ASX-listed HPI today announced it has entered a binding agreement to sell four of its hotels to its major tenant, Australian Venue Co, for a total of $48.6 million.
Set to occur in two tranches, the four properties comprise three in Queensland, being the Hotel Allen in North Ward, Royal Mail Hotel in Tewantin, and Woodpecker Bar & Grill in Burpengary Meadows, as well as the Ball Court Hotel in Sunbury, Victoria.
Australian Venue Co (AVC) is a food and beverage-led hospitality group that operates more than 200 pubs, bars and event venues across Australia and New Zealand. It recorded $1.1 billion in revenue for FY23.
However, these acquisitions represent the group’s first freeholds, set to be acquired by a subsidiary of AVC, and setting the stage for future sale-and-leaseback deals.
“It makes sense that we selectively acquire freeholds where we see that we can add value to an asset in the short- to medium-term,” AVC CEO Paul Waterson told PubTIC.
“It may not always mean that we will keep a freehold on our balance sheet in perpetuity.
“In most cases it will mean that once we redevelop a site we will sell the freehold back into the market with a long term lease in place.”
Settlement of the Hotel Allen and Ball Court will take place as soon as practicable, for a combined $23.7 million, while sale of the Royal Mail and Woodpecker, for $24.9 million, will proceed within the next year.
The four properties divested by HPI were identified based on its assessment of sustainable rent and strategic fit in its portfolio. The deal is said to benefit securityholders, seeing sale of four assets at book value, improved certainty on future rental cashflows through venue enhancement and increased lease tenures, and reduced portfolio risk, while also strengthening relations with its major tenant.
This agreement reflects HPI’s ongoing strategic portfolio curation, which since FY20 has seen eight assets divested (including those announced today) and 22 assets acquired.
The agreement goes further to see proceeds from the sales immediately allocated to a capital investment program, where HPI will invest up to $50 million for a range of enhancements at nine venues. This investment will be immediately ‘rentalised’, enjoying a 7.5 per cent initial yield.
Works will be undertaken in two tranches, reflecting the timing of the asset sales. Stage one will bring investment to seven venues in Queensland, being the Strand Hotel, Berserker Tavern, Bonny View Tavern, Brighton Hotel, Everton Park Hotel, and Coomera Lodge Hotel, as well as the Grand Junction Tavern and Mile End Hotel in South Australia.
This agreement follows a number of successful similar projects undertaken between HPI and AVC. It provides HPI with controls over the development work, and a framework for lease extensions. The company (ASX:HPI) has maintained its FY24 distribution guidance of 19.0 cents per security.
In February a controlling interest in AVC was acquired by alternative investment firm PAG, which is already a player in the Australian food and consumer sectors, holding brands such as Patties Foods, Red Rooster and Oporto.
AVC has a proven track record of enhancing its venues through strategic investment, and plans to continue this under its new ownership structure.
“We are confident that the capital investment program announced today with our landlord, HPI, will deliver material operational improvements and transform these venues into modern properties that become the cornerstones of local communities,” adds Waterson.
