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ALE Property profit boosted by revaluations

The Somerville Hotel on the Mornington Penisula has undergone a $5 million upgrade. Crows Nest Hotel, Sydney, one of the 86 pubs in the ALE Portfolio. Photo: Adam Hollingworth

ALE Property, the country’s biggest pub landlord, has seen its assets revalued to $953.9 million, close to double since its inception, which helped the group to an 2.8 per rise in net profit to $14.8 million, for the half year to December 31, 2015.

The group’s tenant is the Woolworths-backed ALH, which has injected significant cash into the pubs, including about $8 million to upgrade the Crows Nest in Sydney’s north and $5 million into the Somerville on the Mornington Peninsula in Victoria.

ALH operates around 330 licensed venues and 550 retail liquor outlets across Australia, while ALE owns 86 properties or 26 per cent of the licensed venues that ALH currently operates. These include the Young & Jacksons in Melbourne’s city and the New Brighton Hotel in Manly, Sydney.

The accounting profit for the half year of $63.1 million includes the revaluations, while the half-year distribution was 9.9¢ per security. The group has extended its interest rate hedging to take advantage of the current low rates.

ALE currently enjoys significant headroom to a number of market standard debt covenants. The value of ALE’s properties would need to fall by around 24 per cent or $230 million before the nearest covenant is met.

ALE Property also survived a takeover attempt by its largest shareholder, Caledonia (Private) Investments, which was rejected by the ALE board. Caledonia withdraw the $3.95 per share conditional offer last November, but has recently increased its stake in ALE to about 27 per cent.

ALE’s managing director Andrew Wilkinson said the pub sector was having a resurgence, particularly in the suburban markets across Sydney, Melbourne and Brisbane. He said the cash injection by ALH was also paying off with more patrons enjoying the upgraded pubs.

“The outlook for both the 2018 and 2028 rent reviews remains positive given the increase in ALH’s operating profitability across a large number of ALE’s properties,” he said.

“The property valuations were also positively impacted by the annual CPI based increase in rent. The land tax expense for the Queensland portfolio was largely unchanged due to a number of successful objections by ALE.

“Over and above the existing portfolio, ALE continued to evaluate a range of investment opportunities with the appropriate level of discipline required in the current market.”

He said the group looks to buy pubs which have development land and can be used by the Woolworths Dan Murphy bottle shops.

“ALE continues to work constructively with ALH toward agreeing a range of developments that are potentially value enhancing for the properties,” Mr Wilkinson said.

The results were higher than market expectations given the revaluations.

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