Three Melbourne pubs leased to a Woolworths-backed company have been sold for more than $16 million in heated auctions at Crown Casino.
The Elsternwick Hotel in Elwood, the Rose Shamrock & Thistle in Reservoir and the Rifle Club Hotel in Williamstown sold separately to three wealthy individuals - one from Sydney and two from Melbourne.
Agents say the buyers were attracted by the "blue-chip" tenant, Australian Leisure & Hospitality Group, in which Woolworths has a 75 per cent stake. Melbourne publican Bruce Mathieson owns the remainder.
The pubs sold on investment yields as low as 5 per cent, prompting agents to speculate that private buyers, disgruntled by sharemarket and banking returns, are now prepared to pay more for pubs - relative to their rental income - than in previous months.
Vendor ALE Property Group, Australia's largest listed pub owner, reaped a 24 per cent premium on the pubs' book values at December 31.
ALE managing director Andrew Wilkinson said it was a "particularly strong" result in a "difficult market".
He said the sale last week of two of its Sydney pubs for $12 million - slightly more than book value - fuelled interest in the Melbourne sales. "Sydney set a benchmark and in the past week investors have been digesting that and knew that they'd have to turn up in Melbourne with a very sharp price."
The sales by ALE come as rival pub owners are expected to start flooding the market with sales. About 200 pubs in NSW are believed to be in breach of their lending covenants, with banks already pulling the plug on owners such as Winners Circle Group.
In Melbourne, the Cornerstone group needs to sell several of its assets after appointing administrators to deal with debts racked up during a buying frenzy at the top of the market in 2007.
ALE told the stock exchange it would "apply the proceeds of the sale to both debt reduction and to increase surplus cash balances". Mr Wilkinson said ALE was not a forced seller, and "at this stage" had no more plans to sell.
"We've got no refinancing coming for another two years, at least. From our point of view, our finances are in good shape … In this market, people are gravitating towards lower-risk, long-term, good-quality properties."
Agents were happy with the auction turnout but were reluctant to call a widespread recovery in pub sales, emphasising instead the rarity of what was on offer.
Scott Callow and Joel Fisher, of CBRE Hotels, jointly marketed the hotel portfolio with Raoul Holderhead and Dean Venturato of Burgess Rawson.
"The strength in the hotel investment market has been proven by this result … a number of private parties were bidding feverishly," Mr Callow said. "Quality assets are continuing to attract strong interest, given the lack of prime hotels available in the current market."
Each pub sold with 19-year leases to ALH, indexed to inflation, with options to renew for four 10-year terms. (Credit: The Age)
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