Charter Hall targets pub growth in $1.7bn play for ALE Property Group

Property funds firm Charter Hall will become the country’s largest pub landlord by adding ALE’s hotels to its existing empire.

ALE Group’s Young & Jackson Hotel in Melbourne. Picture: Daniel Pockett

Property funds company Charter Hall will become the largest pub landlord in the country through a $1.7bn takeover offer for ALE Property Group.

Charter Hall is teaming up with superannuation fund HostPlus to take over the listed fund, which owns famed hotels including Melbourne’s Young & Jackson, the Breakfast Creek Hotel in Queensland and Sydney’s Crows Nest Hotel.

The funds group will add ALE’s high-profile hotels to its existing collection of pubs, which are run by the Endeavour Group.

Charter Hall’s mixed cash and scrip offer with HostPlus will put it at the top of the pile of freehold pub owners.

Its empire will be larger than private operators Arthur Laundy and Justin Hemmes, although it owns the freeholds rather than running pubs, which is done by Endeavour.

The transaction shows the strong demand for long-leased properties even during the coronavirus crisis which has shut many pubs in Sydney and Melbourne.

It also shows the march of institutions into the pub game is going to the next level and under Charter Hall’s ownership there is likely to be more buying as it works closely with Endeavour, which has flagged it will be a big buyer.

Charter Hall’s specialist long lease property fund teamed up with superannuation fund HostPlus to make a takeover bid for the pub fund at a premium price.

ALE said it had struck a scheme implementation deed with a consortium managed by Charter Hall, comprising Charter Hall Long WALE REIT and Hostplus.

The proposal is for a company scheme of arrangement, which will require ALE securityholder approval. ALE securityholders will receive the 0.4080 Long WALE REIT securities and cash of $3.673 for each ALE security and also the September quarter distribution of 5.5c.

Based on the closing price of Long WALE REIT securities last Friday the proposal has an implied value of $5.88 per ALE security, a 25.2 per cent lift on their last close on Friday of $4.70.

ALE securities jumped by 92c to $5.62 on Monday morning as investors expected the deal to go through.

The deal shows the strength of the freehold pub market and is at a 43 per cent premium to the most recent valuations on the portfolio of $4.11 per ALE security. All up ALE’s portfolio spans 78 pubs leased to Endeavour, Australia’s largest pub operator and liquor retailer via its Dan Murphy’s and BWS stores.

Endeavour was recently spun out of Woolworths and has a market capitalisation of about $12bn and paid all its rent during Covid-19.

The pubs carry long leases and most are in strategic positions and are of high importance to Endeavour, with many properties operating as pubs for more than 60 years.

The move came after ALE received an unsolicited bid from the Charter Hall consortium in July and is being backed by the ALE’s independent board committee and Will Vicars’ Caledonia, which has a 33.6 per cent stake, subject to an expert report or higher bid.

ALE chairman Robert Mactier said “the proposal is highly attractive for ALE securityholders, as it reflects a material premium to ALE’s trading price and the revised independent valuation of ALE’s portfolio”.

“After careful consideration, the ALE board has concluded that the proposal is in the best interests of ALE securityholders and unanimously recommends that securityholders vote in favour of the schemes, subject to no superior proposal and the independent expert concluding that the schemes are in the best interests of ALE securityholders,” he said.

CLW fund manager Avi Anger said the deal was consistent with the fund‘s strategy to invest in high quality real estate assets that are predominantly leased to corporate and government tenants on long term leases.

ALE’s financial advisers are Macquarie Capital and E&P Corporate Advisory. Charter Hall tapped Morgan Stanley and Ord Minnett as its financial advisers.