Hot Property

The issue of property and pubs has possibly never been as pertinent as it is today.

The rise in property prices has attracted a number of new players, while existing established operators both buy and sell estates at ever-increasing earnings multiples.

Even when pubs are hit by external factors such as the smoking ban, the sector remains a cash-generative one. And while for many it may remain an unpalatable truth, assets remain valuable, given the potential for alternative use.

Against this background, The Publican - supported by property agents Colliers CRE - invited a number of leading property directors from the country's pub operators to meet and discuss the issues that affect both the corporate and the smaller operators.

Licensing issues

A key theme to emerge from the day was that pub values could be hit by extra conditions being placed on licences as a result of complaints from residents. Alex Salussolia, managing director of Glendola Leisure - which operates bar chain Waxy O'Connors and other venues - warned that the ease with which residents can complain under the new Licensing Act now meant that more conditions were likely to be placed on pubs' licences.

"And this can affect the value of your unit," he added. Later during the round-table event, asked whether he thought the Act had helped weed out poorly run venues, he said the legislation had proved to be a mixed blessing: "They tend to target high-profile venues first and they get more pressure from the police," he said.

"We hope it will raise standards, but operators have to try to manage relationships with authorities." Salussolia also suggested there were inconsistencies in what can be realistically termed as a valid objection, and what cannot.

Russell Burton, Enterprise Inns' head of property, argued that there was a case for a forum for pubcos to work together to discuss the issues the Licensing Act has raised. "We've had the same set-up, more or less, for 200 years and moved over to the new legislation in one go. We are all trying to learn a new process and I'm wondering whether as an industry we are together enough," he said.

On the issue of another potentially contentious piece of red tape, alcohol disorder zones (ADZs), it was questioned whether they would ever see the light of day. "I can't see ADZs happening," said Salussolia. "What local authority is going to classify itself as an ADZ?"When it came to the most recent - and potentially most damaging - regulation to hit the trade, the smoking ban, the consensus, perhaps unsurprisingly, argued that it was too early to tell its effects.

Food and smoking solutions - to rentalise or not?

However, it was suggested that food was not necessarily the answer to the problem of retaining customers. Salussolia said: "There are so many people doing food, they will need a good level of interest. But we will see a pub trade that will have lower levels of returns than it has ever seen. There will be casualties. It has to affect rents and values at some point."

Hamish Stoddart, co-founder of small multiple operator Peach Pub Company, echoed this point. "There will be some carnage coming and keys will be handed back where there's not enough trade in debt-laden Middle England," he said. Later the big players defended their position on rents.

The question of investment in smoking solutions and the subsequent clawing back of assistance through rent increases was raised.

George Barnes, property and tied trade director of Kent brewer Shepherd Neame, said he had rentalised smoking solutions "and I've done so because the licensee makes good use of it".

Michael Gubbay, a director of Motcomb Estates, which looks after the investment interests of David and Michael Reuben, including the Wellington Pub Company, asked why tenants shouldn't expect to be charged more rent for such investment.

Valuing pubs would inevitably move away from using barrelage as a pub's environment changed, he said. "Rents are driven by use and landlords want a piece of the action," he added, noting that the question of how leases may be structured - viz-a-viz barrelage versus food - will increasingly be raised.

Enterprise's Burton said: "We are working hard so that we get the right arrangements in place and making sure that everyone can take something out of the marketplace."

Fair maintainable trade?

Steve Price, property director for managed pub group Barracuda said: "The problem is the definition of 'fair maintainable trade' and for a tenant that is the frustration." He added that the market had calmed down a lot since the late 1990s, but some rents were still at high levels.

However, Chris Moore, group estates director at Punch Taverns, said: "We look at each individual case when we set the rents - sales, costs and margins. We do factor in things that are relevant at the time." But Stoddart said: "I don't think the explanation for rent reviews always gets through. A lot of these guys don't understand long-term sustainability."

The managed operator side of this particular fence was discussed by Barracuda's Steve Price, who asked why rents charged to operators such as his company shouldn't be based on square footage rather than profit: "What other business does that?" he asked, rhetorically.

Later, the forum discussed the issues they had faced over planning. It was noted that many local authorities were inconsistent in their interpretation of planning and there was a need to be more flexible.

The forum agreed there was a certain irony in local authorities bending over backwards to protect a pub from being bulldozed, even one that had long ceased trading, on a site that could be used to provide social housing, but being prepared to build on greenfield sites that many local people might not want built upon. n