Major pub landlord demands full lockdown rent at pubs with no beer

ALE said the year ahead would be challenging as the recovery would take a long time. Picture: Ian Currie
ALE said the year ahead would be challenging as the recovery would take a long time. Picture: Ian Currie

The landlord to some of Australia’s most famous pubs is charging full rent to tenant Woolworths-backed ALH Group and has boosted the value of its portfolio despite the coronavirus pandemic closing the doors of famed Victorian venues including Melbourne’s Young & Jackson Hotel.

Pub freehold owner the ALE Property Group said it expects rent to be paid at the 33 Victorian sites that it owns that are run by the ALH Group, which is part of the Woolworths-backed Endeavour Group, backed by pokies baron Bruce Mathieson.

The Endeavour pub and pokies empire is the country’s largest and in little danger of missing rent payments even though its own venues in Melbourne are shut under strict stage four rules.

ALE has 33 properties in Victoria worth $565 million. Only bottle shops are open and pubs are likely to be allowed to re-open as rules are relaxed, but with strict limits on patron numbers.

The landlord acknowledged that COVID-19 had an impact on the industry but its property valuations are rising, as the pubs have long-term leases to ALH and rise in value when bond yields are low.

ALE and the pub operator are reviewing some pub rents and many have already been lifted by about 10% as they were previously at below market rates.

ALH is the country’s top pub operator and fully owned by Endeavour Group after its February merger with Endeavour Drinks. It has about 330 venues comprising more than 900 bars and night clubs, and most have restaurants and bistros with COVID-19 restrictions putting many under pressure.

Endeavour Group is 85.4%owned by Woolworths and 14.6% by the Bruce Mathieson Group. Woolworths now plans to pursue a separation in the second half of 2021 due to the significant impacts of COVID-19.

ALE said the COVID-19 pandemic had hit market activity in many sectors in the economy and this had been particularly evident in the pub sector where trading restrictions are in place.

But it said notwithstanding the uncertainty the situation was having on property values, a valuation assessment undertaken by the group indicated that demand still existed for prime assets secured by strong tenants. It is still expecting rents from ALH but values might be hit if ALH does not pay contracted rents.

“In the event that the impacts of COVID-19 become material or more prolonged than anticipated, and ALH does not continue to meet its rental obligations … this may have an adverse impact to the fair value of ALE’s property portfolio,” the listed pub trust said.

The hotel industry has been clubbed by the COVID-19 pandemic with ALH closing all 86 hotels owned by ALE in the first wave of the pandemic in March. ALH continued to trade from 66 BWS and 23 Dan Murphy’s owned by ALE.

ALE said the year ahead would be challenging as the recovery would take a long time.

The company generated a distributable profit of $30.4 million last year and property income bumped up 2% to $61.4 million due to rent increases resulting from an average rent increase of 1.7% for 43 of its 86 properties.

The portfolio lifted by 0.9% to $1.17 billion and ALE said it had significant headroom on debt facilities and its properties would need to fall in value by a third or about $390 million before breaching the nearest gearing covenant.

ALE’s first major rent review commenced on 79 of its 86 investment properties in 2019 and the landlord sought a 10% lift on these properties and later agreed to accept that rise for 36 of them with the remainder subject to independent determination.

In an analyst’s note on Wednesday, Macquarie Equities said the revaluations were a good outcome, given pubs are exposed to COVID restrictions.

“While cash collection appears to be holding to date, we highlight risk to the pub sub-sector given social distancing requirements,” the analyst said.

This article originally appeared on www.theaustralian.com.au/property.