Andrew Ferguson is Head of Leisure at Legal & General Property, which has more than £1 billionof leisure assets under management. He met up with Dom Millar to talk about the leisure sector, lease lengths, and why trampolining may soon be
coming to a town near you…
What are you drinking, Andrew?
I’m actually having a dry(ish) January but, seeing as it’s my birthday today, I’ll have a Peroni.
Busy start to the new year? What’s happening in the Leisure Fund?
We’re continuing on from where we left off last year with plenty of good asset management initiatives across the portfolio. We started the development of an exciting new leisure scheme down in Bournemouth at the end of 2014.
You have leisure parks across the UK. Which do you think is most representative of where the sector is heading?
The days of the huge leisure schemes are over for now since operators are taking less space and sectors such as bowling and bingo are gradually getting smaller.
Pure leisure schemes are much smaller these days made up of predominantly cinemas and restaurants. Every local authority in the country would love a cinema and parade of restaurants in their town to drive their evening economy.
A scheme we funded in Aldershot a couple of years ago is representative of all the above which has had a hugely positive impact on the local economy.
How did you get into the leisure end of fund management?
At the time of joining L&G there were two specialist Leisure Funds in the market.
Prior to joining I spent five years in the leisure development market getting to know a large number of key operators and understanding their businesses. The key to running a specialist fund is knowing your occupational market in a particular sector.
My investment and development background helped make the move into the world of fund management.
How important is it for you to have a view on the attraction of a leisure concept or is it just a case of making sure the financials stack up?
There is an element of both however the leisure concept and tenant mix is vital in the creation of a good scheme. Value is in the strength of the scheme which is driven by the success of the operators.
There are many new entrants trying to break into the leisure sector who cannot offer strong rents or covenants but they will deliver greater footfall to a scheme which helps other operators. For example leisure offerings are complementing retail offers in many shopping centres all over the UK, driving footfall and giving a better overall shopping experience.
Some landlords have to be brave as the introduction of some leisure offerings may not stack up on day one.
Leisure is becoming increasingly popular with investors. Are you finding it more competitive out there?
It’s becoming hugely popular. Investors and landlords are wising up to the fact that the sector offers good covenants, long leases and in many instances fixed or index-linked uplifts. What’s not to like?
So is leisure the last preserve of the long lease?
Possibly, however there are reasons for this. Cinemas have huge fit-out costs which are paid off over long periods of time, hence their long leases. Restaurants have followed a similar trend where the fit-out costs can be higher than that of a similar retail unit. The most comparable market for long leases is the supermarket sector. However I can’t see too many new large format supermarkets being built for a while.
Any exciting new leisure concepts that we should be aware of?
The leisure market is always evolving as it forms such an important part of people’s lives. City centre bowling has grown in popularity off the back of All Star Lanes in London, the budget gym operators have re-invented the health club market and kids play centres have emerged as a very popular activity.
The most recent activity to break out of the US and Australia is indoor trampolining, whilst themed restaurants and bars continue to re-invent themselves.
How do you spend your leisure time?
My big passions are golf and skiing. I did enjoy eating out, but that has come to an end for the moment following the arrival of my baby daughter five months ago!
Snack time: what do you fancy?
Any chance they serve ham and cheese sandwiches? They’re an old favourite!