New pubco Pennant Inns aims to bring stability to its outlets

Some pub tenants have seen their landlords change with the seasons. Grand Metropolitan, Inntrepreneur, Morgan Grenfell, Nomura Bank and Phoenix Inns all come and go.

For 120 of them, however, some stability has been promised at last by their latest landlord, Pennant Inns.

Created quietly after an acquisition from Phoenix Inns in December, the company has been busy preparing to develop into a leading pub operator.

It is about to expand its estate of tenanted community pubs in the North, Midlands and the South, hoping to snap up further packages in the very near future.

The venture is a turning point for chairman Kevin Feeny who has spent his career in the City analysing the pub and brewing sector from the outside.

"Ever since the Beer Orders, I've felt there was an opportunity to build a pub company," he said.

Feeny still works as an investor relations consultant, acting for the brewing and pub sector, at City communications group College Hill. He has been joined by an experienced team to help run his new firm.

Alongside finance director Frazer Shee, the operations director is Leslie Gledhill, who worked for Ascot Holdings and its successor, Mayfair Taverns, where he became regional director before it was sold to Enterprise Inns in October.

Located in East London, Pennant has a portfolio cleanly split between the North and the South, clustered around Yorkshire, Manchester and Greater London.

Although the Northern pubs are more wet-led, the whole estate is made up of suburban sites, plus a handful on high streets.

"The key to managing tenanted pubs is to have a manageable unit — pockets that are relatively connected geographically under one area manager — rather than have your whole estate in one small geographical area," Feeny explained.

"If all your pubs are in one place, then you end up competing against yourself."

Pennant's pubs are still happy to appeal to the traditional beer drinker.

"Although food is growing and we encourage our tenants to offer more food, that proportion is relatively small," Feeny said.

Like other success stories from Enterprise Inns to Avebury Taverns, Pennant is setting out to prove that tenancies make good sense for a focused operator.

"I think the tenanted trade has been neglected and had a poor deal but there's a lot of opportunity at that end of the market," he said.

"The idea of traditional tenanted pubs has been left out somewhat in the rush into themed, managed estates but I have a certain emotional attachment to them and there is clearly a demand for them.

"The longer-term outlook for Pennant Inns is very good because of this lack of focus in the tenanted market and because the competition is less fierce than managed houses."

Despite this focus, Feeny believes his fellow investment advisers in the City may have underestimated the strength of some of the vertically integrated regional brewers.

"There's a lot to be said for doing what you're good at — if you were starting a company from fresh, I'm a firm believer in a tenanted business.

"But I wouldn't criticise the brewers' traditional mix of managed and tenanted pubs. If you have an expanding, cash-hungry managed estate to feed and develop, tenanted pubs are a steady source of cashflow."

But it's not just emotion that attracts Feeny and his colleagues — as well as bank debt, the business is backed by investors interested in the yields from pub properties.

"With the decline in interest rates, property values have fallen all round, but in the licensed trade they still offer reasonable value in comparison with other forms of property," Feeny said.

"Because there are fewer overheads and fewer headaches, tenanted estates can also be easier to run."

Pennant is offering traditional three-year agreements, including the chance to tap into a cash pile for joint investments. Licensees can also get short-term rent rebates if they want to invest in developing their businesses.

There are currently three area managers - each looking after about 40 pubs, who provide advice on management and business development.

Publicans are tied to Scottish & Newcastle but within the next three months Pennant is due to widen the choice through new supply agreements.

The company intends to expand within the areas where it is already operating, filling in the gaps with further batches of community pubs.

"We are not attracted by run-down pubs," Feeny said. "Our aim is to buy small community-based pubs which are below the sight-lines of the big brewing companies and would not be attractive to specialist managed pub companies who are expanding their brands.

"The most important thing for the sort of pub we have is the personality of the licensee and his/her ability to run a pub with a good ambience."

This investment is set to come from within Pennant's own resources without floating on the Stock Exchange to raise cash. By remaining private, it wants to avoid pressure from outside investors and bring steadiness to a group of pubs that have seen waves of change over the past 10 years.

"Our corporate aim is to bring stability to the ownership of the pubs," Feeny said. "By achieving this, we can allow them to offer sound, measured and controlled community drinking places."