DealZone

Half empty glass

July 29, 2009

A pint of beer stands on the bar of a public house in Leeds, northern England October 13, 2008. REUTERS/Nigel Roddis (BRITAIN)The recent history of Britain’s eccentrically-named Slug & Lettuce pubs should make a sobering read for ambitious property investors with an eye on similar investments.

The chain’s woes began in 2005, when its then owner, the SFI Group, plunged into administration due to difficulties with its finances.

Its collapse triggered property tycoon Robert Tchenguiz to buy up the group’s best outlets and bring them into his Laurel Pub Company.

Three years later, it was the turn of heavily indebted Laurel to crash into administration, caught out by a downturn in the economy and difficult financing conditions. As part of the adminstration process Laurel split into two, with the Slug & Lettuce pubs placed into a new company, the Bay Restaurant Group, as part of its portfolio of 190 outlets.

Yesterday, Bay Restaurant agreed its second financial rescue in as many years, with banks agreeing a new 150 million pound loan in exchange for taking a stake in the company. The banks providing the rescue financing were Iceland’s Kaupthing and Germany’s Commerz – hardly strangers to rescues themselves.

Tchenguiz’s property investment vehicle R20 has not had an interest in the company since March 2009, bringing to an end the company’s bid to make profits from a heady cocktail of leverage, property and pubs.

This mix powered a succession of boom-time pub deals in the first part of the decade, when billions of pounds were borrowed against the income of drinkers’ regular haunts. Punch Taverns (PUB.L) and Enterprise Inns (ETI.L) were among those that supped deeply on the ample liquidity sloshing around the markets.

Almost inevitably the party came to an end. The crunch brought the flow of credit to a standstill, leading to falling property prices as well as a downturn in sales.

As a result, pubs no longer seem an attractive property investment nor a guaranteed supply of income. Property investors like Tchenguiz have exited the stage nursing massive hangovers, leaving debt investors and banks to pick up the pieces.

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/