's gaming revenue when it could be different next year?"

Despite the tough conditions in the pub sector, a group of bargain hunters led by advertising veteran John Singleton have been buying select hotels in Sydney in recent months.

Late last year a consortium associated with Singleton purchased the Steyne Hotel in Manly and the Bellevue Hotel in Paddington.

via smartcompany.com.au

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