5,000 freeholds for sale as pubcos shrink

The formal demerger of Punch Taverns into managed and leased companies at the start of this month was a symbolic moment. Expressed in simple terms, the company has divided its assets into Goodco (managed) and Troublesomeco (leased).

Managed pubs have been performing much better than leased pubs and offer better prospects for shareholders. The leased company represents option value for shareholders. More generally, the Punch move is part of a remarkable moment in the history of the trade — former Scottish & Newcastle Pub Company boss Willie Crawshay calls it the "biggest exercise in pub deconsolidation that our industry has witnessed".

The big tenanted blocks of pubs are down-sizing at a rate of knots. I estimate that as many as 5,000 tenanted pubs will change ownership in the next couple of years or so. There's 2,200 pubs to be sold by Punch Taverns leased (to leave just under 3,000 pubs) alone — there were 7,000 or so tenanted pubs within Punch leased in its heyday.

There are rumours that Royal Bank of Scotland is looking to off-load 900 pubs in the next 18 months. Some wonder whether Heineken will want to remain a long-term owner of the 400 pubs in its Blue Star Pub Company, formerly known as Globe Pub Company. Admiral Taverns still wants to sell 300-plus pubs from its non-core estate.

I suspect hundreds of tenanted pubs owned by one super-regional in particular might head for the door once prices become a little more buoyant. There are hundreds of other tenanted pubs owned by banks such as Anglo Irish being stabilised ahead of disposal when the moment is right.

Every case is different, but we now know, as a broad generalisation, that the tenanted sector was too large and hampered by carrying far too much debt. We will now see real fragmentation of ownership. The freehouse market will grow quickly. Existing single-site licensees and new arrivals will pick up freeholds.

Multi-site companies, among the membership of the MA250 club, will prove that many of these sites are viable given investment. (Amber Taverns, for example, is showing that ex-pubco community pubs have a future if you can buy the freehold for around £200,000 and match that sum in investment).

Regional family brewers will also have the chance to push beyond their total estate size of just over 4,000 pubs by picking plums and applying investment. Private-equity companies are reported to be hovering over the sector, figuring the time is right to buy sensibly-priced pubs (many of these tenanted pubs will also pass to alternative use).

There is a future for medium-sized tenanted companies if they can restructure/reduce debt and invest at the right level. The management of Admiral has been helped hugely by having Lloyds Bank write down 60% of its previous debt. It's allowing investment in viable, core pubs. The game plan is similar at Punch — a determined move to focus investment on its 3,000 top-quality pubs by off-loading less good ones. Interesting times indeed.