Truly liquid assets to invest in? How the local pub could make you money rather than lighten your wallet
When people think of pubs it is usually in the context of costing them money rather than helping them to make it.
With the price of a pint (or your other tipple of choice) feeling like it rises all the time, a trip to the pub will usually leave you with a dent in your bank account.
According to some investment experts though, spending money on pubs themselves – rather than what they sell – is a route to boosting returns rather than a way to get a hangover.
Investing in pubs via property funds could be a way to boost your investment returns.
Such investments are typically provided via a property fund which invests in various kinds of commercial premises.
The most common property types targeted are offices, retail units and industrial buildings. While these will make up the bulk of most property funds, some more unconventional assets can feature, such as pubs.
Kames Capital’s Property Income Fund is an example of this. The firm has just poured £9.5million into buying four pubs to add to its portfolio.
Kames has snapped up The Rye House in Hoddesdon, Hertfordshire; The Ship Inn in Wilmslow, Cheshire; The Black Prince in Weybridge, Surrey and also The Refectory in Godalming, Surrey.
Three of the pubs are let to Spirit Group, which is under the control of brewing giant Greene King until at least 2044. The Refectory is let to Punch Taverns.
In terms of a return, Kames expects an net initial yield of 4.9 per cent on the assets.
Kames Capital has snapped up The Rye House in Hertfordshire for its property income fund.
So why at a time when we are regularly told pubs find it tough is a fund manager buying them?
They are all situated in ‘strong trading locations’ according to Kames, and are let on long leases with annual rent increases written into the deals.
The leases on the three Greene King pubs have fixed annual increases of 1.25 per cent until 2022, after which the annual increases will be 2.5 per cent for the remainder of the term. The Refectory lease runs to 2034 with annual increases of 2.5 per cent from the off.
Provided the pubs stay in business, they will generate a growing income for the fund, and any investors who put their money into it.
The asset manager has also just bought The Ship Inn in Cheshire.
Meanwhile, despite the perception that the pub trade is finding it tough, the investment house says for decent pubs prospects are good.
The managers of the fund argue that now is a good time to make such a move as trading is in healthy shape for pubs at the moment, and the nature of the lease contracts make pubs attractive from an investment point of view.
‘The managed public house market is experiencing excellent trading conditions with positive like-for-like sales growth in each of the last eight years and this has resulted in a scarcity of good quality freehold sites to fuel further expansion,’ said Richard Peacock, co-manager of the Kames fund.
‘Investors have been attracted to the sector due to the robust nature of the leading industry covenants and the long lease structures favoured by operators, often with fixed rental growth.
Some property funds include pubs within their portfolios alongside more common building types such as offices and shops.
‘As a result, the investment market for public houses has moved from a specialist sector into the mainstream investor market and increased interest in the sector has resulted in broadening demand with assets being acquired by institutions as well as private investors.
‘The liquid market for public house investments has seen assets regularly traded in portfolios, by private treaty and in the auction room.’
Peacock added that the pubs are ‘readily marketable’ investments that will provide liquidity for the fund.’ In other words, they can easily be sold if the fund needs to release some cash, something that is crucial to open-ended property funds.