MAKING THE CASE FOR LEISURE - X-Leisure

A report commissioned by X-Leisure
MAKING THE
CASE FOR
LEISURE
A Report on the Continuing
Strength and Stability of
the Leisure Industry
www.x-leisure.co.uk

Our definition of Family Leisure
is a simple one: It is that part
of every family’s or individual’s
spending budget which centres
on basic leisure activities
outside the home in the areas of
entertainment and eating out.
The core of the Family Leisure
market comprises the cinema
and casual dining sectors.
Supported by this core are a
series of smaller subsidiary
sectors including; tenpin
bowling, health and fitness, kids
play and alternative leisure uses.

Leisure activities have become an
essential part of everyday family life and
are embedded in the DNA of the British
consumer’s 21st century lifestyle. It is
a strong and quickly maturing sector
representing significant employment and
contributing billions towards the British
economy.
I am frustrated that this leisure sector is grossly
misunderstood and misrepresented in all aspects,
creating a dichotomy between perception and reality.
With my 17 years of experience in all aspects of the
Leisure industry, and more particularly within the
property sector over the last 9 years, I passionately
believe that it is time to establish this sector as a
formidable asset class and recognise its strength and
stability.
I am not alone in this, and my frustrations are echoed
by my peers, key stakeholders including the CEO’s of
the some of the UK’s top leisure providers, operators,
investors and landlords who have joined me in
supporting this report.
Consumers are showing signs that their discretionary
spending is under pressure – but they still want to
enjoy a good evening or day out in a fun, value for
money, safe environment with a quality offer and
are unwilling to cut the leisure experience. Contrary
to popular belief, Family Leisure is at the core of
consumers’ spending habits and continues even when
the purse strings are tightened.
This report underlines what is driving the strong
performance of this large and resilient segment of the
market – which we have defined “Family Leisure”.
Today we are launching our Leisure Report which lifts
the lid on our industry, defines our sector and identifies
the significant opportunities for future growth.
Voila !
FOREWORD BY PY GERBEAU
PY Gerbeau
CEO X-Leisure
i

X-Leisure, the UK’s leading active leisure
property management and investment
company, is today launching this Leisure
Report, on the continuing strength and
stability of the Family Leisure Industry.
The Report identifies the leisure sector as being
misunderstood and misrepresented by the press,
commentators, investors and advisors.
Within the broader leisure sector is a segment we
define as “Family Leisure”. The report provides
evidence that Family Leisure, a major £90 billion
segment of the UK market, is continuing to show
resilience and stability despite the current constriction
of all aspects of consumers’ discretionary spend.
The core of the Family Leisure market, which we have
identified within the leisure property world, comprises
the cinema and casual dining sectors, supported by a
series of smaller subsidiary sectors including; health &
fitness, tenpin bowling, kids play and alternative leisure
uses. These leisure activities have become an integral
part of today’s consumer lifestyle and household
spend. As a result, and contrary to popular belief,
spend in this sector is robust. The resilient Family
Leisure spend is increasingly a reflection of today’s new
lifestyles and eating habits and is one of the last areas
of spending to be eliminated during times of austerity.
This report highlights the relatively low valuation
placed on leisure assets by investors and the
misconceptions these low values are based on. To
substantiate the report, X- Leisure commissioned an
extensive research review which included interviewing
a cross section of leisure sector CEOs, leading
journalists, sector analysts and other commentators in
a survey of leisure specialists’ views on the way Leisure
is reported and treated in the current market. 1
EXECUTIVE SUMMARY
The key findings of our report are:
General perceptions of leisure focus on “sin
industry” sectors (pubs, clubs, gaming, betting
etc) which are exposed to downturns in consumer
spend.
Family Leisure, on the other hand, has shown
resilience and even growth through tougher
economic times.
Consequently, the merits and strengths of
Family Leisure as an investment asset are being
overlooked by investors.
Family Leisure’s major contribution to the UK
economy – a £90billion sector with 1.8 million
employees - deserves to be better recognised
Property assets leased to Family Leisure operators
are good value, defensive and “recession proof”
with inherent investment merit through typically
long leases, low voids and fixed or minimum rental
uplifts.
1. Reputation Inc.
ii

In response to Making A Case For Leisure
key stakeholders give their insight into the
report:
Graham Turner – CEO Tragus
“No one gives the leisure sector credit for the way we
have tapped into consumer demographics and their
changing lifestyles. We react to the important shifts
and trends in what people think is important to them -
whether its healthy eating, value for money or alcohol
- and giving them what they want is very good business
for us”
“Leisure is such a large employer and contributor to the
UK economy generally, and yet we get scant recognition
and virtually no help from Government. We should
make far more effort to work together and to represent
the industry on issues like VAT and business rates”
Steve Weiner – CEO Cineworld
“There is so much innovation going on in the Cinema
business at the moment in terms of technology
and new markets. In particular, we are adding live
entertainment to our offer - for instance with 3D sport,
live concerts and opera broadcasts.”
“There are always good new films coming through but
we are also seeing a definite trend towards the cinema
as a good value night out - it is one of the few things
a family of four can do together which does not cost a
fortune”.
MAKING A QUOTE FOR LEISURE
Tim Richards – CEO Vue
“There’s a definite trend towards out of home leisure
activities and entertainment which is bringing people
out, regardless of the weak economy”
Steve Thomas – Former CEO Luminar Leisure
“Leisure businesses have had to transform themselves
into more agile, flexible and recession proof enterprises
and that’s helping the sector stay solid and resilient
despite the difficult background we are currently
dealing with”
“Most of the coverage of leisure spending we see has
absolutely no relationship to the way our business is
performing in the real world”
iii

MAKING A CASE FOR LEISURE
A report on the Continuing Strength and Stability of Family Leisure
i. Foreword By PY Gerbeau, CEO X-Leisure
ii. Executive Summary
iii. Making A Quote For Leisure
2. Making The Case For Leisure
6. Family Leisure: Big Sector. Big Opportunities
8. Leisure And The UK Economy: The Forgotten Sector?
10. Leisure Property Report
17. Cinema
21. Casual Dining & Fast Food
24. Tenpin Bowling
26. Health & Fitness
29. Additional Leisure Uses (Not Family Leisure)
31. The Case For Leisure
1

How consumers behave
Consumers’ spending behaviour reflects both their real
incomes and expectations of future spending power.
It is no surprise that they are currently displaying
plenty of caution across a range of consumer markets.
Consumer spending also reflects tastes and lifestyles,
social trends and preferences, which change and
evolve over time. Consumers’ spending behaviour can
be broadly divided into two categories; discretionary
and non-discretionary.
What is discretionary spending?
The amount or portion of a consumer’s spending on
things that are considered to be non-essential.
A lot of the traditional areas usually considered to be
included in that definition are not so discretionary
these days. TVs and other electrical appliances are now
considered to be “basic essentials” along with new
services like mobile phones and internet access and
some “lifestyle”, that is, leisure spending.
These are all now essential elements in our lives and
we cannot (or will not) do without them.
MAKING THE CASE FOR LEISURE
Is Leisure reliant on discretionary spending?
The leisure sector is perceived to be a cyclical sector,
dependent on discretionary spending and vulnerable to
volume pressure in times of economic slowdown.
Our experience within the Family Leisure business has
shown us that against a difficult trading backdrop, the
vast majority of operators have demonstrated trade
resilience and some have even seen growth, as shown
in Figure 1.
This stable and even improved trading pattern
across these businesses demonstrates that historic
perceptions and views in relation to Family Leisure
spend as discretionary are not valid. Today’s consumer
continues to spend or indeed switches their spend to
this sector in tougher economic times.
Consumers are unwilling to cut their core Family
Leisure spend. As Figure 1 shows, consumer spending
in the core Family Leisure sectors was broadly resilient
or saw growth over the period 2007-2009. Although
unwilling to cut their leisure spend, consumers are
happy to “downgrade”; for example, replacing a
meal in a fine dining restaurant for one in a casual
dining outlet. This willingness to “downgrade”
ensures consumers are able to enjoy the same leisure
experience whilst reducing their overall expenditure.
Figure 1: Consumer expenditure on selected leisure activites
2007 (£m) 2008 (£m) 2009 (£m)
2007-2009 %
change
Cinema 1,159 1,210 1,225 +5.69
Casual Dining 23,364 23,556 23,791 +1.83
Tenpin bowling 278 283 276 -0.72
Private health & fitness clubs 2,500 2,520 2,525 +1.00
Source: Mintel international
The implications for future leisure
spending within these Family Leisure sub
sectors, through good and bad times,
are therefore very positive; a view which
was corroborated by respondents to our
survey.
2

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very good prospects
Good prospects
Neutral
Lacking good prospects
No good prospects
The new patterns of consumer spending reflect big
changes in society, social habits and attitudes. Many of
those changes – an increase in working women, decline
of dining room meals in the home, later childbearing,
smaller family units, the increased emphasis on the
individual, healthier living and anti-smoking campaigns
- are ingrained, regardless of economic conditions.
Similar influences have also led to big changes in the
overall pattern of leisure spending in recent years.
These are most clearly seen in the drinking and dining
out sectors: the growth of coffee shops, casual dining
chains and gastro-pubs against the decline of the
traditional pub and the bingo hall.
In terms of the Family Leisure industry, that means
an evening at the cinema, taking the family out for a
pizza or taking the kids to a UK leisure destination are
all regular leisure activities. Leisure activities which
are being cut are the larger luxuries such as foreign
holidays and meals in fine dining restaurants.
These trends are not new, spending has been under
pressure for the last 36 months, yet certain sub sectors
MAKING THE CASE FOR LEISURE
continue to trade well. Cinemas had a record year in
2009 topping £1bn 2 in box office receipts and with
strong product and 3D technology helping to boost
cinema sales in 2010, this year is set to exceed it.
The same applies to casual dining; despite some well
publicised issues with a few tired or poorly managed,
higher end brands, the UK informal eating out market
had a flat 2009 3 as an industry. Within the eating
out market, the casual dining sub-sector, which is
at the core of Family Leisure, performed strongly as
consumers shifted their spend to affordable and good
value chains.
Another sector reporting strong performance is
destination attractions. Merlin Entertainments Group
figures for 2009 were strong and showed double
digit revenue growth year on year on a like for like
basis. Also benefiting the Family Leisure sector is the
“staycation” factor. Family trips to leisure destinations
in the UK are becoming increasingly popular as they
are a cost efficient alternative to the traditional holiday
abroad.
2. CAA, Rentrak EDI
3. Allegra Strategies
DOES THE LEISURE SECTOR HAVE GOOD
PROSPECTS?
Cultural change driving sector growth (more going out
etc)
Growing faster than economy
Emergence of innovative and entrpreneurial operators
Value for money business will survive
Agility is key
Hard to shake investor image issues
3

WHY HASN’T THE CITY RECOGNISED IT?
The key message in all of this is that
Family Leisure spend is non-discretionary.
In tougher times the consumer is more
demanding in terms of value for money.
As a result, well positioned leisure
businesses are benefiting from strong
trade and stable or growing revenues.
This is not apparent in investors’ reactions to the
leisure sector, or from the industry’s press. This has
focussed almost exclusively on the bad news; the
smoking ban, binge drinking, declining pub sales,
problem gambling, the near collapse of the bingo
sector.
There are a number of reasons for this, but the main
one is the disparate nature of the leisure sector. It
is a collection of different businesses with different
customer profiles and challenges, so it is not surprising
that many journalists and investors tend to concentrate
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very favourable reputation
Favourable reputation
Neutral
Unfavourable reputation
Very unfavourable reputation
MAKING THE CASE FOR LEISURE
on individual sub-sectors and the companies operating
within them, with the result that the larger sector
tends to be tarnished by these reports.
It is also not surprising that the “car crash factor”
has come into this. There is always a fascination
with a disaster story. Many leading hotel and leisure
companies were the subject of private equity leveraged
buy-outs in the 2005-7 years, when borrowing was
easy on the back of either their assets (hotels) or
strong cash flow (pubs, bingo, gambling). Many of
these companies have struggled in the much changed
economic and finance environment since 2008 and
their agony makes good copy.
The law of unintended consequences from all that deal
making has also played its part. It has led to the virtual
elimination of the quoted hotel and leisure sector.
That in turn has meant that hotel and leisure analysts
have disappeared as a class. The same has happened
in business journalism, leisure specialists now mainly
cover other sectors for their day job, typically retail.
DOES THE LEISURE SECTOR CURRENTLY HAVE
A GOOD REPUTATION?
“The leisure industry has the advantages of size,
ubiquity, and close links with consumers: ‘feel good’ is
the sector’s business”
Sector commentator
“The Leisure Industry is a big employer and contributor
to the UK economy”
Journalist
“Areas of the sector have been caught with too much
leverage. They have been punished in the press - leased
pub operators, betting shops, private equirty-owned
operations being obvious examples”
Leisure analyst
“Regulatory and taxation developments have heaped
further woes on the drinks and gambling sub-sectors”
Journalist
4

There is a dearth of experienced commentators
observing the industry as an industry, calling the trends
and identifying important developments. That is not
likely to change in the near future, so it is up to us to fill
the gap and explain what is going on to investors and
the generalist business reporters.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very favourable
Favourable
Neutral
Unfavourable
Very unfavourable
HOW WOULD YOU RATE THE GENERAL
FAVORABILITY OF LEISURE SECTOR
COVERAGE?
“I would say the coverage is in general, very
unfavourable - most stuff focuses on issues like binge
drinking, violence, gambling”
Leisure analyst
“Main subjects of coverage have been either ‘car crash’
stories or issues with mainly negative connotations e.g.
smoking ban, binge drinking etc”
Sector commentator
The disparate nature of the leisure sector
results in blanket statements, assumptions
and perceptions. These are generally
founded on the more high profile leisure
sub-sectors; gambling, nightclubs, pubs
and bars, and excludes the Family Leisure
sector, a sector with very different
characteristics.
MAKING THE CASE FOR LEISURE
DO THE PRESS GENERALLY TREAT LEISURE
AS A SECTOR OR AS A DISPARATE LEISURE
BUSINESS?
“Definitely a collection of disparate businesses...”
Leisure analyst
“It is certainly the latter, a collection of disparate
businesses”
Journalist
“There is no longer a Stock market leisure sector as
such, very few people are described as leisure analysts -
and very few journalists are leisure specialists”
Sector commentator
5

The outlook for the next few years is forecast to be
a hard, slow grind for all of us. The recession may be
theoretically over, but boom times and spending sprees
are unlikely to return in the near future.
How will the Family Leisure sector react to these
challenging times?
People will not sit at home with the blinds drawn until
all debts are paid off. The consumer still wants to go
out, to enjoy their leisure time and to be entertained.
They will, however, have to do it on a tighter budget
and with a more careful eye on value for money.
Operators giving good value are therefore well
positioned to maintain or even gain a bigger share
of what there is to spend. Family Leisure has been
growing year on year and that relative trend is set to
continue and, we argue, accelerate.
The owners of property assets which are let to the
strong, growing and cash generating Family Leisure
segment will also benefit strongly. Tenants that are
trading well pose less of a risk to landlords, cementing
their rental stream and minimise their risks to vacant
properties.
DOES THE LEISURE SECTOR HAVE GOOD
PROSPECTS?
Cultural change driving sector growth (more
going out etc)
Growing faster than economy
Emergence of innovative and entrepreneurial
operators
Value for money business will survive
Agility is key
Hard to shake investor image issues
FAMILY LEISURE: BIG SECTOR. BIG OPPORTUNITIES.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very good prospects
Good prospects
Neutral
Lacking good prospects
No good prospects
6

WHAT IS FAMILY LEISURE?
Our definition of Family Leisure is a simple one: It is the
part of every family’s or individual’s spending budget
which centres on basic leisure activities outside the
home in the areas of entertainment and eating out.
The core of the “Family Leisure” market comprises
the cinema and casual dining sectors. Supported by
this core are a series of smaller subsidiary sectors
including; tenpin bowling, health & fitness, kids play
and alternative leisure uses.
The annual amount spent on these activities adds up,
in our calculation, to well over £90 billion. Figures for
some of these sub-sectors are hard to pull together
but we estimate that Family Leisure, as we define it,
had annual growth in 2009 in excess of 5%, despite a
2.2% fall in household expenditure as a whole and the
adverse economic background for consumer spending
generally. Prospects for 2010 are good with figures set
to exceed this.
LIPSTICK LEISURE
The facts suggest that certain areas of
leisure spend, including Family Leisure,
demonstrate resilience during recessional
times, and in some cases spending even
increases.
This phenomenon is similar to the “Lipstick Index”,
a phrase used to describe the rise seen in cosmetic
sales during periods of economic downturn. This
regular pattern occurs because consumers indulge in
affordable luxuries when they have to sacrifice the
larger ones. Thus we coin the expression “Lipstick
Leisure” for Family Leisure.
FAMILY LEISURE: BIG SECTOR. BIG OPPORTUNITIES.
There are of course many areas of leisure spend that
are discretionary and are likely to be severely impacted
on during times of economic downturn. These include
eating out in high end restaurants and luxury holidays/
hotels. It is, however, as discussed through the report,
important not to categorise all leisure spend like this
and assume it all to be a discretionary spend that is cut
back when consumer income comes under pressure,
as the majority of investors, analysts and journalists
presume.
7

Leisure as a sector currently employs an
estimated 1.8 million people 4 , nearly 10%
of the UK total and not far behind the 2.5
million employed in the retail sector. 5
Leisure is a labour intensive service industry which
gets scant recognition for its role as one of the UK’s
major employers. This is particularly unfair given the
industry’s regular role as the villain in any debate about
activities deemed to have socially undesirable effects
or consequences which require tight Government
controls or regulation, at either national or local level.
Our survey of leisure CEOs, specialist press and
industry commentators strongly agreed with the
proposition that the sector received scant recognition:
Sector as a whole
Collection of disparate businesses
DOES THE COVERAGE RECOGNISE THE
LEISURE SECTOR’S CONTRIBUTION TO THE
UK ECONOMY?
“The press will always focus on the negative; hence
the coverage doesn’t recognise the leisure sector’s
contribution to the UK economy in general”
Leisure journalist
“We have always thought that we are undervalued;
manufacturing doesn’t get an easy ride either”
Sector commentator
“We’ve just done an economic impact study on the
betting industry pointing out that it generates a
significant amount of employment. That is not usually
mentioned in the press”
Sector analyst
“The leisure sector is a huge employer, but the
workforce is a largely low-paid and low-skilled”
City editor
LEISURE AND THE UK ECONOMY – THE FORGOTTEN SECTOR?
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Most definitly
Yes possibly
Neutral
Possibly not
Most definitly not
SHOULD THE LEISURE SECTOR
COLLABORATE MORE EFFECTIVELY IN ITS
REPRESENTATIONS TO THE GOVERNMENT?
“Leisure could take a leaf out of the retail industry’s
book and get some leverage with the Government on
important issues affecting the consumer and the leisure
industry”
Leisure analyst
“Leisure businesses are very different so it would be
hard to unify them completely but they could certainly
come together on certain issues”
Sector commentator
Nor was there any serious disagreement with the
proposition that the sector is largely responsible for
this situation because of its historic failure to present
a united front in representations to Government.
Individual sub-sectors, like gambling or pubs, have
tried to influence Government policies on issues like
smoking. Occasionally there have been efforts to
gather together a wider coalition of leisure interests
to lobby for central funding or tax relief on specific
activities with a bearing on the public interest, like
tourism or the Olympics.
Our survey revealed strong support for the proposition
that the sector is largely responsible for this situation
because of its historic failure to present a united front
in representations to Government.
We are therefore calling for leading figures from
major companies operating in Family Leisure to come
together to lobby Government on important issues
impacting the sub-sector. The aim would be to win
greater respect and recognition for the sector’s leading
role in employment generation and for its economic
contribution generally.
4. British Hospitality Association
5. British Retail Consortium
8

LEISURE PROPERTY: When
discussing leisure property we
are referring to leisure parks,
predominantly let to Family
Leisure operators. These leisure
parks are anchored by a cinema
with a strong casual dining or
fast food offering. These assets
may also include some or all of
the following; tenpin bowling;
health and fitness; kids play,
gaming, nightclubs, bars and
alternative leisure uses.

LEISURE
PROPERTY
REPORT

Leisure property is currently valued at a
considerable discount, based on historic
perceptions of risk and return, to other
property sectors. We believe that this
is incorrect and that the merits and
strengths of leisure as an investment asset
are being overlooked by investors, due to
a lack of leisure knowledge and a fear of
the “unknown”.
LEISURE PROPERTY: When discussing leisure property
we are referring to leisure parks, predominantly let
to Family Leisure operators. These leisure parks are
anchored by a cinema with a strong casual dining
or fast food offering. These assets may also include
some or all of the following; tenpin bowling; health
and fitness; kids play, gaming, nighclubs and bars and
alternative leisure uses.
PROPERTY VALUATION
In order to assess the case for leisure as a property
investment class, a basic understanding of the
methodology of property valuations is required. In
simplistic terms property valuations are calculated by
multiplying net rental stream by the reciprocal of the
“All Risk Yield”. The reciprocal in effect, produces a
multiplier.
The “All Risk Yield” is intended to capture and reflect
the future security and growth of a rental stream.
Factors such as covenant strength, length of leases
and sustainability and growth prospects of the current
rental stream are all hypothetically encapsulated by
this factor. The riskier the future prospects of the
current rental stream, the less the property is worth,
the higher the yield and the lower the reciprocal
multiplier and vice versa.
On a 2 year and 30 year basis leisure property has
out-performed all other core property sectors.
Leisure property is forecast to return 8.8% per
annum over the next 4 years whilst retail is
forecast to return 8.1% over the same period.
Source: Capital Economics
LEISURE PROPERTY REPORT
Figure 2: Net initial yeilds, 30 Sept 2010
Source: IPD
RELATIVE PRICING vs RISK
Leisure property is currently valued at less than retail
and retail warehouse property, commanding a higher
all risk yield.
Figure 3 below, shows that that over the period 2002-
2010, the initial yield for leisure has been, on average,
the highest initial yield of all the property classes, aside
from industrial where the risks are obvious, with 12.9%
voids and 43.9% over-renting. (See Figure 5 page 14).
Figure 3: Net Initial Yields
10
%
8
6
4
Source: IPD
NET INITIAL YIELDS
Leisure 7.00%
Retail Warehousing 5.90%
Offices 6.10%
Retail 6.00%
Industrial 7.10%
2
Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07
11

This implies that leisure is considered to be the riskiest
of the major property asset classes to invest in. The
reality is that leisure property is not being valued on its
own merits. Within the property investment industry,
the leisure sector is valued on a historic perception,
that relative to the other more recognised property
sectors, leisure is an inferior asset. Through a lack of
knowledge and awareness, leisure is considered to be
a risky, niche asset class, dependant on discretionary
spend and a fickle consumer.
Contrary to this belief, the facts reveal that leisure is no
more risky than other asset classes. Leisure property
has demonstrated itself to be less risky through
periods of recession than the other major property
asset classes. It is a stable and defensive stock,
demonstrating little volatility in revenue streams.
Leisure’s underlying characteristics and strength of
rental stream should be considered and reflected in its
valuation. In addition, the valuation of leisure should
reflect the merits and strengths of the leisure tenant
market and not the current weakness and troubles
apparent in other sectors and misconceptions through
a lack of knowledge and understanding.
Mar-07 Mar-08 Mar-09 Mar-10
Industrial
Leisure
Office
Retail
Retail Warehouses
LEISURE PROPERTY REPORT
Thin Tenant Market
Weak Covenants
Discretionary Spend
COMMON MISCONCEPTIONS
Is retail property a less “risky” asset class than
leisure?
Should leisure be valued more conservatively
than retail?
In answering these questions, this paper
concentrates on the last, economically
challenging, 36 months.
Obsolescence
Unaffordable Rents
Risky Asset Class
Assuming the basic method of property valuation,
the most significant factor affecting the all risks
yield, and therefore the value of property assets,
is the perceived strength and future growth of the
rental stream. The leisure rental stream can be
shown to be stronger and more robust, especially
in challenging times, than the retail rental stream.
Why then is it valued as the inferior asset class
across the property sector?
Why do we witness a weight of money chasing
retail assets and not leisure assets?
And why have we seen the pricing of leisure
assets continue to lag behind other, more
apparently volatile, sectors?
It is time to better understand the
underlying characteristics of leisure
property and its relative merits as an
investment asset and to dismiss the
negative misconceptions that investors
have of leisure property.
12

MACRO ECONOMICS
In order to assess the relative characteristics and
strength of the leisure and retail rental streams, the
macro-economic climate must be considered alongside
operators’ trading performances.
The macro-economic situation can be summarised as
follows:
Unemployment is increasing and forecast to
continue to increase through 2010 and 2011,
eclipsing 3million unemployed. 6
Household expenditure has contracted over
2008/2009 and is forecast to remain static before
growing slightly in 2011. 7
With household expenditure down and unemployment
rising, is the consumer reducing their overall
expenditure?
Yes. Households have reduced spending significantly
across the board over the last 36 months and growth is
not forecast to return until 2011.
Figure 4: Rental Growth, 2008 - 2012
%
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8
Source: PMA Forecasts 2010
LEISURE PROPERTY REPORT
Our research at the front of the report, provides the
evidence to support the conclusion that in tough
economic times, Family Leisure spend remains robust
and is not being cut back. This is further demonstrated
by the lack of leisure operator failures compared
to the large number of highly publicised retailer
administrations.
PROPERTY FUNDAMENTALS
Consumers cutting back on expenditure has a
consequential knock-on effect on the retail rental
stream leading to a decrease in operator revenues.
There has been an increase in vacant retail units
due to retailers scaling back their operations, and in
many cases entering administration, coupled with
a significant reduction in the number of operators
expanding and acquiring new outlets, means that
demand for retail premises has fallen substantially.
This fall in demand and subsequent increase in supply
creates disequilibrium in the market and to correct
this, rental values must then fall. This is particularly
evidenced within the retail sector compared to the
leisure sector.
2008 2009 2010 2011 2012
6. EIU
7. Experian
Leisure
Retail
Retail warehouse
All property
13

As well as a fall in rental value, landlords with vacant
property are being forced to accept tenants’ ever
increasing demands in order to secure new lettings.
Lengthy rent free periods as well as large capital
contributions are now being included in the majority of
rental lettings, impacting the net rental stream.
It is important to note that vacant properties carry a
real cost as well as an opportunity cost of lost rental
stream. Landlords are liable for empty rates, property
insurance and maintenance/service charge costs. A
vacant unit therefore has a double hit on net income
through a loss of revenue and an increase in costs.
Landlords with retail properties that have remained let
are also facing problems. They have faced an increasing
number of tenants defaulting on rental payments or
requesting a rental concession to ensure they avoid
administration. In this situation the landlord has little
option but to agree to the concession, again impacting
rental stream, to avoid losing the tenant. It is also now
common within the retail sector for tenants to pay
rents monthly rather than quarterly in advance.
Figure 5: Occupancy Statistics, June 2010
As Figure 4 shows, the retail property sector appears to
have suffered at the hands of the recession to a greater
extent than leisure as rental values have contracted
further, and remain in negative growth for a longer
period than leisure.
In addition, Figure 5 shows that void rates are higher in
retail properties than leisure and a higher proportion
of units are over-rented, increasing risk. Despite the
apparent resilience and better prospects of the leisure
sector it continues to be valued at a discount to retail.
As at September 2010 leisure had an initial yield of
7.00%, compared to 6.00% for retail and 5.90% for
retail warehousing. 8
LEISURE PROPERTY REPORT
LEISURE ADMINISTRATIONS
Regent Inns (Bar operator)
Novis Bars (Nightclub operator)
SELECTED RETAIL ADMINISTRATIONS
Woolworths
Ethel Austin
Zavvi
The Pier
MFI
Threshers/Winerack
Land of Leather
Miss Sixty
Adams
Officers Club
Wrapit
Borders
MK One
The Works
Rosebys
USC
Voids (% of ERV) % Over-rented % Reversionary
Leisure 4.0 18.2 71.4
Retail 5.8 41.3 45.4
Retail Warehousing 4.3 41.4 50.9
Office 13.9 44.4 33.3
Industrial 12.9 43.9 37.2
All Property
Source: IPD Quarterly Index, June 2010
9.4 41.9 41.5
8. IPD
What has happened and is happening to leisure
spend and how has this affected the leisure
rental stream?
Should leisure be perceived as an inferior
investment to other property investment classes
and be priced at a discount to this sector?
The institutional core asset classes appear
to have suffered at the hands of the recession
to a greater extent than leisure as rental
values have contracted further, void rates
have increased to a greater extent and
over-renting has become more prevalent.
Leisure is more robust.
14

LIPSTICK LEISURE
As highlighted earlier in the report,
certain areas of leisure spend display
resilience or grow during recessional
times. Consumers indulge in affordable
luxuries whilst sacrificing the larger ones.
Leisure property is exposed to the area of
leisure spend that benefits from “Lipstick
Leisure”.
Figure 6 shows that the spend on Family Leisure
sectors increases over the recessional period. There are
of course many areas of leisure spend (larger luxuries)
that are very discretionary and are severely impacted
upon during times of economic downturn. These
include eating out in high end restaurants and luxury
holidays/hotels. Consumers who have to sacrifice these
larger luxuries instead spend on affordable luxuries
like a trip to the cinema or a meal out in a casual
dining restaurant, leading to revenue growth for these
sectors.
Figure 6: Changes in consumer spend on certain leisure activities
120
110
100
90
80
70
Cinema
Source: Mintel International 2010
Casual Dining
Tenpin Bowling
Health & Fitness
LEISURE PROPERTY REPORT
2005 2006 2007 2008 2009
15

The leisure property sector is typically invested in, and
income split between, the leisure sub sectors as shown
in figure 7.
The leisure rental stream is dominated by the cinema
and restaurant sector. Indeed, some leisure parks will
only have these two sub sectors and those that include
other sub sectors are still likely to generate more than
50% of their income from these two key sectors.
LEISURE PROPERTY REPORT
Figure 7: Typical split of leisure park income
Minimum % Maximum %
Cinema 35 90
Casual dining / fast food 10 50
Source: X-Leisure Ltd
Tenpin Bowling 0 35
Health and Fitness 0 25
Bar / Nightclub 0 10
Gaming 0 5
It is a popular misconception
that all leisure spend is highly
discretionary. In reality, core
Family Leisure spend actually
increases during times of
austerity.
16

CINEMA INDUSTRY
2009 was another record breaking year
for the cinema industry with admissions
totalling 173.5 million and gross box office
receipts exceeding £1 billion for the first
time in history.
The Cinema industry is at the core of the Family Leisure
sector. The anchor tenant of a leisure park, the cinema
is the key footfall driver.
The 3 key players in the market are Cineworld, Odeon
and Vue who between them account for 61% 9 of the
screens in the UK. There are 5 smaller operators who
account for the majority of the remaining screens;
Showcase, Picturehouse, Reel Cinemas, Empire and
Apollo.
PERFORMANCE
2009 was another record breaking year for the UK
cinema industry, with admissions totalling 173.5
million, the highest level since 2002 and the second
highest since 1971. 10
As Figure 8 shows, the last 4 years have seen year
on year growth in admissions. This highlights that
Figure 8: UK Cinema Admissions
200
150
100
Million
200
150
100
50
50
0
0
Source: CAA, Rentrak EDI
consumers are unwilling to decrease their spending
on cinema going, despite the harder economic times.
A trip to the cinema is seen to be an affordable luxury
in which consumers are willing to indulge to replace
larger luxuries they have been forced to sacrifice.
As admissions have risen over the period, so too has
the average admission price. This increase in admission
price is due largely to the introduction of, and the price
premium that can be charged for, 3D films. In 2009, 3D
films accounted for 16% of UK and Republic of Ireland
box office revenues (£176 million), up from just 0.4% in
2008. 11
This growth in admissions, coupled with the rise
in average admission price has led to a significant
increase in box office revenues.
Figure 9: Number of 3D screens
Source: Mintel International
Number of 3D
digital screens
3D % of all digital
screens
2006 5 3.4
2007 47 15.9
2008 69 22.6
2009 449 69.9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
9. Mintel International
10. UK Film Council
11. UK Film Council
17

The total UK gross box office receipts for 2009 was a
record £944 million, up 11% on 2008 and the overall
territory gross (including the Republic of Ireland)
exceeded £1 billion for the first time in history. 12
This growth in box office receipts can be attributed to
rising admissions and average admission price, as well
as the quality of the cinema product.
Figure 10: Gross UK Box Office Reciepts, 2000-2009
1000 1,000
800
800
600
600
400
400
200
200
0
0
Source: CAA, Rentrak EDI
2009 was a great year for cinema product with
several massive blockbuster releases.
Avatar, released in 2009, became the highest
grossing film in UK box office history, taking
over £90m. The most recent film in the Harry
Potter franchise, Harry Potter and the Half
Blood Prince, also performed exceptionally well
grossing in excess of £50m. As well as these two
stand out releases there were a further 12 films
that took in excess of £20m each. 13
2010 is forecast to exceed 2009 both in terms of
admissions and box office receipts, as shown in
Figure 11. This view is substantiated by figures
released in September 2010 which show that
box office receipts for the first 8 months of
the year have hit £768m. This is an increase of
8% on the same period in the record breaking
2009. 14
Looking ahead to the future, this stellar
performance is set to continue, with revenues
and admissions both forecast to increase over
the next five years (Figure 11).
CINEMA
With the continuing strength of cinema
product being released and the quality of
product still in the pipeline, revenues look
set to remain strong.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Estimated
revenues*
(£m)
Figure 11: The cinema market 2005-2015
Index Admissions (m) Index
Yield per
admission
(£)
2005 1,078 75 164.7 90 6.55
2006 1,082 75 156.6 86 6.91
2007 1,149 80 162.5 89 7.07
2008 1,188 83 164.2 90 7.24
2009 1,301 91 173.5 95 7.5
2010 1,437 100 182.2 100 7.89
2011 1,529 106 186 102 8.22
2012 1,576 110 188.4 103 8.36
2013 1,634 114 194.2 107 8.41
2014 1,711 119 201.6 111 8.49
2015 1,787 124 209.4 115 8.54
12. UK Film Council
13. UK Film Council
14. Film Distributors’ Association
Source: Mintel International
18

With the sector performing so well and forecast
to continue doing so, the key cinema operators
are looking at ways to capitalise and increase their
revenue streams. They have found it more and more
difficult to open new sites in recent years due to the
slowdown in the number of new leisure developments
being constructed (due to planning and economic
constraints) and the fact that each scheme and
geographical location can only support one cinema.
However, they have continued to invest heavily
throughout the recessional times, with a significant
focus being on the introduction of digital screens.
Digital screens do away with the need for a traditional
projection room and allow cinemas to be more flexible
in their layout and reduce operating costs.
As a result of the introduction of digital screens and
the subsequent flexibility this generates regarding
the layout of screens, cinema operators have been
able to expand their cinemas into adjoining units in
order to increase their capacity to match the growing
customer demand. Another benefit of digital screens
is that it enables cinemas to show alternative content,
such as live sports events, theatre, ballet and opera
performances, which gives them an additional revenue
stream.
Figure 12: Number of digital cinema screens in the UK
No of
digital
screens
As %
of total
screens
Source: Mintel International
2005 2006 2007 2008 2009
38 148 296 310 642
1 4 8 8 17
This investment looks set to continue with Cineworld
reporting that they are aiming to install a further 150
digital projectors by the end of January 2011. Once
completed over 50% of their 801 screens would be
digital, with the vast majority being 3D enabled,
further extending their capability to offer more 3D and
alternative content to their customers. 15
CINEMA
RENTAL STREAM
The cinema is the anchor tenant of a leisure park
and accounts for anything between 35% - 90% of a
traditional leisure park’s income. The strength of the
cinema industry and its continued growth and record
performance should ensure that cinema tenants
provide a strong and secure rental stream and few
worries or risks for landlords.
Cinema leases frequently benefit from fixed, or
minimum, pre agreed rental uplifts at rent reviews.
These reviews are commonly in line with the retail
price index (RPI) or fixed at circa 2.5%-3% per annum
and ensure that rental growth prospects are not
constrained by the economic conditions at the point in
time of the five year rent review cycle. It is a common
misconception among investors that these minimum
uplifts lead to “over renting” through the lease term.
This rent that is perceived to be in excess of the market
level is considered risky and unsustainable.
With limited open market lettings and large incentives
offered to cinema operators to secure lettings, it is
difficult to assess cinema open market rental values.
Therefore, without the underpinning of rental growth
through minimum/fixed uplifts it would be difficult to
determine rental increases throughout the term of the
lease.
Figure 13 shows that between 1998 and 2008 the
price of ticket sales has increased in excess of the retail
price index. The annualised figures are 3.5% and 2.8%
respectively.
15. Cineworld Group PLC
19

Figure 13: Gross ticket price and RPI growth
This increase in average admission price, coupled with
growing admissions, demonstrate the cinemas should
be achieving a greater level of profitability, and that
rents that have risen on average 2.5% - 3% per annum
through fixed, minimum or RPI related uplifts are in
fact more affordable.
With average admission prices and
volumes set to continue increasing rents
are set to remain affordable well into the
future. The concern in relation to overrenting
and the perceived riskiness of
higher than open market rental levels
should be dismissed.
TENANT MARKET
The cinema industry is dominated by 3 players:
Cineworld, Odeon and Vue.
Cineworld, which is the only listed cinema operator
and accounts for 21% 16 of the UK share of screens,
has continued to trade strongly through the last
challenging 36 months. They have seen year on year
growth in revenues. The latest figures they have
reported show that box office receipts for the 42 weeks
to 21 October 2010 are up 8.3% and other income
is up 43.8%, on the same period in 2009. They are
continuing to invest heavily in digital technology and
improving existing sites. 17
The largest of the 3 main players with over 800
screens 18 , Odeon is owned by the private equity group
Terra Firma and as a result, financial information is hard
to come by. The latest set of figures available show
that for the year ended December 31 2008, revenues
were up 8.3%. 19 We understand that Odeon continue
to trade well and in November 2009 the company had
187 digital screens and entered into an agreement
with three Hollywood studios to convert the remaining
470 screens to the digital format at an investment of
£70 million. 20 In 2010, Odeon added an additional 2
Imax screens, making them the largest operator of this
technology in the UK.
CINEMA
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Annualised
Gross Ticket Price £3.69 £3.91 £4.04 £4.22 £4.29 £4.43 £4.49 £4.68 £4.87 £5.05 £5.18 -
Source: X-Leisure Ltd
% Change - 5.96 3.32 4.46 1.66 3.26 1.35 4.23 4.06 3.70 2.57 3.5
RPI 162.9 165.4 170.3 173.3 176.2 181.3 186.7 192.0 198.1 206.6 214.8 -
% Change - 1.53 2.96 1.76 1.67 2.89 2.98 2.84 3.18 4.29 3.97 2.8
Vue is management owned although rumours persist
that the management are seeking a sale to a private
equity group. For the year ending 26 November 2009,
Vue reported a rise in revenues of 9.7% on the previous
year. 21 The company said that this growth in revenues
was due to a strong cinema product, a shift to digital
screening and a new pricing strategy. In mid-2009, the
company said that it planned to open an additional
eight cinemas across the UK by the end of 2011.
As tenants, all 3 companies are rated as having
negligible risk associated with them, according to IPD. 22
The rest of the tenant market is made up of 5
medium sized companies (50+ screens); Showcase,
Picturehouse, Reel Cinemas, Empire and Apollo and
a series of independent operations. It is a common
misconception that the cinema tenant market is thin.
SUMMARY
The cinema industry is looking strong
today and robust for the future.
Consumers are increasing, rather than
cutting, their cinema spend. Add to this
a long pipeline of good product and
significant investment in new innovative
technology and the cinema sector is set to
remain resilient and stable. This continued
strong performance, relative affordability
of rental levels and minimum fixed uplifts
make cinemas a low risk, secure and
stable anchor tenant.
16. Mintel International
17. Cineworld Group PLC
18. Mintel International
19. Odeon UCI Cinemas
20. Mintel International
21. Vue Cinemas
22. IPD Rental Information Service
20

CASUAL DINING & FAST FOOD
Revenues in the UK informal eating out
market are estimated to be £40.1 billion,
and are forecast to grow by c.20% to £47.5
billion by 2014.
The casual dining and fast food sectors are, along
with cinema, at the core of the Family Leisure market.
The casual dining market covers a wide range of
operators including Pizza Hut, Frankie and Benny’s,
Nandos, Chiquitos, Bella Italia and Café Rouge. The
fast food sector is dominated by 3 key players: Burger
King, McDonalds and KFC. The market benefits from
an increasing popularity to eat out as well as footfall
driven to the park by the cinema.
PERFORMANCE
Revenues in the UK informal eating out market (Casual
dining, fast food, coffee houses and sandwich shops)
were estimated to be £40.1bn at the end of 2009. 23
This is a fall of just 0.5% since 2008 and is still above
pre-recessional levels, clearly demonstrating resilience
despite consumers tightening their purse strings across
the board.
5000050 Figure 14: Expenditure in the UK informal eating out market
40 40000
30 30000
£ Billion
2000020
1000010
0
As Figure 14 shows, prior to 2009, the industry
had seen year on year growth in revenues over the
previous 8 years. This is primarily due to the growth
in the number of meals eaten out of the home.
Research suggests that one in every nine meals are
eaten out of the home each week, translating to a
total of 148 million in 2009. This has led to the eating
out market taking a greater share of total expenditure
by consumers on food and beverages, up from 14% in
1969 to 22% in 2009 24 , with the trend set to continue
into the future.
This strong market-wide performance is misleading,
and resilience is not being experienced throughout
all of the sub-sectors. The mid market and upper end
operators are suffering as consumers downgrade
during these difficult economic times and margins
squeezed through discount offers and vouchers. As
with the wider economy, the value operator, prevalent
in the casual dining and fast food sector, is seeing trade
increase as consumers indulge in affordable luxuries at
the expense of larger ones.
“Consumers will not forget what they are learning
from the recession…and will not go back to paying
over the odds for a meal.”
This strong performance and growth of the casual
dining and fast food sector is set to continue into the
future. As Figure 14 shows, growth is expected to
return to the market in 2010 and is forecast to grow by
c.20% to £47.5bn by 2014. 25
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Allegra Strategies 2010
23. Allegra Strategies
24. Allegra Strategies
25. Allegra Strategies
21

RENTAL STREAM
The casual dining and fast food sector is the second
core tenant group on a leisure park and anything
between 10% - 50% of a traditional leisure park’s
income comes from this sector.
The shift in consumers’ preferences to
value offerings, the increasing number of
meals that are eaten out of the home and
the strength of the cinema trade ensure
that casual dining and fast food tenants
provide a strong, secure rental stream for
landlords.
Restaurant leases on leisure parks are commonly for a
minimum of 15 years term certain. Rental levels range
from £20-£30psf, meaning rents are affordable and
there is the room for rental growth in the future.
Casual dining and fast food operators will seek
representation on all leisure parks where the cinema is
trading relatively well. The result is strong demand and
competition from the restaurant sector for available
units with consequential low voids and good rental
growth prospects.
This desire for restaurants to seek space on good
trading parks also means that there are profitable
asset management initiatives that can be undertaken.
Existing units can be extended, redundant units
split into smaller units or new units created to
accommodate the increase in restaurant demand.
Likewise, if a cinema rationalises, ground floor screens
can be split off and restaurant units added.
The casual dining and fast food rental stream is
affordable, secure and has room for future growth. The
vast number of operators seeking representation on
leisure parks significantly reduces the risks to landlords
associated with holding these units.
TENANT MARKET
The fast food side of this sector prevalent on leisure
parks has 3 key operators: McDonalds, Burger King
and KFC. The recession and consumers’ increased
sentiment to the value end of the market has seen this
sector grow by 8% in the last year. 26
McDonalds UK, who operate 1,200 restaurants across
the country continues to trade strongly. A recent
overhaul of their offer has helped them to introduce
varying price points and to capitalise on the breakfast
market. In 2009 they reported an 11% like-for-like
CASUAL DINING & FAST FOOD
sales increase and 7.5% growth in customer visits. 27
Going forward McDonalds looks set to increase store
openings in Europe with 250 planned for 2010, up 14%
from 220 in 2009. 28
Burger King has also benefitted from an increase in
trade as a result of consumers downgrading when
eating out. Looking to the future, the main focus for
Burger King will be on the refurbishment of its current
outlets into the new, more upscale design format and
simultaneously rolling out its new, smaller ‘Whopper
Bar’ concept.
KFC also has expansion plans, as a result of strong
trading over the last few years and going forward they
have announced an intention to open 200-300 outlets
in the UK over the next 3-5 years. This is a huge step
up from the 30 outlets they opened in the year ending
November 2009. 29
The casual dining side of this sector has a large number
of operators. Brands including the following all fit into
this market: Nando’s, Pizza Hut, Pizza Express, Café
Rouge, Yo! Sushi, Prezzo, Chimi Changa, Zizzi, Strada,
Gourmet Burger Kitchen, ASK, Girraffe, La Tasca,
Frankie and Benny’s and Bella Italia. These operators
have all continued to trade well over the last 36
months, due mainly to the heavy use of promotions
and special offers.
The Restaurant Group, who operate, among others,
the brands Frankie and Benny’s and Chiquitos, have
announced that year on year revenues are up 9% and
EBITDA up 10% for the 27 weeks to 4th July 2010. They
are also planning to open an additional 35 sites over
the course of 2011. 30
Prezzo, who operate 140 restaurants, have announced
a similarly strong set of results which show that for the
first 26 weeks of 2010 both revenues and EBITDA were
up, by 11% and 17% respectively. 31
26. Mintel International
27. McDonalds
28. Mintel International
29. Mintel International
30. Restaurant Group Plc
31. Prezzo Restaurants Ltd
22

Tragus, whose brands include Bella Italia, Café Rouge
and Strada, have announced that for the 52 weeks to
30 May 2010 revenues were up 5.9% and EBITDA up
7.8%, both year on year. 32 On the back of this strong
performance, they are looking to open a further 20
restaurants before May 2011, an increase on the 15
opened in the previous 12 months. 33
This strong trade has ensured that casual dining
operators have remained acquisitive and look set to
continue acquiring new sites. As the table opposite
shows, 160 new sites are being sought by a selection of
just 7 selected operators in the market, a 28% increase
on units opened by the same operators in the previous
year. 34
CASUAL DINING & FAST FOOD
Figure 15: New openings planned
SUMMARY
2009/2010
(opened)
2010/2011 )
Planned
The Restaurant Group 15 35
Tragus 15 20+
Gondola 30 50
Prezzo 30 15
Nandos 25 20
Las Iguanas 5 10
Cote 5 10
Total 125 160
Source: UK Commercial Leisure Bulletin, Savills, September 2010
The casual dining/fast food sector which
the core leisure property market is
exposed to has shown strong resilience,
kept customers coming through the
door and continues to trade without any
notable failures. This sector, which is a
key tenant in leisure schemes, has faired
especially well. Trading has remained
strong as consumers seek value with an
increasing propensity to eat out.
This strong restaurant performance has also led to an
increase in corporate activity in the restaurant sector
with notable examples including Carluccio’s being
bought for £90m and Nando’s close to finalising a
deal to purchase Clapham House Group. With over 10
times EBITDA being paid for Carluccio’s, this corporate
activity highlights how strongly the operators are
trading and how attractive they are to investors. Why
then are leisure parks, which derive up to 50% of their
rent-roll from this sector, deemed to be so risky?
32. TRAGUS
33. Savills
34. Savills
23

TENPIN BOWLING INDUSTRY
Tenpin bowling has a universal attraction and spans a
broad range of markets including kids’ parties, students
and 20s – 30s group activities.
Following a period of sustained growth of 2-3% per
annum, the level of consumer expenditure in the
tenpin bowling market fell by an estimated 11%
between 2007 and 2009, to reach a value of just under
£250 million. 35
As Figure 16 below shows, the sector has shown robust
performance over the last 3 years, given wider market
conditions. Spending on the core activity of bowling
remained relatively flat throughout the period, with a
reduction in secondary revenues causing the overall
fall. The tenpin bowling market appears to have
returned to growth during the first half of 2010, with
volumes increasing and overall levels of spend ahead
of last year.
The tenpin bowling market appears to
have returned to growth during the first
half of 2010, with volumes increasing and
overall levels of spend ahead of last year.
Figure 16: Expenditure on Bowling in the UK
300
250
200
150
100
50
0
0
Source: Mintel International
The primary bowling lane revenue has held up far
better than the ancillary revenue from food, beverage,
pool tables, and machines. Consumers still want to
enjoy a game of tenpin bowling but as in all industries,
they now have a much closer eye on their secondary
spend. The secondary spend has also been hit by the
smoking ban and de regulation of licensing hours. This
fall in secondary spend has hit the tenpin bowling
operators total revenues. This situation, however, now
appears to have stabilised.
As shown in Figure 16, growth is forecast to return to
the market in 2010 and continue back to pre-recession
levels over the next 5 years. There remains a positive
sentiment for the future within the tenpin bowling
sector, with additional areas of business being explored
to maximise revenue generating potential of the
premises, and consolidation of some of the smaller
operators.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
35. Mintel International
24

RENTAL STREAM
Bowl operators could account for up to 35% of leisure
parks’ income, although they are not present in all
schemes. Their standard property requirement is a
c.25,000 sq ft floorplate at rental levels in the region
of £8-£10 psf. Many leases will also benefit from
minimum or fixed uplifts.
Despite falling revenues, bowl operators pose few risks
to landlords. Falls in income have been offset in part by
comprehensive cost cutting measures and operators
have streamlined operations to concentrate on
maximising primary revenues. New secondary revenue
stream ideas are also being explored to boost future
income. (Improved food offers, karaoke etc.)
In addition, rental levels in the sector are affordable
and this has helped to ensure that despite a fall in
revenues across the sector, there have been no tenant
failures.
All of the “big box” uses on a leisure park are readily
interchangeable with new uses such as kids play.
With new concepts entering the market alternative
occupiers are readily available for any surplus
accommodation.
TENANT MARKET
Essenden (formerly Georgica) is the holding company
for the Tenpin brand. Tenpin is the UK market leader
with 38 sites, 997 lanes, 4.7 million customer visits
in 2009 and an estimated 23% of market share by
value. 36 The group reported a decline in sales of 7.5%
for 2009. However, following an 11% decrease in the
first half of the year, the decline flattened out to 4.6%
in the second half. Following its financial restructure in
2009, Essenden has conducted a strategic review and
has a number of new initiatives in the pipeline centred
around plans to further upgrade the core bowling
product. 37
AMF Bowling is now the second-largest operator
following its purchase of the Hollywood bowl operation
from Mitchells and Butlers in September 2010. 38 The
company was sold to private equity investors in 2004
and as such financial information is difficult to come by.
The latest results show that over the period 2004-08,
revenues grew by 10.6%. 39
Bowlplex, the third-largest operator in the market, has
steadily grown over the past decade from seven sites in
2000 into a nationwide chain of 18 centres currently. 40
Following the trend in the market, revenues fell in
TENPIN BOWLING
2009 by 6%. During this period, however, an efficiency
drive achieved £2 million of annual cost savings which
helped to offset this revenue decline. 41
Tenpin, AMF and Bowlplex are all classed as having
negligible or low levels of risk associated with them by
IPD. 42
The remainder of the tenant market is made up of
NAMCO, Newbury Leisure and American Amusements
who operate at least 10 sites each as well as numerous
independent operators.
SUMMARY
The tenpin bowling sector has been hit
by the recession with revenues in 2010
down 11% from the 2007 highs. However,
there have been no tenant failures in the
tenpin bowling sector and there remains a
positive sentiment for the future. Growth
is forecast from 2010 taking market
revenues to in excess of £250m.
Operators are exploring additional areas
of business to maximise revenues and
cost reduction programs have helped to
maintain profit levels. They offer good
value entertainment and experience for
the ever discerning and value for money
seeking customer and family.
36. Mintel International
37. Essenden
38. Mintel International
39. AMF
40. Mintel International
41. Bowlplex
42. IPD Rental Information
Service
25

HEALTH & FITNESS INDUSTRY
Revenues in the health and fitness sector
grew by 25% between 2004 and 2009,
driven predominantly by the aggressive
expansion by several key operators.
Over the same period membership levels also grew by
25%, with the latest research suggesting that 10% of
the UK adult population are now members of a health
club. That is still some way below the levels in America
of 19.5%, suggesting that the market still has potential
for significant growth in the future. 43
PERFORMANCE
As figure 17 shows, growth in consumer spend in the
health and fitness sector grew rapidly between 2004
and 2007. Since then expenditure in the sector has
levelled off and significantly, not fallen. This rapid
growth has halted as a result of a sharp fall in the
number of new clubs being developed and opening
due to the prevailing economic climate.
As figure 18 over the page shows, membership levels
have remained flat over the period 2007-2009 and are
Figure 17: Expenditure on Health & Fitness UK
3.5 3500
3 3000
2.5 2500
2 2000
£ Billion
1500 1.5
10001
500 0.5
0
Source: Mintel International
forecast to remain at the same level in 2010. The latest
research suggests 23% of consumers have cancelled
their gym membership as a result of the recession.
However, the continued publicity of the benefits of
exercise, driven largely by the government, coupled
with introductory offers offered by the health clubs
and a greater awareness of “body image,” are all
encouraging significant numbers of new members to
join. New memberships are offsetting those cancelling
their memberships ensuring revenues and membership
levels remain robust.
Not all sectors of the market have performed equally
over the last 36 months, with the mid-market offer
coming under pressure as a result of the recession,
although to a lesser extent than was envisaged. With
the average gym membership in the UK costing £37
per month and consumers becoming ever more cost
conscious, the UK market has seen the emergence of
the “budget” health club sector.
This sector is already well established in the US and
mainland Europe and is now starting to attack the midmarket
offering in the UK. They do not provide classes,
just ample machinery with limited staff and in many
cases open 24 hours a day. These gyms offer flexibility
and value with memberships available for just 24 hours
and monthly memberships offered at very competitive
rates; sub £20 per month. Within the last 24 months
at least 4 new operators have entered the budget gym
market.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
43. Mintel International
26

Figure 18: Membership levels UK health and fitness clubs
Million
8
7
6
5
4
4
3
2
1
0
Source: Mintel International
This cost consciousness is anticipated to lead to a shift
in demand in the market with the mid range gyms
likely to come under increasing pressure as consumers
look to downgrade as they tighten their purse strings.
The top end racquet and spa clubs, such as David Lloyd
Leisure, appear to be maintaining their market share.
The market as a whole is proving to be resilient with
both membership levels and revenues robust and
set to grow in the future. The longer-term growth
prospects for this sector are also perceived to be good.
Firstly, membership levels in the UK are relatively low,
just 10% of adults are members of a gym in the UK
compared to 19.5% in the US 44 , suggesting that there is
room for the market to grow substantially. In addition,
factors that have helped to grow the market to date are
still relevant. These include growing levels of obesity, a
greater focus on “body image”, and a continued drive
to publicise the benefits of exercise.
HEALTH & FITNESS
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
RENTAL STREAM
Health and fitness clubs could contribute up to 25% of
a leisure park’s income, although they are not present
in all schemes. Typical occupancy is anywhere from
8,000 to 30,000 sq ft and rental levels are affordable,
in the region of £8-£14 psf outside of central London,
with many leases benefiting from minimum or fixed
uplifts.
Health and fitness clubs present few risks to Landlords.
Membership cancellations as a result of the current
economic situation have been offset by the number
of new members joining clubs. This has ensured
membership levels and therefore revenues to remain
strong throughout the last 36 months. Forecasts show
that there is room for the market to grow in the future
and rents should follow suit.
All of the “big box” uses on a leisure park are readily
interchangeable with new concepts such as kids play
entering the market, alternative occupiers are readily
available for surplus accommodation. In addition,
the very buoyant budget gym market is aggressively
seeking representation across the UK.
44. Mintel International
27

TENANT MARKET
David Lloyd Leisure Ltd is controlled by London &
Regional Properties. As of 1 October 2009, there were
78 David Lloyd Leisure clubs, with a total of 426,692
paying members, an average of 5,470 members per
club. 45 Revenues for the period March 2005 to March
2009 were up 12.9%. Retention rates for premium
clubs such as David Lloyd run at 70-80%, compared to
60-70% for the market as a whole. 46
Fitness First is now one of the largest fitness club
operators in the world, with more than 550 clubs
and 1.5 million members worldwide. In the UK,
the company operates a total of 170 clubs. As of 1
October 2009, the company had an estimated 420,000
members, equating to an average of 2,471 members
per club. 47 Revenues for the period October 2004 to
October 2008 were up 13.4%. 48
The Virgin Active Group trades worldwide through 184
health & fitness clubs in South Africa, the UK, Italy,
Spain and Portugal. As of 1 October 2009, the company
operated a total of 72 clubs in the UK, with 320,000
members, an average of 4,444 members per club. 49 The
business has seen significant expansion over the last six
years arising from both organic and acquisitive growth.
Through expansion and like for like growth, revenues
for the period December 2004 to December 2008 were
up 436%. 50
LA Fitness is ultimately owned by Cayman Islandsbased
Ultramar Capital Ltd. As of 1 October 2009,
LA Fitness operated 86 clubs in the UK, with 235,000
members, an average of 2,733 members per club. 51
David Lloyd Leisure, Virgin Active, Fitness First and LA
Fitness are all considered to have negligible or low risk
attributed to them according to IPD. 52
There are a number of other medium sized operations
in the market including: DW Sports Fitness, Esporta,
Bannatyne’s Health and Fitness and Nuffield Health as
well as numerous independent operators.
The budget gym market is still in its infancy in the
UK but there are currently numerous operators
aggressively seeking to increase their representation in
the UK: Fit Space, Easy Gym, Gym 4 All etc.
45 Mintel International
46 David Lloyd Leisure Group Ltd
47 Mintel International
48 Fitness First
49 Mintel International
50 Virgin Active
51 Mintel International
52 IPD Rental Information Service
HEALTH & FITNESS
SUMMARY
The health and fitness market is proving
to be resilient in these tough economic
times. Following rapid growth in the
period 2004-07, with both membership
levels and revenues seeing growth of
25% 53 , the market has remained robust.
Although some 23% 54 of members have cancelled their
memberships as a result of the recession, this has been
offset by new memberships taken out throughout the
period. Membership levels and therefore revenues
have remained strong and have not fallen.
The longer-term growth prospects for this sector are
also excellent. Despite massive growth over the last 5
years, membership levels in the UK are still relatively
low, just 10% of adults are members of a gym in the
UK compared to 19.5% 55 in the US. This suggests that
there is significant room for the market to grow. In
addition, factors that have helped to grow the market
to date are still relevant. These include growing levels
of obesity, a greater focus on “body image”, and a
continued drive to publicise the benefits of exercise
and healthy living.
53. Mintel International
54. Mintel International
55. Mintel International
28

NIGHTCLUB AND BAR
This leisure sub-sector is showing itself to be the most
sensitive to the overall economic environment. The
sector weathered the smoking ban to then come under
pressure from cheap supermarket alcohol sales. The
traditional edge or out of town leisure park would not
include this leisure sub-sector. Those parks that do
have a nightclub or bar, typically derive up to 10 % of
their income from the sector.
The nightclub industry has been hit hard in these
recessional times. As in all sectors, consumers are
looking for value and quality and are tightening the
purse strings. Nightclub expenditure is seen by the
consumer to be discretionary and customers for this
market are predominantly in the 18 to 24 year age
group, who have been significantly impacted by the
recession. According to Luminar, some 18% of this
age group are now unemployed and many more are
students or on low incomes. 56
It should be noted that trading in the sector is a
very mixed picture, strong bar operators such as
Weatherspoons, Whitbread and Marstons have
enjoyed year on year and like for like growth. JD
Wetherspoons released their end of year results for
the 52 weeks to the end of July 2010 which showed
Figure 19: Expenditure in the nightclub market
2,000
1,500
1,000
500
0
Source: Mintel International
ADDITIONAL LEISURE USES (NOT FAMILY LEISURE)
revenues up 4.3% and profit before tax up 7.3%. 57
Preliminary results for Whitbread’s 2009/2010 year
have reported a 6.6% rise in pre tax profits, supported
by a 3.1% increase in like for like sales in Q4 2009. 58 It is
a similar story with Marstons who reported an increase
in like for like sales for the 26 weeks to 3 April 2010 of
1.4% and in increase in group revenue of 0.6%. 59 These
results are on the back of a strong 2009 for the above
brands.
There have however been casualties within the
nightclub and late night bar sectors. Regent Inns
(Walkabout and Jongleurs Comedy Club) and part of
Novus Bars (Tiger Tiger) have entered administration.
Luminar, the listed nighclub company, have reported
results that are consistent with the tough times this
sector is facing They have reported for the year to 25
February 2010 profit before tax of £4.4m, down 78%
on 2009 and Sales down 9.9% on the previous year on
a like for like basis. 60
The nightclub and late night bar sectors have been
hit hard by the recession. The discretionary nature of
spend, the increase in unemployment in the target
audience and an increase in the availability of cheap
alcohol from supermarkets have all combined to
undermine the sector.
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
56. Luminar Group Holdings Plc
57. JD Wetherspoons
58. Whitbred
59. Marstons
60. Luminar Group Holdings Plc
29

GAMING
A typical edge or out of town leisure park would not
include this sector. This sector is split between bingo
and casino operators, with the main players being
Rank and Gala Coral. The sector struggled with the
introduction of the smoking ban in 2007, as well as the
removal of Section 21 gaming machines under the 2005
Gaming Act.
As Figure 21 shows, revenues in the bingo sector have
fallen year on year for the last 3 years and are forecast
to continue doing so into the future. In contrast, the
revenue in the casino segment of this sector remains
flat and the sector, as shown in Figure 20, appears to
have consolidated and stabilised.
Thus the main challenges faced by the industry relate
to the bingo sector rather than the casino sector, with
a fall in bingo revenues of nearly 12% over the period
61. Mintel International
62. Rank Group Plc
1400 1,400
1200 1,200
1000 1,000
800
600
400
200
0
3000 1,400
2500
1,200
1,000
2000
800
1500
600
1000 400
500 200
0
ADDITIONAL LEISURE USES (NOT FAMILY LEISURE)
2007-2009. 61 This is in addition to falling attendances
year on year and a squeezing of margins as prizes are
raised to try and attract more customers. The larger
players in the sector have managed to more than
compensate for this fall in site revenues through an
increase in online revenues, ensuring that covenants
remain strong.
Despite the publicised problems in the industry, the
picture is actually relatively positive. Rank Group Plc
announced 7% like-for-like growth in Group revenue
for the 14 weeks to 3 October 2010, driven by
improvements in each of its businesses. Over the same
period, total Group revenue increased by 8%. For the
year to date (to 3 October) like-for-like revenue is up by
4% and total growth has increased by 7%. 62
It is important to remember that the majority of leisure
parks do not have gaming as part of the tenant base
and would not be impacted by this area of leisure
spend that does appear to be suffering to a greater
degree than the other leisure sub sectors reviewed.
Figure 20: Expenditure in the casino sector
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Mintel International
Figure 21: Expenditure in bingo clubs
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Mintel International
30

THE CASE FOR LEISURE
Leisure property is currently valued at a
considerable discount, based on historic
perceptions of risk, to retail and retail
warehousing. The merits and strengths of
leisure as an investment asset are being
overlooked by investors, due to a lack
of leisure knowledge and a fear of the
unknown.
The most significant factor affecting the value of
property assets is the perceived strength of the
rental stream. This paper has highlighted the trading
performances of the key Family Leisure sectors and
provided evidence that through the tougher economic
trading periods the leisure tenant market has shown
greater resilience and is less volatile than the other
main property sectors, including the retail sector.
Key to this resilient performance is the non-discretional
nature of the consumers’ leisure spend on core
Family Leisure activities. This means that leisure
spend is not significantly impacted by changing
economic conditions. In contrast, a lot of retail
spend is discretionary and is therefore very sensitive
to changing economic conditions. As a result the
retail rental stream has suffered to a greater extent
than leisure during the recent economic slowdown,
evidenced by the large number of retailers, compared
to leisure operators that have entered administration
over the last 36 months. This relative strength is
further supported by IPD who report that leisure void
rates are still far below the other core sectors, notably
retail and retail warehousing. 63
Leisure also benefits from longer leases and therefore
greater longevity of rental stream than other sectors.
Leases to Cinemas and restaurants frequently have 20-
25 years term certain. In addition, these leases often
have minimum uplifts in them ensuring that rental
growth is achievable at rent reviews no matter what
the economic climate at the rent review date.
Fears that these minimum uplifts will lead to overrenting
should be dismissed. Leisure rents are
commonly at affordable levels and so have room
to grow. The average rent on a restaurant is £25psf
with the “big box” operators paying around £10psf.
63. IPD
64. PMA Forecasts
Cinema leases most often contain minimum uplifts and
research has shown that the average admission price
and volume of admissions have increased faster than
the rate of the average minimum uplift.
These affordable rental levels as a result of steady
and stable rental growth, have ensured that rental
values have also held up to a greater extent in the
leisure sector, with a less severe contraction of rental
growth and shorter period of negative growth than
experienced by retail. In addition, PMA have forecast
that over the period 2010-2015 leisure rents will
grow by 6.6%. This is compared to 3.9% for retail
warehousing and 5.0% for retail. 64
We have reviewed the core sectors within leisure
property and demonstrated sophisticated and mature
operators with strong financial performance are
operating within this sector and that there is not a
covenant issue.
As such, the leisure rental stream is as, if not more,
robust and secure than the retail rental stream and we
believe leisure property should be valued accordingly.
It is apparent that a lack of knowledge, coupled with
a historic perception of risk, restricts leisure’s value.
X-Leisure is attempting to widen the knowledge
base and will continue to demonstrate that the risks
associated with the sector are not those perceived by
the wider property industry.
The strength of the leisure sector is further supported
by the increase in corporate activity, especially in the
casual dining sector, where investors are willing to pay
a premium to buy strongly performing brands. We
have also seen restaurant operators and cinemas, the
core of the Family Leisure market, continue to expand
during these recessional times.
With a robust rental stream, low voids, long leases,
minimum rental uplifts and solid covenants, investors
need to turn their heads to this sector and see that the
100bp – 200bp differential in pricing between leisure
and retail is not always justified.
The sector demands greater
consideration and appreciation
in the current investment
market. At current prices, leisure
is a good value defensive stock
that can be seen as “recession
proof” with scope for rental
growth and capital returns.
31

REALITY
Long leases
Low voids
Secure rental growth
Affordable rents
Inherent site value
Lipstick leisure

Making The Case For Leisure: A report commissioned by X-Leisure October 2010
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