British pub business Enterprise Inns plans to sell 1,000 pubs, create a large property rental arm and expand its own managed pubs unit in response to a new tenant law that stands to hit profits.
The law will allow publicans to choose where they buy their beer, threatening future profits of landlords, who, under a system known as the “beer-tie”, charge tenants above-market drinks prices and offer subsidised rent and benefits in return.
This system is in operation in nearly half of the UK’s 50,000 pubs, but publicans will in future be able to buy beer from other suppliers and choose a market rent-only option after a vote by MPs last November.
The rules come into play as contracts expire and are re-negotiated.
Enterprise Inns said it would continue to offer tied deals but also boost the number of pubs it manages directly to between 750 and 850 by September 2020 from 16 at present.
Managed pubs, which have higher costs attached, but offer greater profits, have become a focus for many pub firms as they respond to competition from cheaper supermarkets, a recession, and Britain’s smoking ban.
Enterprise Inns said it would also expand its commercial property arm, which includes free-of-tie pubs, as well as retail developments, to between 900 and 1,000 properties from 185 today.
The firm’s shares, which have risen 23 percent in the last three months in anticipation of the update, were up 0.8 percent to 133 pence at the end of last week.
Overall, Enterprise Inns will slim down to 4,200 pubs from 5,200 by 2020, it said.
Disposal proceeds, raised to £75 million for this fiscal year and next, would be reinvested to help cover the £150 million cost of the first stages of the overhaul, it said.
Enterprise Inns posted a 0.6 percent rise in like-for-like net income for the six months to March 31 and core earnings before exceptional items of £144 million, in line with expectations.
It said it was targeting full-year underlying net income growth.