Cerberus Capital Management is imminently to purchase a portfolio of 63 Spirit and Orchid pubs from a four-strong joint venture consortium including Nick Leslau’s Prestbury for just over £185m.
The all-cash acquisition of 47 Spirit and 16 Orchid pubs, which currently deliver £13.8m in annual rent guaranteed by Spirit Pub Company, reflect a circa 7% net initial yield.
The 63 pubs are part of the Grove portfolio which also includes 144 Travelodge hotels, which have been put up for sale through CBRE by Prestbury Investment Holdings, Tom Hunter’s West Coast Capital and the Reuben Brothers’ Motcomb Estates.
Within the 47 Spirit pubs, 45% of the sub-pool’s £10.6m, or £4.75m, is derived from Greater London-based pubs.
The large proportion of the Grove pubs in the Greater London area provides Cerberus with the opportunity to convert certain assets into high-end residential, a market which continues to benefit from sustained domestic and overseas demand.
All the pubs are currently over-rented, but this is expected to be recalibrated closer to open market rental levels over the next decade as fixed five-yearly upward-only rent reviews are capped, progressing to open market revaluations from between March 2022 and 2023.
Cerberus has been among the most prolific pub acquires in the last two years, having acquired 102 Sprit pubs for £170m and 32 Punch Taverns for £33m from the same vendor consortium in February. Back in January 2012, Cerberus also acquired 1,100 Admiral Taverns from Lloyds Banking Group for £200m.
The winner of the Travelodge hotels subpool is still to be confirmed, with the hotel companies existing shareholders – GoldenTree Asset Management, Avenue Capital Group and Goldman Sachs – in contention alongside two private equity firms including Starwood Capital.
Underbidders at an earlier stage – across both subpools – included Colony Capital, Macquarie Bank and Patron Capital.
The 144 Travelodge hotels, of which just under half by rental contribution is derived from hotels in Greater London and the South East, are expected to fetch around £475m.
Grove’s Travelodge hotels deliver £35.5m in annual rent from a portfolio with a weighted average unexpired lease term (WAULT) of 29.4 years.
The Travelodge hotels offer investors RPI-linked five-yearly upward-only rent reviews over nearly 30 years, aligned to the business performance of the budget hotelier.
The Grove Travelodge hotels comprise more than 8,256 rooms, including 80 hotels along the country’s A roads, 21 along motorways, 11 hotels are in Greater London, 11 are in city centres and 19 are in edge of town locations.
All parties declined to comment.