The sale of SA Brain & Co’s pub portfolio has given Wales’ hospitality sector a major confidence boost over its long-term prospects, says Peter Constantine of Avison Young.
The managing director of the Cardiff property advisory firm said the sale of the freehold and leasehold interest of 95 pubs across South Wales to European investment firm, Song Capital, is one of the most significant in recent years.
The deal, worth tens of millions of pounds, was advised on by Avison Young.
Mr Constantine said: "To attract a London based investor to acquire a Welsh based portfolio at this level of yield (sub 6%) is a good sign that the hospitality sector is seen as a secure investment.
“The portfolio sale, which included both freehold and leasehold properties, all let to Marston’s Estates on 25-year leases, secures the future of these pubs across Wales."
He added: "This was a deal that faced several headwinds throughout including lockdowns, inflation, interest rate rises and rising global uncertainty, but now done, allows S.A. Brain the foundation to continue brewing their famous beers at The Dragon Brewery in the heart of Cardiff.”
SA Brain & Co had put most of its pub property portfolio up for sale last year with a price tag of £87.5m.
In 2021 the brewery struck a long-term lease agreement for pub company Martson's to takeover the running of around 140 of its Brains branded pubs.
The latest deal means that the rental income from Marston's will now go to Song Capital on the pub sites it has acquired.
"The hospitality sector has been under unprecedented pressure since March 2020 due to the Covid lockdowns and now inflationary pressures affecting the whole economy. During this period, we have also seen added demands due to staff shortages and rising labour costs with the competitive employment market," said Mr Constantine.
"The impact that this has had for many hospitality companies is that margins have been squeezed with cost increases being difficult to fully cover. Household incomes have been squeezed too, resulting in customers seeking out value for money within an already competitive marketplace. This adds extra pressure for operators to fully cover cost increases by raising their prices."
He added: "What appears to be evident though is since the relaxation of Covid rules the demand for good quality food and beverage offerings has been high, as has the appetite for experiential leisure offerings which have proliferated over the last 12 months, and so we’re seeing continued investment by operators in new and existing businesses.”
Wales has seen new pub companies established due to strong demand in the market, including the Valiant Pub Company which bought 17 pubs from SA Brain and plans to invest in the units to capitalise on demand from customers.
The company is known for its good track record of changing the fortunes of pubs which have traditionally struggled due to lack of investment. Examples include Admiral Napier in Canton and the Punch House in Monmouth which have both seen improved trading performances following substantial investments.
"In Cardiff, we have seen new experiential offerings such as Par59 and NQ64, with Flight Club opening in the Autumn," said Mr Constantine. "This is the sign of confidence in the sustainability of the city centre for these businesses which are capital intensive and therefore require high levels of trade to generate a return on investment.”
Jon Bridge, chief executive at S.A. Brain, said: "Despite the headwinds that Peter has mentioned, I am pleased to have concluded this deal. The team at Avison Young played a key role in supporting us through this significant transaction. Our long-standing relationship with Peter and the wider Avison Young team will certainly continue as we continue to evolve and grow the Brains brand into the future."
