Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Pubs never go out of style
The oldest asset class in the world, direct property, is experiencing something of a renaissance amid a surge in inflation and the pursuit of lower-risk income streams. This was part of the discussion at The Inside Network’s Alternatives Symposium, held in Melbourne.
Chris Cornforth from Harvest Hotels took a room of Australia’s leading financial advisers through the benefits of investing in pubs and clubs, after what has been a difficult few years for the sector.
Established in 2014, he says Harvest Hotels has followed the large-format pubs and clubs style, with gross performance of assets since establishment of 33 per cent.
The benefits of operating and owning are “straightforward,” Cornforth said. “They give the advantage of hedging the property. We also trust ourselves to operate our business. We take away the operating risk because of our experience and this provides us with a natural hedge on inflationary pressures, backed by real property.”
In a fragmented market, with mums-and-dads operating in this segment, things have started to change. The Institutional weight of capital is driving down cap rates. There has been a change in ownership structure. No longer is the family-operated pub doing so well; this big change is to being institutionally owned. And these are big, diverse businesses.
“The beauty of having scale is that there are many advantages that can be applied,” Cornforth said. “An insto can go in and get quality rebates or staff advantages. They can move people around from pub to pub or from town to town. It allows us to employ new tech. And big transactions are happening, such as Charter Hall’s $1.8 billion buy-out of ALE Property Group (the biggest freehold pub properties owner in the country).”
Why pubs?
Cornforth says pubs are the perfect hedge against inflation, because operating businesses aren’t bound by terms of the lease. “Inflation at 7 percent, the CPI on a lease is capped at 3 per cent. We aren’t bound by that. It’s quite comfortable operating in that environment. We can increase prices as the cost of goods go up. That’s a nice yield for investors.”
But Cornforth said it takes a bit of experience to buy pubs and clubs. “They aren’t bought just anywhere and everywhere. It’s a bit more calculated than that. We buy pubs in robust towns with population growth. We won’t go into a regional mining town, because it’s too risky. A drought could damage consumer spending.”
Finally, Cornforth said buying an asset must have a “positive impact on our community. It must be embedded into the town, or it won’t be successful. Creating growth and delivering yield is all about selection and homing-in on selection criteria. All in all, we love the space for delivering yield and growth,” he said.
