Marston’s, the brewer and pub operator, has announced that it has disposed of 202 pubs for £90m to NewRiver Retail Limited, a specialist REIT focused on the UK food and value retail sector.
NewRiver Retail intends to convert the portfolio to alternative uses, primarily into food convenience stores and restaurants.
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.
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.
Marston’s said the disposal is consistent with its 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”.
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 said it had already received strong initial interest from the UK’s major convenience store operators and supermarket groups.
The portfolio, with an average gross internal area of 3,150sq ft, site area of 29,000 sq ft and on-site car parking of 24 spaces, is particularly suitable for convenience store use. The average unit value is £445k and the total site area equates 6.5 million sq ft with a total 4,500 car parking spaces.
As part of the agreed terms of the acquisition, Marston’s has entered into a minimum four-year term leaseback agreement (extendable to five years) during which time it will continue to manage and operate the Portfolio as public houses. Marston’s will pay annual rent of £12.2m, reflecting a net initial yield of 12.8% on the purchase price.
Ralph Findlay, chief executive, said: “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.”
Colliers advised on the deal.
