Big pub owners just get bigger cont'd.....
The days of the local pub owner pouring you a beer while his wife cooked a basket of chips out the back is fast disappearing. Think private equity…think listed property, think Martin Place suits and group accounting policies.
Over $110m regional hotel assets have been acquired by managed funds and private equity during the first 6 months of 2006 as the face of country pub ownership changes.
THE nation's largest pub owner is ALE Property Group, which owns 106 hotels leased to the Woolworths and Bruce Mathieson-controlled ALH Group. The company advised a large refinancing in May this year of their funding facilities that dropped ALE's average cash interest rate from 6.52 per cent to 5.72 per cent. The refinancing was via a capital-indexed-bonds issue over 17.5 years at a fixed interest rate of 3.4 per cent. This capital issue was the first by an Australian listed property trust, and impeccable timing given the rise in official interest rates to 6.00%p.a.
The majority of private hotel owners are currently paying interest rates in the mid 7 per cent range. This means ALH and other institutional owners have a large head start in maximising cashflow from operations. In practical terms a smaller operator cannot “catch up” the difference in funding cost differential via normal trading operations.
There is an emerging trend where equity and institutional funds have made a move to country NSW and Victoria targeting higher yields than in metropolitan Sydney and Melbourne. Yields of 11.5% – 13.5% are being achieved in regional areas – which represents a substantial improvement on metropolitan Sydney, Brisbane and Melbourne. Retail groups have also continued their expansion beyond South East Queensland and into regional NSW centres experiencing population growth.
Not dissimilar to the equity funds, hotel groups are location and yield driven. Key sites adjacent to major retail developments with established cash flows will continue to be sought after by these strategic investors.
Private developers, operators and established publicans are also keenly pursuing larger regional pubs but need to have deep pockets to compete with institutional managed funds to acquire these assets.
Metfund acknowledges source material published by The Australian.
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