Hawthorn Leisure expects to recover less than half of deferred rent

The NewRiver-owned operator of 720 pubs as of 31 March 2020 – up from 665 at the same point in 2019 – revealed like-for-like earnings before interest, taxation, depreciation and amortisation (EBITDA) per pub growth of 5.9% during the year to 31 March 2020.

What’s more, Hawthorn completed 82 capital investment projects across its pub portfolio at a cost of £4.3m during the past 12 months and has integrated both a portfolio of 44 wet-led community pubs acquired from Bravo Inns in December 2019​ as well as a further package of pubs from Marston’s purchased in January 2020.​

“Our full year results report another solid and sustainable period with high income growth across our pub portfolio and delivering like-for-like EBITDA growth of 5.9% (pre-Covid) was an impressive achievement by the team,” Mark Davies, CEO of Hawthorn Leisure, said.

“Covid-19 has presented a challenging period for our industry but we have taken appropriate measures to ensure the safety, wellbeing and financial viability of our pub partners and tenants and the financial support and goodwill we generated through lockdown will ensure we get back to a sustainable trading level in the future.”

Despite lamenting the lack of Government guidance, which British Beer & Pub Association (BBPA) board member Davies says is now expected on 19 June – a delay he describes as a “great disappointment”​ - he added the vast majority of Hawthorns pubs are on-track to resume trading on 4 July.

“We have also been working hard to prepare our pubs for reopening in July and look forward to welcoming our customers back to their local community pubs. 74% of our tenants and 99% of our pub partners have already indicated their intention to open when the Government gives the green light for the 4 July. 

“It’s crucial our Government appreciates the importance of local pubs to the communities they serve, both through job creation and social fabric, and through my new board role with the BBPA I am doing everything I can with my colleagues to get these key messages across and champion the UK pub sector.”

Rent relief extended 

Speaking to The Morning Advertiser (MA)​ after the publication of Hawthorn’s pre-pandemic performance, Davies explains that, when polled, 93% of tenants said that Hawthorn have exceeded or met support expectations during lockdown.

As part of this, in addition to rent deferral, Hawthorn has supported more than 95% of its tenants successfully apply for Government grants according to Davies,

"On 21 March we made a decision to stop collecting rent given that pubs had been shut with immediate effect, and we've maintained that policy throughout lockdown,” Davies tells MA​. 

“We've not been collecting rent during lockdown. We have been deferring rent and saying to every one of our tenants, who we've supported on a case-by-case basis, that we'll give them all the support they need and that we don't want them to build up debt - which isn't good for them or us.

"On 8 June, we announced a further support package which from 1 July - assuming pubs are reopening on 4 July - will provide its own support grant to tenants for the month of July and August. This effectively means that all of our tenants get a two-month rent free period to allow them to get back up to a trading level that insures those businesses are sustainable.” 

However, despite making lockdown rent concessions totalling £3.8m to 30 June, Hawthorn says it is confident that £1.7m of this rent will be recovered - of which £1.5m has already been committed and £1.4m received. 

It’s latest results statement adds that any remaining rent will either be waived as part of conditional support grants provided to pub partners, or will be subject to a claim for the business disruption and loss of rent caused by Covid-19.

"In the past 10 days or so we've had rent receipts which equate to around 45% of rent which would have been due during the lockdown period - that money has come from the grants, effectively,” Davies told MA​. “It's all part of a package of support which effectively runs from the 20 March all the way through until the end of August."

£6m worth of disposals since lockdown

Hawthorn’s latest results also reveal that it completed £48.4m of disposals during the year to 31 March, while acquiring eight assets in five separate transactions totalling £172.8m.

According to Davies, the outbreak of Covid-19 has done little to dent Hawthorn’s plans for its estate.  

"I've been blown away by the disposals that we've done during the lockdown period,” he explains. “Like any business that grows like we have, you end up with certain assets that you consider no longer to be core or part of your strategy so we've been selling individual sites during the lockdown and we've raised about £6m of proceeds. I think it just shows the strong, underlying value of pubs in the UK.

“There will be opportunities to buy and there's going to be quite a few pub companies no doubt wanting to sell portfolios over the next 12 months. We are very well placed to look and consider those acquisition opportunities as and when they come along."

Trio added to executive committee

The release of Hawthorn’s latest financial results comes less than a week after the operator announced a trio of internal promotions on 15 June as it added Andy Parker, Mark Brooke and Ed Little to its executive committee. 

Parker has been promoted to director of leased and tenanted operations having previously held the role of operations director, north, and will now oversee Hawthorn Leisure’s entire leased and tenanted portfolio of almost 600 UK pubs.

What’s more, Brooke, who joined Hawthorn Leisure in early 2020, becomes director of managed operations while, Little becomes property director. 

Amid sector uncertainty over redundancies and widespread furloughing of staff – including at Hawthorn – what has put NewRiver’s pub arm in a position to add to its top table?

"The key driver to this has been the growth in the size of the business,” Davies explains. “We grew the portfolio in the second half of the financial year by completing two off-market acquisitions. That's taken the size of the estate up to over 700 pubs and given us the ability to look at the structure of the company. 

"It's been driven by growth in scale and also the strategic decision we've made to split the structure and have Mark leading managed and Andy leading our leased and tenanted business, which is quite typical of the other larger pub companies. 

“We've been planning for this for some time, it wasn't something that we decided to do because of the Covid environment. When you reach a certain size and scale I think it's appropriate because leased and tenanted businesses are different from managed - it's a different skillset."