Red Oak Taverns acquires 146 GRS pubs

The acquisition brings Red Oak’s total estate to 170.

Located throughout England and Wales, the pubs were predominantly let on free-of-tie leases with the majority being freehold sites.

Christie + Co has been advising the liquidators, PwC, and Ted Kennedy’s Pebble Solutions since 2011 when the GRS Estate consisted of 463 pubs.

Noel Moffitt, director at Christie + Co, who has been handling the disposal for the last four years, said: “The sale underpins the resurgence in market sentiment towards the tenanted pub sector, where buyers are seeing potential in the pubs and their tenants.

“Having originally sold Red Oak their first package of 32 pubs in 2011, we are delighted to see their growth continue through their positive approach and investment in the estate, and congratulate them on another excellent acquisition.”

LT Pub Management is understood to be handling the day to day operation of the pubs.

Comment by M&C deputy editor James Wallin​

Looking back on the turbulent history of the tenanted and leased pub sector, last week may prove to be a watershed.

Red Oak’s acquisition of the GRS portfolio, just days after NewRiver Retail hoovered up a package of (mostly) non-core Punch pubs, represents a vote of confidence in a sector that has become used to living a permanent state of uncertainty, with the threat of legislation compounding general market challenges.

It also gives us a glimpse of how the market is adapting to the reality of legislation governing the relationship between pubcos and tenants, including the controversial market rent only option.

It goes to the heart of the discussion at our Tenanted Pub Summit on 10 November – does MRO stand for meltdown or real opportunity?

According to Peter Hansen, of Sapient Corporate Finance, there is a surge of interest in the sector.

He said: ““There is more appetite out there for buying tenanted pubs and that is driven by a few things, including the fact that trading is much more stable, even compared to two years ago.

“There’s a feeling, particularly among US hedge funds, that tenanted pubs look under-valued compared to the rest of the market.”

Founded in 1995 by Richard Gundry, the GRS portfolio has been run for the past five years by Ted Kennedy under a strategy of converting the entire estate to free-of-tie leases. At the last count about 70% of the estate was outside the tie, which Kennedy calls a “feudal system that just makes no sense in the modern market”.

Kennedy says he has focussed on creating a “grown up relationship” with tenants, keeping the focus from both sides on making each pub as profitable as possible.

After weathering various storms and selling off a chunk of the estate through individual disposals, Kennedy has stabilised the business. The latest available accounts showed underlying profits rise 14% to £448,000.

The move will significantly swell the estate of Red Oak, which was set up by Mark Grunnell and Aaron Brown, former associates of Robert Tchenguiz.

M&C​ understands there were several suitors for the package, including former Red Oak board member and industry veteran Jeremy Blood.

The deal follows confirmation last Monday that NewRiver Retail had acquired 150 non-core and eight core pubs from Punch Taverns.

The REIT, which previously bought 202 pubs form Marston’s, told M&C​ this week that it intended to appoint an experienced pub operator to oversee the estate. Don’t be surprised if the window that has suddenly appeared in Kennedy’s diary is of interest to them.

The company has also stressed that, unlike Kennedy, it sees a lot of value in the tied agreement, which allows it access to detailed information about how each pub is performing.

Hansen said: “These are not passive investors. They clearly want to get very involved in this portfolio.

“Because of their experience in development and their links with retail they can see opportunities with these pubs that wouldn’t have been open to Punch.

“The relationship with the tenants through the tie obviously appeals to them and they will be under the MRO threshold. But as they are already operating as a commercial operator you would assume that the MRO isn’t as daunting a prospect as it is for the pub companies.”

These two deals represent very different approaches to making the most out of estates discarded by the larger pubcos. With a swathe of pubs due to change hands over coming years the fates of these portfolios will be watched very closely.

There debate over the future of the sector will be continued at our Tenanted Pub Summit on 10 November at the May Fair Hotel, London.