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Hotels Quarterly UpdateQuarter 1, 2014 Market Perspectives and Commentaries - Hotel and Leisure Industry

RWH QLD UPDATE

National Gaming Market Review By Tony Bargwanna

Strengthening Market Confidence Post-Election By Leon Alaban

Brisbane’s Suburban Small Bar Revolution – The Retro Bar By Christian Tsalikis

NT - one of Australia’s Best-Performing Economies By Brenton McCarthy

RWH NSW UPDATE

NSW Property Market Performance Review By Andrew Joliffe

Low stock levels creating upward pressure on hotel prices By Blake Edwards

Highlights Welcome to the Ray White Hotels (RWH) Australia newsletter.

Each quarter, interviews with Australia’s leading brokers, advisors, valuers and clients will provide you with their current perspectives on topical issues and the latest in market trends. This edition looks at property and gaming market performance nationally, the Northern Territory market and current assets for sale.

View the RWH website to see all the up to date property information from around Australia.www.raywhitehotels.com.au.

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 pleasecontact:Brisbane officeLevel 7, 123 Eagle StreetBrisbane QLD 4000P: 61 07 3046 4300

Sydney officeLevel 17/135 King StreetSydney NSW 2000P: 61 02 8016 3810

www.raywhitehotels.com.au

National Gaming Market ReviewTony Bargwanna, Managing Director Ray White Hotels Australia considers the federal election as a line in the sand for most industries yet the hotel industry nationally proved to benefit by stepping over that line.

“The federal government, although be it gently, have promoted our industry in all sectors but more so in gaming than their predecessor.” Bargwanna states. “This has left state politics to hash out their own guidelines, and it’s with that I see Queensland sitting well ahead of the race.”

Recent denomination lifts at the note acceptors, and going from 40 machines to 45 machines per venue, has put Queensland in a very strong position. Adding to the recent promotion in Queensland gaming, is the offering of up to three new gaming licenses by the Newman government in the casino sector.

“Once again, state legislation is proving prosperous by inviting investment into Queensland such as the Colonial Leisure Group able to enter this market with their $70 million deal of the Townsville casino”, highlights Bargwanna.

Without buying into political conversation, Victoria is yet to resolve its current gaming entitlement program which is somewhat stagnant from a transactional point of view. “The response from investors we have received in the Victorian market is simply that of the unknown”, Bargwanna reveals.

He goes on to say, “Despite this, trade in Victoria stays very strong and venues still prove to be some of the best gaming venues in the country with one simple weight on their shoulders being that of the limited gaming license tenure”.

New South Wales still proves to be a solid investment mecca. The only change, post-election at state level, has been that of a heavy review on trading hours. “As we all know, different departments of a licensed venue trade their own optimum times and to put it simply”, Bargwanna discloses, “a broad brush over a reduction of trading hours on all departments is a knee jerk reaction and potentially damaging to certain revenue streams within a licensed business”.

Tony Bargwanna, Managing Director, RWH Australia

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Activity in the HunterThe 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.

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 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 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).

Nick Maclean

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

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

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

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

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Strengthening Market Confidence Post-Election

Leon Alaban, Director of Investment Sales RWH Australia observes business confidence emerging post the federal election, September 2013. “Compared to this time last year confidence has improved significantly”, he states. “Looking forward we have buyers actively competing against each other and therefore driving tighter yields.”

“Within our Qld office, over the past nine transactions, we’ve witnessed yields for going concern assets range between 6-14%, generally

speaking these sales have been a mixture of buyers acquiring strategic assets as well as underperforming venues”.

“Due to increased competition it appears that buyers are willing to pay for a little bit of “blue-sky” again”, Alaban explains.

The most recent campaign to be exclusively listed for sale with Ray White Hotels is The Mayfair Ridge Tavern located in Emerald in Central Queensland.

Emerald, a major coal mining centre in the Bowen Basin, has been enhanced by strong urban growth associated with the development of various coal mines. With extensive infrastructure, varied educational facilities including campuses for Central Queensland University and Central Queensland TAFE, Emerald Agricultural College and private and government schools, Emerald also features general and mining-related rail networks, a major regional airport and hospital.

Located on the corner of the Gregory Highway and Mayfair Drive, in the town’s main growth area, The Mayfair Ridge Tavern consists of a sports bar, lounge bar and dining, a function room, gaming room with 35 EGMs, outdoor dining, a drive through bottleshop with liquor barn and one detached bottleshop.

The modern, single storey tavern was constructed in 2008 and is situated at the entrance to Emerald’s newest master planned

residential estate “Mayfair Ridge”.

“A massive benefit to the sale of this lease is that the tenant owns the 35 gaming authorities”, Alaban highlights, “Ownership of these authorities should subsequently provide lending institutions added confidence to fund the acquisition”.

The tavern’s detached bottleshop is in a prime location in the newest shopping centre in Emerald (anchored by Woolworths and Big W). “Securing additional strategic detached bottleshop locations should generate additional revenue to the tavern and provide a rare opportunity to corner the retail liquor market in Emerald,” he said.

Please submit Expressions of Interest to Ray White Hotels office, Level 7, Riverside Centre, 123 Eagle Street, Brisbane, on or prior to the Expression of Interest closing date of 4pm on Wednesday, April 2, 2014.

Alaban finishes, “Over the past couple of months, we have been working toward listing an exciting portfolio of hotels covering both Queensland and New South Wales with more to come on these assets in the very near future”.

For more information on The Mayfair Ridge Tavern and other assets, please contact Leon Alaban on 0422 011 455 or l.alaban@rwh.net.au

Leon Alaban

Brisbane’s Suburban Small Bar Revolution – The Retro Bar

Last quarter, Christian Tsalikis, Hotel Sales Executive for RWH Qld, introduced you to the small bar phenomena, and the growth in number and consumer popularity in this new breed of “bar”. Recently Tsalikis sold one such bar, “The Retro Bar”, a cosy micro bar located in a funky laneway in the suburb of Kenmore on the west-side of Brisbane.

Karmen Costigan, owner of The Retro Bar engaged Ray White Hotels and Sales Executive, Tsalikis as the agent. “Being a residential agent

myself”, Costigan explains, “I am fully aware of the difference an agent can make to the negotiation and settlement of a sale”.

“Christian made all the difference to the sale of The Retro Bar”, she goes on to say. “He was easy to deal with and accurate in

his market appraisal. He displayed excellent negotiation skills, and dealt with us and the buyers in a professional and friendly manner, all the while achieving our needs.”

“I wouldn’t have any hesitation recommending Ray White Hotels and Christian to act as agent for any hospitality sale,” Costigan says.

“This explosion of small bars popping up in Brisbane and other capital cities around Australia is a direct result of the changes to the liquor licensing laws which has made it easier for the general public to create, design and run their own small boutique bar”, Tsalikis explains. “Brisbane lends itself to this growing “small bar” phenomena. The nooks and crannies and laneways, along with the new café liquor licensing, is enabling this culture to grow”.

If you are looking into the small bar market and/or have any questions regarding small bars, please don’t hesitate in contacting Christian Tsalikis on 0421 562 262 or c.tsalikis@rwh.net.au

Christian Tsalikis

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The Northern Territory ranked one of Australia’s Best-Performing Economies

The Territory is currently ranked as the second fastest growing economy in Australia, just behind Western Australia.

“We are seeing great optimism in the NT economy”, Brenton McCarthy, Hotel Sales Executive, N.T and Western Qld, “With the territory’s population growing, it’s economy thriving, private investment at an all-time high and public strategic infrastructure development well underway, not to mention low interest rates, this is the ideal platform for future property

investment for buyers considering this market”.

In 2013-14, economic growth in the Territory is forecast to increase by 5.0 per cent to $19.9 billion, primarily driven by a rebound in household consumption expenditure and strong growth in private investment.

Private investment expenditure is largely being driven by progress payments related to the accelerating development of the onshore components of the INPEX and joint venture Ichthys LNG plant project as well as as oil exports as the Montara Venture reaches peak production.

The Territory economy is forecast to continue its trend in 2014-15 with a further 7.0% growth. This will be driven by record levels of engineering work done in line with peak construction of the Ichthys project, the gas to Gove project, increased household consumption

associated with population growth and dwelling construction, and investment in new machinery and equipment as a result of major projects.

Total consumption expenditure is also forecast to increase in 2014-15 with household consumption expenditure expected to peak at 3.4% reflecting peak employment and population and private sector wages growth, along with low interest rates.

“With construction projects like the Avenue Precinct and many others happening in Darwin you gain an understanding that the Territory economy is broad and structured with many key drivers.” McCarthy clarifies.

Accommodation in the Territory has sawed in 2012/13. Darwin enjoyed occupancy rates around 77.9% with continued demand forecast for the coming years.

“When you see strong evidence from the corporate sector taking up to 500 rooms, as quoted in the N.T news on 21/11/2013 at the tail end of the tourist season for 6 week blocks, to service the projects that are occurring around the Territory”, McCarthy says, “you get the feeling the accommodation sector in Darwin has a strong future and hence property owners will receive the financial benefits.

McCarthy summarises, “With strong growth in the economy and never seen before low interest rates, coupled with exceptional occupancy rates in the accommodation sector, now is the time to consider investment in the Northern Territory.”

For further discussion and review of the current property portfolio for sale listing, please contact Brenton McCarthy on 0448 355 329 or by email b.mccarthy@rwh.net.au

Brenton McCarthy

Southport CentralManagement Rights

Permanent Management Rights – Southport Centralwww.southportcentralmlr.com

Southport Central is a mixed use, multi-purpose development, it comprises of three towers with integrated shopping and commercial precincts.

The offering - one of the largest management rights opportunities on the Gold Coast/South East Qld, which consists of 788 residential apartments over 3 towers.

Asset Outline:• Tower (1) 268 residential apartments• Tower (2) 262 residential apartments• Tower (3) 258 residential apartments• Resort style facilities consisting of 3 pools indoor & outdoor,

steam room/spa/sauna, 2 gymnasiums & undercover BBQ area• Positioned in Central CBD of Southport with the Light Rail

due for completion in 2014 at your door step• Current letting pool of circa 513 lots*• High occupancy levels

Under instructions from John Park & Kelly Trenfield as Receivers and Managers Appointed*approx

Corner of Lawson & Scarborough Street Southport

Expressions of Interest:Closing Thursday 27 March 2014, 4.00pm

Exclusive Marketing Agent:Grant Bailey0414 818 909g.bailey@rwh.net.au

raywhitehotels.com.au

Low Stock Levels Creating Upward Pressure On Hotel Prices

Blake Edwards, Hotel Sales Executive, Ray White Hotels NSW asks “Are low stock levels assisting sellers to achieve better prices?”

It is widely believed that last year’s change of government and the continued low interest rates, delivered higher business confidence resulting in a surge in hotel transactions.

“With buyer enquiry and confidence high along with stabilised interest rates, the market is showing significant improvement and activity

post-election”, Edwards states. “Increased purchasers and fewer “new”

properties coming on the market has created a shortfall for buyers”.

This seems to be having a positive effect on pricing and the recent market analysis suggests it’s the right climate for hotel owners to sell.

“It is unsure how long these favorable selling conditions will last.” Edward states. “A number of hotel owners I have been speaking with are choosing to put their property on the market now to capitalize on present conditions”

So if you are an investor looking at buying or owner looking to sell, please don’t hesitate in contacting Blake Edwards on 0421 400 530 to discuss options.

NSW Property Market Performance ReviewWith Andrew Jolliffe, Managing Director, Ray White Hotels Australia.

In the midst of all the, at times confusing, legislative amendments in firstly Newcastle and now Sydney CBD, regional NSW hotel assets continue to perform well in a strength-

ening economy, declares Andrew Jolliffe, Managing Director, Ray White Hotels Australia. He knows astute investors remain on the hunt for acquisition opportunities.

Whilst the government agency lead consolidation of regional areas continues, creating population contraction challenges in some smaller towns, the larger regional hubs of Wagga Wagga, Port Macquarie, Dubbo, Bathurst (pictured), The Hunter Valley and the like continue to perform very well.

In recent months, Ray White Hotels have marketed and sold regional hotels in Port Kembla, Bathurst and Wagga. Jolliffe highlights that each of these campaigns enjoyed significantly increased levels of buyer interest at a premium to that which may have been the case 18-24 months ago.

“Yields for regional assets remain attractive across a broad spread at 12% - 20%” he explains. “This is dependant, amongst other things, upon proximate population and the number of competitor

businesses in the subject area”.

In terms of the performance of revenue centres, bottle shop profits have been marginalised as a result of increased competition and recent legislated amendments to trading times across the state. However operators who are able to augment existing revenue centres or introduce new ones, such as small scale bowling alleys and stand alone accommodation offerings, are enjoying significant bottom line benefits. And sustainable bottom line growth is clearly accretive to overall asset value.

A whole range of factors influence financial markets with elections playing a relatively minor role. In the short term these include the threat of US military intervention in Syria, the US Federal Reserve’s taper decision, US Congressional negotiations regarding the US Government’s debt ceiling and worries about the emerging world and the mining slowdown locally. However, given the unstable policy environment of the last few years in Australia partly associated with minority government, the relatively subdued levels of business and consumer confidence and the business friendly policies of the Coalition, there is likely to be a favourable reaction to the change of Government evident over time.

Jolliffe declares, “With stable interest rates and the generous spread between the cost of funding and the historical profit generation profile of a number of our client’s regional assets, we remain bullish about the opportunities in regional NSW and would welcome any enquiry to discuss your requirements”.

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Andrew Jolliffe

Blake Edwards

Ray White Hotels NSW Update

Steelworks Hotel, Port Kembla Riverina Hotel, Wagga Wagga The Panorama Hotel, Bathurst

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Activity in the HunterThe 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.

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 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 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).

Nick Maclean

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

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

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

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