Analyst: 30% of pubco pubs uneconomic
A city analyst believes that 20-30% of Enterprise and Punch leased pubs may be "uneconomic" because the licensees are making under £20,000 a year — the level considered to be the minimum to make a pub worth running.
Morgan Stanley's Jamie Rollo said that rents have been growing faster than inflation and pub sales while pubco profits have been growing at a faster rate than lessees', financial assistance is on the up and the number of pubs available for lease is rising.
"Rents have been rising for at least 15 years now, with Enterprise seeing 11% growth per pub and Punch 4% since 2002," said Rollo. "This is mainly a function of acquisitions and mix, and the more comparable 'rent per barrel' growth rate is 4%. This might sound low, but it is well above organic sales growth and is a 50% increase over 10 years.
Rollo said that one privately owned pubco, which he recently met with, had to rebase the rents of a number of recently acquired pubs from Punch and Enterprise.
"It would be premature to jump to the conclusion that all pubs are over-rented but there are a sizeable proportion that are," he said. "For example, last year we estimate that licensee profits were under £20k in 17% of Enterprise's pubs and 28% of Punch's — £20k being the minimum level to make it worth running a pub (£3.30 an hour each for a couple, excluding accommodation benefits)."
He added: "There is also some evidence that pub companies have been taking a bigger share of the pie than their lessees. For example, Enterprise's EBITDA (Earnings before Interest, Tax, Depreciation and Amoritisation) per pub has risen from £50k to £68k from 2003-07 — an increase of 36%, but its lessees' profits have only risen 27% from £37k to £47k (as defined by the company)."
Rollo said that monitoring of the pubs available on Punch and Enterprise's websites showed an increase in lessees exiting the industry with between 14-16% of the estate now vacant — up from 12-14% last year.
He did, however, point out that pubs being over-rented may not necessarily all be the landlord's fault as often leases are assigned to newcomers who do not do their homework and pay a sizeable premium and that socio-economic changes may make some pubs obsolete.
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