CHC & HOSTPLUS acquire $603m investment portfolio leased for 20 years to Woolworths subsidiary ALH
Charter Hall Group (ASX:CHC) has created a new wholesale partnership with HOSTPLUS to acquire a $603 million portfolio of properties from ALH Group (ALH), subject to initial lease terms of 20 years plus options, reflecting an initial yield of 6.8%. The triple net lease structure and uncapped annual Australian CPI rental increases from the leading retail liquor and pub operator, provides an attractive investment proposition to both Charter Hall and its investment partner, the $15 billion Australian superannuation fund HOSTPLUS.
The new Charter Hall managed partnership, to be known as the Long WALE Investment Partnership (LWIP), has committed equity of $302 million which, together with a $340 million non recourse debt facility from a syndicate of two Australian banks, will fund the $603 million1 acquisition due to complete at the start of October 2014. Charter Hall and HOSTPLUS have each committed to an initial 50% or $151 million equity investment to LWIP.
The ALH portfolio comprises 54 high quality hospitality assets, 46 of which also include a Dan Murphy’s and/or BWS retail tenancy, which are predominately located across Australian metropolitan areas. The portfolio has an initial lease term of 20 years, with Charter Hall estimating approximately 26%2 of the net rent is derived from the Woolworths’ owned retail liquor businesses, Dan Murphy’s and BWS. ALH is the market leader in the pub sector with 329 venues throughout Australia and is owned 75% by Woolworths Limited and 25% by the Mathieson Group.
Dan Murphy’s tenancies provide a Base rental plus an annual turnover rent provision equivalent to 2% of sales turnover exceeding the Base Year sales turnover, with a five yearly Base rent review to the average of the preceding three years total net rent. The remaining leased tenancies provide for net rental income to grow in line with Australian CPI increases.
The acquisition is consistent with Charter Hall’s strategy of reweighting its portfolio toward assets with long leases to strong credit quality tenants with leading market positions and strong cash flow generating business models.
David Harrison, Charter Hall Joint Managing Director, said: “Charter Hall’s entry into the hospitality sector and the growth of its retail portfolio through the Dan Murphy’s and BWS retail liquor assets, provides the Group with exposure to a high quality CPI hedged resilient rental income cash flow, generated from a high calibre tenant that leads both the retail liquor and pub hospitality sectors.
“The acquisition further strengthens Charter Hall’s relationship with Woolworths’ businesses, now Charter Hall’s largest tenant customer, with the contribution to Charter Hall’s Property Investment earnings from Woolworths’ subsidiaries increasing to 22%,” Mr Harrison added.
The acquisition will be funded from available cash and undrawn debt capacity and is expected to be earnings accretive to Charter Hall’s current financial year operating earnings, with the Group upgrading its operating earnings growth guidance outlook for FY15 toward the top end of the 5-7% range provided on the 27 August 2014.
“We are pleased to have established a new partnership for this acquisition and look forward to working with HOSTPLUS as an investment partner and ALH and Dan Murphy’s as tenant customers that lead this sector,” said Mr Harrison.
HOSTPLUS CEO David Elia said: “HOSTPLUS is delighted to partner with Charter Hall and strengthen its position as a major participant in the Australian hospitality sector. ALH’s position as a leading hospitality operator, combined with the long dated CPI linked triple net lease structure, provides attractive investment attributes that align with our primary objective of delivering stable returns to our members”.
1 $603m represents the purchase price of the properties
2 Dan Murphy’s Rent represents 18% of initial base rent, with an additional ~8% derived from BWS operations which form part of ALH Hotel Rent
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