Hotels Quarterly Update Quarter 2, 2013

Highlights RWH QLD UPDATE Qld Gaming Authorities Review With Tony Bargwanna New to the RWH Team Brent McCarthy and Christian Tsalikis Special Top 4 Bank Offer With Sean Dollar Hospitality’s ‘Hot Spot’ Mining Regions With Leon Alaban

RWH NSW UPDATE National Market Review With Andrew Joliffe PME and Gaming Update With Blake Edwards A Valuers View With Paul Hall Activity in the Hunter With Nick Maclean

Ray White Network is the largest residential based agency in Australasia with just under 1000 franchises and over 10,000 employees in 11 countries. They continue to expand throughout Australia, New Zealand, Asia and the Middle East. Ray White Hotels Australia is a member of the Ray White Network and provides specialist sales expertise in Hotel Real Estate. Established in 2010, they have transacted over 75 properties, in excess of $800 million Hotel, Pub, Motel and Leisure assets. Ray White Advisory is wholly owned by Ray White Real Estate Pty Limited and provides specialist Valuation, Strategic Consulting and Research services for Hotel and Leisure property. They offer professional market advice to investors, financers, owners and operators.

For further information please contact: Brisbane office Level 7, 123 Eagle Street Brisbane QLD 4000 P: 61 07 3046 4300 Sydney office Level 17/135 King Street Sydney NSW 2000 P: 61 02 8016 3810 www.rwh.net.au

Market Perspectives and Commentaries - Hotel and Leisure Industry

Welcome to the second issue of the Ray White Hotels (RWH) Australia newsletter.

Each quarter, interviews with leading brokers, advisors, valuers and clients will provide you with their current perspectives on topical issues and the latest in market trends. This edition focuses on the hospitality opportunities in the mining regions and gaming industry updates across NSW and Queensland (Qld).

Queensland Gaming Machine Authorities Sales Update Following the release of the most recent Queensland’s Gaming Machine Operating Authorities Tender Sales results (Feb 2013), Tony Bargwanna, Managing Director, Ray White Hotels Australia, presents an indepth and interesting discussion around the current Gaming Authority market and it’s future prospects. “This is an opportune time to talk about what is in the forefront of hoteliers minds”, Bargwanna says, “and to openly discuss some critical issues impacting on the gaming industry and it’s performance”. Are the Current 2013 Gaming Machine Authorities Prices Promoting “Excellent” Buying or Has the Industry Paid Too Much in the Past? “Recent economic times have led to a downfall in trade across the board which ultimately has determined a decline in values” Bargwanna says, “I also feel there was less competition of people buying Gaming Authorities which has had a negative impact on the price as well.”

Tony Bargwanna Managing Director, Ray White Hotels Australia

Bargwanna does raise questions around “the process” in which the government has handled the sale of Gaming Machine Authorities. Has this been done efficiently and effectively, he asks? “When you flood the market with more product it can have a negative impact on values”, he highlights. “Hence, in June 2012 when the government released more Gaming Machine Authorities onto the market this had a declining value on the assets and we saw a negative impact on prices and sales activity”. “With all that said, it appears the market has turned and current prices present an opportunistic time to buy for those whom are able”, Bargwanna concludes, “Hence Gaming Machine Authorities are an excellent buy at the moment”. Looking at the latest Gaming Machine Authority Results (Tender #23) we see solid buying returning, supporting Bargwanna’s comments (see table below). In South East Qld Nov 2012, 311 Gaming Authorities were available and 234 sold at an average price of $67,152. The most recent tender, Mar 2013, had all 113 available sold at $78,468 average price, a 16.85% increase on Nov 12. This trend demonstrates some good activity which Tony expects to continue.

Comparison Table of Tender Results* Tender Date

Feb 11

July 11

Nov 11

Mar 12

June 12

Nov 12

Mar 13

South East Number Sold

(151) 5

(148) 117

(31) 31

(0) 0

(134) 47

(311) 234

(113) 113

Average Price

$80,000

$91,378

$99,432

No Market

$86,767

$67,152

$74,468

Coastal Number Sold

(113) 8

(129) 3

(122) 40

(82) 53

(77) 28

(148) 58

(96) 31

Average Price

$72,500

$75,100

$64,780

$65,600

$64,465

$56,548

$52,694

Western Number Sold

(61) 27

(34) 5

(29) 24

(5) 4

11

(13) 13

(10) 9

Average Price

$18,704

$19,000

$18,184

$25,000

$33,700

$34,412

$31,092

Contribution to Investment Fund (CIF)

$0.445M

$8.257M

$3.866M

$1.134M

$2.18M

$7.227M

$7.139M

*Figures include GST and are prior to payment of government charges. Figures in brackets represent the total authorities available, when the total not sold. Source: HLB Mann Judd (SE Qld Partnership)

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“I believe the South East has seen the bottom of the market with the Nov 2012 tender and expect prices to settle at around the NSW authority price of around $150k each in the medium term.” Are Gaming Machine Authorities a Rare Commodity or Will There Be More to Come? It has been over 12 years (May 2001) since the Queensland Government first introduced a state-wide cap on the total number of gaming machines in hotels, and at the same time created a scheme to allow the trade of gaming machines (Authorities) that become available in the market, (that is, the re-allocation of Authorities within the cap as a result of a hotel closing, a reduction in the number of approved gaming machines or the surrender or cancellation of the gaming machine licence.) These Authorities are sold via public tender sales, conducted by competitive tender in each of the three regions (South East, Coastal and Western Queensland) and authorities are only able to be sold in the region from which they originated. “When legislation was put in place to cap gaming, there may have been a little bit of panic by operators with purchasing Authorities,” Bargwanna explains. “In saying that, those Authorities purchased and put into the right venues, have given those owners a solid and sensible return on their investments. The cap created higher demand and values were maintained. So to say was too much paid previously, definitely not. It’s how and when Gaming Authorities are released to the market by the government that impacts on their value.” Bargwanna strongly believes Authorities will continue to be a proven and positive investment. He predicts a 20-40% increase in Authority values. “What is needed is for the operator to have the ability to surrender or sell their surplus Gaming Authorities direct to other operators within the same region”, he says. “This will maintain values and free up dormant Authorities.” How do Publicans Determine “What to Pay” for Gaming Machine Authorities? “It’s no different to a residential investment property”, Bargwanna outlines. “Operators look at what a single machine returns.” “Operators should be analysing the performance of gaming machines looking at 5 key performance indicators (KPI’s): (1) Bet per day (2) Actual Hold per Day (3) Theoretical Hold per Day (4) Average Bet, and (5) Occupancy”, he explains. “Of these KPI’s, the most important are Theorectical Hold per Day, the financial return including jackpots and wide area adjustments (if the machine plays to card) and Occupancy, which measures player satisfaction.” Has “Funding Restrictions” and the Education of the Finance Sector on Security Impacted the Declining Values? Mr Bargwanna believes one of the biggest industry challenges currently is the funding of a Gaming Authority. “Hoteliers have had to traditionally fund them against the security of their freehold, business assets and/or out of cashflow because the way the legislation is struck at the moment, a financier can’t secure a Gaming Authority”, Bargwanna raises. “This is a major issue that needs to be addressed, particularly in situations where there’s a leasor/landlord and a leasee/ tenant”. He explains. “Under the current licensed legislation, the tenant is the approved licensed gaming operator therefore he can sell the Authorities when in fact commercially they were originally owned by the landlord. The landlord can’t stop the tenant from selling them.” “Industry lawyers have been able to document securities for landlords whereby Authorities are protected, but no matter how stringent that lease is, the approved gaming license holder, the tenant, has the ability to sell a Gaming Authority if they are in need of cashflow, which can have a negative impact on the freehold when the lease is up. I see this as a major hindrance under current gaming legislation”, Bargwanna states, “The values of Gaming Authorities would be protected if this funding issue could be resolved and the banks had more surity.” One way to resolve this, Bargwanna suggests, is for the government to allow banks and landlords to retain security over Authorities. “Every Gaming Authority has its own license number and if that license number was ever submitted into a tender process, the system should trigger to check security against it.”

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WELCOME BRENTON McCARTHY - HOTEL SALES EXECUTIVE NT AND WESTERN QLD

Brent McCarthy

Ray White Hotels Australia proudly welcomes Brent McCarthy to the sales team as Hotel Sales Executive. After a long history of family involvement in the hotel and property industry throughout Queensland and his past 10 years of hands on experience in the Northern Territory managing cattle properties and marketing beef, Brent now brings his passionate and enthusiastic sales approach and marketing knowledge of the hotel industry in NT and Western Qld to the RWH team.

Brent has built a large and valuable contact base in Northern Australia which he has successfully utilised with many of his past marketing campaigns. One of Brent’s most recent marketing campaigns was an historic deal with the Indonesian Government over the importation of 200 high quality Braham cattle for the Indonesian Government breeding program. This deal received national and international media coverage. Brent sees significant sales and investment Starlight Tavern in Longreach, Queensland opportunity in NorthWest Qld and Darwin regions due to the gas and mining expansion. “I know this market intimately and have strong relationships with key people on the ground in these regions. I forsee robust business growth and development opportunities.” Brent states. Brent is excited to be working on a quality asset in Queensland’s west, Starlight Tavern in Longreach. This circa $2 million property holds a very strong return highlighting the strength of investments in outback Australia. Brent believes that with the growth in outback Queensland there will be strong demand for quality assets such as Starlight’s Tavern well into the future. Brent’s work ethic and philosophy is based all around client’s needs.

CHRISTIAN TSALIKIS - ANALYST/CADET SALES Christian Tsalikis joined the Ray White Hotels (RWH) team in 2010 as an industry analyst working for Tony Bargwanna, Managing Director for RWH Australia. Over the past 2 years, Christian has worked with Tony on over 70 marketing campaigns as chief analyst including the Hotel HQ, ALH Portfolio and Waterloo Bay Hotel & Homestead Tavern Christian Tsalikis campaigns. With a Bachelor of Business (Major in Marketing/Minor in Economics) and four (4) years hospitality experience in various positions, Christian has been a great addition to the RWH Qld team, effectively transitioning from his current role using his research and analytical skills into investment sales. One of the new breed of young professionals whom have chosen real estate as a career, the opportunity to work closely with an experienced and respected team of industry experts is one thing that motivates and drives Christian. His respect for clients and business is a priority. “I look forward to this opportunity and to learning as much as I can from the best and leading experts in the industry Tony Bargwanna and Sean Dollar”, Christian said. “I will aim to deliver what clients want, and will go out of my way to make sure I service them beyond their expectations”.

Ray White Hotels Announces an Exclusive Finance Opportunity for Clients LOOKING FOR A BETTER DEAL WITH YOUR EXISTING OR PROPOSED COMMERCIAL BANKING ARRANGEMENTS? A major “Big Four” Australian Bank is offering great banking benefits to RWH clients, thanks to Sean Dollar, Director of Sales and Business Development RWH Australia, and his 20+years as a commercial and corporate banker in the Australian Finance Industry. With his lifetime of experience in the banking industry with the likes of NAB, Suncorp and Bankwest, Dollar has secured rapport and relationships with key banks allowing Sean Dollar him unique opportunities to develop and present rare financial opportunities to RWH’s existing and potential clients.

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$10,000 in transition costs for new business loans refinanced from another financial institution where total loans are >$1m and $5m and $10m (capped at $40,000).

“One of the first critical questions when clients are seeking to purchase a pub, hotel or management rights is: “Where and how do I get the finance””, Dollar outlines. “This is where I can really add value for our clients, using my hospitality and finance experience and contacts to refer our clients to the best people in the business.” RWH are always looking for ways to provide clients with more and are pleased to pass on an impressive finance opportunity currently on offer by one of Australia’s Big Four major banks. “If you’re considering a refinance of existing arrangements or looking for acquisition funding, I encourage you to seriously review this special finance opportunity”, Dollar endorses. This “Big Four” Bank will look to cover expenses relating to Valuation Fees, Legal Costs, Stamp Duty and Security Registration and Discharge fees, and will reimburse you up to:

This offer is eligible for both new to bank and existing customers whom refinance business lending from another lender. You must hold or open an active “bank” transaction account, apply before May 31 and settle by July 31 2013 and your business loan must be held for 2 years. NB: Excludes property development and construction deals.

Hospitality’s ‘Hot Spot’ Mining Regions Queensland has become the world’s leading mining province delivering high grade coking coal, export-traded thermal coal and a base for the emerging Coal Seam Gas (CSG) industry for local, national and international markets. The 2 key regions providing the greatest output are: (1) Central Queensland, home to the highly lucrative Bowen Basin is a world rank Leon Alaban producer and exporter of black coal and a major centre for mineral processing; and (2) Southern Queensland, where the Surat Basin is becoming a major energy hub for Australia as large resources of thermal coal and CSG attract national and international investment. It is these mining regions of Queensland that Mr Leon Alaban, Director of Investment Sales Queensland RWH Australia believes continue to offer good buying opportunities for the hospitality sector, pubs and motels. Good buying continues to be represented in the mining regions” he says, “with strong and stable returns remain for investors seeking assets in these markets”. Some media reports have expressed a downturn in foreign investors and offshore demand for our minerals, however from what Alaban sees and hears throughout the regions is that demand is still strong and he predicts it to remain robust with profitable investment opportunities available for pub and motel operators.

“I genuinely don’t believe there’s a downturn in the mining regions,” he explains. “Yes, there’s been some closures due to company restructuring and repositioning of staff and business”, he outlines, “But China’s GDP is still above 7% and demand is not slowing, India and other Asia Investments is where the second wave of investment is coming from. They are still demanding our resources”. The Apsec report (Sept 2011) supports Alaban, outlining the largest proportion of growth is coming from investments by China and India in Australian coal mines and export infrastructure. The much publicised Mongolia and Mozambique as the next big coal producers need to first overcome major infrastructure hurdles. So Queensland’s coal resources will continue to be attractive targets for offshore investors looking for coking coal reserves.ABS statistics also reveal that private capital investment in the mining sector for the year to 31 March 2012 saw a new record of almost $21.7 billion – a massive 250% increase on the $8.7 billion invested over the previous 12 months. Alaban goes on to say “Large corporate chains such as Woolworths, Harvey Norman, Bunnings, McDonalds, wouldn’t be buying into these towns if they didn’t forecast growth. These operators understand the macro economics of the areas and are not investing with a short term view. You know that these companies conduct thorough due diligence and wouldn’t invest unless solid growth was predicted.”

“I GENUINELY DON’T BELIEVE THERE IS A DOWNTURN IN THE MINING REGIONS” P3

When examining these primary mining regions and their current and planned mining developments closer, you see what Mr Alaban is saying. The Bowen Basin is an area of coal reserves and mining related communities extending approx. 60,000km2 across Central Queensland from the town of Collinsville in the north to Theodore in the south and Emerald, Moranbah, Blackwater, Clermont, Rolleston in between. There are some 15 communities within the Bowen Basin with a combined population of approximately 50,000 permanent residents. This Basin is the largest coal reserve in Australia with 47 operational mines, employing over 60,000 and extracting over 180 million tonnes annually, representing 87% of Queensland’s coal production, our most important export commodity. It also accounts for over 60% of the total value of raw materials produced in Queensland. The Surat Basin extends across an area of 270,000km2 of both Southern Qld and NSW incorporating towns such as Roma, Dalby, Charleville,Cunnamulla, Moonie. Leading the development in this region are the multi-million dollar CSG projects producing and delivering CSG to residential centres and for export through processing plants in Gladstone. Currently there are 8 coal mines, 7 mineral mines and 58 medium to large extractive quarries operating in Southern Queensland with many more in exploration and under construction. In addition, 3 major CSG/LNG projects in the Surat Basin has created a surge in regional employment which is yet to peak. This growing demand for thermal coal for local power generation and export markets, allied with the new coal rail transport network, “Surat Basin Rail” under construction, will boost coal mining developments and unlock around 6.3billion tonnes of coal resources. Alaban highlights, this Surat Basin rail-freight connection between Wandoan and Banana to export facilities at the Port of Gladstone will bring another economic boost for the region. ”This privately funded joint venture will provide significant employment opportunities during construction and post”, he says, “And will enable continued growth of the coal industry, Australia’s largest export industry”. Other key mineral and economic rich mining areas in development are the Gladstone and Rockhampton districts due largely to their world class mineral processing facilities, the Maryborough Basin region incorporating (1) The Tiaro Coal Project with its wealthy Chinese investor Qinfa Group and The Burrum Coal Project and the emerging Eromanga Basin near South Blackall where International Coal, an Australian based company, is targeting thermal coal deposits.

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SO WHAT DOES THIS MEAN FOR HOSPITALITY ASSETS? With the world demand for mineral commodities at high levels, the outlook for future growth in exploration, mining and mineral processing in the regional mining region of Queensland is bright, making the economic and business prospects viable. Significant quantities of natural gas and now CSG are produced in the Bowen and the Surat Basins, with several projects in various stages of evaluation, development and production. “Queensland’s strengths in mining and energy production continue to lead the development of diverse economic prospects,” agrees Alaban. “There are a large number of coal projects currently underway and many more scheduled in the short and medium term. In addition to the major processing sites within the region, there has been significant developments in terms of supporting infrastructure”. Figures released by the Australian Bureau of Statistics (ABS, May 2012), show employment in mining reached a record high of 72,400 direct full-time jobs, representing 12,600 new jobs, a 21% increase over May 2011. It is a fact that every direct job in the mining industry generates about three indirect jobs, hence mining now underwrites around 290,000 full-time jobs in Queensland, that’s more than 17% of Queensland’s full-time workforce. “All this mining activity helps create significant community wealth and maintain strong regional economies”, Alaban states. “With mining companies and mine workers spending in their local workplace communities, this keeps money circulating through the local regional economy”.He goes on to say, “There are many economic and social benefits. This active mining industry also provides jobs in service and support industries, and in infrastructure provision such as road, rail, port and hospitality facilities as mining companies purchase a wide range of services, operation and maintenance support.” In addition to creating strong regional economies, the mining boom has a progressive impact on regional population growth which in turn has direct bearing on housing, accommodation requirements and occupancy rates. For example, the Bowen Basin experienced an impressive 6.63% population surge thanks to mining over the last 5years (ABS Census 2011) with resident numbers now at over 82,000 (Qld Treasury and Trade, June 2012). In addition, the non-resident population, comprising of those working in mining and gas industries, construction and associated sub-contractors, equates to approximately 25,000 workers (at June 2012). These numbers increased by 22% (or 4,515 people) over the prior 12 months, thanks to new mining projects, expansions and infrastructure projects in the region. Non-resident workers on shift comprised of 23% of the Bowen Basin’s 2012 FTE population of 107,100 people.

(vacancies at 3% in 2011 and 8% in 2012) limiting capacity for tourists and other visitors. Central Queensland’s mining-heavy region showed the best occupancy rates in hotels, motels and serviced apartments of all regional areas in the state. Recent ABS data (September 2012) revealed the coastal city of Mackay having the top occupancy rate of all regional Queensland destinations, with 78.6% of all rooms booked during the quarter. Next was the wider Central Queensland including Rockhampton and surrounds, with an occupancy of 72.3%, then Darling Downs (69.2%) and Bundaberg (64.2%). When looking specifically at 2 key areas: Mackay, categorised as a regional town, has experienced an impressive 10% population growth from 66,839 in 2006 to 73,563 in 2011 (ABS Census) and Moranbah, categorised as a “mining only town” and now ranked as an “emerging regional hub”, has shown a massive 26.39% growth from 8,259 in 2006 to 10,439 in 2011 (ABS Census). In addition to this resident population, Moranbah accommodates the largest population of non-resident mining workers within the entire Bowen Basin around 4,585 people representing an increase of 1,780 over the preceding year. The resources boom can be characterised as impacting positively on towns in the region, however rapid boom conditions bring unique challenges that can amplify planning issues, especially in the housing and accommodation market. Mining towns “accommodation requirements” are now driven by (a) a move to flexible mining operations and shift work periods where a large percentage of employees commute to mining communities basing themselves in coastal and urban centres and (2) a much high proportion of the mining workforce are now contractors and mining supply industries which has stimulated a growth in the mining support sector. Hence this change of business operation and workforce structure is now largely catered for by “Worker Accommodation Villages” (WAVs) and hotel/motel accommodation rather than the construction of new housing.

Research trends (Property Market Report, PRP, Sept 2012) show over the past 12mths to June 2012, strong demand for regional hotel, motel accommodation and serviced apartments continues in areas associated with the Mining Industry. The chart below shows how occupancy rates have risen more or less in line with rising mining investment over the last few years with no sign of this trend slowing. “The good news for prospective investors is”, Alaban reinforces, “this mining activity is pushing up demand for hotels, motels and serviced apartments from those working in the mining industry, so whilst there may be a holding pattern in yield expectations over the next 12mths. I strongly believe there’s no downturn in the mining regions,” Alaban states. ”The hospitality industry in mining towns will continue to deliver great growth and opportunity because of their

“Previously mining companies tended to provide housing for employees,” Alaban agrees, “However, following the reform process of the late 1990s, the trend now is for third party commercial operators to provide an increasing proportion of worker accommodation for their shift workers and subcontractors.” Alaban goes on to highlight, “The stats clearly indicate that despite the Bowen Basin being in one of the fastest growing regions of Queensland with future development prospects continuing, the current level of housing development in many towns is below the state average. This is a bonus for the pub, hotel and motel market – high demand and limited supply impact on price levels”. WAVs, usually purpose built for mining workers, provide around 88% of accommodation for non-resident workers (as at June 2012, Qld Treasury and Trade), with 22,150 miners counted in 69 WAVs across the Bowen Basin. Eight new WAVs opened in 201112, increasing total capacity in the region by 4,835 beds. Hotel/ Motels cater largely for contractors and associated workers (such as technicians, consultants) and pick up the overflow of WAVs. As at June 2012 there were 3,810 hotel/motel rooms available in the Bowen Basin but demand from the resource industry is high

price points and yields and returns with motel yields sitting at around 13-17% and pubs at 15-19%”. “It’s been estimated that regional mining communities employs close to 300,000 fulltime. The overseas and local investment in mining and resource in Queensland is continuing and the Newman Government is pushing ahead with plans to streamline approvals processes and cut red-tape”. He reinforces, “Yes I believe the future is bright for regional Queensland businesses in the pub, hotel and motel sector.” “I’ve received a lot of enquiry in the key mining areas from operators for both pubs and motels, in fact, enquiry rates are increasing”, he clarifies. “And the people on the ground in these markets are positive about the present and the future”.

“THE FUTURE IS BRIGHT FOR REGIONAL QUEENSLAND BUSINESS IN THE PUB, HOTEL AND MOTEL SECTOR” P5

RWH NSW Update National Market Activity Update - Quarter 2 The events of 2012 had very positive manifestations for all industry participants in 2013, whether they be buyers, sellers or lenders. “A large part of the positivity the industry now enjoys can be indexed to certainty”, Andrew Jolliffe, Managing Director NSW, RWH Australia believes, “Something that was a clear casualty of the turmoil inflicted upon the industry throughout the years 2007 through to 2011.” Jolliffe goes on to outline, “Importantly, the return of certainty has not been restricted Andrew Jolliffe to cost of capital, liquidity of debt Managing Director NSW markets and sustainable revenue RWH Australia generation, but it has also been evident in terms of greater clarity around possible legislative reform.

Key factors that will materially influence the national hotel marketplace for this year include: a) b) c)

maintenance of current interest rates and cost of funding; federal election result which has historically had a positive effect on the retail economy; and consumer confidence will continue to bounce back based on improving market sentiment, clarity around limited legislative change and easing of the Australian dollar versus other major currencies.

At a national level, a number of the key operators have been active both in terms of acquiring and divesting hotel assets. “The commencement of 2013 saw the recapitalised and rejuvenated Redcape Hotel Group acquire both the Belrose Hotel in Sydney, and the Lost City Hotel in South East Queensland. Jolliffe clarified, “Whilst at the same time, taking to market two of their non-strategic assets in the form of The Bristol Arms in Sydney’s CBD and the Club Hotel at Campbelltown in Sydney’s South West corridor.” In other activity, ALH (Woolworths hotel arm), Riversdale Group and the Laundy family have also made significant acquisitions, and along with Redcape, continue to assess strategic acquisitions.

PME and Gaming Update

Blake Edwards

“Recently NSW has observed what seems to be an upward trend in the price being achieved for blocks of poker machine entitlements”, states Blake Edwards, Hotel Sales Executive Ray White Hotels NSW. “While city to city transactions have been less frequent, country to city transactions continue with increased frequency. “Of the 10 most recent transactions Ray White Hotels Australia has been involved in, prices have ranged from $220,000 to $240,000.

component of the value of a hotel, this is a good sign that the value of entitlements are strengthening.”

“Although we are aware of prices being achieved outside this range, there is enough data to suggest that this is the new bench mark”. Edwards clarifies. “As poker machines entitlements are a significant

A Valuer’s View

Paul Hall

The sale of liquor through licensed retail outlets has been the fastest growing sector in the Australian retail market over the past 10 and 20 years. According to ABS data, liquor retail sales have increased at an average of 8.9% pa nationally over the past decade, nearly double the average for the retail sector as a whole at 4.8%pa. This compares to an average growth rate of 5.6% for supermarket retailing and inflation at 2.8% over this period.

The only retail sector to have outperformed the liquor sales has been pharmaceutical and cosmetic sales over the past 5 years.The liquor sector currently makes up around 3.9% of Australia’s retail market. The strongest increase in sales was recorded in Victoria which achieved 8.8% pa growth over the past decade and 10.9% pa over the last 5 years. The weakest increases were for Western Australia with growth being 5.7% pa and 2.4% pa. The strong growth in sales figures over a long period of time can be attributed to a number of factors according to Paul Hall, Director, Ray White Advisory. “Over the past twenty years there has been a number of legislative changes including introduction of smoking restrictions in pubs and clubs that has led to a higher proportion of alcohol sales being P6

purchased for home consumption”, Hall says. “Also the growth of unlicensed BYO restaurants has also assisted the sale of liquor from off-license premises”. “More recently the expansion of retailers Coles and Woolworths in this market with their introduction of new “big box” outlets, brands and buying power has also contributed to the on-going growth in sales volumes”, Hall further explains.

Activity in the Hunter The Hunter Valley is one of the largest regional markets in Australia. It enjoys a multi-faceted and thriving economy driven by tourism, the wine industry, mining, live entertainment, horse breeding and agriculture. Newcastle, the commercial hub for the region, is the second most populated city in New South Wales accounting for approximately 308,000 of the region’s 620,000 residents. Nick Maclean

In 1999, Newcastle experienced a setback with the closure of the BHP steel works after 84 years in operation. After employing approximately 50,000 people for many decades, the regional economy was forced to diversify as a result of the closure.

The Honeysuckle Hotel on Newcastle Harbour. Successfully sold by RWH in July 2012

The Newcastle and wider Hunter economy has strengthened over the past decade as a result of this diversification and unemployment is at 20 year lows. The Federal Government has shown its commitment to the region with the $1.5 billion infrastructure project, The Hunter Expressway. This 40 kilometre, 4 lane expressway will greatly reduce travel time to the lower and upper Hunter Valley from both Sydney and Newcastle. With construction due for completion in late 2013, the Hunter Expressway will generate further growth in the area. Significant residential development projects in the Lower Hunter are already under construction with a view to profit from the burgeoning population. Likewise the entertainment, hospitality and leisure industry in the area are likely to benefit from an increase in visitor numbers to the area. ‘Market fundamentals, the diverse economy and projected growth makes Newcastle and the wider Hunter Region an appealing market to those looking to invest in quality hotel and accommodation assets’, believes Nick Maclean, Hotel Sales Executive, Ray White NSW whom specialises in this region.

The Australia Hotel and Motel, Cessnock. Currently exclusively listed for sale with RWH

The Lower Hunter Valleys wineries, golf courses, restaurants, various types of accommodation (from luxury boutique to budget accommodation) and its proximity to Sydney and Newcastle attract approximately 2.3 million tourists to the region annually. Recent transactions successfully managed by Ray White Hotels include The Honeysuckle Hotel on Newcastle Wharf (sold July 2012) and a 33 Unit Accommodation Development in Pokolbin, in the Lower Hunter Valley’s wine region (sold April 2013). Currently listed for sale exclusively with Ray White Hotels is The Australia Hotel and Motel, Cessnock. This hotel caters to tourists, transient workers and the growing local residential population. The Australia is capitalising on the aforementioned market conditions and this is reflected in strong earninings, with an annual turnover of approximately $3.5 million and its multiple revenue streams of accommodation, bar sales, food and poker machines. The Australia Hotel and Motel presents a compelling opportunity for buyers seeking A-Grade hotel assets in this region. Other recent transactions in the Lower Hunter Valley include the 17 room Peppers Convent which sold for $6 million (November, 2010) and the Crowne Plaza Hunter Valley for $45 million (September, 2012).

33 Unit Accommodation Development in Pokolbin, Lower Hunter Valley Wine Country. Successfully sold by RWH April, 2013

THE HUNTER VALLEY IS ONE OF THE LARGEST REGIONAL MARKETS IN AUSTRALIA

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