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Fri 28th Aug 2015 - Red Oak Taverns buys 146 pubs for circa £36m
Red Oak Taverns buys 146 pubs for circa £36m: Red Oak Taverns, the circa 30-strong pub operator led by Aaron Brown and Mark Grunnell, has acquired 146 GRS Group of tenanted pubs for an undisclosed sum, although industry sources indicate a price tag of circa £36m. The estate is made up of a number of medium-sized and small tenanted estates that went into administration five or so years ago and ended up being owned by Anglo Irish Bank – more than 300 sites have be previously sold. The pubs, described by one observer as non-estate neighbourhood pubs, have a fairly wide geographic spread from Newcastle down to Penzance, with a concentration in the north west, north east with some in the south east although no sites in London. They are held by tenants on three, five, seven and, in some cases, 20 year leases. It is thought that the portfolio, which has been run on behalf of the bank by former Mill House boss Ted Kennedy for the past five years, is 70% free-of-tie. The pubs have sold for an estimated 9 times Ebit. One industry source told Propel: “These are good pubs that have sold for pretty high prices. They were converted to free-of-tie as and when the opportunity arose and their solid performance shows that a free-of-tie model can work.” GRS Pubs’ tenants were told about the sale yesterday and is thought that Kennedy’s involvement with the estate will now end. The auction of the pubs is understood to have attracted interest from a number of new entrants to the sector. One industry source said: “The sales of these pubs for a strong multiple of earnings is further evidence of recovery of values within the tenanted sector. It is the second sale of tenanted pubs within a week following the sale of 158 Punch pubs to NewRiver Retail on Monday. Tenanted pubs are now selling for the highest multiple seen since before the credit crunch of 2008.” Red Oak Taverns was set up in March 2012 when Brown and Grunnell, former associates of Robert Tchenguiz, acquired 32 pubs that were previously part of the property tycoon’s R&L Properties portfolio. Former Scottish & Newcastle managing director Jeremy Blood was a member of the board for two years but stepped down last November. The GRS pubs portfolio was marketed through agent Christie + Co. In a Propel Friday Opinion in February describing his experiences running the estate, Kennedy said: “Our experience of taking over 500 pubs in failed companies and turning those companies into free-of-tie operators suggests a new tack can revitalise relationships. We have converted more than 75% of those 500 pubs to free-of-tie outlets, sold more than 300 pubs to private landlords and developed a core of over 150 pubs that have a great future. So, the big question: if you end the tie as a pub landlord how do you replace the income? The simple answer is you don’t – rather, you square the circle by reducing your outgoings. Over the five years we have been working on this, which includes the recession that wiped out so many pub companies, we have seen the average closed pub ratio fall below 2% of the estate, rent concessions fall to less than 4% of the rent roll, and, of course, bad debt plummet because the tenant is free to buy from whom they want. In addition, there is a completely changed relationship dynamic. Remembering that these are consenting adult relationships, the role of chaperone, in the form of the ubiquitous and much maligned BDM, changes completely. ‘Gone’ are the ‘Fifty Shades of Grey’ torture implements of Brulines reports and cellar inspections and ‘in’ are adult-adult relationships where the ability of the tenant is the most important thing. If the tenant pays rent the world is happy. If not, then it is not. Simple as. The pub moves from a bizarre threesome of politicians, pub owner and pub tenant to a standard commercial arrangement between two parties. So instead of tenants seeing more and more of their BDMs, they actually see them when commercial reality dictates. Industry standard ratios of one BDM to thirty pubs disappear in favour of outsourcing of back office and empowered operators. These savings offset the loss of the tied income and almost everyone is a winner.” Christie + Co has been advising the liquidators, PwC, and Ted Kennedy’s Pebble Solutions since 2011 when the GRS Estate consisted of 463 pubs. Over the past three years Christie + Co has sold off over 300 of the assets individually, mostly for continued licensed use. Noel Moffitt, Director at Christie + Co has been handling the disposal for the last four years. He said: “The sale underpins the resurgence in market sentiment towards the tenanted pub sector, where buyers are seeing potential in the pubs and their tenants. Having originally sold Red Oak their first package of 32 pubs in 2011, we are delighted to see their growth continue through their positive approach and investment in the estate, and congratulate them on another excellent acquisition.”


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