In a significant development for the increasing discussion around rent for tenants in the aftermath of COVID-19, the ASX-listed ALE Property Group announced it has taken a backward step in its quest for rental increases at many of its ALH-occupied pubs.
ALE (ASX:LEP) is Australia’s largest listed pub landlord, with a portfolio of 86 properties valued at over $1 billion – all leased to the country’s largest pub operator, Australian Leisure & Hospitality (ALH).
Since the merger with Endeavour Liquor to become Endeavour Group, the pubs arm is 85.4 per cent owned by Woolworths, with the balance held by Bruce Mathieson and family.
A scheduled review of rent on many of the properties was mandated for late 2018. This saw the maximum allowed increases (capped at 10 per cent) applied at many of the properties, and has been the basis of a long-running dispute between landlord and tenant.
Exacerbating the situation is that close to half of the properties are in Victoria, including Melbourne’s famed Young & Jackson, but ALH is unable to open for trade in Victoria due to coronavirus restrictions.
ALE continues to collect rent from all its properties and maintains a position that ALH is underpaying relative to market rates. Its FY18 announcements and pending rent reviews invigorated interest in the REIT, with a further review in 2028 expected to bring rents up to full market levels.
Last week’s announcement stipulated the results of a review by five independent valuers appointed to resolve the ongoing dispute around 43 properties.
The ‘Rent Determination Results’ brought the aggregated decision of the valuers, being that the properties in question “will remain substantially unchanged from the rent immediately preceding November 2018”.
Particularly bad for ALE was that this included the 36 properties that were previously agreed to see the full 10 per cent rent increase.
The balance across 79 of ALE’s properties subject to review was an increase of just 4.4 per cent.
All 86 properties continue to benefit from annual CPI increases.
The announcement consolidated a rough year for the REIT, which after almost uninterrupted historic growth reached a high of $5.698 per share on 6 January.
Alongside many listed companies it fell heavily under COVID, reaching $3.758 (a fall of 34.05 per cent) in late March, but rebounding to $5.15 by the end of August.
However, this preceded the independent review, which prompted another fall of 19.36 per cent by 15 September to $4.29 – down 24.5 per cent on January’s high. LEP closed today at $4.30.
