EI GROUP PLC LONDON (Reuters) - British pub landlord group Enterprise Inns (>> Enterprise Inns plc) plans to sell 1,000 pubs, create a large property rental arm and expand its own managed pubs unit in response to a new tenant law that stands to hit profits.
The law will allow publicans to choose where they buy their beer, threatening future profits of landlords who under a system known as the "beer-tie" charge tenants above-market drinks prices and offer subsidised rent and benefits in return.
That system is in operation in nearly half of the UK's 50,000 pubs but publicans will in future be able to buy beer from other suppliers and choose a market rent-only option.
Enterprise Inns said it would continue to offer tied deals but also boost the number of pubs it manages directly to between 750 and 850 by September 2020 from 16 now.
Managed pubs, which have higher costs attached but offer greater profits, have become a focus for many pub firms as they respond to competition from cheaper supermarkets, a recession and Britain's smoking ban.
"This is a fundamental change in the business... it does appear Enterprise has grasped the nettle post the Market Rent Only option," Cenkos analyst Simon French said, forecasting half of the group's earnings would come from managed pubs by 2020.
Enterprise Inns said it would also expand its commercial property arm, which includes free-of-tie pubs as well as retail developments, to between 900 and 1,000 properties from 185 currently.
The firm's shares, which have risen 23 percent in three months in anticipation of the update, were up 0.8 percent to 133 pence at 0742 GMT.
Overall, Enterprise Inns will slim down to 4,200 pubs from 5,200 by 2020, it said.
Disposal proceeds, raised to 75 million pounds ($117 million) for this fiscal year and next, would be reinvested to help cover the 150 million pound cost of the first stages of the overhaul, it said.
Enterprise Inns posted a 0.6 percent rise in like-for-like net income for the six months to March 31 and core earnings before exceptional items of 144 million pounds, in line with expectations.
It said it was targeting full-year underlying net income growth.
(Story refiled to delete word "that" from paragraph 2)
(Editing by James Davey and Jason Neely)
By Neil Maidment
