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Property review from Strutt & Parker

12.15am 8th April 2004 - Property

Deals Summary

  • At 13 in total the number of deals in 2003 was similar to 2002 but below the 5-year average of 15.2. This suggests that the market is going through a period of stability.

  • Capital values have remained relatively steady. Any increase in the value of a specific course has tended to reflect an improved trading position or physical improvements carried out to the property.

  • The total value of sales in 2003 (£41.7m) increased substantially over the 2002 total (£28.4m). This is due to a small number of properties being sold at particularly high levels.

  • There were 2 lettings in 2003, both of potentially highly profitable courses. The market remains very small with a limited number of buyers or tenants for any one property.

Buyers and Vendors
Unusually three vendors were overseas companies. These were for three of the highest value sales – The London Golf Club, Mill Ride Golf Club, Ascot and Camberley Heath Golf Club. All are high quality courses.
There is a move towards a growth in the number of small multiple operators (with less than five courses) and their portfolio size. As in 2002 half of the buyers were in the small multiple category.
The major multiples (with more than 5 courses) were relatively inactive. American Golf has remained inactive for the second year as a result of the purchase of their parent company in 2002 and a difficult trading year in America. It does however remain the largest operator with a good portfolio of 23 courses.
Clubhaus, with 11 courses had another quiet year on the acquisition front. Again this resulted from its funding difficulties. The management have stated that they will consider bids for the company. Their trading position improved and their portfolio is mainly good quality courses and country clubs.
Crown Golf sold Vale Royle Abbey Golf Course in Cheshire to a local group including one of the members and acquired Chesfield Downs Golf Centre near Stevenage through Strutt and Parker.
Chesfield Downs was purchased by Leisure Links International in 2002 from Clubhaus for £3.9 million. Well funded and with good management, Crown Golf is likely to be one of the major multiples expanding again in 2004. Burhill continued their steady increase by buying The Shropshire Golf Club to take their portfolio to 8 courses. With prudent buying and good management Burhill have steadily built their strong group of courses.
Two companies which have made strides in 2003 include the companies run by David Cross and by British Ensign Estates.
David Cross owned Chobham Golf Club, Millbrook Golf Club and the 9-hole course at Goal Farm in Hampshire and in 2003 acquired the very attractive and well located Camberley Heath Golf Club. This was last sold in 1987 for £7.5 million and since then has seen the construction of a high quality clubhouse.
They also acquired Stockley Park in Uxbridge – designed by Robert Trent Jones, one of the few leasehold properties to be sold with a short lease. We expect this group to continue to grow and become an important part of the golf property market.
British Ensign Estates, who acquired Slinfold Park Golf Club, Essex, in 1998, were active in 2003 and acquired Mill Ride Golf Club in Ascot – the course originally designed by Donald Steel and developed by London Securities on a debenture basis in 1992. They also acquired Moatlands Golf Club in Kent from an overseas company and now have three potentially good courses to operate and develop.
Letting
Two courses were let on the open market. The Delapre Golf Centre in Northampton was acquired by the Jack Barker Group taking their portfolio to eight courses mainly aimed at the low to mid-market sector.
It is likely that further local authority courses will come to the market over the next few years.
Trading Conditions
2003 saw one of the hottest and driest summers for many years. As a result, most operators traded well and achieved good results. This may however be a one-off situation and results for 2004 should be viewed in this light.
Outlook for 2004
In our opinion the market appears to have settled into a pattern which is likely to continue for the foreseeable future. There is no evidence to suggest that there will be any significant change to the size of the market in 2004, or to values.
We expect the majority of sales in 2004 to be to the smaller multiples who are likely to continue to grow their portfolios. There may be a small number of sales to larger multiples but there remains uncertainty over the future acquisition policy for the two largest multiples – American Golf and Clubhaus.
Golf Course Rents
We often advise on rental values. There are two distinct rental “markets” – the rent achieved when a golf course is offered to let in the open market and the rent that is achieved at rent review.
Courses that are offered to let in the open market tend to be those that are potentially profitable, and operators are prepared to bid a sum which reflects their anticipated profitability.
Rents are often geared to turnover subject to a minimum figure.
As a guide, these 18 hole courses tend to result in rents in the region of £100,000 -£150,000 with larger sums being achieved in prime locations. London courses may exceed £200,000 per annum.
The majority of rents are those which are settled at review. These have tended for historical reasons to be low but over the last ten years have gradually risen towards the market rent. However, there are courses which may not have the potential to generate large profits. This may be due to a difficult location – with a small catchment population or a large number of competing courses. They may have leases that are on terms less favourable to the tenant. This can result in rents at lower levels.
In all cases, it is essential that good quality advice be obtained to ensure the proper rent is achieved for both parties.
Strutt & Parker www.struttandparker.com

       

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