Continuing its run of blockbuster sales capping 2016, Lantern Hotel Group has listed its second-last, landmark Surry Hills corner pub, the Crown Hotel.
The ASX-listed Lantern has all but completed the strategic sell-off of its entire pub portfolio, executing a faultless divestment program since gaining shareholder approval to do so last October. What began in 2015 as a plan to financial recovery by the newly elected board from stifling debt, became a decision to sell the lot while the market was hot.
“Following a detailed review, we first identified the appropriate strategy to maximise shareholder value, and having sought approval of the company’s stakeholders have both devised and delivered upon a strategic asset sell-down program,” explained Lantern CEO John Osborne.
Last year ended with some particularly big results for Lantern. The Waterworks sold prior to its EOI closing date for $17.23m, representing 65 per cent premium to the company’s book value. This shortly after its top-performing Five Dock Hotel sold for $28.75m, being 38 per cent premium to an even higher book value, and the Ambarvale selling for $21.2m, at a 50.2 per cent premium.
In this company, Sydney institution the Crown Hotel is being marketed by Ray White Asia-Pacific director Andrew Jolliffe and CBRE Hotels’ national director Daniel Dragicevich, who have steered all Lantern’s recent divestment sales and believe there is still plenty of appetite for A-grade freehold hotels.
“We’ve been fortunate to be engaged to sell a number of the more significant hospitality transactions over the past 12 months, and without exception, each campaign has been actively pursued by multiple experienced and well-credentialed hospitality investors,” offers Jolliffe.
“In terms of transaction trends, the key market indicator we view as continuing is yield contraction for A-Grade freehold hotel assets. We participated in numerous transactions during the back half of 2016 at yields averaging 8.5 per cent for hospitality properties of this nature, and subject to the continued availability of well-priced senior debt, we can see an argument for a further 50 to 100 basis point yield contraction for irreplaceable freehold assets.”
Lantern kick-started its recovery sell-down in late 2015 with the Dolphin Hotel, suggesting it was “already heavily represented in the Surry Hills area”. It was bought for $11.5m by a group including Christian Denny and Maurice Terzini, and is now trading at near-capacity most nights.
Lantern’s ‘other’ Surry Hills pub is a very different business. Located on the prominent corner of Cleveland and Crown Streets, the Hotel enjoys a 24-hour licence and 30 EGMs with rare three hour shut-down, and is ranked #144 on the Liquor & Gaming list of NSW venues.
The four-level pub boasts multiple revenue streams, including accommodation, and is opposite the Surry Hills shopping centre and Coles, and a large residential development. Surry Hills has virtually led the charge into high-density city living, and significantly, is outside of the dreaded lockout zones.
The Crown is typical of the kind of pubs seeing no-expense-spared reinventions that push the envelope in Sydney hospitality, as the country’s best pub groups continue to please discerning patrons.
“The Crown’s proximity to the fast-approaching light rail system and Moore Park Sports complex is another feature underwriting future revenue opportunities,” suggests Dragicevich, who is buoyant about the outcome for this campaign, despite the run of recent sales.
“The strategic sequencing of assets has been an important feature of the success of the A-grade hotel sale program over the past six months,” he says.
Factoring economic indicators including modest fuel prices, the Australian dollar, cost of debt and strong consumer spending, Jolliffe points to underlying fundamentals of A-grade hotels of property or gaming inventory (or both) and believes interest will remain for the final Lantern prizes.
The Crown is being marketed via an international EOI program, ending 15 February, 2017 – if not sold before, as with some of its predecessors.
