Hotel gaming entitlements - Swift changes have big implications in NSW

HOSPITALITY

The NSW Government announces significant changes to the way hotel gaming entitlements can be traded.

What does this mean for operators? 

Operators will be able to realise value from underutilised gaming machine entitlements with increased ability to:

- Lease PMEs to other hoteliers

- Freely sell PMEs to other hoteliers without forfeiture

- Move PMEs between different locations within hotel groups

What does this mean for Financiers?

The PPSA implications of leasing PMEs would significantly interfere with security in place over PMEs. Lenders to hotels need to be mindful of these developments and remain aware of any such transfers or leasing arrangement.

What do the new Liquor and Gaming proposals published on 6 March 2018 mean for operators and financiers? 

Increased value in country hotels

Country hotels will be able to sell their PMEs:

- By allowing transfers of up to six entitlements to metropolitan hotels in a 12-month period, previous the limit was three.

- To other country hotels without forfeiture, as long as the seller’s Gaming Machine Threshold (GMT) goes to zero. 

The cancellation pool will become smaller – if they can be transferred without cancellation and country entitlements can be sold / moved / leased without forfeiture, then the supply constraints should ease which may counter price rises from increased demand.
 
Movement of PMEs is going to become a whole lot easier – multi venue operators are likely to buy up entitlements and move them from venue to venue, possibly creating a new market and higher demand for country venues so they can be moved to the CBD.

These proposed changes will drive up demand for country hotels and their PMEs and provide a potential short-term increase in values realisable for country hotel operators.

Flexibility with forfeiture of PMEs

The proposed legislation introduces methods to sell and lease PMEs without forfeiting any PMEs.
For large hotel groups, there is potential for getting around forfeiture laws by leasing entitlements to hotels within groups.
Financiers’ security increases as a result of the PMEs not being forfeited during a transaction.

Leasing of PMEs

Under the proposed laws:

- Leasing of PMEs will be permitted for a period of up to 5 years.

- Only hotels with 10 or fewer Electronic Gaming Machines (EGM) will be eligible to lease out their entitlements. 

- Lessee venues will be required to pay a levy of 5% of lease payments to the Responsible Gambling Fund.

The ability to lease PMEs will generate recurrent income for smaller venues and enable operators to focus on their primary operations.
 
The PPSA implications of leasing PMEs would significantly interfere with security in place over PMEs. Lenders to hotels need to be mindful of these developments and aware of any such transfers or leasing arrangements.

Gaming Machine Threshold increase applications where LIA is not required

Hotels located in Band 1 Statistical Area Level 2s (SA2) will continue to be able to increase their GMT by up to 20 PMEs in a year without the need for a (LIA) or community contribution.

Hotels will now have 12 months to obtain entitlements to fill their approved GMT increase.

This will see a likely increase in demand for PMEs in the next 12 months as operators look to fill their existing GMTs.

What’s the timeframe?

The new legislation will be introduced into the NSW Parliament on 6 March 2018, but the changes are not expected to commence for at least another month.

Additional detail on the changes can be found here https://www.liquorandgaming.nsw.gov.au/Pages/about-us/news-and-media/recentnews/proposed-reforms-to-local-impact-assessment-scheme-announced.aspx

How can we help?

Our hospitality team has worked in partnership with financiers and operators in the industry for more than 25 years. We are the market leader in this field having reviewed more than 200 venues and managed over 100 venues nationally in the past 5 years alone.  We provide an unrivalled level of industry experience and intelligence, operational knowledge and industry contacts to deliver our clients commercial and cost-effective solutions. 

 

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