Private investors tap the rivers of gold in liquor-backed real estate
A popular Cairns pub and a Dan Murphy’s outlet in suburban Melbourne have been snapped up by private investors on record low yields, highlighting the strong appetite for bricks-and-mortar assets underpinned by long leases tied to the booming hotel and liquor sectors.
Overlooking the Barron River at 35-37 Stratford Parade, about 7km north of the Cairns CBD, the Barron River Hotel was bought by a Brisbane-based high net worth investor for $6.155 million on a yield of 4.99 per cent.
Offered for sale by ASX-listed pub landlord Hotel Property Investments, the Cairns hotel changed hands for $475,000 more than its valuation of $5.68 million in June, which implied a higher capitalisation rate – or yield – of 5.75 per cent.
Of great appeal to investors was the security of a 24-year lease to Australian Venue Co, the country’s second-biggest pub operator. It brings in more than $338,000 a year, coupled with annual rental increases of up to 4 per cent.
Standing on a 3860-square-metre site, the Barron River Hotel sold with 35 gaming machine authorities worth $4.3 million. These revert to the landlord at the expiration of the lease for $1.
Selling agents Glenn Price and Brent McCarthy from HTL Property said it was the first time a pub in Far North Queensland had sold on a yield below 5 per cent, an occurrence more common in capital city-based venues, reflecting the depth of demand for freehold hotel investments.
This valuation premium has also been applied to Dan Murphy’s large-format booze barns, which are underpinned by leases to ASX-listed Endeavour Group, the country’s biggest operator of pubs and liquor stores.
The latest to trade was a Dan Murphy’s on a large site on the Princes Highway in the outer south-eastern Melbourne suburb of Pakenham.
Offering a 15-year lease generating $434,000 of annual income, the property sold for $14.7 million on a 2.94 per cent yield, the lowest return yet for a Dan Murphy’s after an outlet in the inner Melbourne suburb of Malvern sold for $21.1 million in August on a 3.48 per cent yield.
The yield on the Pakenham Dan Murphy’s is just above the cash rate of 2.6 per cent – which is expected to keep rising – and lower than yields on risk-free government bonds, which pay 3.8 per cent on a five-year note and 4.1 per cent on a 10-year note.
However, selling agents JLL and Burgess Rawson said most of the 15 bidders on the Dan Murphy’s in Pakenham were cash buyers, and therefore not affected by rate rises. In addition, many private investors prefer the safety of bricks-and-mortar assets generating reliable cash flow in light of the volatility in the share market.
It is a theme that has been repeated over successive portfolio auctions hosted by the likes of Burgess Rawson and Cushman & Wakefield, where fast-food outlets, petrol stations and childcare centres have sold on low yields.
