EV chargers and fast food outlets in pitch to win over pub investors
EV charging stations and embedded electricity networks, hotel accommodation, and fast food outlets are among the highlights of a growth plan that ASX-listed pub landlord Hotel Property Investments will pitch to investors as it fends off a takeover offer from property giant Charter Hall.
These and other initiatives that are designed to exploit the under-utilised land around HPI’s $1.3 billion portfolio will be presented as part of a strategy update at Wednesday’s annual general meeting.
HPI directors have twice rejected take-over offers – including the most recent “best and final” offer of $3.85 per share – from Charter Hall’s listed retail fund and industry super fund Hostplus that valued the company at $757 million.
Only about 41 per cent of land across HPI’s portfolio is currently utilised, providing the opportunity for “densification” with a “specialist partner”, HPI managing director John White is expected to tell shareholders.
Pubs in the HPI portfolio were included in The Australian Financial Review’s list of top 50 venues such as the Regatta and Crown hotels in Brisbane and the Gregory Hills Hotel near Campbelltown in western Sydney. The majority of the company’s pubs are long-leased to Queensland Venue Company, a joint venture between Coles Group and pub giant Australian Venue Co.
The three-month takeover battle has reached a stalemate with Charter Hall twice extending its acceptance date to try and gain more support for its latest offer. At the same time, HPI directors have been hoping for a rival bidder to emerge after declaring the Charter Hall offer “opportunistic” and “materially undervaluing” the pub portfolio.
HPI’s main sticking point is that the $3.85 per share offer represents a 4 per cent discount to the net book value of its assets of $4.01.
Charter Hall – the country’s biggest owners of freehold pubs – argues its offer is compelling because it represents an 18 per cent premium to the last closing price of HPI shares before it acquired its initial 14.8 per cent interest at the end of March, and implies a high valuation multiple of over 19 times forecast earnings for FY25.
To counter the net asset value discount argument, Charter Hall said its offer was at a premium to the “adjusted” NAV, which factors in “recurring corporate overheads”. This, the fund manager said, would reduce net tangible assets by 41¢ per share.
A spokesman for Charter Hall could not be reached for comment.
Analysts who spoke to the Financial Review backed HPI’s position.
They said the below book value offer was for a reasonably unique vehicle with an attractive lease structure – long leases and an annual 4 per cent bump up in rent – strong underlying land values and opportunities over time to increase the density of its sites.
“The other attractive things are the gaming and liquor licences, which revert to the landlord at expiry of the lease, and which have tangible value as well,” said an analyst, who declined to be identified.
A substantial holder notice lodged on November 8, showed Charter Hall/Hostplus held 24.68 per cent of HPI securities and had acceptance instruction for another 1.21 per cent. This gives the pair total control of 25.89 per cent of HPI, still well short of the 50.1 per cent needed for its offer to become unconditional and pave the way for Charter Hall to take control of the board and potentially seek a delisting.
Alongside site densification plans, HPI directors will brief investors at Wednesday’s AGM on a venue enhancement program, further acquisitions in partnership with AVC, the recycling of capital through the sale of non-core assets, “efficient” mechanisms to raise equity and plans to “optimise” the cost of debt.
The takeover battle is the only one of note currently in a REIT sector where asset values may finally have bottomed out. It comes as pubs with their resilient, inflation-busting and cash-generating operating models remain highly sought after by corporate investors.
While battling for control of HPI, Charter Hall has continued to buy up individual pubs including the Cecil Hotel on the Gold Coast for $14.25 million and Harlow Bar in inner Melbourne.
The takeover offer for HPI also comes as a group backed by Sydney Roosters chairman and Rich Lister Nick Politis launched a $77 million all-cash takeover bid for ASX-listed pub and shopping centre owner Eumundi Group, whose portfolio includes the Plough Inn on Brisbane’s South Bank.
In contrast to the HPI bid, the Eumundi offer is at an 11.5 per cent premium to NAV and has been recommended by the Eumundi’s directors.
Some shareholders who spoke to the Financial Review were against the Charter Hall offer primarily because it represented a discount to NTA, they said, declining to comment on the record.
Those investors also believe there is potential to develop surplus land on sites around pubs that could lift values and earnings – in line with HPI’s strategy update – they said.
HPI shareholders have until November 26 to accept the Charter Hall offer, unless it is extended again. Substantial shareholders of HPI include fund manager Yarra Capital.
