Marston’s PLC has announced the disposal of 202 pubs for £90 million to NewRiver Retail Limited, a leading specialist REIT focused on the UK food and value retail sector.
As can be seen below, this sale is likely to see many of the pubs converted to convenience stores, to the dismay of many.
However, this disposal is consistent with Marston’s strategy to target growth through investment in higher turnover pub-restaurants, improve the quality of its estate and reduce its exposure to smaller wet-led pubs.
The disposal comprises 158 community pubs from Marston’s Taverns estate and 44 Leased pubs. Under the terms of the transaction Marston’s will manage the pubs for five years in return for a management fee. For the first four years Marston’s has provided a minimum income guarantee.
Exit multiple of 7.6 X EBITDA
Based on EBITDA of £11.8m (net of the management fee) and operating profit of £10.4m for the year to 5 October 2013 the transaction represents an exit multiple of around 7.6x EBITDA. The pubs have a book value of £119.5m of which £37.4m is represented by previous revaluation surpluses.
The proceeds of this disposal will be used to redeem the £80m AB1 securitised note saving £6.7 million of interest per annum and, on a pro-forma basis, reduce group leverage by 0.1 times EBITDA. Net debt to EBITDA (excluding lease financing) at 5 October 2013 was 5.3 times.
Ralph Findlay, Chief Executive Officer, commented
“This disposal will enable us to reduce the cost of servicing our securitised debt, is consistent with our strategy and improves the quality of our estate. It will also assist with financing the accelerating rollout of our new-build pub-restaurants which are achieving good returns.”
The NewRiver Retail perspective
The portfolio of 202 public houses is predominantly located in high population residential areas with good roadside visibility and extensive car parking.
It is NewRiver’s intention to convert the majority of the assets to meet the high demand for new convenience store premises from the UK’s major food store operators. The Company has already received strong initial interest from the UK’s major convenience store operators and supermarket groups.
The units were selected by the Company following detailed due diligence to identify assets with significant potential for asset management and value enhancement initiatives. The Portfolio includes adjacent car parking of 4,500 spaces. Additional uses such as branded restaurants, drive-through food outlets, residential, and medical centres have also been identified.
David Lockhart, Chief Executive of NewRiver Retail Limited, commented:
“This off market transaction is a highly innovative opportunity for NewRiver to further demonstrate its proven risk-controlled retail development and asset management skills. With increasing demand from all of the major supermarket groups for Convenience Stores substantially outstripping supply, the Portfolio provides a very attractive opportunity to generate capital profits through the conversion of the public houses into Convenience Stores underpinned by an attractive cash on equity return from a FTSE 250 company.”