Langton Capital – 2015-12-16 – Daily Wrap: Cycles, property costs, hotel occupancy & other:
Leisure Wrap & Other:
So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following. As always, contact us if you’d like further details:
Consumer behaviour, cycles etc.:
• We know that the 2007-08 bust was large by historic standards. And the 2009-10 recession was deep and the recovery therefrom has been shallow.
• There don’t appear to be the ‘boom times’ that one would associate with a ‘normal’ recovery but then again who’s to say what’s ‘normal’?
• Because the last upturn lasted from 1992 to 2007. Hardly normal but that in itself means that nobody below the age of 25 or so had even lived through a cycle.
• Perhaps the 1982-90 recovery period was more normal?
• But the UK during that period was recovering from a period of de-industrialisation that was not repeated in 2008-09 and therefore the bounce, given the arrival of new technology etc. into the bargain, was perhaps stronger than would otherwise have bene the case.
• Hence we might be thrown back to the 70s or even the 60s in an attempt to remember what is ‘normal’ and who amongst us can credibly do that?
• All of which suggests that this just might be the ‘new normal’.
• Trading is challenging, the mediocre have nowhere to hide and comments this morning from a number of general retailers seem to support this theory.
• Bonmarche has warned on profits (warm weather) and Carpetright has said that consumer confidence is “fragile” and the economic recovery is “slow”.
Trends in licensed retailing, property values etc.:
• In the licensed arena, Coffer Group’s Mark Sheehan has suggested that the leisure investment sector is likely to see a slow-down in transactions from 2015.
• It puts this down to a shortage of prime properties – but this could also be partly as a result of operators refusing to pay what have become extremely high occupancy costs, especially in the Capital.
• Sheehan tells the M&C ‘yield compression will come to an end, and investors will need to rely on rental growth to generate returns and profit.’
• This may not be possible (given the already-high starting point) and Sheehan concludes ‘some softening in the leisure commercial property market is quite possible.’
• With properties, the rent divided by the going yield gives the property price. If the latter goes up and the former stays the same, then asset prices could contract.
• That is a sanitised way of saying that they could fall.
London hotel occupancy:
• So was it Paris that caused a dip in occupancy across London hotels?
• The industry will be hoping so. For the record, occupancy fell 3.5ppts on the month per STR Global.
• Achieved rate, however, was up by 2.2%.
• Worryingly, STR says demand fell by 1.9% whilst supply rose by 1.7%.
• Just a reminder as to how cycles move:
1. Peak, high rate, high occupancy.
2. Topping out, even higher rate, lower occupancy.
3. Reaction, lower rates, falling occupancy.
4. Bottom, low rates, low occupancy.
5. Recovery, low rates, rising occupancy
6. Go to 1)
Random information, hopefully not all of it useless:
• Evolution still alive & well as Yo Sushi opens its first dedicated bar (albeit within a restaurant)
• Domino’s German merger looks to have been well-received. The group still has a third of what will be a much-enlarged business but, to some extent, out of sight, out of mind.
• Domino’s Pizza Poland (separate company) sees director putting money where mouth is. Current DPP director & former DP UK CEO Chris Moore puts a further hundred grand into the company.
• Starbucks has paid a bit of tax. What does it want, critics ask, a medal?
• Markets extremely strong yesterday and following through this morning.
• Sterling little changed against either Greenback or the Euro.
• Oil prices ‘firmer’ but has to be taken in context. Price now over $38 but just a shade above 11yr lows. Price was >$110 only 18mths ago. Hence price is perhaps a $1 off its lows but >$70 off its highs.
• Commodity prices much the same. Metals weak (though ‘stable’ – but then again so is a patient in a coma) & foods also lowly priced. Take red meat, for example, price of feeder cattle is down some 31% over the last 12mths:
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Domino’s UK forms enlarged JV with Australian franchise operator to run the former’s troubled German business.
a. New Domino’s JV will be 2/3 Australian-owned, will buy Joey’s Pizza for up to €79m. Will then have 227 German outlets.
b. Domino’s. Says JV ‘is a transformational deal for our German operations, creating the new market-leading pizza delivery operator.’
2. Starbucks paid £8.1m in corporation tax over the 12mths to end September. This is more than it had paid in the entire 1998-2012 period
a. Starbucks UK reports 3.8% increase in LfL sales for year to end-Sept. Profits up from £1.9m to £34.2m.
b. Starbucks’ sales in the UK fell in the year to end-Sept as the group closed some 17 loss-making stores.
3. Ex-Diageo CEO Paul Walsh + TPG Capital in talks to buy Grolsch + Peroni beer brands put up for sale as part of AB InBev’s / SAB merger
4. Pizza Hut UK has posted LfL sales growth of 6.2% for the year to 29 November and is now halfway through refurbishing its estate.
5. Coffer Group is anticipating a slowdown in leisure investment sector transactions going forwards due to a shortage of prime properties
6. US chain Earl of Sandwich is returning to the UK with a site at the Bluewater shopping centre.
7. YO! Sushi is preparing to run its first dedicated bar in its new restaurant in Chelmsford. A further instance of evolution etc.
8. DP Poland non-exec + ex-Domino’s UK CEO Chris Moore has bought 440,000 DPP shares, taking his stake in the company to 1.27%.
9. Kuoni Group sells ‘Neue Hard’ property in Zurich for CHF 75m, completing the streamlining of its property estate in Switzerland.
10. Japan Airlines is suspending its flights between Paris and Tokyo Narita in the wake of November’s terrorist attacks.
11. Thomas Cook has closed its bedbank Hotels4U, purchased for £21.8m in 2008, and will list the brand’s hotels instead on thomascook.com
12. London hotel occupancy fell 3.5% year-on-year in November to just under 82% and RevPAR dropped 1.4% to £122.38, per STR Global.
13. UK inflation back >0 for the first time in 4mths in the year to Nov. ONS says prices +0.1% last month from minus 0.1% in Oct.
14. UK house prices rising strongly reports ONS. Says prices up 0.8% in Oct with the annual rise up to 7% from 6.1%.
15. B of England governor Mark Carney has he is concerned about high levels of lending to landlords re buy to let properties.