$1.6BN deal to create Australia’s biggest pub landlord

Property fund manager Charter Hall has partnered with industry fund Hostplus in a $1.68 billion deal to buy out ASX-listed ALE Property Group.

The acquisition would make Charter Hall the biggest pub landlord in Australia and give it a portfolio that includes Sydney’s Crows Nest Hotel and Young & Jackson in Melbourne.

The deal, which is being done in cash and scrip, comes at a more than a 25 per cent premium to ALE’s last closing price of $5.88. 

ALE is Australia’s largest pub owner. Its only tenant of its 78-asset portfolio is Endeavour Group. 

Endeavour recently demerged from Woolworths to create a $12 billion powerhouse operating pubs and liquor stores. 

“There’s no doubt they are the market leader in that sector. In everything we do, we like to partner with best-of-breed tenant customers in each sector,” David Harrison, Charter Hall’s managing director, told The Australian Financial Review. 

“The reason why we like having the very best tenants in each sector is they are not SMEs.

They have a balance sheet that can afford to pay us rent during these periods. That’s part of the strategic rationale behind doing large portfolio deals strong tenant covenants.”

Harrison also expects the industry to recover quickly once lockdowns are lifted.

“We do have a strong conviction in the reopening trade and we think hospitality will reopen and will be strongly supported after people have been locked down for so long.

“Once we get through the vaccination program and restrictions lift, we think hospitality assets will perform well.”

Charter Hall, Hostplus and Long WALE REIT are equal partners in the acquisition.

The appeal of ALE was the under rented assets the company currently holds. This is particularly important as rents come under review.

Charter Hall first made an unsolicited approach to ALE in July this year.

“While the ALE board notes the stable growth exhibited by ALE historically, and the potential for substantial future benefit arising from the rent reviews due to occur in 2028, the directors consider that the consideration offered under the proposal represents attractive value and accelerates the realisation of the valuation uplift that could otherwise reasonably be expected to occur as a result of the open market rent review in 2028,” the board said.

If accepted by shareholders, they would receive 0.4080 securities in the Charter Hall-run property trust and cash of $3.673 for each ALE security.

The scheme is expected to be implemented by December.

Irit Jackson, 21^st September 2021