Peter Hansen: The future of pub finance

To mark The Publican's 30th Birthday, Peter Hansen, founder of PC Hansen & Co, looks at the future of pub finance.

There have been huge changes in how pubs are financed today compared to even a decade ago.

When the Beer Orders were introduced in 1990 there were no independent pub companies and it was not clear that the brewers would be able to sell enough pubs to comply with the Orders. Private equity stepped into the gap, and pub companies such as Enterprise Inns and Centric - does anyone remember Centric? - were born.

The major change from 10 years ago has been the huge increase in debt finance, which has been very profitable for the banks, save for a few prominent examples on the high street. Pubs have proven to be stable and profitable, and their asset backing has made them ideal candidates for bank finance.

So where next? Have we reached the limits of debt financing?The best role model for the pub industry is the hotel industry. There are over 300 hotel brands in the world for hotel owners to choose from. Hotels are increasingly financed by investors, rather than hotel companies who have chosen to invest in their brands and services, rather than the hard assets themselves. This enables them to return cash to their investors and to expand as rapidly as their management capabilities will allow.

The property investor who owns the freehold can raise finance against the lease between the hotel company and the investor. Just as with pubs, the lease provides security to debt investors.

In 10 years time we will still have pub companies, but it is unlikely that they will own the pubs that they operate.

They will become pub operating companies - recruiting tenants and developing pubs, but someone else will own the assets. And if as operators they don't do a good job, they will be replaced by another pub company, just like their tenants.

Who knows, maybe the pub companies will start running other pub-like assets, such as budget hotel chains.