NewRiver, the UK REIT and pub owner, has confirmed it has acquired the 298-strong Hawthorn Leisure for £106.8m.
The deal represents a net yield based on the value of the pub portfolio of 13.6% and will be funded by existing resources.
Hawthorn, which is currently owned by its Gerry Carroll-led management team and Avenue Capital, the US-based c$14bn (£10.6bn) private equity and property fund, appointed Sapient Corporate Finance to review its options earlier this year.
The deal, which increases the total size of NewRiver’s pub portfolio from 331 to 629, is expected to realise synergies of £3m.
MCA reported at the weekend that NewRiver had pushed ahead of Admiral Taverns and Punch in the race to acquire Hawthorn.
Hawthorn Leisure’s senior management team consisting of Gerry Carroll, Mark McGinty and Matthew Ward will all remain with the company, working closely alongside the NewRiver pub management team led by David Shipton.
David Shipton, who heads up NewRiver’s current pubs portfolio, told MCA: “We have been saying for some time that we are long-term investors in the pub sector and this deal underlines that.”
He told MCA that the combined pubs business would operate under the banner of Hawthorn Leisure and that the group remained acquisitive.
Hawthorn co-founder Gerry Carroll told MCA that ultimate goal remains to grow the estate to between 1,000 and 2,000 pubs. Meanwhile, Shipton said that post-deal the pubs portfolio would equate to c18% of the total NewRiver assets – under the company’s ongoing target of 20%.
Because c100 pubs are in Scotland and a further 54 are managed or under an operator agreement the combined portfolio will not come under the pubs code.
Allan Lockhart, chief executive of NewRiver, said: “The acquisition of Hawthorn Leisure is absolutely aligned with our strategy of investing in retail & leisure assets at the heart of the communities across the UK. The portfolio is highly complementary to our existing pub portfolio and the combined portfolio remains below 20% of our total assets. We now look forward to applying our active asset management and risk-controlled development expertise to produce profitable opportunities for our occupiers, and growing and sustainable cash returns for our shareholders.”
Mark Davies, chief financial officer, said: “We are delighted to announce the acquisition of this high-quality portfolio of community pubs and a well established platform which will contribute significant funds from operations and be accretive to our net asset value.
“Having acquired our first portfolio from Marston’s in 2013, we are well aware of the attractiveness of the high cash returns generated by pubs, as well as their inherent active asset management and risk-controlled development opportunities. Importantly, we have also retained cost discipline on this transaction that we have tracked for some time, acquiring the portfolio at an attractive net initial yield of 13.6% and inheriting a strong brand and management platform.
“Having taken over executive responsibility for our pub portfolio, I look forward to working with our experienced management teams to establish a market leading business which will deliver synergies and drive highly accretive cash returns.”
In the year to 31 December 2017, Hawthorn Leisure generated an adjusted EBITDA of £9.9m and had total assets of £153m
The transaction is expected to increase Funds From Operations (FFO) in the year to March 2019 by £7.7m.
On a fully annualised basis FFO is expected to increase further as the current pub portfolio EBITDA is projected to be in excess of £16m per annum
On a proforma basis, NewRiver’s overall property portfolio at valuation will increase from £1.24bn at 31 March 2018 to £1.35bn.