IMPACT ON VALUES
The traditional approach to valuing leisure and tourist parks and other trading entities is the Profits Method of valuation. When considering this approach, the valuer analyses the accounts provided and calculates the earnings before interest, tax, depreciation and amortisation (EBITDA) of the business. Where appropriate, adjustments are made to the actual EBITDA of the business to take account of any abnormal costs or income streams in order to arrive at a “fair, maintainable, operating profit” (FMOP) going forward that can be achieved by a reasonably efficient and competent operator of the business under stable market conditions. The valuer then capitalises the assessment of the “fair maintainable operating profit” by applying an “all risks” yield or multiplier. The multiplier reflects the current market’s perception of the risk associated with the investment opportunity and is measured against the availability of similar opportunities in the market whilst allowing for the subject property’s further trading potential.
More frequently operators and valuers have adopted the Capital Assets Valuation approach otherwise referred to as the Comparable Method of Valuation, having due regard to any comparable sites that have recently sold or are currently for sale in the marketplace, which is an important cross-check against the other methods of valuation. This is often presented as a per pitch basis, dividing the amount of pitches by the purchase price.
The values per pitch rates varies greatly. We have assessed historic transactions and can present the following pitch rate highs and lows. It would be inappropriate to provide averages as the circumstances of value will vary greatly between location, licence conditions and local market factors.
Obviously these are big swings in value and not reflective of the median average. For example when assessing a site where they are reporting below average returns, the pitch value comparable method cant be used as an average. The underlying value needs to be held by the multiplier of income, whether it be ground rent, holiday rents or sales commission, the multiplier of value is the underpinning principle.
With regards to restructuring there has been a big shift in trend for the large and medium operators of parks selling the freehold and renting it back on a leasehold basis or sell the ground rents, this is often done to use funds to pay off debts or invest into the park.
However when selling or seeking future funding, the leasehold payback reduces the net income and with rampant inflation predicted and the payments being linked to CPI, banks and traditional valuers will down value the asset.
With regards to acquisitions and disposals, the main change is the assessment as a percentage on Return of Investment opposed to multiplier of income. This assessment of value can increase the value dramatically. Private equity are keen to look at the % return and improvement in underlying value before more often than not securing an exit within 2-5 years down the line.
Therefore the net income instead of a multiplier of EBITDA is viewed as % return on investment of say 5-8% which would give a 12-20 times multiplier of purchase and then they will try and add value and then they sell the asset on again at an increased value often by buying multiple parks and forming or adding to a group to reduce their costs drive down the bottom line through economies of scale and sell on for a profit.
IMPACT ON MARKET TRANSACTIONS
The impact of Private Equity and corporate finance into the sector has vastly impacted the larger and medium sized groups. with time this will filter down to the industry as a whole with less asset sales and individual sales and more structured corporate purchases of business acquisitions.
This will obviously mean any park operators need to think about how to structure their legal holdings and financial reporting as well as the business planning for future growth.
At a corporate level:
- Bourne Leisure has been acquired by Private equity firm Blackstone
in a deal reportedly around £3bn. The business employs more than 16,000 staff,
hosts 25,000 holiday-home owners, and attracts 4.5 million guests to 56 sites across the UK a year, included within the Haven brand, which is the largest UK caravan operator with 38 holiday parks and 2.5 million visitors a year. Given the net income averaging £150m per annum for the last 5 years. This was at a 20 times multiplier. - Park Holidays UK, the largest holiday park operator
along the south coast, offering caravan and lodge holidays,
touring and camping, and holiday home ownership, has taken
over Wood Farm Caravan and Camping Park in Charmouth, near Lyme Regis.
Wood Farm joins Sandhills in Christchurch to become the second holiday park in the county operated by Park Holidays UK. Park Holidays UK recently announced plans to invest more than £20 million in its parks over the coming months and said that advance bookings for 2021 were the highest in its 30-year history. - Cove Communities, which runs 9,250 sites across the US and Canada, has started investing in the UK market with the purchase of Bunn Leisure. The deal for the 116-acre site has over 2,000 pitches and sold for over £150m, reportedly in the region of 18 times multiplier.
- They have also purchased Gwel an Mor in Cornwall for in excess of £30m.
- Away Resorts have purchased the Aria group to create a £600m group in July 2021.
- Private equity firm, Limerston Capital, has acquired Largo Leisure, which operates across 4 sites in 2021.
- Verdant Leisure was acquired by William Pears Group, which saw Palatine exit the business with a returns multiple of 3.7x, following a strategy of acquisitions and value creation which has grew Verdant’s annual turnover by 150 per cent since 2016.
- Verdant then added to its portfolio by acquiring Golden Coast Holiday Park from Woolacombe Holiday Parks.
Anecdotally it is notable that there is an increase in the private Small and Medium Enterprise (SME) market, transactional activity seems to have increased following a notable improvement in sentiment and the easing of lending constraints and higher loan to value ratios (LTVs) have provided a stimulus. This in part is due to the lodge and caravan park sector being resilient businesses through recessions with admirable cash-flows.