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The Mermaid High Street
Emberton
Buckinghamshire
MK25 7XX
Client: Independent Bank
Branch: London
Proposed Borrower(s): Mr & Mrs Brown
Valuation Date: 3 March 2016
Reference: 911913
Business Appraisal & Valuation Report
911913 Page 2 of 34
Purpose and Limitations of Report
This report is provided to assist the instructing Client in consideration of the subject business/property in relation to the purpose stated opposite. Pinders accepts liability only to the Client and no other party, however involved. The report comprises a Business Appraisal & Valuation and expressly does not, in any way, constitute a building (structural) survey or a due diligence assessment. It remains the responsibility of the Client and, where appropriate, the borrower(s), to confirm the accuracy and validity of the information provided. Pinders accepts no liability to the Client, or any other party, should information relied upon in arriving at our opinions of value prove to be misrepresented, either fraudulently or otherwise. Whilst reference may be made within the report to aspects of tenure, title, planning and other statutory obligations, all such aspects should be verified by solicitors acting on behalf of the Client and/or the proposed borrower(s). The report is not intended as a substitute for the searches which would be expected in relation to any property/business acquisition or investment. We can confirm that neither the valuer nor Pinders has any known conflict of interest in accepting your instructions, nor any previous knowledge of the business or the potential borrower other than as specifically stated within the report. Unless specified elsewhere, this report has been prepared in accordance with our Standard Conditions of Engagement, as appended to this report, and in accordance with The Royal Institution of Chartered Surveyors, Valuation - Professional Standards, for the sole purpose of assisting the Client and Proposed Borrower indicated above, in consideration of the subject business. Whilst the valuations contained within this report are expressed in a way which is suitable for lending purposes, any party, other than the Client shown above, wishing to rely upon the contents of the report for such purposes, will need to instruct Pinders to prepare and provide a further report, which addresses the party’s specific requirements. We can confirm that Pinders has in place appropriate Professional Indemnity Insurance in respect of this valuation. A copy certificate to this effect can be provided to the Client upon request.
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Terms of Reference
Client: Independent Bank, London
Proposed Borrower(s): Mr & Mrs Brown
Purpose of Report: Loan security purposes in relation to a proposed acquisition
Business Owner(s): Mr & Mrs Oliver
Person(s) Interviewed: Mr Oliver
Previous Visits: None
Inspection Date: 25 February 2015
Valuation Date: 3 March 2016
Undertaken by: Malcolm Kidby MRICS (1117803)
Registered Valuer
Approved for Issue by: Wendy Webber MRICS (1129236) Director
We appreciate that there may be many parties involved in consideration of this proposal and this report (inclusive of photographs, maps and site plans) will be provided by electronic mail in pdf file format (requires Acrobat Reader software) to facilitate easy transfer of information. However, we recommend that our lending clients rely only upon an authenticated hard copy of the report, which has the Pinders’ security seal attached below.
If you wish to discuss any aspect of this report, please contact our Operations team at:-
Pinder House
Central Milton Keynes MK9 1DS
Telephone: 01908 350500
Email: [email protected]
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Executive Summary
Introduction
In accordance with your instructions, we have visited the subject freehold property and business in order to provide an Appraisal and Valuation Report for loan security purposes relating to a proposed acquisition. We are advised that the asking price is £550,000, but that no sale price has yet been agreed between the parties. This Executive Summary should be read in conjunction with our entire report and should not be relied upon in isolation.
Property Summary
� Public house
� Freehold
� Village centre; just off A509 trunk road
� Grade II Listed; part 14th century with later additions including modern conservatory
� Bar seating some 30 persons, dining room with 35 covers, conservatory with 14 covers
� Two en suite letting rooms
� Two bedroom flat used by management couple
� Property in generally good condition, but some refurbishment required
Business Summary
� Business attracts local and ‘drive out’ trade and visitors to nearby Country Park
� Long established public house, in present ownership for around four years
� Income mix: approximately 57% wet sales; 40% food and 3% accommodation
� Prices are competitive; average evening spend £20-£25 per head for food and drink
� Limited local competition, no other public house within village
� Currently operated on a fully managed basis
� Purchasers to be fully involved owner operators
Accounts and Trade Assessments
� Our Current Trade Assessment has been prepared on the basis of the accounts provided for the three-year period ended 30 June 2015, together with VAT Returns to 30 November 2015, the last four of which total just under £375,000 and show a rising trend.
� We have also had regard to our discussions with Mr & Mrs Oliver regarding current levels of trade and our assessment of current trade reflects their verbal claims/estimates and the internal records provided to 31 December 2015, although we recommend verification of these.
� We have adopted the same level of turnover and gross profit within our Fair Maintainable Trade assessment as adopted within our Current Trade Assessment, since we consider such levels of trade to be sustainable.
� In order to ensure a consistent approach to valuation with the comparable evidence held, we have adopted a two person owner operating scenario within our FMT assessment; as such, we have reduced the wages costs accordingly.
Accounts Year End
30/06/2013
Accounts Year End
30/06/2014
Accounts Year End
30/06/2015
Current Trade
Assessment
Fair Maintainable
Trade
Total Turnover (£) 297,196 308,550 357,078 385,000 385,000
Gross Profit (£) 158,563 166,362 202,409 227,000 227,000
Gross Profit Margin 53.4% 53.9% 56.7% 59% 59%
Net Machine Income 3,000 3,000
Net Profit (£) 27,152 34,277 59,677 70,000 90,000
Net Profit Margin 9.1% 11.1% 16.7% 18.2% 23.4%
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Executive Summary
Market Commentary
� There are currently a large number of public houses available on the market, although a significant proportion relate to either closed businesses or those that the pub companies are seeking to dispose of. The availability of accounting and trading records can assist a prospective purchaser in securing funding, which otherwise remains problematic.
� The combination of a solid business, well presented property and reasonable owners’ accommodation makes this an attractive proposition for the right purchaser.
� We consider that all of the above factors are likely to result in reasonably good levels of interest, with interest most likely to emanate from those seeking to own and operate the business. However, as is the case in the current ownership, interest may also be seen from those seeking to acquire the business and operate it as part of a group, under management.
� The business has been openly marketed for about six months. A formal offer has yet to be made, but the selling agents report that there is at least one other party showing serious interest.
Methodology
� We have adopted the 'profits' method of valuation in this instance, whilst also having regard to an analysis of comparable market information.
� From comparable evidence obtained from the wider area, and from discussions with specialist agents, we would expect a business such as this, as a going concern, to achieve a ‘profits’ multiple of between 5.0 and 6.0 YP times Fair Maintainable Operating Profit (FMOP), prior to allowances for owners’ accommodation.
� Based on our experience of valuing in this sector and the comparable evidence summarised towards the rear of this report, we have adopted a profits multiple of circa 5.5 YP, which has been applied to our assessment of FMOP.
� We have then made a positive adjustment in relation to the availability of the two bedroom private living accommodation, with our allowance reflecting its integral nature to the public house.
� We refer to the Methodology and Comparable Evidence section towards the end of this report for further commentary.
Current Proposed
Base Value £500,000 n/a
equating to: Assessed Fair Maintainable Operating Profit £90,000 5.5yp n/a n/a
Value of Private Living Accommodation £50,000 n/a
Market Value £550,000 n/a
Valuations Summary Existing Proposed
Market Value £550,000 n/a
Market Value (6 months to sell)
£375,000 n/a
Market Value (Business closed)
£325,000 n/a
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Location Map
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Local Environment
Location
Emberton is a small residential village located to the north of Milton Keynes, and to the south of Olney. The village is situated adjacent to the A509 linking Newport Pagnell to Wellingborough. The River Great Ouse runs south of Olney, with its source in Brackley, running to its mouth at King’s Lynn. The A428, which is just north of Olney, crosses the A509, and links Northampton to Bedford. Wellingborough is just over 11 miles to the north, Milton Keynes is situated just under 10 miles to the south, Bedford, to the east, lies some 10 miles away, and Northampton, to the west, is located just over 12 miles away. Olney, some two miles distant, is a quaint town, located in a pleasant and affluent area, which includes branches of Barclays and National Westminster Bank plc, together with a good range of local shopping facilities. Local residential properties are mainly terraces in the town centre, with detached and semi-detached homes on the outskirts of the town. At the heart of Olney is the Market Place, where free parking is available. Thursday is market day, when the town is said to be extremely busy. Nearby Milton Keynes, Northampton and Bedford all have larger department stores and regional shopping facilities. Between Olney and Emberton is Emberton Country Park, a large leisure facility with sailing and fishing facilities, a caravan site, pitch and putt course, café, outdoor climbing wall and picnic areas. The Mermaid is situated within the High Street of Emberton, some one mile south of the main entrance to the Country Park and within 600 metres of the A509. There are no other commercial properties within the village, which is well served by local buses.
Environmental Matters
From our limited inspection of the property, we detected no evidence to suggest the existence of any current or past contamination. From information available within the public domain, we understand that there are sites producing pollution to the north/north-east and south/south-west of Newport Pagnell, and that whilst parts of Emberton itself is identified as being within 500m of an area at risk of potential flooding, the Environment Agency website shows that the Mermaid itself is outside of this zone and it is at a materially different height to the area identified as at risk of being affected by flooding. From our informal enquiries, there is no indication that the property or its immediate locality:
� is on or near landfills; � is located within a mining area; � is in an area that has been identified as having a risk of subsidence or landslip; � is affected by naturally occurring gases; � is subject to water or land pollution; � has been used for the manufacture, storage or sale of hazardous/toxic materials such as chemicals, petroleum
products, pesticides, fertilisers, acids, asbestos, explosives, paint or radioactive materials; � is the site of below-ground storage tanks; � is close to incinerators or chimneys giving off heavy emissions.
We have detected no evidence to suggest that deleterious or hazardous materials or techniques have been used in the construction or subsequent modification of the building.
We refer you to the paragraph headed ‘Environmental Matters’ within the appended Conditions of Engagement.
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Site Plan
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Site & Aspects of Title
Site Plan
The plan shown opposite has been obtained from the Land Registry and shows the boundaries of the site as recorded. We advise that the area outlined in red corresponds with the property inspected and confirmed with the owners.
It should be noted that this plan and the markings thereon indicate the approximate extent of the site inspected and no guarantee can be given as to whether this corresponds to that over which title is held. It remains the responsibility of the Client to investigate and confirm the legal boundaries and title applying to the property.
Restrictive Covenants, Rights of Way and Easements
We are advised by Mr Oliver that there are no rights of way, easements or restrictive covenants affecting the property.
Tenure and Title
We are advised that the property is freehold and our valuations have been prepared accodingly.
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External Property
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External Property
Site Description/Potential
Based on the plan contained herein, the site has an area of 1,092m². The pub stands prominently at the front of the site and fronts directly on to the High Street. To one side of the property is a small gravel driveway, which leads to an outbuilding containing two family letting rooms and a bottle/food store. The remainder of the site is used as a beer garden with level areas of patio, gravel and grass. Apart from the small gravel driveway, there is no other on-site car parking; however, there is some limited on-street parking available opposite the premises. We do not consider that there is any economic scope to extend the property, as the external areas are in use for the trade garden.
Buildings Description
The property comprises a large detached building, reputed to date back to the 14th century, with various later single-storey extensions to the rear and side of the original building. Adjoining the main building, to the rear of this structure and to the rear of the property, is the timber framed lean-to conservatory, which is a recent addition. The following table summarises the apparent construction of the major building elements.
Element Description
Walls Painted render over brick; extensions of painted brick
Pitched Roofs Interlocking concrete tiles
Rainwater Goods Black sectional plastic and black painted cast iron
Fire Escape Painted render over brick; extensions of painted brick
Windows Timber-framed wooden casements
Services
We are advised that the property is connected to the following:
Mains Water Electricity Mains Drainage Mains Gas Central Heating
� � � � Gas
Systems and Equipment
Whilst it is beyond the scope of our instructions to undertake tests of services, equipment, fixtures and fittings, we assume that all such items are operating safely and efficiently and are appropriate for the purposes to which they are put.
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External Property
911913 Page 13 of 34
External Property
Condition
It should be noted that we have not undertaken any form of survey, structural or otherwise and the following comments are based purely on visual observations from ground level, unless otherwise stated. A number of the window frames would benefit from minor attention in the near future. The roof to the original building may have been previously covered with thatch and this would appear to have been replaced with a heavier roof covering, which has caused the roof to undulate between the trusses. The roofs to some of the later extensions are heavily covered with moss, which may lead to problems with the water penetration if left unattended. We also noted bulging to external elevations, indicating some structural movement, which is to be expected in a building of this age. The front right-hand chimney stack appears to be leaning slightly, which may also be the result of structural movement. We understand that a Building Survey has recently been undertaken on behalf of the owners. We have not had sight of this report, but are advised that it highlights no immediate structural defects, although there is a programme of works recommended within the next year. Our valuations have been prepared on the assumption that there are no inherent structure defects associated with the property which would attract a significant cost, with the aforementioned recommended works assumed to be capable of being dealt with as part of an ongoing maintenance programme. Should we be provided with further information that contradicts these assumptions, then we reserve the right to amend our opinions of value accordingly. We are advised by Mr Oliver that a survey of the property for asbestos was carried out by Asbestos Inspections Ltd on 23 May 2012. We have had sight of this survey report and note that areas containing asbestos materials were identified. A management plan has been produced, which does not recommend removal of the material at this time. As a general comment, on the assumption that asbestos remains undisturbed, we would not envisage any problems in the immediate future. However, it will be necessary to use the services of a registered contractor should it be required to remove the asbestos. Our valuations have been prepared on the assumption that there are no asbestos related issues which would attract a significant cost. An Energy Performance Certificate (EPC) has not been undertaken for the property, although given the building’s Listed status, it will be exempt from such.
Asbestos
All owners/occupiers of non-domestic properties and communal areas of domestic properties are required, under the Control of Asbestos Regulations (2012), to provide a record of an inspection to verify whether any form of asbestos is present. If asbestos is detected, then an appropriate management plan must be implemented. We have not inspected for asbestos and, unless otherwise stated, our valuations exclude any costs relating to this management plan.
Energy Performance Certificate and Display Energy Certificates
All non-domestic properties over 50m² in size require an EPC when constructed, sold or let. There are certain exemptions if the building is to be demolished. The certificate includes an energy efficiency rating between A (most efficient) and G.
A DEC and advisory report are required for all buildings with a gross internal area over 1,000m² that are occupied in whole or part by a public authority and by institutions providing a public service to a large number of persons, and therefore frequently visited. They are valid for a period of one year.
Please contact us for further information about arranging an asbestos survey or EPC
Reinstatement Assessment
It should be appreciated that an assessment of the likely costs of fully reinstating a property is a complex and detailed exercise usually undertaken by a building or quantity surveyor. The following estimate is provided purely for guidance purposes to assist the named client in their consideration of the stated business proposal. It should not be relied upon by either the named client, or any other party, as a basis for assessing levels of insurance cover and Pinders accept no liability in this regard. Whilst the estimate provided allows for the approximate costs of demolition, debris removal and professional fees, and assumes the use of modern materials, construction techniques and compliance with all current building regulations, it makes no allowance for any alterations to the layout or configuration of the property that may be required for the ongoing operation of the business. The subject property is Listed and, as such, we recommend that this aspect be separately negotiated with insurers since the use of modern materials and construction techniques may not be permitted and the costs of reinstatement could, therefore, be substantially higher. As aforementioned, the following is provided for guidance purposes only and should not be relied upon. On these specific assumptions, we suggest that the reinstatement figure for the existing structure (exclusive of VAT) should not be less than £600,000.
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Internal Property
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Internal Description
Public Areas
Area Size m² (Approx) Description
Bar Servery - Accessible from both lounge and bar areas
Dining Room 30 35 covers; laid with white table cloths
Customer Toilets - Well presented; accessed from the entrance lobby
Bar 25 Seating for 25/30; AWP machine
Conservatory 17 14 covers; laid with white tablecloths
Main lounge 20 Well presented lounge with seating for 20; sometimes used for additional dining during busy periods
Service Areas
Area Description
Kitchen Good sized kitchen, recently refitted with a mixture of commercial and domestic fittings; a food store with walk-in cold-room; and an external store room containing fridges, freezers and wet stocks
Boiler Room Heatrae Sadia boiler, which appears to be several years old, housed adjacent to cellar
Cellar A small temperature-controlled cellar is situated at ground floor level
Other Useful outside store for crates and rubbish bins
Measurement of Accommodation
We endeavour to measure the accommodation at the time of our inspection but, where this is not possible, we will either rely upon measurements taken from plans provided, schedules of measurements or other information advised to us by the owner of the business.
Letting Accommodation
Letting Rooms Single Twin Double Family Total Rooms Total Beds
Annexe 0 0 0 2 2 6
Total 0 0 0 2 2 6
The letting accommodation is situated in the ground floor annexe and comprises two bedrooms, accommodating a maximum of three guests each. Both of the bedrooms have en suite facilities, comprising shower, WC and wash-hand basin. All bedrooms have tea and coffee making facilities and television.
Residential Accommodation
The residential accommodation is on the first floor, with internal access only. It comprises:
� Two Bedrooms � Lounge � Bathroom and WC � Office
Regulated Mortgages
From 31 October 2004, mortgage applications relating to commercial property, where more than 40% of the property is used for residential purposes, are to be treated as Regulated Mortgage Contracts by the Financial Services Authority.
� Approximate total of site plus any upper floors of building 1,260m² 100%
� Approximate area currently used for residential purposes 145m² 11%
� Approximate area currently used for commercial and service areas* 1,115m² 89%
* The approximate area currently used for commercial purposes has been arrived at on a residual basis and relates to the GEA of the site and buildings
As the figures in the above table are derived from a combination of external mapping data and (possibly restricted) measurements taken on site, they should only be viewed as an approximate guide.
911913 Page 16 of 34
Internal Description
Access
There is no specific provision for the less ambulant at these premises, but as a Grade II Listed property it is unlikely that planning consent would be obtained for any significant alterations.
The Equality Act 2010
The Equality Act came into force on 1 October 2010. The Act consolidates and brings together previous equality laws including the law on disability discrimination. Operators are under a duty to make reasonable adjustments to the provision of their services to accommodate people with disabilities. The duty is anticipatory - so adjustments must be made before a claim for disability discrimination is brought. What will constitute a reasonable adjustment very much depends on the size and nature of the service.
Decoration and Furnishing
The trading areas are well presented for their use and the conservatory in particular is decorated in a style to obscure its timber-framed nature. The first-floor accommodation has significant signs of unevenness to its floor levels, not unusual for a property of this age and construction, although the floor in the private lounge is particularly springy, said by Mr Oliver to be due to the previous owners replacing floorboards with hardboard. The letting accommodation is smartly presented.
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Statutory Authorities
For the purpose of this report and our valuations, we have assumed that there are no matters outstanding or that would be of concern to any of the Statutory Authorities, or any matters that would have a detrimental impact on Market Value.
Planning and Highways
We are advised by Mr Oliver of the following:
Listed Building Conservation Area Tree Preservation Orders Section 106 Agreements Adopted highway
� � � � �
We have accessed the online planning database of the Local Authority, which revealed the following planning history in relation to the subject property:
Reference Date Decision Proposal
11/00784/MK 03/08/2011 Approved Conservatory extension
02/00896/ADV 18/06/2002 Approved Externally illuminated free-standing sign
Rates, Water and Environmental Charges
The rateable value of the subject property is £28,000. Within our calculations we have made an allowance of £17,500 for rates, water rates and environmental charges.
Fire Authority
The Fire Authority no longer routinely inspects premises, and it is the responsibility of the occupier to undertake an appropriate Fire Risk Assessment. We are advised that a Fire Risk Assessment has been prepared and that the Authority did visit some six months ago in connection with a proposed variation to the licence, with no matters requiring attention.
Regulatory Reform (Fire Safety) Order 2005
We have not undertaken any form of Fire Risk Assessment for the premises, nor can we confirm the adequacy, or otherwise of any Risk Assessments seen. We recommend that business proprietors fully acquaint themselves with the requirements of the Regulatory Reform (Fire Safety) Order 2005, which cover statutory fire prevention in almost every commercial property.
Environmental Health Authority
Mr Oliver confirmed that the subject concern is registered under the provisions of the Food Safety Act 1990 and it is assumed that the business meets fully with the requirements of this legislation. We were advised that an inspection was undertaken on 16 July 2014, with no matters outstanding.
Food Safety Act 1990
We recommend that business proprietors fully acquaint themselves with the terms and conditions of the Food Safety Act 1990 and its various subordinate regulations. These include the introduction of a scheme for compulsory registration of all food premises under The Food Premises (Registration) Regulations 1991, the latter relating to England, Scotland and Wales, and applying to most types of businesses, with few exemptions.
Licensing
We have had sight of the Premises Licence, ref: 007632, issued by Milton Keynes Council, which specifies the registered owner of the premises as Mr and Mrs Oliver, with the Designated Premises Supervisor being named as Mr Oliver. We are also advised that a Personal Licence is held by Mr Oliver.
The Licensing Act 2003
The Licensing Act 2003 provides that premises where a licensable activity takes place require a Premises Licence. This will incorporate an operating schedule to outline the basis of trading of the business, such as trading hours, whether and when entertainment is provided and the capacity of the premises, etc. In addition, there will need to be a named Designated Premises Supervisor who will need to hold a Personal Licence. For the purpose of this report and our valuations, we have assumed that the business will have the necessary licences in place to continue to trade as existing and/or proposed.
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Local Sector Profile The population at the time of the last census (2011), within a 10 km radius of the subject concern, was around 65,000. The age distribution statistics, in relation to this population, reveal that the proportion of those aged between 25 and 64 is higher, and those aged between 18 and 24 and of pensionable age lower, than the national average. In the local area there is a predominance of those in socio-economic classes A/B and C1, compared to the UK average. The above statistics, together with the proposed number of new homes that are planned to be built in and around Milton Keynes and the general expansion of the town, suggest that demand for leisure pursuits should remain high.
Customer Profile
The typical customer for the business is said to come from one of three distinct groups: local residents of all ages using the business as a community based public house; destination diners seeking the charm of an authentic village pub; and visitors to the Country Park.
Competition
The Mermaid is the only public house within the village, although there is a small licensed snack bar within Emberton Park, together with a sailing club with its own licensed clubhouse. The nearest alternative public houses would be in Olney, two miles to the north, Sherington, three miles to the south, and some outlying villages. Within Olney is The Two Brewers, a free house offering a range of food and some entertainment; The Swan, a bistro with separate public bar; and The Bull, a large hotel on the town’s Market Square. Sherington has one well regarded public houses: The White Hart, a free house offering a wide range of food. Olney also has several restaurants. Whilst there is a range of public houses catering for immediate locals and a share of the destination trade, we consider that provided the subject business maintains its standards and reputation, it should be able to maintain its share of the available market.
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The Business
Business History
The business has been under the present ownership for about four years. It was originally purchased from a major pub company and had a chequered trading history. The owners have improved the facilities of the pub, adding the conservatory within the last year or so, and have decided to sell in order to concentrate on their other business enterprises, which are not in the hospitality sector. The business has been on the market with specialist business transfer agents for about four months with an asking price of £550,000. The proposed purchasers have yet to make a formal offer.
Historic Accounts
We have been provided with financial statements for the three-year period ended 30 June 2015; these have been prepared by Daniels and Co, Chartered Certified Accountants of Milton Keynes and have been outlined in the table below. Turnover increased by 15.7% between the 2014 and 2015 accounts, a much higher increase than the 3.8% between the 2013 and 2014 accounts. We understand that this was due to the addition of the conservatory at the beginning of summer 2014. The upward trend has continued and is reflected in our subsequent Current Trade Assessment. The gross profit margins shown are broadly in line with our expectations for a business such as this with the increase seen in the most recent accounts being due to the increase in food sales, since the introduction of the conservatory, allowing for both a higher proportion of sales from food, and also permitting greater efficiencies and less wastage in the kitchen. As is our usual practice, we have ‘added back’ personal costs such as depreciation, bank charges and loan interest. Repairs and maintenance costs have been higher than expected, being £17,534 in the accounts for the year ended 30 June 2014, which is attributed to a large amount of furniture and equipment being purchased in advance of the conservatory addition and replacement of some kitchen equipment.
The majority of the remainder of the main expense items are within industry norms, with the heat and light costs having reduced in the most recent year due to the business switching its suppliers.
The business is fully managed and consequently the net profit margin is considerably lower than would be achieved by fully involved owners.
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Accounts Analysis
Accounts Summary
Accounts Year End
30/06/2013
Accounts Year End
30/06/2014
Accounts Year End
30/06/2015
Total Turnover (£) 297,196 308,550 357,078
Gross Profit (£) 158,563 166,362 202,409
Gross Profit Margin 53.4% 53.9% 56.7%
Profit/(Loss) as per accounts (£) 1,496 8,367 33,158
Adjustments to Expenses (£)
Bank Charges 1,452 1,115 1,284
Depreciation 8,954 9,545 9,985
Loan Interest 15,250 15,250 15,250
Reconstituted Net Profit (£) 27,152 34,277 59,677
Net Profit Margin 9.1% 11.1% 16.7%
VAT Returns
Whilst most of the income recorded within the VAT Returns is included within the above accounts, the last two VAT Returns show net income of £192,837; this equates to approximately £385,000 on an annualised basis.
Quarter Ended Net Outputs Weekly Average
May 2014 89,585 6,891
Aug 2014 92,682 7,129
Nov 2014 88,816 6,832
Feb 2015 84,654 6,512
May 2015 95,845 7,373
Aug 2015 99,587 7,661
Nov 2015 93,250 7,173
Total 644,419 7,082
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Trading Format
Trading Hours and Seasonality
Days of Week Opening Hours
Monday to Saturday 12 noon to 3pm and 6pm to 11pm
Saturday 12 noon to 4.30pm and 7pm to 10.30pm
The summer months are said to be busier than the winter, mainly due to the extensive use of the beer garden during the better weather, and the proximity to Emberton Country Park.
Sources of Income
- Wet Sales
Wet stocks are predominantly purchased through Charles Wells, from whom a small loan was once obtained, although this has since been repaid. Bar prices are as follows: Bitter £2.90 to £3.25 per pint Lager £3.00 to £3.75 per pint Cider £3.55 per pint Guinness £3.60 per pint Spirits £2.50 per measure Wine £3.50 per glass £12.00 to £25.00 per bottle From the stocktaking information provided, we note that draught beer sales account for approximately half of the wet sales, with wines between 12% and 15%, ‘softs’ at a little over 20%, with the remainder being bottled beers, spirits and aperitifs. A wet sales gross profit margin of up to 60% is claimed, although the stocktaking records suggest closer to 58% is currently being achieved. A typical weekly order is said to be three real ale casks, two Fosters’, two Stella, a cider and a Guinness, with an overall annual barrelage of circa 135 (36 gallon equivalents).
- Dry Sales
Food is available over all sessions and in the evening until 9pm. There is an extensive bar food menu shown on a blackboard above the bar. Baguettes and sandwiches are £5.95, and most other dishes such as jacket potatoes and all day breakfast are around £6.95. Hot drinks are £2.50. The dining area has a separate menu, but customers can have this in the bar as well. Starters are £4 to £5.95, mains are £8.95 to £18.95 for mixed grill (8oz rib-eye steak is £15.95), and desserts are £4.95. Sunday lunch is £8.95 for one course and £11.95 for two courses. The average spend for diners in the evenings, including drinks, is said to be in the region of £20-£25 per head. The main supplier is 3663, but much of the produce, such as meat, game and vegetables, is purchased locally. Purchasing invoices seen for the past three months would also back up the verbal claims of 3663 purchases of approaching £5,000 per month, with locally sourced meat at £500-700 per week, fish delivered weekly at around £250 per week, with approximately £350 with the local greengrocer. These would support the claimed average gross profit margin in the region of 57%-60%. We have not been provided with detailed ‘cover counts’, but it was estimated that two-thirds of the dining trade comes from evening sessions, with Friday and Saturday evenings typically at least 40 covers per night, with 50 Sunday lunch covers on average and between 10 and 20 meals served on other lunchtimes and at least 20 on Monday to Thursday evenings.
- Accommodation Income
The two bedrooms are available at a rate of £45 per room per night on a bed only basis. The rooms are not promoted at all and consequently the occupancy levels are relatively modest. We have not been provided with any formal income records for this aspect of the business, but takings of around £12,000 per annum were indicated.
- Machine Income
There is around £3,000 of net income generated annually from the AWP machine after the payment of rent and Machine Gaming Duty.
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Trading Format
Entertainment
There is no regular formal programme of entertainment, although an antiques club meets at the business on a monthly basis and regular village and charity events are hosted, with complimentary refreshments sometimes provided.
Advertising and Promotion
Advertising is undertaken within the visitor magazine for Emberton Park, other magazines and the local press.
Hire Purchase, Leasing and Rental Agreements
With the exception of the AWP machine, we were advised that all items of equipment are unencumbered and our valuations are provided on this basis.
Management
Mr and Mrs Oliver have other business interests and therefore this unit is run under management. The management couple are paid £28,000 per annum and have the benefit of the flat, for which no charge is made.
Staffing
One of the managers runs the kitchen, with the assistance of a part time chef who is paid £8.50 per hour, working an advised 25 hours per week on average, and two part-time kitchen porters paid £6.75 per hour. There is a full-time bar manager, paid £18,000 per annum and a range of bar and waiting staff, all of whom are part time to minimise Employers' National Insurance contributions. The rates of pay vary according to age, with some staff being under 21, but generally a typical hourly rate is £6.75. The cleaning team, working a combined three hours a day are paid £7.50 per hour. We have seen details of weekly wages, which are between £1,500 and £2,000. The most recent accounts show wage costs of just over £85,000, equating to 24% of net turnover, which appears to have been maintained with the further growth in trade seen since. The annual wage bill is stated to be around £100,000 and we have used this figure in our Current Trade Assessment, although would expect owner operators to be able to make savings in this regard.
National Living Wage
As from April 2016, a National Living Wage (NLW) of £7.20 per hour will be introduced for all employees aged 25 years or over. This will be reviewed annually by the Low Pay Commission and is expected to reach £9.00 per hour by 2020. The lower National Minimum Wage (NMW) will continue to apply for employees younger than 25.
Pension Auto-enrolment
It is compulsory for all employers to offer a work-based pension scheme for all employees aged between 22 and normal retirement age who earn more than £10,000 per annum. The introduction will be phased, with each employer being advised of their specific ‘staging date’. Minimum employer and employee contributions will rise from an initial 1% each up to 3% and 5% respectively from 1 October 2018 onwards.
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Current and Fair Maintainable Trade
Basis for Current Trade Assessment
The most recent accounts to 30 June 2015 show a net turnover, from all sources, of £357,078, a weekly average of £6,866. The VAT Returns since these accounts, namely the two quarters to November 2015, show net sales of £192,837, a weekly average of £7,416, which is 6% higher than the preceding year. We have also been provided with a computer printout of weekly takings covering the 26 weeks from 1 July 2014 to 30 December 2015. These show total sales, inclusive of VAT, of £239,347, a net of VAT weekly average of £7,671. Weekly sales ranged from £5,039 for a week in mid November to £11,303 for the week prior to Christmas. Gross food sales were recorded as £141,214, a net weekly average of £4,526, with gross wet sales at £94,386, a net weekly average of £3,025. Accommodation sales were recorded at £3,747 inclusive of VAT. The most recent stocktaking records, covering the 90 day period to 18 December 2015 show wet sales, net of VAT, of £41,562, a weekly average of £3,232, generating a gross profit margin of 56.7%. The weekly average is higher than for the VAT Returns due to the influence of pre-Christmas trade. The barrelage figures suggest an MAT of 135 barrels, which would suggest a level of draught and bottled beer sales of just under £100,000, which is be supported by the level of stocks currently held in the cellar and the sample delivery notes seen during our inspection. Based on the stocktakers report approximately 60% of wet sales relate to draught and bottled beers, suggesting total wet sales of just over £3,000 per week. The claimed number of average meals served and estimated average prices, would support food sales in the region of £4,000 to £4,500 per week, net of VAT, which is also supported by the level of purchases claimed at some £2,500 per week, also broadly supported by the sample invoices seen. Given the above, we have taken a prudent view and adopted a Current Trade Assessment of £385,000 which allows for the growth in trade seen since the most recent accounts continuing, but tempered by the effects of seasonality. We have adopted a gross profit margin slightly higher than the most recent accounts, but still well within the capabilities of this business.
Basis for Fair Maintainable Trade Assessment
The recommended method of valuing trading businesses is the profits method, with an appropriate yield/multiplier applied to the assessed Fair Maintainable Operating Profit (FMOP). The FMOP is the level of profit that can reasonably be expected to be sustained by the business when operated by a normally efficient operator. It should exclude any influence on trade, positive or negative, which may result from an exceptional operator. We have shown our opinion of Fair Maintainable Trade (FMT) in the table opposite. For the sake of transparency, we have shown a comparison with the levels of income and expenditure that we have assessed as currently being demonstrated by the business. We have commented below on the reasons for any differences between these two trade assessments. The only adjustment made for FMOP purposes is to wage costs. The business is currently managed, but pubs of this size are usually run by two fully involved owners and this is the market to which we consider the business would have greatest appeal. On this basis, we consider that savings of approximately £20,000 in wage costs could be made and this has been reflected within our FMT assessment.
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Trade Assessments
Current Trade Fair Maintainable Trade
385,000 Total Turnover 385,000
227,000 59% Gross Profit 227000 59%
3,000 Net Machine Income 3,000
230,000 Total Income 230,000
Less Expenses
17,500 4.5% Rates, Water, Environmental Charges 17,500 4.5%
10,000 2.6% Heat and Light 10,000 2.6%
100,000 23.4% Wages (excluding family payments) 80,000 18.2%
2,500 0.6% Printing, Postage, Stationery, Telephone 2,500 0.6%
2,000 0.8% Advertising 2,000 0.8%
3,500 0.9% Insurance 3,500 0.9%
2,000 0.5% Accountancy and Stocktaking 2,000 0.5%
5,000 1.3% Laundry and Cleaning 5,000 1.3%
10,000 2.6% Repairs and Maintenance 10,000 2.6%
2,000 0.5% Transport 2,000 0.5%
3,500 0.9% Credit Card Commission 3,500 0.9%
500 0.1% Licences 500 0.1%
1,500 0.6% Sundries 1,500 0.6%
160,000 Total Expenses 140,000
70,000 18.2% Operating Profit (£) 90,000 23.4%
Operating Profit is expressed before interest, taxation, depreciation, amortisation and hire purchase and leasing costs
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Basis for Projection
Subsequent to our visit, we have spoken with Mr Brown in order to ascertain the proposals for the business.
Property
Essentially, there are no major development plans for the property at this time, although the erection of signage from the A509 is to be investigated. The accommodation to the upper floors is to be refurbished in order to create a comfortable home for Mr and Mrs Brown.
Business
The business is to be operated as a food-led gastropub and it is intended to enhance the menus and service standards. The targets are for a growth in turnover of some 7%, with gross profit margins aimed at of at least 56% on wet sales and approaching 65% on food sales. However, although we believe this can be achieved in future years, we are of the opinion that in the current economic climate, with discretionary spend being more restricted, an increase in trade in the first year of trading following an initial establishment period may be optimistic. In addition, we are of the opinion that the anticipated gross profit margins will take some time to achieve.
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Methodology and Comparable Evidence
When preparing our valuations, we have had principal regard to the ‘profits’ method of valuation, together with an analysis of comparable market information and regard to our own extensive database.
Comparable Evidence – Business Value
It should be appreciated that the analysis of comparable evidence has limitations, particularly when we have not been directly involved in appraising and valuing the comparable business. In particular, accounting information provided by agents, as part of the sales particulars to a deal, can often be dated and undertaking an assessment of Fair Maintainable Trade (FMT) without fully appraising a business is more subjective. In addition, adjustments may be required for works, potential or the benefit of other aspects, such as residential accommodation. Whilst we have sought to obtain sufficient information in order to undertake a reasonable analysis of the comparable evidence outlined below, this has also been based on our expectations for such a business and our wider market knowledge.
� We are aware of the sale of a village public house near Biggleswade, which sold in December 2015 for £410,000. This was trading, with large restaurant/lounge, small public bar, and three bedroom owners’ accommodation, but with no trade being warranted, due to the death of one of the owners. Based on our assessment the sale price equated to a multiplier of some 5.25YP.
� A pub located near Buckingham was sold in October 2015 for £435,000. We are advised that it had closed in March 2015 and was purchased with a view to renovation and re-opening. Whilst a profits appraisal is not possible in this instance, it is included as an example of the demand seen for quality public houses within the region. It offered bar, lounge and conservatory, owners’ cottage and four potential letting bedrooms.
� A pub located in Aylesbury was sold in August 2015 for £1,000,000. We are advised that it had a turnover in the region of £550,000. We have not undertaken an appraisal of this business but based upon the advised turnover, in the region of £550,000, we estimate the sale price equates to a profits multiplier of 7.15YP. This is higher than expected, partly due to the business only trading five days a week and thereby offering potential to increase income levels. We would also comment that this business is in a desirable and affluent area, which would be another factor likely to positively influence the multiplier.
� A pub located near Stevenage was sold in August 2015 for £1,200,000. We are advised that it had a turnover of c. £480,000, albeit considered under-trading at this level, two separate dining areas and good quality owners’ accommodation. Based upon our knowledge of this well established business, the sale price equated to 5.9YP.
� A public house in a Chilterns village in Buckinghamshire, which we reported on in late 2014, when a sale price of £600,000 had been agreed. This was a characterful 17th century property, with large trading areas split over four parts and which offered excellent five bedroom owners’ accommodation. Turnover was believed to be in the region of £460,000, and our assessment of FMT was based on a similar figure, but reliable trading information was not available. The sale price equated to around 6.0 (YP) based on our analysis.
� A well presented, Buckinghamshire village public house, with integral owners’ accommodation, sold in June 2015.
The income was split equally between wet and dry trade and our FMT assessment was based on turnover of £650,000 and FMOP of £195,000. The confidential, provisionally agreed sale price for freehold property and business equated to a profits multiplier of 5.9 (YP) plus an allowance for the owners’ accommodation.
We are also aware of a small closed pub in Newport Pagnell, which sold in March 2015 for £235,000.
Methodology
From comparable evidence obtained from the wider area, and discussions with specialist agents, we would expect a public house such as this, as a going concern, to achieve a multiple of profits between 5.0 and 6.0 YP times Fair Maintainable Operating Profit (FMOP), prior to allowances for owners’ accommodation. Having regard to the size and characteristics of the subject concern, we have adopted a mid-range profits multiple of 5.5 YP in this instance, to which we have added a sum for the private living accommodation. The private living accommodation comprises two bedroom owners’ accommodation, which is an integral part of the public house and therefore cannot be sold separately from the business. As such, it can not be directly compared to local residential properties, although we have considered such sales in setting a ‘tone’ for local values; in this respect, we are aware of the following: In September 2015, a two bedroom flat in the village sold for £120,000 and a three bedroom semi-detached house sold in July 2015 for £185,000. We have allowed for a nominal value for the owners’ accommodation of £50,000 to reflect that it is above and integral to licensed premises.
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Current Proposed
Base Value £500,000 n/a
equating to: Assessed Fair Maintainable Operating Profit £90,000 5.5yp n/a n/a
Value of Private Living Accommodation £50,000 n/a
Market Value £550,000 n/a
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Additional Commentary
Market Rent
In accordance with our instructions, we have provided an opinion of Market Rental Value. In assessing the Market Rent, we have researched other passing rents for pubs in the region and whilst there is limited comparable evidence available involving rental values agreed on public houses, we are aware of the following: A public house in Bedfordshire with a turnover of £229,643 per annum, is currently let for £28,755 per annum. This equates to 12.5% of turnover and, assuming a standard net profit margin, around 40% of net profit. A village public house in Northampton, with a turnover of £223,000, is currently let for £29,000 per annum. This equates to 13% of turnover and, assuming a standard profit margin, around 43% of net profit. A food led Buckinghamshire village pub is currently available with a reported turnover of £584,000 and a passing rent of £53,000 per annum, equating to 9.1% of turnover. Although we have not undertaken appraisals’ on the above businesses, the rents also equated to between 35% and 46% of advised freehold profitability (FMOP). In this instance, we have assessed the Market Rental Value of this business to be some £35,000 per annum, representing approximately 9% of FMT and 39% of FMOP.
Marketability
We consider that the most likely purchaser for a freehold concern of this style would be an individual owner operator rather than a corporate or group operator. The business has been openly marketed for around six months. A formal offer has yet to be made, but the selling agents report that there is at least one other party showing serious interest. The combination of a solid business, well presented property and reasonable owners’ accommodation makes, this an attractive proposition for the right purchaser.
Loan Security
Clearly, the value of a trading business is subject to fluctuation over time, resulting from the trading performance of the business, changes in local market forces, legislation and national economic conditions. Whilst it is for the lender to assess the risk attached to such fluctuations over the period of any loan, and to determine an appropriate level of security, we are unaware of any foreseeable events or circumstances, other than those detailed within this report, which would suggest that the subject property is unsuitable security for loan purposes and we would expect this business to be able to maintain its value in relation to the general economic and market conditions. Additionally we would expect the property to have a useful economic life over a typical loan term for a business of this nature. This assumes that the necessary maintenance and upgrades are made to the property to ensure that it continues to meet legislative and market requirements. Whilst it is possible for sales to complete quickly, in the current market we would not consider it unusual for a marketing period of some nine months to be required. However, if the property were disposed of in the event of foreclosure, or if a restrictive time period were imposed then we would expect a reduction in realisable value. It is impossible to be definitive as to the extent of this as it would be dependent upon the particular circumstances, but the valuations subject to assumptions contained herein provide some illustration of this scenario.
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Valuations
Opinions of Current Valuation reflect the asset as inspected and described within the body of our report, subject to any stated assumptions.
MARKET VALUE subject to:-
[i] the asset is a fully equipped and operational entity, valued with regard to trading potential;
[ii] accounts or records of trade would be available to a prospective purchaser;
[iii] no time restrictions have been placed on the marketing of the asset.
(a) The Market Value of the current asset subject to the assumptions above is ........................................................... £550,000
(five hundred and fifty thousand pounds)
MARKET VALUE subject to:-
[i] the asset is a fully equipped and operational entity, valued with regard to trading potential;
[ii] accounts or records of trade would be available to a prospective purchaser;
[iii] a sale of the asset has been required within a 6 month period.
(b) The Market Value of the current asset subject to the assumptions above is ........................................................... £375,000
(three hundred and seventy five thousand pounds)
MARKET VALUE subject to:-
[i] the asset is empty but is valued with regard to trading potential;
[ii] accounts or records of trade would not be available to a prospective purchaser;
[iii] no time restrictions have been placed on the marketing of the asset;
[iv] the inventory has been removed;
[v] the licences have been lost or breached.
(c) The Market Value of the current asset subject to the assumptions above is ........................................................... £325,000
(three hundred and twenty five thousand pounds)
The term asset refers to the property and/or business inspected and as described within our report. Our valuations assume the asset would be transferred free of any liabilities or encumbrances other than as expressly stated.
In view of the unpredictability of the conveyancing process, valuations which are expressed subject to a specified time restriction are provided on the basis that a sale has been agreed within that timescale, subject to contract, rather than legally completed.
Where the term ‘Inventory’ is used, it is assumed to include all items of relocatable furniture and equipment (beds, chairs, tables, crockery, etc) but not permanently installed fixtures and fittings, sanitary ware, floor-coverings, etc. All opinions of valuation are exclusive of any belongings (chattels) owned personally by the operator.
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Valuations
Basis of Valuation
The bases of valuation above are as defined The Royal Institution of Chartered Surveyors, Valuation - Professional Standards, and are subject to the qualifications and limitations referred to within this report. For further clarification of valuation terminology, please see the sections below. Full definitions of the valuations are also given within the Conditions of Engagement appended to this report.
Market Value - The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
Market Rental Value - The estimated amount for which a property would be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
Market Value – Special Assumptions
Unless otherwise specified, this valuation assumes that the business is to be offered for sale free of any perceived blight resulting from factors such as the threat of action by statutory authorities or the appointment of Receivers. It should be appreciated that the impact of the specified restricted sale period will be more significant during periods where transactions are prolonged due to uncertain market conditions.
Market Value – Business Closed
We have provided our opinion of the value of the subject concern should it cease to trade and be offered for sale as a closed unit. Unless otherwise specified, this valuation assumes that the vacant property is to be offered for sale free of any perceived blight resulting from factors such as the threat of action by statutory authorities or the appointment of Receivers, but it should be appreciated that the value of empty business premises may vary considerably depending on the circumstances of the business closure. It is also important to recognise that this valuation assumes continuation of the existing use and excludes the possibility of any change of use being permitted.
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Appendix 1 - National Sector Profile
The public house market in the UK has some 50,000 outlets spread between numerous sub sectors, both in terms of demographic trade sources, location styles and ownership criteria. In the later half of the first decade of the 21st Century, all sectors of the public house and bar market were affected by the worsening residential property market, the reduction in consumer spending, the deep discounting of alcohol by supermarkets and, of course, the failings of the UK and global banking systems. Following the more dramatic effects of that period, further challenges have been experienced, with reducing consumer spending pressurising income streams and a general lack of confidence in the overall market limiting bank support for prospective purchasers. Whilst some residential housing markets saw a rising trend in values, this was on a shallow basis and the markets overall have remained fragile. It is more important than ever for businesses seeking to maximise their value to be sold with full trading records to prove to purchasers and lenders that the business has sufficient levels of profit to adequately service any finance costs. The leasehold market remains static, with many public houses available at nil or nominal values, though some optimism is being seen again within Central London, whilst the public house investment market has seen some high profile prominent sales at auction at yields that individually tenanted outlets can only dream of. As always, close attention must be paid to rents and their sustainability, and most yields remain significantly weaker than in recent years. The freehold market will remain inextricably linked with the fortunes of the residential property market and banks’ lending policies, but one avenue of optimism for further activity, albeit at relatively modest levels, is that the pub operating companies continue to dispose of some of their leased estate back into the freehold market. The continued lack of confidence in the wider economy and the number of leisure and retail companies reporting difficult trading conditions and depressed profitability means that buyers who are in a position to proceed remain more cautious in their approach to transactions, and agents are reporting long marketing periods and less competitive bidding. Future market conditions are of course very difficult to predict, but it is expected that the market will remain fragile for longer than the general economy due to the external pressures placed upon it by the media, Government and off trade retailers. The government is also looking into the pub market, principally at the pubco-tenant relationship, but potentially this could have an impact upon the number of freehouses coming to the market in the years to come, dependant upon their findings. We would also comment that due to the banks remaining cautious about lending money in the commercial sectors, sales can still take a long time to achieve. Should a quick sale therefore be required, this is likely to have a significant impact on the price achievable.
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Conditions of Engagement
(Effective from 1 February 2013)
This Appendix forms part of the Report, and it is assumed that the Client is fully conversant with its contents.
(a) Definitions
Unless the context otherwise requires, the following terms have the meanings ascribed (where appropriate, references in the singular will also apply in the plural):-
"Pinders" means Pinders Professional & Consultancy Services Limited whose registered office is at Pinder House, Central Milton
Keynes, MK9 1DS.
"the Client" means the person(s) or body from whom the instructions to prepare the Report have been received. Reference to the Client, who shall be identified on the front page of the Report, shall in all cases be interpreted to mean only this person(s) or body.
"Proposed Borrowers" means the individual(s) or company whose proposal is the subject of the Report. Any reference to Proposed Borrowers within these Explanatory Notes also applies to alternative forms such as "Proposed Purchasers", "Proposed Vendors", etc.
"the Property" means all those freehold/leasehold premises which have been inspected by Pinders and reported upon.
"the Business" means the business trade or profession carried on or to be carried on by the Proposed Borrower in respect of which Pinders has been requested to prepare the Report.
"the Report" means a Report on the Property and/or Business prepared by Pinders.
"Inspection Date" the date on which Pinders’ representative carried out the inspection of the premises.
"Valuation Date" the date as of which the Valuation and/or Appraisal is stated to be expressed.
(b) Limitations of Report
Pinders has prepared this Report for use only by the Client to assist them in the consideration of the proposal stated and in respect of the subject business and/or premises, and for no other purpose whatever. It is confidential to the Client and other than for information purposes it is not for use by the Proposed Borrowers or any other party in any way.
Pinders accepts responsibility to the Client alone that the Report will be prepared with the skill, care and diligence to be expected of a competent business valuer and appraiser, but accepts no responsibility whatsoever to any person other than the Client. No person or body other than the Client may rely on the Report and neither the whole, nor any part of the Report, nor any reference thereto, is to be included in any published document, circular or statement, nor published in any way without the written approval of Pinders as to the form and context in which it may appear.
The Report may include an appraisal of a business concern together with comments as to its trading potential. In making such assessments Pinders accept no responsibility for loss of whatever nature which may result directly or indirectly from:
� the suppression, deception or falsification of material facts by the Vendor, Proprietor, and/or Proposed Borrowers;
� any mismanagement of the business;
� insufficient capitalisation, stock and staffing levels;
� changes in the financial and market situation compared to those prevailing at the date of the Report;
� material alterations to the nature, character, extent and pricing structure of the business;
� failure to maintain all proper and prudent insurance cover.
This Report is not intended to replace any of the investigations or enquiries normally undertaken in connection with the purchase or mortgage of a property/business and we do not accept responsibility for loss of whatever nature directly or indirectly arising out of failure to make such enquiries. Such enquiries include, but are not limited to, the taking of independent professional advice from solicitors and accountants, the entering into of a professionally drawn acquisition agreement with the appropriate warranties being taken from the Vendor or Proprietor, the taking up of all necessary trade and bank references, the inspection of the Vendor’s or Proprietor’s or Proposed Borrowers' accounts, examinations of all necessary consents, regulations, permissions, licences and bylaws.
Furthermore it is the Client’s responsibility to ensure that all trading information provided to Pinders is substantiated by audited/certified accounts and, where appropriate, an Accountant’s Certificate. Any discrepancy arising from such documentation should be reported to Pinders as soon as practicable in order that any necessary adjustments may be made to the Report. The Report may point to further enquiries being necessary and failure to make such enquires will be taken as evidence of non-reliance upon the Report and valuations therein.
It must be remembered that the Report does not contain a decision as to whether the stated proposal should proceed. It should also be noted that we do not supply "investment advice" either for the purposes of the Financial Services Act 1986 or at all. We do not offer advice as to whether shareholdings or debentures should be taken in the case of an incorporated business or equity acquired in the case of an unincorporated business or partnership. Should the Client and/or the Proposed Borrowers require such advice, they should seek assistance from their independent financial adviser.
Unless otherwise stated, the Report is not a Report of a survey, whether "Building Survey", "Structural Survey" or otherwise and no such building or structural survey has been carried out. In making the Report regard will be had to the apparent state of repair, construction and condition of the Property, taking into consideration major defects which are obvious in the course of a visual inspection of so much of the exterior and interior of the Property as is accessible at the time of inspection with safety, and without undue difficulty. The inspection will view those parts of the Property as can be seen whilst standing at ground level within the boundaries of the site and adjacent public/communal areas and whilst standing at the various floor levels, which Pinders considers reasonably necessary to provide the service, having regard to its purpose.
Pinders shall be under no duty to examine those parts of the Property which are covered, unexposed or inaccessible, or to raise boards, inspect woodwork, move anything, or use a moisture detecting meter. Neither shall Pinders have a duty to arrange for the testing of electrical, heating or other services which, unless indicated to the contrary, shall be assumed to be in a working and serviceable condition. If Pinders’ inspection suggests that there may be material hidden defects Pinders will so advise and may exceptionally defer submitting a final Report until the results of further investigations are available.
It is assumed that those parts of any building erected on the Property which have not been inspected or made available for inspection would not reveal material defects of such a nature as to cause Pinders to alter the Report and Valuation.
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In making the Report Pinders has made the following assumptions:
(i) We have not arranged for any investigation to be carried out to determine whether or not any deleterious or hazardous material has been used in the construction of this property, or has since been incorporated, and we are therefore unable to report that the property is free from risk in this respect. For the purpose of this Report we have assumed that such investigation would not disclose the presence of any such material to any significant extent.
(ii) Pinders cannot give any opinion whatsoever regarding the structural design of any construction upon the property nor as to the suitability of any foundations to such constructions.
(iii) That the plant, machinery, equipment, fixtures and fittings are in serviceable order, adequate for the effective trading of the business, and will remain so for the foreseeable future.
(c) Aspects of Title
In making the Report Pinders has made the following assumptions:
� That the Property is not subject to any unusual or especially onerous covenants, restrictions, encumbrances or outgoings which might affect Pinders’
valuation or which might prevent all or part of the Property from being properly used in connection with the Business.
� That the Title is as described to Pinders and as referred to in this Report and that there is good and marketable Title to the Estate or Interest which
Pinders has valued. Unless indicated to the contrary, title deeds and/or lease documents have not been inspected. Any interpretation of leases and
other legal documents and legal assumptions given in our capacity as Business Valuers and Appraisers must be verified by a suitably qualified lawyer
if it is to be relied upon.
� That the valuation of the Property/Business is unaffected by any matters which would be revealed by any searches and replies to such enquiries as are
raised or should properly be raised by the Client/Proposed Borrower and/or by Solicitors acting on his/their behalf or by any statutory notice,
restriction or liability; Pinders must be advised of any variations as to this assumption.
� That the Property and/or Business, its use or intended use, or its condition is not in any way unlawful or in breach of any provisions of the Town and
Country Planning Acts, Building Control, Licensing Acts, Registered Homes Act, Environmental Health Acts, or other statutory requirements, and that
the Property has direct access from a publicly maintained highway.
� Pinders’ understanding of the boundaries is noted, but Pinders has no knowledge (expressed or implied) of the responsibilities for fencing and legal
advice should be sought in this respect, if required. Pinders assumes that such boundaries show the true extent of the property and that there are no
potential or existing boundaries or other disputes or claims outstanding. Where indicated site areas are obtained from published plans or as advised
to Pinders. They are not derived from a physical site survey and are approximate unless otherwise indicated. Unless otherwise stated, any
measurements noted are carried out in accordance with the Code of Measuring Practice issued by the Royal Institution of Chartered Surveyors.
Pinders shall be under no obligation to verify any of these assumptions. It remains the responsibility of the Client to ensure that all appropriate enquiries and investigations are made and the report is not intended to replace any of those enquiries/investigations.
(d) Environmental Matters
Pinders has not carried out, nor has it commissioned, a site investigation, geographical or geophysical survey and therefore can give no opinion or assurance or guarantee that the ground has sufficient load bearing strength to support the existing constructions or any other construction that may be erected upon it in the future. Pinders cannot give any opinion or assurance or guarantee that there are no underground mineral or other workings beneath the site or in the vicinity nor that there is any fault or disability underground. It is not possible for Pinders, therefore, to certify that any land is capable of further development or redevelopment at a reasonable cost for the use for which there is permission.
Unless otherwise stated, we are not aware of the content of any environmental audit or any other environmental investigation or soil survey which may have been carried out on the property and which may draw any attention to contamination or the possibility of any subsequent contamination. In our undertaking we will assume that no contaminative or potentially contaminative uses have ever been carried out in the property. We have not carried out an investigation into past or present uses, either of the property or of any neighbouring land, to establish whether there is any potential for contamination to the subject property from these uses or sites, and have therefore assumed that none exist. Should it be established subsequently that any contamination exists at the property or on any neighbouring land, or that the premises have been or are being put to a contaminated use, this might reduce the values now reported.
(e) Generally
This Report has been prepared in good faith on the basis of enquiries made and information supplied to us. We reserve the right to claim qualified privilege in respect of any part of this Report should the contents be subsequently challenged by a party claiming to be aggrieved at anything stated herein. Sections 12 to 16 of the Supply of Goods and Services Act 1982 (or any statutory enactment thereof for the time being in force) are hereby excluded.
Valuations may be relied upon for the stated purpose as at the date specified. It is for the Client alone to make judgement as to their reliance upon the contents of the Report thereafter. In normal market conditions the value may not change materially in the short term (approximately 3-6 months). However, the property market is constantly changing and is susceptible to many external factors which can affect investor confidence and corresponding values.
Value added tax, taxation, grants and allowances are not included in capital and rental values as, unless otherwise specified in the report, these are always stated on a basis exclusive of any VAT liability even though VAT will in certain circumstances be payable. Unless otherwise specified no account is taken of any existing or potential liabilities arising for Capital Gains or other taxation or as a result of grants or capital allowances.
In the event of a dispute arising in connection with a valuation or the contents of the Report, unless expressly agreed otherwise in writing, Pinders Professional & Consultancy Services Limited and the Client will submit to the jurisdiction of the British Courts only. This will apply wherever the property or Client is located, or the advice provided.
Pinders are deemed to be "External Valuers" with no other current or presently foreseeable fee earning relationship concerning the subject property and/or business apart from the valuation fee. Pinders will disclose to the best of its knowledge previous inspections undertaken. Pinders is not however able to disclose any present or previous relationship with any of the interested parties, contrary to the requirements of the Valuation - Professional Standards of the Royal Institution of Chartered Surveyors.
None of our employees, partners or consultants individually has a contract with you or owes you a duty of care or personal responsibility. You agree that you will not bring any claim against any such individuals personally in connection with our services.
If you suffer loss as a result of our breach of contract or negligence, our liability shall be limited to a just and equitable proportion of your loss having regard to the extent of responsibility of any other party. Our liability shall not increase by reason of a shortfall in recovery from any other party, whether that shortfall arises from an agreement between you and them, your difficulty in enforcement, or any other cause.
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Our contract with you for the provision of this valuation is subject to English/Scots Law (as appropriate to the location of the subject property). Any dispute in relation to this contract, or any aspect of the valuation, shall be subject to the exclusive jurisdiction of the Courts of England and Wales/Scotland, and shall be determined by the application of English/Scots Law regardless of who initiates proceedings in relation to the valuation.
(f) Valuations
The valuations provided will be made on the assumptions stated within the Report and/or these Explanatory Notes in respect of the individual subject business/property, unless otherwise agreed, on whichever of the following or other bases as have been agreed between Pinders and the Client, such bases where applicable to be as defined or referred to in the Valuation - Professional Standards of the Royal Institution of Chartered Surveyors.
The valuations provided are for the value of the business/property as described. No account has been taken of any special tax or other inducement or liability which may arise as a result of any transaction in contemplation nor of normal costs involved in the execution of such a transaction. The full definitions of the valuations provided in the Report are set out below: If the Report contains other valuation bases, these are as specifically requested by the Client with our advice identified within the Report to be on a basis not recommended by the Royal Institution of Chartered Surveyors, and provided for guidance purposes only.
DEFINITIONS OF VALUATION
Market Value (MV) The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
Market Value
with special assumptions
Opinions of Market Valuation can be provided in accordance with special assumptions which are indicated by the client. These assumptions will be clearly stated within the body of the report.
Market Rental Value (MRV) The estimated amount for which a property would be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s-length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion.
Interpretive Commentary, as published in International Valuation Standards 2011.
(a) 'The estimated amount ...'
Refers to a price expressed in terms of money (normally in the local currency) payable for the asset in an arm's-length market transaction. Market Value is the most probable price reasonably obtainable in the market on the date valuation date in keeping with the Market Value definition. It is the best price reasonably obtainable by the seller and the most advantageous price reasonably obtainable by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of Special Value.
(b) '... an asset should exchange ...'
Refers to the fact that the value of an asset is an estimated amount rather than a predetermined or actual sale price. It is the price in a transaction that meets all the elements of the Market Value definition at the valuation date.
(c) '... on valuation date ...'
Requires that the value is time-specific as of a given date. Because markets and market conditions may change, the estimated value may be incorrect or inappropriate at another time. The valuation amount will reflect the actual market state and circumstances as of the effective valuation date, not as of either a past or future date. The definition also assumes simultaneous exchange and completion of the contract for sale without any variation in price that might otherwise be made.
(d) '... between a willing buyer ...'
Refers to one who is motivated, but not compelled to buy. This buyer is neither over-eager nor determined to buy at any price. This buyer is also one who purchases in accordance with the realities of the current market and with current market expectations, rather than on an imaginary or hypothetical market that cannot be demonstrated or anticipated to exist. The assumed buyer would not pay a higher price than the market requires. The present owner is included among those who constitute 'the market'.
(e) '... a willing seller ...'
Is neither an over-eager nor a forced seller prepared to sell at any price, nor one prepared to hold out for a price not considered reasonable in the current market. The willing seller is motivated to sell the asset at market terms for the best price attainable in the open market after proper marketing, whatever that price may be. The factual circumstances of the actual owner are not a part of this consideration because the willing seller is a hypothetical owner.
(f) '... in an arm's-length transaction ...'
Is one between parties who do not have a particular or special relationship eg parent and subsidiary companies or landlord and tenant, that may make the price level uncharacteristic of the market or inflated because of an element of Special Value. The Market Value transaction is presumed to be between unrelated parties each acting independently.
(g) '... after proper marketing ...'
Means that the asset would be exposed to the market in the most appropriate manner to effect its disposal at the best price reasonably obtainable in accordance with the Market Value definition. The method of sale is deemed to be the most appropriate to obtain the best price in the market to which the seller has access. The length of exposure time is not a fixed period but will vary according to the type of asset and market conditions. The only criterion is that there must have been sufficient time to allow the asset to be brought to the attention of an adequate number of market participants. The exposure period occurs prior to the valuation date.
(h) '... wherein the parties had each acted knowledgeably and prudently ...'
Presumes that both the willing buyer and the willing seller are reasonably informed about the nature and characteristics of the asset, its actual and potential uses and the state of the market as of the valuation date. Each is further presumed to use that knowledge prudently to seek the price that is most favourable for their respective positions in the transaction. Prudence is assessed by referring to the state of the market at the valuation date, not with benefit of hindsight at some later date. For example, it is not necessarily imprudent for a seller to sell assets in a market with falling prices at a price which is lower than previous market levels. In such cases, as is true for other exchanges in markets with changing prices, the prudent buyer or seller will act in accordance with the best market information available at the time.
(i) '... and without compulsion'
Establishes that each party is motivated to undertake the transaction, but neither is forced or unduly coerced to complete it.
Market Value is understood as the value of an asset estimated without regard to costs of sale or purchase, and without offset for any associated taxes.
