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Could red tape around gaming see pubs head for a lean 2019?

Wed, Jan 23, 12:25pm by Staff Writer

A new report tabled by IbisWorld is forecasting a downturn in revenue for the pub sector this financial year.

A 0.5 per cent drop to $17.2 billion with a growth rate of below inflation at just 0.6 per cent a year during the next five years is the projection by IbisWorld.

“Small bars and pubs with premium food and drink offerings and niche services are projected to perform well, while pubs that rely on pokies revenue will likely come under pressure from tightening government regulations to combat problem gambling,” IbisWorld said.

A drop in alcohol consumption and red tape hitting the gaming sector will be key in the projected downturn.

A decline in revenue and profitability comes at the same time pub real estate values have soared since the global financial crisis brought about the banks recalling the loans of groups such as National Leisure and Gaming and the Hedley Group.

This will have the biggest impact on landlords and publicans who bought near the top of the cycle, especially as funding costs start to rise.

The head of investments at White & Partners, a private equity vehicle of the White real estate family George Ajaka said “debt levels” would be the biggest issue for owners and investors in 2019.

“If pub owners can manage this and even go as far as reducing their debt, they will be better placed to handle a shock to the sector, which is beyond our control,” Mr Ajaka told Australian Financial Review.

His portfolio includes the Allawah Hotel in Sydney’s south and the Acacia Ridge Hotel in Brisbane.

“What we can control is debt, so reducing debt is a smart thing right now,” he said.

Machine relocation in NSW & more community funding in the ACT

Poker machine laws are changing all the time in Australia, with the New South Wales government announcing last year that there would be a cap on machines in “higher risk areas” such as Fairfield in the city’s west, where residents bet $8.5 billion last year.

Under the new laws, venues would be able to avoid forfeiting machines by leasing them instead.

The new legislation includes a provision that allows clubs and pubs to lease machines to other venues.

Under the current laws, machines can only be transferred by sale, and for every three machines sold one must be forfeited.

Smaller regional clubs and pubs could theoretically lease poorly performing machines to larger venues in high-revenue areas such as Fairfield.

Greens MP Justin Field believes this new legislation will in fact cease a reduction in the number of gaming machines and allow for an extra 1,137 pokies to operate in the state by 2020.

Canberra’s pokies revenue spending will be pulled into line with clubs forced to hand over thousands of dollars to community initiatives.

A report by the ABC in November 2018 found that some clubs were spending the money on airline lounge memberships and professional sporting teams instead of community initiatives.

Clubs are required to spend 8 per cent of money raised from gaming machines on community groups and causes, but laws passed to increase that to 8.8 per cent.

Based on 2016-17 revenue, that equates to $750,000 in additional spending.

It’s not all doom and gloom

Pub and hotel trade has long proven resilient and that is the view held by JLL’s John Musca, who brokered Redcape’s $50 million off-market acquisition of the Australian Hotel and Brewery in Rouse Hill in 2018.

He is bullish about the prospects in 2019 stating, “hotel trade has historically proven to be very resilient to economic uncertainty and values are a function of earnings and demand.”

“There remains significant latent demand for hotels across cities nationally and, other than the cost of debt, there is little foreseeable reason that the weight of capital for the sector will dilute significantly,” he said.


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