Economy passes the pub test for hoteliers

Billionaire pub baron Justin Hemmes reckons Sydney is ready to party again and he’s put his money on ‘The DOG’.

Justin Hemmes outside the Duke of Gloucester Hotel in Randwick, Sydney, which he has bought for $32m. Picture: Bianca De Marchi

Billionaire pub baron Justin Hemmes reckons Sydney is ready to party again and he’s putting his money where his mouth is, buying the grand old Duke of Gloucester – “The DOG”, to Randwick locals – for an eye-watering $32m.

He’s not alone.

If there’s a pub test on whether the economy is about to bounce back, hoteliers are answering with their wallets, paying pre-COVID -19 prices – and much, much more – for premium venues.

Legendary watering hole Kinselas sold last week for $45m.

The buyer, Moelis Australia, also bought the Courthouse Hotel for $22m and plans a large pub complex for inner city Taylor Square precinct.

The Narwee Hotel, in Sydney’s south, traded hands last week for $45m. The popular Four in Hand in Paddington was a steal when it sold last month for “just” $8.25m. And billionaire pub tsar Arthur Laundy has just paid $35m for the Bidwill Hotel in outer western Sydney, The Australian can reveal.

“There is a buzz and an energy in the air that I haven’t seen since the Sydney Olympics,” said Hemmes, chief executive of the Merivale Group which operates more than 70 venues.

“Is business booming? Absolutely not – yet. But people are ready to celebrate.

“It’s so overwhelming because we’ve gone through such a tough time in this pandemic, but to go into the venues, they are buzzing, the energy is incredible and people are celebrating being out again. It’s such a positive, optimistic thing.”

Hemmes described the $32m he paid for the Duke of Gloucester as “a great price”.

“It’s a strong price and it’s indicative of where we feel the future is for the industry,” he said.

“The prices that pubs are going for are not based on any of the profits or EBITDA of the last 12 months. Everything’s based on pre-COVID figures.

“The assumption is that we will go back to normality I would think by March, when we would see some distribution of the vaccine.”

It has been a tough year for Hemmes’ pub and restaurant group Merivale, which includes the Ivy and Establishment precinct in Sydney’s CBD, the Newport Arms and the Coogee Pavilion. The group employed more than 3000 full and part-time staff until earlier this year.

Accounts for the year to June show Hemmes Trading recorded a profit of $280,000, down from $4.3m the year before, with liabilities exceeding assets by $60m.

“Going through this pandemic was one of the most challenging times I’ve ever faced in business, without a doubt,” Hemmes told The Australian.

“But I can only see green pastures ahead and if there is another outbreak it will be managed without shutting down the economy again.”

Even when COVID-19 restrictions eased to allow one patron to every 4sq m it meant a venue such as Establishment, which holds 1000 people, was limited to 150, all seated. But with recent changes to a 2sq m rule the venue can accommodate 300.

Other rule changes in NSW mean no upper caps on numbers, patrons can stand while consuming food and drink in outdoors spaces, and dancefloors are open for up to 50 people.

It has been a frenzied few weeks for pub sales in Sydney, with close to $200m of property traded. The boom has also been fuelled by the repeal of lockout laws in January, which sparked a brief resurgence in Sydney’s nightlife before COVID-19 shut it down again.

Hemmes would not comment on reports he is seeking $500m to refinance the group to grow his empire but acknowledged he was in the market for more acquisitions. Not that there are many bargains to be had in this market.

“We’re looking at everything we think is worthwhile, but I don’t think there are going to be any amazing deals out there, put it that way,” he said.

As for “The DOG”, he says: “I’ve always loved that pub, it’s a beautiful heritage pub and it fits our push towards local pubs creating community hubs.”

Hemmes said he had no plans for any radical changes to the pub. “You know what they say, if it ain’t broke, don’t fix it.”

Now he faces what he said was his biggest single challenge – getting enough staff for all his venues.

“The amount of visa workers that fill positions, particularly short-term positions over the busy summer period, is extraordinary, and we don’t have any of those people here now.”

The Australian Hotels Association estimates that pubs alone will need to hire an additional 9000 extra staff in NSW to cope with the increased capacity, just in time for Christmas.