Large chains look at pub leasebacks

Pub companies which want to raise funds and reduce debt are increasingly getting involved in sale and leaseback property deals.

The trend sees property companies, pub companies and investors such as banks buying properties and allowing other pub companies to manage or lease them back.

It allows companies who want more funds for investment or to pay off debt to raise large amounts of cash.

It is a situation that is common in the hotel industry where many are owned by a property company and the hotel managed by an operating company, but is becoming an increasingly popular choice for pub chains.

A pub company, therefore, can lease a pub, owned by a bank or property firm, to a tenant.

Peter Hansen, principal of PC Hansen and Co says that the way forward for the pub industry would be to separate the property owner from the pub operator. He argues that separate asset ownership and management works to bring in more capital and reduce debt. The Laurel Pub Company, owner of 600 managed pubs including the Hogshead chain, is the latest pub company to look into raising cash through a sale and leaseback deal.

The company is looking to sell and leaseback just under half its estate for about £300m which would fund the purchase of 200 pubs in the next 18 months. Front runners to buy include London & Regional Properties, property company Rotch and Nomura, the Japanese bank.

Ian Payne, chief executive of Laurel, confirmed that he felt that sale and leaseback is a good way for the company to raise funds.

He said: "We are looking at sale and leaseback as a way of refinancing our business."

Giles Thorley, chief executive of Punch Pub Company, also speaking at the conference, said he believed that there was room for the larger pub companies to attract management companies and entrepreneurs to run small chains. The company already has a joint venture deal with Nando's to run the Peri Peri Pub Company food-led pubs.

The Royal Bank of Scotland (RBS) owns more than 1,500 pubs in the UK including pubs run by both Scottish and Newcastle and the Pyramid Pub Company.

Scottish and Newcastle Pub Enterprises, its tenanted business, runs 1,075 pubs on behalf of RBS under a management deal. Scottish and Newcastle sold the pubs to the bank between 1999 and 2001 for £490m to invest in the business and pay off debt.

Scottish and Newcastle Retail, its managed house division, is now rumoured to be selling 1,000 of its 1,500 managed pub estate to the bank.

It would mean that Scottish and Newcastle could extract cash from its property assets while retaining operational control of the pubs.

But it's not just larger companies that are doing such deals. In March 2001, London Inns Group, bought five managed houses from Norfolk-based MacLennan Inns and leased them back on a 20-year agreement. JD Wetherspoon has been selling and leasing back its freeholds to property companies such as Castlemore Securities.

While Springwood Leisure, the owner of Zanzibar and Corbana late-night clubs, is looking at sale and leaseback deals following a recent profits warning.

Royal Bank of Scotland:​