Enterprise: £1.3m a month on tenant support

Enterprise Inns is currently spending £1.3m a month on tenant support as the average level of licensee profitability fell by 4% to £45,000 in the year to 30 September.

Britain's second biggest pubco reported a 12.6% drop in profit before tax to £263m and a 3% drop in earnings before tax interest, depreciation and interest (EBITDA) to £512m in what chief executive Ted Tuppen described as a "tough year".

Enterprise spent a total of £9m helping 1,453 of its tenants through rent concessions and special discount schemes in the year to 30 September.

As of 30 September, 855 licensees were receiving support with rent concessions for the year amounting to £2.7m and special discounts £6.4m. The combined cost was running at £1.3m a month at the end of September. Profitability had dropped as a consequence of the smoking ban and cheap off-trade alcohol, it said.

"Whilst the majority of licensees comply with the terms of their agreements and work closely with the Enterprise team to develop trade and improve profitability, there are some who fail to meet agreed payment terms or who blatantly and consistently breach their obligations under the tie," said Tuppen.

"We have taken a straightforward stance in these circumstances, preferring to terminate agreements and remove the offending licensees. This has led to an increase in the number of closed and holding over pubs, the latter where the licensee remains in occupation without paying rent or buying beer pending settlement or eviction. The number of closed and holding over pubs has reduced since the year end and we expect this trend to continue."

Pub estate​

Enterprise currently has 82% of its 7,763 pubs let on substantive leases and tenancies with the number of applications slightly up on last year at 130 a month. There have been fewer assignments — down from 790 to 483 with the average premium down 9% to £63,000 (£79,000 including F&F).

A total of 915 rent reviews were completed with an average increase of 2.2%.

The annual valuation of the estate saw a 1% revaluation uplift to £5.9bn, equivalent to a value of £755,000 per pub. Overall, 4,900 pubs increased in value and 2,500 fell in value and 363 remained the same. Enterprise invested £68m in improving 1,587 pubs but said investment would now be tapered down to £45m in the coming year.

In the coming year, Enterprise will also focus on disposing of "underperforming" outlets, predominantly for alternative use. It has laready exchanged or copleted on sales worth £13m this year and has a further £23m worth of sales in the hands of solicitors.

Reit​

Enterprise confirmed that it would not be pursuing conversion to tax efficient Real Estate Investment Trust status at the current time, despite getting the go-ahead from HM Revenue & Customs.

"In light of the current turmoil in the financial markets, the Board does not consider it appropriate to progress matters further at this time. We are therefore adopting a cautious approach to the costs and processes of conversion, continuing to work with our advisers to explore the options and develop a total solution which is demonstrably in the best long term interests of all stakeholders. We are not working to a particular timetable and will make further announcements as and when appropriate."

Business and Enterprise Committee inquiry​

Enterprise said it welcomed the chance to show how pubcos can support their tenants during the tough times at the pubco inquiry, which kicks-off today. "The forthcoming review by the BEC into how the pub companies have responded to the recommendations of the 2004 Trade and Industry Select Committee (TISC) will provide Enterprise with an opportunity to demonstrate how it has led the way in ensuring clarity, transparency and fairness in all its dealings with licensees," said Tuppen.

"With small businesses under pressure and with more than 30 pubs per week reported to be closing permanently, this is a time when the support that can be offered by pub companies under the leased and tenanted model provides welcome relief for many struggling licensees. It should come as no surprise that the rate of pub closures is materially higher in the free trade, where the business partner is most likely a bank manager with a remit to control or reduce credit limits, rather than a Regional Manager whose first priority is to support a deserving licensee."