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Pubs under the spotlight

The Crows Nest Hotel, in Sydney, has undergone significant renovations. Photo: ADAM HOLLINGWORTH.Listed pub landlord ALE Property is to work with its tenant, the Woolworths-associate ALH, to develop underused parts of around 970,000 square metres of land to enhance returns.
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The group, which owns 86 pubs across the country that  are tenanted by ALH, reported a distributable profit of $29.6 million for the year to June 30, up marginally on the 2015 year. The 2016 distribution of 20¢ was an  18.7 per cent increase on the previous corresponding period.

ALE Property’s managing director Andrew Wilkinson said valuations of ALE’s 86 properties rose 10 per cent to $990.5 million during the year.

This was based upon independent valuations of a representative sample of 31 properties by CBRE and Herron Todd White. In line with the increase in valuations, ALE’s weighted average capitalisation rate reduced from 5.99 per cent to 5.53 per cent.

He said the focus this year will be on working with ALH to expand the business through redevelopments across the portfolio. There is also an expected lift in rent due to the under-renting of some of the pubs.

The analysts at Ord Minnett said ALE Property provides secure long-term income with triple-net leases to Woolworths.

ALE and ALH have worked together to agree on a range of developments at a number of the properties during the year. These developments are expected to enhance business values for ALH and property values for ALE. This included the Crows Nest Hotel, Sydney where  ALH has invested about $8 million to refurbish the hotel, which reopens this month. The new facilities include five new function spaces across two floors

“Buildings occupy around 25 per cent of the land owned by ALE. ALE has an increasing engagement with ALH with the objective of identifying opportunities to monetise and develop under-utilised areas of land. Opportunities exist for ALH to utilise a larger part of the land for a range of uses,” Mr Wilkinson said.

“Subject to council approvals, ALE and ALH may proceed with a range of significant developments under the existing leases or agree other mutually beneficial arrangements. The value of this opportunity is excluded from current statutory valuations and the current value of any under renting at the properties.”

ALE and ALH’s development plans indicates the strength of the pub sector, particularly businesses that offer a range of food and entertainment as well as some gaming revenue, according to pub agents.

More than $200 million of pub assets have changed hands in the past year with more tipped as buyers seek out bricks and mortar investments.

One of the latest was by the acquisitive Hunt Hospitality group which has added Newcastle’s Duke of Wellington hotel to its growing portfolio of Hunter region properties in a deal valued at about $8.5 million.

CBRE Hotels negotiated the sale in conjunction with Knight Frank. The hotel was sold off market on behalf of a private consortium of owners.

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