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Private equity “most active players” in UK leisure property

A recent report by Eurohypo says private equity firms are driving the market by using real estate to finance acquisitions.

Private equity firms are the most active investors in UK leisure property, according to a report by specialist real estate lender Eurohypo.

The German bank says in the report, entitled, “UK Leisure – Getting Serious?” that the presence of private equity firms is responsible for the increased supply of leisure-related real estate to the market as firms sell off assets or use them to finance acquisitions.

Citing the UK’s strong economy, its open mergers and acquisitions market, and status as a popular visitor destination, the leisure sector in Britain has accounted for 10 percent of private equity buyouts since 2002.

The August report says real estate has played a big part in the capital structure of acquisitions, either as sale and lease back transactions or as collateral to increase the debt component for purchases.

It asserts: “This has enabled private equity investors to pay higher multiples than their listed company counterparts when acquiring property-backed assets”.

US firm GI Partners, The Blackstone Group and Dubai International Capital (DIC) have been particularly active, it notes. DIC sold Blackstone the Tussauds Group for £1 billion (€1.5 billion;$2 billion) earlier this year having bought it for £800 million in 2005.

And despite a lack of liquidity in the market stemming from a widespread credit crunch in global markets, the bank predicts more consolidation to take place.

As much as 85 percent of cinemas are owned by just four groups. Terra Firma is the largest owner of UK cinemas with 110 Odeons. Blackstone is in the top four by virtue of the 2004 takeover of Cineworld, which went on to acquire UGC two months later.

HBos backed a management buyout of Vue Multiplexes and National Amusements owns Showcase Cinemas. In the case of Terra Firma, the investor unlocked £100 million by splitting the group into an op co/prop co structure.

Restaurants, casinos, and theme parks have also been popular playgrounds for private equity. Blackstone is now second only in size to Walt Disney, the owners of Disneyland, in terms of being the largest owner of visitor attractions in the world.