The original ALH listed landlord tips a “positive” future amid higher profit distribution and continued “operating profitability” across much of its pub portfolio.

ALE Property Group last week released its Annual Review, Annual Report and Property Compendium 2015, detailing finances emanating from the 86 pubs it owns and leases to the ever-strengthening Woolworths-backed Australian Leisure & Hospitality (ALH).

The company says capital management initiatives and strong independent valuations, coupled with favourable debt market conditions, produced better than expected results for stakeholders and share price.

The overall value of ALE’s portfolio rose 9.6 per cent in the year, gaining $79 million to over $900 million. Market capitalisation (total value of shares) increased by more than 27 per cent to $722 million.

The report cited “falling interest rates and an increased availability of debt funding” for the increases in property values, which combined with a drop in the company’s average capitalisation rate from 6.42 to 5.99 per cent.

Part of the allure of the properties’ covenant – long leases with rent indexed to inflation – saw rental revenue rise only 1.5 per cent this year. However major rental reviews scheduled for 2018 and 2028 have the Board “considering various capital management options” to distribute anticipated profits and restore gearing to the target range of 50-55 per cent. The increases in property value and capitalisation brought gearing down to its current level of 48.0 per cent.

Options around capital management include:

  • Increasing the current distribution guidance for FY16 to at least 20.00 cps
  • Continuing to grow subsequent annual distributions by CPI, and
  • Making a single capital return payment following the conclusion of the 2018 market review

Established in 2003, ALE is solely in the business of leasing pubs to ALH. All of its 86 properties are such, with an average remaining on leases of 13 years.

In late 2013 Redcape Property Group spun off Hotel Property Investments (HPI) in a very similar model to ALE, with over 40 freeholds leased to ALH and the Coles-backed Spirit Hotels. Its share price has grown 30 per cent since its IPO to $2.63.

Redcape has now taken steps to also go public, with its remaining portfolio of 22 hotels.

In late 2014 Charter Hall Group and Hostplus teamed up to buy $600 million worth of ALH-tenanted pubs, forming the listed Long WALE Investment Partnership (LWIP). This has since gone on to purchase another $200 million of the blue-chip freeholds, with LWIP2.

ALE performance as compared to ASX200
ALE performance as compared to ASX200
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