This article is from the Australian Property Journal archive
ALE Property Group – Australia’s largest owner of pubs – has won a Supreme Court battle over rental determinations made in 2018 for 19 of its Victorian pubs.
ALE, whose assets are leased to Woolworths spin-off Endeavour, will have the valuations conducted again after the court decided the determinations were not made in accordance with the leases, and are not binding.
The judgement does not change affect ALE’s $1.7 billion takeover by Charter Hall and Hosptlus announced last month.
The determinations were conducted as part of independent valuations of half of ALE’s then-86 properties. Rents were substantially unchanged, down by 0.1% across the 43 assets, with the Victorian properties down 0.3%.
The court considered the two grounds upon which ALE contended that the valuer had erred and, among other things, and held that the valuer correctly interpreted and applied the valuation methodology.
There was no requirement in the valuation methodology to assess rental on the basis of a good average manager – although it was open to the valuer to do so if the valuer considered that was appropriate – the court found, while it also found that the valuer took into account a submission from the tenant relating to the tenant’s EBITDA information, which the valuer was not permitted to take into account.
Valuers deemed ALE’s portfolio to be 33% under-rented earlier this year. A 2018 market review had been capped and collared at 10% and ended in September last year. Uncapped rent reviews are scheduled for 2028.
The group has sold off eight assets for about $100 million recently, including the $15.66 million sale of the Tudor Inn Hotel in Melbourne’s south-east on a yield of 3.79%, and the Royal Exchange Hotel in Queensland for $14.05 million. The sales were struck at a 24.2% premium to book value.
ALE posted a $179.2 million full-year statutory profit, an increase of nearly $160 million on the previous year.
The record thirst for pubs over the past year, particularly in regional Australia where demand has increased by 135%, has pushed yields down further, according to Real Capital Analytics.
