Enterprise Inns has unveiled plans for a massive overhaul of the business which will see it operate a managed estate of 750-850 pubs and a commercial property business with around 900-1,000 assets by 2020.
The move is part of its strategic review to mitigate the effects of the pubs code and in particular the inclusion of the market rent only option.
It said that in 2016 it expects 200 potential MRO events and 600 such events per year thereafter.
The company currently run 16 managed pubs and has a pipeline of planned conversions which is likely to result in 30 managed houses being operational by September 2015.
Enterprise chief executive Simon Townsend said the company remained committed to the tenanted and leased division but its plan makes clear that its strategic objective is “to diversify away from a predominantly leased and tenanted business over time”.
It said it will continue to offer tied agreements of up to five years in length but will focus on growing its managed estate.
This will be done by focusing on three key operating models:
The first a partnership model known as ‘managed expert’. It has already started working on this model with Geronimo Inns founder Rupert Clevely, who will operate selected sites on a managed basis with Enterprise providing the bulk of the Capex and owning three-quarters of the venture. It anticipates extending this model by c15-25 sites a year with average initial capital investment of £400k per pub.
The other two models are the company’s currently ten-strong Bermondsey Pub Company, which is likely to grow to 35-50 sites and community pub model Craft Union Pub Company, which it believes could eventually grow by 100-125 sites per annum. It said the latter offer has been developed over the past two years through experience gained from the Beacon model.
Enterprise said it currently had a portfolio of 185 commercial properties, of which 162 are being operated as free-of-tie pubs and 23 as retail units.
It said: “We expect to grow the commercial property portfolio significantly in the future and it is our intention to operate these assets in such a way as to enable us to take advantage of the status of a Real Estate Investment Trust, were the Board to determine that such a structure delivers greatest value to shareholders.”
Asked about his message to tenants and lessees, Townsend said: “At the heart of this is that we remain committed to the leased and tenanted model as the best way to generate income out of a significant proportion of our estate and clearly our job is to maximise returns from every site and if we can do that by continuing to work with longstanding, highly competent publicans then of course we will do that.”
The announcement was made as Enterprise revealed its interim results for the six months ended 31 March, which showed like-for-like net income growth up 0.6% (H1 2014: 1.1% growth). EBITDA before exceptional items was £144m (H1 2014: £147m), in line with expectations and reflecting the impact of planned disposals. Profit before tax and exceptional items increased to £57m (H1 2014: £55m).
Townsend said: “We are pleased to report like-for-like net income growth for the first half of the financial year. At the start of last year we delivered net income growth for the first time in many years and to have built upon that momentum is particularly satisfying. To have achieved this performance against a backdrop of legislative uncertainty reflects the professional approach of our teams and the strength of relationships we have with the vast majority of our hard working publicans.
“We are now implementing our new strategy which provides a clear path to maximise returns from each of our assets. We are building upon our core capability of operating leased and tenanted pubs by extending our operational flexibility into the direct management of pubs and increasing the scale of our commercial property business.
“This new strategic direction will ensure that we generate the greatest value from each of our assets, and will also accommodate the requirements of the new legislation. This is a sustainable strategy for our business which embraces different operating models to best serve our publicans and their communities whilst delivering greater value to our shareholders.”
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