Morgan Stanley is reportedly in the market for 1,000 British pubs

One of the world’s largest investment banks has bid to buy around 1,000 pubs from Stonegate Group through its property investment arm. times of london reportciting financial industry sources.

Stonegate Group, which operates 4,500 pubs in the UK, is seeking to sell a quarter of its pubs to resolve its massive debt of nearly 4 billion pounds (about $4.9 billion). The group needs to repay half of its debt or refinance by July 2025.

Morgan Stanley Real Estate is bidding with Cerberus Capital Management to take control of part of Stonegate’s troubled pub portfolio, era the report said.

Morgan Stanley, Cerberus and Stonegate did not immediately respond to requests for comment. of wealth Comments are requested on the reported bid.

Stonegate has several unbranded pubs as well as chain pubs such as Slug and Lettuce, Be At One and Craft Union.

The pub chain finds itself mired in borrowings worth £3.8 billion ($4.6 billion), according to the latest figures. quarterly financial report. The group will either need to repay more than £2bn of debt by 2025 or negotiate potentially unfavorable new terms.

In January, credit rating agency Fitch gave Stonegate a negative rating ‘B-‘ ratingreflecting looming refinancing risks in mid-2025.

“This also includes Stonegate’s vulnerability to UK consumers, whose discretionary spending could reduce wet sales despite the group’s diversified brand portfolio, locations and operating model,” the agency said of the matter. said a fickle new patron of a British pub.

The decline of the British pub

Stonegate is always looking for new ways to make money amid challenging financial conditions.

The group introduced “dynamic pricing” at its venues in September, charging customers around 20p ($0.24) per pint during peak times. Stonegate said the scheme, which will be rolled out to around 800 of its sites, will help it meet additional staffing needs in addition to pubs’ licensing and security needs.

However, the strategy has been derided by customers and industry experts, who say it adds uncertainty and could drive people away during peak hours.

The group’s plight encapsulates the UK pub industry’s long-term decline in the 21st century.

Figures from the British Beer and Pub Association (BBPA) show that there will be 14,000 fewer pubs across the UK in 2022 than in 2000 datadropped by nearly 25%.

Faced with high energy costs, more than two pubs closed every day in the first six months of this year. guardian report Quoting Altus information. Altus said the 383 pubs closing in the first half of 2023 was almost equal to the figure for all of 2022, when 386 pubs disappeared.

Stonegate’s portfolio, on the other hand, has expanded from 333 properties when it began operations in 2010 to approximately 4,500 properties today. According to its website.

The proposed sale of a quarter of its premises could further hasten the closure of UK pubs, with profit-focused bidders more likely to convert the spaces rather than continue to operate them at the same capacity.

Pubs are also facing unprecedented pricing pressure in the face of supply chain constraints caused by the COVID-19 pandemic and Russia’s invasion of Ukraine. According to the BBPA, the average price of a pint rose by 12.5% ​​between 2020 and 2022.

For Stonegate, this means price increases at its bars of 7% to 8%, according to Fitch. The rating agency also noted that Stonegate’s energy costs will double to £70 million ($85 million) by 2023.

Despite the struggles of UK pubs, Morgan Stanley and Cerberus may spot an opportunity to acquire a large chunk of UK real estate at a bargain price, perhaps converting it into residential space.

Morgan Stanley may also use the acquisition to divest itself of investments in office properties. The bank is extremely pessimistic about the industry, warning in June that commercial real estate was headed for “worse conditions than during the financial crisis.”