Cerberus Capital Management is preparing to offload around £400m of pubs from its £1bn portfolio.
Cerberus was one of the most prolific private equity purchasers of pubs in the wake of the financial crisis but in recent months has approached investors to find a long-term future for its business.
The private equity firm is in advanced discussions with Hong Kong media magnate Jimmy Lai. Lai owns Ontario-based luxury hotel company Vintage Hotels, and does not own any property in the UK. No deal has yet been agreed.
The portfolio it is considering selling comprises around 200 pubs let to Greene King that it acquired in 2014 in two portfolio transactions from a venture between Nick Leslau’s Prestbury Holdings, the Reuben brothers’ Aldersgate and Sir Tom Hunter’s West Coast Capital.
In January 2014 it bought a 134-pub portfolio, comprising 102 let to Spirit, which was subsequently bought by rival brewer Greene King, and the pubs were then rebranded. In August 2014, Cerberus acquired more pubs from the same Leslau-led vendors in a deal that was an offshoot of the Grove Portfolio and included 47 Spirit and 16 Orchid pubs.
The majority of the Grove pubs, which are included in the proposed sale, are in the Greater London area and offer residential development opportunities.
The pubs are currently over-rented but there are fixed five-yearly, upward-only rent reviews that are capped, meaning they will be more in line with market revaluations between March 2022 and 2023.
Cerberus entered the UK pub market in 2012 when it bought 1,100 Admiral Taverns from Lloyds Banking Group for £200m, which are not part of the proposed deal with Lai. Colliers International is advising.
Pub sector M&A activity
The compulsive mergers and acquisitions activity in the pubs sector is driven in part by a drive to create economies of scale and the possibility of creating mass deals to tie pubs to particular breweries.
This has been played out in the battle for Punch Taverns, which Patron Capital has won in a joint venture with Heineken, fighting off competition from Emerald Investment Partners, a company headed by Punch’s founder Alan McIntosh.
The deal will see the 3,200 pubs split 1,900:1,300 in Heineken’s favour.
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