Hotel Property Investments (ASX: HPI) has locked down a $66.1 million deal for seven pubs in South Australia, more than tripling the group’s hotel assets in the state and taking total assets to more than $1.1 billion.
The latest acquisition represents a buyout of all the hotel assets owned by South Australia’s Saturno Group, a company with links to the state’s hotel industry stretching back 50 years.
HPI has also secured Australian Venue Company to operate the South Australian hotels on long-term leases over the next 45 years. Australian Venue Company has signed new 15-year leases plus two 15-year options on the properties.
The South Australian pub portfolio comprises The Unley at Parkside, Avenues Café Bar and the West End Tavern in the inner city, The Mile End in Mile End, Mick O’Shea’s Hotel in Hackham, The Duck Inn at Coromandel Valley and the Victoria Hotel at Strathalbyn.
The deal adds to HPI’s existing South Australian assets, the Brighton Metro Hotel, Grand Junction Tavern and Waterloo Station Hotel.
The acquisition has been struck at an average passing yield of 5.4 per cent with settlement expected in February.
HPI plans to partly fund the acquisition via the sale of the Acacia Ridge Hotel in Brisbane for $25 million, which is also expected to settle in February.
HPI will record a gross capital gain of $5 million on the Acacia Ridge property which was bought in January 2020 for $20 million.
HPI is also planning a $30.4 million capital expenditure program across its portfolio to renovate and upgrade 12 properties to deliver a rentalised weighted average yield of 5.9 per cent.
The group is providing Queensland Venue Company (QVC), a joint venture between Coles (ASX: COL) and the Australian Venue Company, with funding for the renovation works and plans to provide an upfront payment this month. QVC leases at least 28 of HPI’s hotel properties.
Meanwhile, HPI has announced the completion of a $3.8 million development at Ferry Road Tavern on the Gold Coast. The property is fully leased and offers the group a forecast return of 8 per cent on its investment in the first year.
The HPI group has also increased its debt facilities by $100 million with a view to recycling existing assets and acquiring new properties to expand and diversify its portfolio.
The group has announced a distribution guidance of 20.5c per security for FY22, as long as market conditions remain stable.
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