Saturday, June 27, 2009

It’s time to change not churn

Nigel, we all get the pressure applied when we speak out - even saying rather non contentious things - in any way against the pernicious behemoth that pubcos have become.

Inadvertently the title of Phil Dixon's article - 'It's Time to Change Not Churn' says it all as far as what needs to happen and it also exposes why it will not happen; change IS needed but without churn pubcos don't have a business. Pubcos cannot retain enough profitable lessees (lessees would stay if they could but pubcos manage to put them out of business by taking more than all of the lessees' profit) to sustain the projections pubcos need to meet their debt covenants. Pubco estates are overvalued by about 30% anyway and it's only a matter of time before the big, smelly, mangy pubco black cat gets out of the bag.

The only reason they are still here is they are too big for the lenders and bondholders to 'let go'. That wouldn't do. And revaluing the estates to fall into a somewhat vaguely accurate reflection of their true worth now would bring all sorts of houses of cards down at the same time. RICS would have to explain how come their guidance on pub rents led the the situation where tied pubs are massively over rented and supplied with products which, after adding a modest margin, make at best only break even for the lessee.

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