Australian Venue Co to buy four pubs from landlord Hotel Property Investments

Hotel Property Investments (ASX: HPI) has exchanged contracts to sell four properties in Queensland and Victoria to its major tenant Australian Venue Co for $48.6 million, with proceeds set to go towards upgrades across seven venues in the Sunshine State and two in South Australia.

HPI reports the sale will be paid in two tranches and is at book value for the four assets: Hotel Allen in Townsville, Ball Court Hotel in northwest Melbourne outskirts suburb of Sunbury, the Royal Mail Hotel in Tewantin north of Noosa, and Woodpecker Bar & Grill in the Brisbane-Sunshine Coast growth corridor of Burpengary Meadows.

This marks the first major announcement for HPI since its CEO Don Smith passed away in February, with chief financial officer Blair Strik managing the company in an acting CEO capacity.

The four assets were identified for disposal based on HPI's assessment of sustainable rent and strategic portfolio fit, and have been slated for redevelopment by Australian Venue Co, which owns and operates more than 200 pubs, bars and event venues across Australia and New Zealand with $1.1 billion in revenue recorded in FY23. 

Settlement of the Hotel Allen and Ball Court Hotel are expected to occur "as soon as practicable", delivering proceeds of $23.7 million, while settlement of the Royal Mail Hotel and Woodpecker Bar & Grill for $24.9 million will occur within the next 12 months.

HPI notes that these divestments reflect the continuation of an ongoing strategic portfolio curation, and represent half of the total of eight assets divested for gross proceeds of $99.6 million since FY20. In that same time, the group acquired 22 assets for $271.7 million, including entry into new markets.

The seller has also entered into agreements with its buyer and key tenant to invest up to $50 million to enhance several venues in its portfolio through a capital investment program, which will be rentalised immediately after the settlement of each tranche of asset sales at a 7.5 per cent initial yield.

In the first stage, HPI will pump $23.7 million into the Queensland properties of the Strand Hotel, Berserker Tavern, Bonny View Tavern, Brighton Hotel, Everton Park Hotel and Coomera Lodge Hotel, and the South Australian assets of the Grand Junction Tavern and Mile End Hotel.

Investments will go towards upgrades to indoor and outdoor spaces, and improvements to existing food and beverage offerings.

HPI anticipates that a further $26.3 million will be invested in other assets across the HPI portfolio following the settlement of Royal Mail and Woodpecker in 2025.

HPI will continue to receive full rent during the course of the capital works and any associated venue closure. The capital investment program follows a number of successful venue enhancements and developments undertaken between HPI and Australian Venue Co.

"Despite challenging capital markets conditions, we remain committed to implementing initiatives to further enhance HPI’s market leading portfolio and drive long-term securityholder returns," says HPI's acting chief executive officer Blair Strik.

"The strong pricing outcomes on these asset sales reflect the attractive fundamentals of the sector in which we operate, and the asset enhancement program provides an efficient recycling mechanism to deploy capital into higher return investments that enhance the quality of our assets."

In February this year, PAG acquired a controlling interest in Australian Venue Co from KKR.

"Australian Venue Co has a proven track record of enhancing its venues through strategic investment," says Australian Venue Co chief executive officer Paul Waterson.

"We are confident that the capital investment program announced today with our landlord, HPI, will deliver material operational improvements and transform these venues into modern properties that become the cornerstone of local communities."