Mon 24th Aug 2015 - Punch sells 158 non-core pubs to NewRiver Retail for £53.5m Punch sells 158 non-core pubs to NewRiver Retail for £53.5m: Punch Taverns has sold 158 predominantly non-core pubs to NewRiver Retail, the real estate investment trust focused on the retail sector, for £53.5m – NewRiver Retail previously acquired 202 pubs from Marston’s in November 2013 with a plan to develop convenience stores. The deal is in line with Punch’s strategy to sell its non-core estate at a rate of circa 200 pubs a year – disposal pubs have been sold at an average of £340,000 per pub and proceeds will be used to reduce net debt. Within the disposal portfolio are 150 pubs from the non-core estate and eight pubs from the company’s core estate that no longer meet the company’s criteria. NewRiver Retail stated: “34% of sites are in the south east and south west. The portfolio comprises 339,866 square feet of total internal gross area, 1,844,766 square feet of total site area and 1,730 car parking spaces and has an estimated reinstatement value of £146 million. The quality and stability of the portfolio is reflected in it being 99.4% let and effectively 100% let for the last four years. The revenue arrears are negligible and beer volumes have increased by 2.24% per annum, compound, over the last four years. The portfolio has significant asset management and development opportunities, including unlocking and creating capital growth through the introduction of new and complementary uses, as well as offering existing occupiers longer, more sustainable leases.” NewRiver has appointed a third party specialist pub management company to run the day-to-day management of the portfolio and deliver pre-identified efficiencies, allowing NewRiver to focus on the asset management and development programme. NewRiver has identified a number of value-enhancing development opportunities within the portfolio, which could include residential new builds on surplus land, extension or part-conversion of pub assets for residential use and the build of new convenience stores on surplus land. Allan Lockhart, property director at NewRiver Retail, said: “We are delighted to announce the acquisition of the pub portfolio from Punch Taverns, which represents a strategic progression for NewRiver, following our acquisition of a similar portfolio from Marston’s in late 2013, the successful result of which has led us to identify similar opportunities. In many ways this portfolio is similar to our Marston’s transaction, in that we expect to deliver exceptional cash on cash returns and attractive capital growth through asset management and development. We are confident that this acquisition will add significant long term value for our shareholders.” Post-transaction, Punch’s core estate will comprise of circa 2,900 pubs and the non-core estate will have circa 500 pubs. The pubs being disposed of generated earnings before interest and tax of £7.3m over the last 12 months and have a current book value of £52.5m. Punch chief executive Duncan Garrood said: “This transaction is in line with our overall strategy of disposing of pubs within the non-core estate, reducing the overall level of our debt, whilst focusing on our high quality core pub estate.” NewRiver Retail said the portfolio will deliver a net initial yield of 13.61%. It added: “The projected annual profit before tax of the portfolio is circa £6 million, which will generate a cash on cash equity return in excess of 20%. The acquisition of the portfolio will be funded through existing financial resources, with a new debt facility available in due course. The acquisition is in line with the company’s proven business model of acquiring strategically selected property assets that offer high cash on equity returns and present opportunities to create capital growth through NewRiver’s active asset management and risk-controlled development. NewRiver identified the pub sector as an attractive asset class to deliver on its business objectives and in November 2013 the company acquired a portfolio of 202 pubs from Marston’s. Following completion of this acquisition, NewRiver’s pub portfolio will account for circa 15% of its total assets under management, which will total nearly £1 billion.” Punch Taverns was advised by Sapient Corporate Finance.