Working through the tough times
How tough are you finding the market conditions right now?
Of course they are challenging. But it's funny if you compare it to 1991 and 1992.
I was working at Ansells at that time in the Midlands. And I have to say times now are not as bad as they were then.
We had just been hit with the Beer Orders and the Landlord and Tenant Act had yet to be enforced. So what you had was big brewers serving notice on a whole load of tenants.
Allied, for example, had a company strategy which was to serve notice to terminate all its trade tenancies. It then offered all of them a new Full Repair and Insuring (FRI) lease and if the tenant didn't want it, then Allied would force them out and find someone else who would take it. So there was a much greater degree of tension. We are actually working with our lessees [now]. Back then there was much more of a Big Brother approach.
Are there any current projects that are working well in your portfolio?
We have a project focusing on lower-quartile pubs called the Discovery Pub Company. It was set up a year ago and has a separate director and team.
It is really aimed at people who want to take on pubs part-time; say, who want a roof over their heads and just want to trade the pub in the evenings.
Why lower-quartile pubs?
The strategy for the creation of Discovery really centred around our belief that the big opportunities in the pub property market would come from lower-quartile pubs.
As a business model it works very well. One of the big reasons for this is that it allows area managers just to focus on a set group of pubs. Previously, each area manager had four or five lower-quartile pubs on their patch.
Now we have them all grouped together which allows for a much more focused approach.
Are you able to pick up many of these pubs now, due to banks limiting their funding?
AIt really was around the turn of the year that funding stopped. Every deal that was in the lawyers' hands before Christmas went through.
Post New Year things got much harder. But deals are also down because some of the bigger pub companies are not shedding the load of bottom-end pubs that we thought they might. I think they are now realising the problems with the overall sustainability of property values across their estates.
Are you postponing all acquisitions then?
AWe are still acquiring a fair number of pubs. We aim for between 75 to 100 new pubs per year and do not churn many. In 2003 we had around 1,000 pubs and today we stand at just over 2,000.
We are still looking to acquire good pubs, but mainly on sale-and-leaseback deals.
Are you going to continue to grow the estate even as the credit crunch bites?
Now we have reached tougher times our strategy is to stay at the level of having 2,000 good, stable pubs and to help nurse our lessees through this difficult trading period.
Our model is not highly geared so we are not too worried about debt and we have good relationships with our pubs.
Sixty-five to 70 per cent of our pubs are let on internal repairing leases - not full repairing and insuring leases. We don't want to dump the maintenance costs of a pub on a lessee.
Instead, we spend significant sums on keeping the estate in order.
Are there any other projects you are looking to roll out across the estate this year?
We are pushing our lessees towards greater energy efficiency. We have produced a brochure called Think, Act, Save. It is all about simple stuff such as having low-energy lightbulbs and turning plasma screens off when they are not being used.
We have projects teams working with pubs in our British Waterways project which have re-opened a
pub in Scotland that is specifically designed to be more energy efficient.
John Draper is property director for Scottish & Newcastle Pub Enterprises
