Terra Firma

Inn Partnership

Description

Inn Partnership was a pub company selling beer to, and receiving rent from, its portfolio of 1,240 tied, tenanted pubs.

Strategy

Although the portfolio was experiencing a significant decline in beer volume, Terra Firma identified that there was nothing fundamentally wrong with the pubs in the portfolio. In fact, the decline in beer volumes experienced by the estate was in large measure due to the volume of tenants buying beer from third parties rather than Inn Partnership, in contravention of the terms of their lease agreements.

Based on its prior pub sector experience, Terra Firma identified strategies for slowing the decline in beer volumes and improving the performance of the portfolio.

The roll-out of a new pub franchise agreement helped to combat "buying out", by offering lessees discounted beer prices in exchange for higher rents. This improved the "quality" and value of the cashflow from the portfolio, by converting income from a variable form (margin on beer sales) to a fixed form (rent).

Beer distribution and supply contracts were renegotiated to deliver significant cost savings through leveraging combined purchasing power across Terra Firma's pub businesses.

Outcome

Inn Partnership was sold to a strategic buyer in February 2002.

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