Supporting our leased and tenanted pubs through COVID-19

Rent a pub - Star Pubs and Bars

Pubs across England, Wales and Scotland have been closed for a number of months this year due to the COVID-19 pandemic. In addition to all the Government’s support to help cover rent, salaries and other fixed costs, Star Pubs & Bars has – and will continue to provide – rent concessions to our leased and tenanted pubs. This page outlines how we have calculated those rent reductions for existing licensees. In addition to rent concessions, we have also invested £250,000 in health and safety point of sale materials for our pubs and supported our licensees with advice and guidance through our Pub Collective website.

Context: Government Support

The Government has provided a significant support package for the pub sector through the COVID-19 crisis. So even whilst pubs have been closed, they still have an income during the closure period. That support includes:

  • Cash Grant for Retail, Hospitality & Leisure Industry: businesses with a rateable value of £15,000 and under will be eligible for a grant of £10,000; businesses which have a rateable value of over £15,000 and less than £51,000 are eligible for a grant of £25,000
  • Job Retention Scheme: HMRC will pay employers a grant worth 80% of an employee’s usual wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. If licensees are on the payroll this will apply to them too.
  • Self-employed income support scheme: Government will provide a grant to self-employed individuals or partnerships, worth 80% of their profits up to a cap of £2,500 per month.
  • Business Rates Relief: rates are cancelled for 12 months
  • Business Interruption Loan Scheme: supports small and medium-sized businesses, with an annual turnover of up to £45m, to access loans, overdrafts, invoice finance and asset finance of up to £5 million for up to six years.
  • Business Bounceback loans: this scheme helps small and medium sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000. The Government will guarantee 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.

Alongside the Government’s wider support for the pub sector each pub across the UK has been affected very differently by the Government’s support package. As we have a very large and varied estate of 2,500 pubs, our approach to supporting our pubs with their rent has therefore been conducted on an individual basis in a fair and equitable way. Each pub within our core leased and tenanted estate* has been offered a rent reduction based on their individual circumstances.

Methodology

We’ve developed a model which uses turnover and profitability data by pub type (as defined by BBPA benchmarking criteria), takes out costs for the closure period (such as reduced marketing spend and professional fees, no Sky/BT bills) and factors in recent Government support (as listed above). In terms of the turnover and profitability data by pub type – we have applied some principles based on turnover (including the Government’s grants of £25k, £10k as well as those with no support) and then overlaid different costs as per the BBPA benchmarking criteria. These are also based on the fact that pubs are shut and therefore will incur lower costs.

Different rent and rent concession scenarios were then applied to understand the impact on pub profitability over a 12-month period. This analysis was used to inform our rent concession scheme and the summary of that is as follows:

  • Pubs receiving a £10,000 grant were offered a 75% rent concession (paying 25% of the contractual rent).
  • Pubs receiving a £25,000 grant were offered a 50% rent concession (paying 50% of the contractual rent).
  • Pubs receiving no grant inside Greater London rates districts were offered a 75% rent concession (paying 25% of the contractual rent). NB These pubs have been offered a 90% rent concession for July and August.
  • Pubs receiving no grant outside Greater London rates districts were offered a 90% rent concession (paying 10% of the contractual rent).

The calculations mean that the core of our leased and tenanted estate will receive different levels of rent reductions according to their pub circumstances. These rent concessions will apply from 20 March 2020 until the 31 August 2020.

Tapering-Off: On Wednesday 12 August we announced a further package of support for rent due in September and October 2020. Despite the fact the vast majority of pubs have been trading throughout the summer, instead of removing the concessions altogether, we are extending them - tapering the concessions off to help our licensees plan ahead to give them every opportunity to further re-build their businesses. The methodology for tapering-off the concessions remains the same as outlined above, and we have made some minor adaptations to take into account further Government support (e.g. VAT reduction, furlough bonus). A summary of the tapering off is as follows:

  • Pubs who received a 50% concession (as above) are offered a 40% concession for September, and a 30% concession for October
  • Pubs who received a 75% concession (as above) are offered a 55% concession for September, and a 35% concession for October
  • Pubs who received a 90% concession (as above) are offered a 70% concession for September, and a 50% concession for October.

Local Lockdowns: Where our pubs are subject to local lockdowns as directed by their Local Authority, we will provide further localised and individual support depending on the circumstances in that area.

As we have consistently said, we continue to keep our commercial support under review. Our aim is to be fair, honest and transparent across our entire estate of 2,500 pubs.

*Free of Tie and Market Rent Only Agreements: Please note that pubs operating under Free of Tie/Market Rent Only agreements are being offered a different level of support to be consistent with the wider commercial property market. For those pubs, we have deferred rent until September, with the March and June quarters to be paid in regular instalments until December 2021. The deferred rent is to be re-paid interest free and we’ve offered tenants to move to monthly payments.