Application of a new franchise business model increased tenant performance
Inn Partnership was a UK pub company selling beer to, and receiving rent from, its portfolio of tied, tenanted pubs.
Inn Partnership’s portfolio consisted of 1,240 tied, tenanted pubs across the UK, the vast majority of which were freehold properties. The business was a non-core subsidiary for its former owners. The pubs in the portfolio could be better managed to reduce the decline in beer volumes (as a result of tenants buying beer from third parties) and improve profitability and stability of cash flows. The previous owners had introduced a relatively short-term lease offering a variety of support services to the tenants, but which added central costs without any tangible uplift in pub performance.
The roll-out of a new pub franchise agreement offered lessees discounted beer prices and assignable leases in exchange for higher rents. Beer distribution and supply contracts were renegotiated to deliver significant cost savings through leveraging combined purchasing power across Terra Firma’s pub businesses.
A detailed pub-by-pub analysis of historic performance identified numerous pubs which would be more valuable in another portfolio or converted to an alternative use. These pubs were subsequently sold. The new pub franchise agreement improved the quality of the cash flow from the portfolio by converting income from a variable form (margin on beer sales) to a fixed form (rent).
The Inn Partnership investment has been fully realised. Inn Partnership was sold to a strategic buyer in February 2002.