Leading pub operators are calling on landlords for renegotiated conditions in the wake of COVID-19, prompted by the major losses in revenue across the board and second closure period for Melbourne.
The call comes as news from research entity Morgan Stanley emerges that rental forecasts at retail properties could see reductions greater than 15 per cent, as stores close and crowd-conscious consumers continue to shift to online shopping alternatives.
Australian Venue Co CEO Paul Waterson is one of those calling on landlords to consider rental agreements with greater flexibility. AVC operate leaseholds throughout Melbourne, and over 80 formerly Coles pubs in Queensland.
Waterson is proposing a switch to rent as a percentage of turnover, rather than a fixed amount, with the goal of having more operators still in business when trade increases again. In a recent discussion with PubTIC he indicated many landlords are realistic about retaining a viable tenant, rather than finding a new one in this climate.
Australia’s biggest publican, ALH – now part of Endeavour Group – was forced to again close its 33 Victorian sites, valued around $565 million. Endeavour continues to trade through 66 BWS and 23 Dan Murphy’s liquor stores, deemed ‘essential’ services.
Of the 33 sites, 27 are owned by the country’s largest pub landlord, the ASX-listed ALE Property Group (LEP), which has collected its full rent for the financial year despite its entire portfolio of 86 properties, exclusively leased to ALH, being closed for much of Q4.
The collection is bound to ALH on long-term triple net leases, incorporating a round of rent reviews at 43 in late 2019, with more in progress. The market reviews are capped at a maximum 10 per cent increase or decrease.
ALE chief Andrew Wilkinson announced the company had solid agreements with ALH, and while ALE acknowledges the industry had been egregiously impacted by the COVID-19 pandemic revenue would continue as projected for FY21.
The rent increases, averaging 1.7 per cent, brought an income lift of 0.9 per cent, to $61 million, and lift in value of the portfolio of $11 million to $1,174 billion. These values could come into question if ALH stumbles in paying rent, but ALE boasts significant leeway on debt facilities and says values would need to drop by a third before there was any risk of breaching any finance covenant.
The continued arrangement sees yields on ALE shares hold at 5.1 per cent. Its share price jumped 13c today (2.66 per cent) following the FY20 figures released late last week.
ALE’s full-year distribution of 20.9¢ per security amounts to a return of 1.14 per cent. This comes in stark contrast to the negative 21 per cent seen in the A-REIT 300 index.
It is understood Woolworths plans to pursue its separation of ALH and Endeavour Group toward the end of 2021, citing the significant impacts of the pandemic and shutdowns.