Charter Hall moves on pub landlord as takeovers rebound

Corporate plays are back on the agenda for the beaten down property sector, and the country’s biggest pub landlord is looking to add to its empire.

Property funds house Charter Hall is doubling down as a pub landlord, with the group and its listed retail fund snapping up a near $100m stake in pub owner Hotel Property Investments.

Property funds house Charter Hall is doubling down as a pub landlord, with the group and its listed retail fund snapping up a near $100m stake in pub owner Hotel Property Investments.

Charter Hall is already the largest pub landlord in the country after taking over the ALE Property Group in a $1.7bn play in 2021 and the latest move could diversify its holdings if it follows through with a takeover bid.

While it is yet to show its hand, the ALE pub fund owns pubs occupied by the Woolworths-backed Endeavour Group, while HPI is focused on pubs that operate next to Coles outlets.

Charter Hall Group and Charter Hall Retail REIT announced on Thursday that they had equally funded a new trust which has acquired a 14.8 per cent strategic stake in HPI from Tony Pitt’s 360 Capital for a price of $97m.

The deal showed a price of $3.35 per HPI security and will make Charter Hall the largest investor in the listed fund, which owns pubs that are run by the Queensland Venue Company and Australian Venue Company.

A majority stake in the pub operating companies was sold by private equity firm KKR to rival group PAG for about $1.4bn in a deal agreed last year.

HPI owns a portfolio of 57 Australian convenience hotel properties, mainly on the eastern seaboard, that have long leases and valuable land banks.

Charter Hall said HPI’s assets were complementary to its existing portfolio of convenience net lease retail assets, and the acquisition was consistent with the retail trust’s strategy to redeploy proceeds from recent shopping centre sales to increase its focus on these properties.

Charter Hall is the top owner of convenience net lease retail assets in Australia with more than $10bn of assets across its property funds platform, most of which have inflation-linked annual rent reviews.

Based on HPI’s distribution guidance, the stake in HPI reflects an annualised fiscal 2024 distribution yield of 5.7 per cent and was bought at a 15.6 per cent discount to the pub fund’s last published asset backing figures.

JPMorgan analyst Richard Jones wrote in a note that Charter Hall was “back on the front foot” after opportunistically acquiring the stake. The price was at a 2.4 per cent premium to its last close and HPI shares added 8c to hit $3.35 on Thursday

Mr Jones said Charter Hall has a history of REIT mergers, having been a driver of the privatisation of the ALE Property in late 2021 and Irongate in early 2022.

“This is Charter Hall’s first aggressive move in some time and shows its renewed confidence in the outlook for real estate values,” he said.

He said buying the stake would either lead to a full offer or if it did not think it can execute a transaction at an acceptable price, then it could exit in time, as did when selling out of petrol station owner Waypoint REIT.

Citi analyst Suraj Nebhani was also bullish. “We believe the transaction reflects increasing potential for M&A activity in the sector, given Charter Hall’s track record with listed REIT acquisitions,” he said. “We also see this as a positive sign, with Charter Hall focusing more on growth-linked opportunities than playing defense in a tough environment.”

There has been a run of takeover plays at the small end of the listed property market, with Aspen Group making a play for Eureka Group Holdings and the BWP Trust taking over the Newmark Property REIT. More action is also in the offing, as corporate raider Nick Bolton is circling the struggling Australian Unity Office Fund, which itself was targeted by a Charter Hall consortium some years ago.