Pub buyers develop $600m thirst

About $600 million worth of pubs in NSW and Queensland are being circled by investors including the Lantern Hotel Group and Redcape Hotel Group.

The sector is staging a comeback five years on from its savaging during the global financial crisis, when some operators collapsed under mounting debt.

The listed Lantern Hotels Group is planning to boost the value of its property portfolio by up to $100 million, while both Redcape Hotel Group and the Riversdale Group, backed by Mark Carnegie, Geoff Dixon and John Singleton, are moving to boost their portfolios with reports both want to float on the Australian Securities Exchange this year.

Lantern Hotel Group executive director Russell Naylor at the Crown Hotel in Sydney's Surry Hills.

 
Redcape was examining hotels nationally, and one online report said yesterday that it was looking at five properties in Sydney to add to its 72-pub portfolio, as it also considered a name change for the new listing.

Values crashed during the GFC, with major pub owners and operators such as The Hedley Group and National Leisure and Gaming collapsing, and dozens of distressed properties flooding the market.

Prices have since recovered, but are still lower than the market's peak, sources said. Also, troubled groups have been restructured, including Hedley, which became Redcape Hotel Group and was recapitalised by hedge funds.

Lantern, formerly the ING Entertainment Fund, was also rebranded and recapitalised, with New Zealand wealth management company Pyne Gould Corporation the major backer.

"There's plenty for sale. Whether they are assets that fit, or are assets that we would necessarily be interested in, is a different story," said Lantern Hotel Group executive director Russell Naylor.

"I would expect that Riversdale and Redcape would have also potentially looked at the assets."

New Zealand's Pyne Gould owns 29 per cent of the Lantern Hotel Group, which counts Macquarie Group and Simon Marais' Allan Gray as shareholders. The group has been hungry for acquisitions after a restructure last year.

Riversdale, and Redcape were probably circling larger city venues while Lantern was more interested in hotels in the wider Sydney area, taking a more opportunistic approach, Mr Naylor said.

Recently, Riversdale bought The Stock Exchange Hotel in Brisbane for about $35m and, earlier this year, the Elephant Arms in the city for $27m, according to reports.

Lantern, which owns 10 pubs, including the Dolphin Hotel in Sydney's Surry Hills, recently agreed to buy the Crown Hotel in the same Sydney suburb for an undisclosed price. The group has two other pubs in due diligence.

Lantern was probably competing with Riversdale to buy the Seaview Hotel in Townsville, expected to sell for more than $11m, according to market sources.

Lantern was recently the underbidder to Redcape on a Gold Coast property, the Lost City.

While Mr Naylor estimated that Lantern, and most likely Riversdale and Redcape, had looked at about 50 Queensland and NSW pubs in the past six months, the exact number on the market was often difficult to quantify. "There's always a lot of pubs that are for sale at a price that is not reflective of a price that anyone would like to pay," Mr Naylor said.

Lantern recently cashed out of its investment with the Penrith Panthers, receiving close to $80m from the property arm of the rugby league club. It was also in the process of selling more non-core properties worth about $35m. The money would be used to partly fund up to $100m worth of investments. Mr Naylor said there was a variety of pub landlords offering properties for sale, including both single and multiple operators.

Some were looking to reduce debt, while others were offloading one property to fund the expansion of another.

"There has been a little bit of distressed selling, but there hasn't been a lot," he said. "The pub market has been stable and the underlying demand has been stronger than anticipated."

Some sources have been sceptical about the success of pub property floats by Riversdale and Redcape, which reports suggest may happen by Christmas. But Knight Frank director Craig Harley said there was strong interest for pubs nationally.

Andrew Wilkinson, the managing director of Australia's largest listed freehold pub owner, ALE Property Group, said another listing of a quality pub owner on the Australian Securities Exchange would attract more global and local funds into the sector. "The more critical mass in the listed pub space, the better," he said.

Source: The Australian, 19 September 2013