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Greene King Plans Pub Property Deal, Shares Rise

British Brewer Greene King offered shareholders a 100 million pounds ($202 million) special payout on Tuesday via a planned spinoff of around a third of its pubs, boosting its shares by 7.9%.

The group, brewer of Old Speckled Hen and Abbot Ale, met forecasts with a 17% rise in annual pretax profit and also said it was well prepared for the English smoking ban which was introduced on Sunday.

Pub operators, like many other companies with extensive property assets, have come under pressure from some shareholders to take advantage of a big rise in commercial property prices and free up cash to return to investors.

"This is a positive development for the pubs sector," KBC Peel Hunt analyst Paul Hickman said in a research note.

Greene King shares, which have lagged the U.K. travel and leisure sector by 6% over the last 12 months, were up 7.9% at 1,041.5 pence at London close, valuing the group at around 1.5 billion pounds ($3 billion).

Shares in other pub chains were also rose with Punch Taverns, Britain's biggest pub group, Mitchells & Butlers, Marstons and Enterprise Inns up 1% or more.

The group said it was seeking a partner for an OpCo/PropCo (operating company/property company) structure for 872 of its pubs, or around 35% of the total, and expects a deal by the end of the year.

"We believe we can benefit from the additional skills and disciplines that would be brought to bear and unlock further property value," Chief Executive Rooney Anand told journalists, adding the group had not yet spoken to any prospective partners.

Greene King already has a securitization agreement covering the remaining 65% of its pubs and Anand said the new joint venture would cover some or all of the remaining pubs.

Sociability

Greene King, which also brews Ruddles ales, posted a profit before tax and exceptional items of 139.8 million pounds for the year to April 29 as revenue rose 12% to 917.5 million pounds.

A poll of 16 analysts by Reuters Estimates forecast median pretax profit of 138.5 million pounds on revenue of 928.2 million pounds.

Greene King said it had gained extensive experience from its Scottish pubs ahead of the English smoking ban and would offer a broader food and drink menu as well as outside smoking areas where possible.

Anand said the group had conducted a survey of 5,000 customers on Sunday and nearly half of respondents said they would now go to the pub more often.

"You can only sit at home drinking supermarket beer for so long before you miss the sociability ... of the pub. As long as you don't treat smokers like social pariahs ... then we have every opportunity to prosper," Anand said.

Greene King said total like-for-like sales in its managed pubs in England and Wales were up 1% in the first eight weeks of the current year.

Britain's biggest brewer Scottish & Newcastle said on Tuesday first-half operating profit had fallen due to bad weather, high costs and a comparison with strong trading during last year's soccer World Cup, but added it expected to meet full-year expectations.

Greene King said it would pay a final dividend of 16.45 pence, giving a total for the year of 22.9p, up 14% from the year before.

"Following a period of share price underperformance we move our recommendation from 'hold' to 'add' and increase our target price from 1,018p to 1,060p," Numis analysts said, citing the results and plans to unlock value from its property portfolio.