Hotel Property Investments says investors are always hungry for more pubs
Pubs have been among the hottest property asset classes during the pandemic and there has been a record $2 billion in sector deals through 2021 with HPI – now the only hotel stock listed on the ASX – among the most active traders.
“Cap rates for many of our capital pubs were at 4.5% when we re-priced them, and that seems to be where the market is for good quality pubs with good quality tenants” , said Mr. Smith.
The weighted average capitalization rate of HPI’s entire portfolio, many of which are regional operations, tightened from 5.9% to 5.4% during the period.
“We are seeing a tightening of cap rates across the board,” he said.
Mr Smith said further compression in cap rates is possible, but the level of demand – and the prices paid for pubs – depend on movements in interest rates, with hikes broadly sloping later this year.
HPI bought two new pubs, including Edwardes Lake Hotel in Reservoir, Melbourne, for $28 million in the second half of 2021, and this week completed the $66 million acquisition of seven leased South Australian properties to its dominant tenant Australian Venue Co.
It will remain on the lookout for new ads, said Mr. Smith, who stressed that he will only look for assets that will increase earnings per title.
“We still see opportunities and an active sales market for pubs,” he said.
“We want to buy assets that contribute to earnings growth.”
Like most real estate trusts, shares of HPI trade at a price below the value of its assets.
“People have their eye on what will happen with interest rates in the future,” he said.
“If they go up a little, long-WALE [weighted average lease expiry] REITs [real estate investment trusts] tend to be a little soft [but] we would expect this to settle and return to a value close to the net worth of the tangible asset.