Woolworths announces sale and leaseback of $603 million hotel property portfolio
Australian supermarket group Woolworths has announced the sale and leaseback by ALH Group Pty Ltd and a number of its wholly-owned subsidiaries (ALH Group) of a portfolio of 54 freehold properties to a Charter Hall Group led consortium for $603 million, reflecting a capitalisation rate of 6.8 per cent.
The ALH Group is 75 per cent owned by Woolworths and 25 per cent owned by the Bruce Mathieson Hotel Group and operates 329 venues and 545 retail liquor outlets across Australia.
Following expected completion of the transaction in October 2014, the ALH Group will continue to retain ongoing operational control of the hotels and co-located retail liquor stores comprising the portfolio through long-term leasehold arrangements.
The sale is one of the largest hotel portfolio sales in Australia’s history. Woolworths said the hotels were strong performing hotels spread across Australia, including iconic hotels such as the Croxton Park Hotel and Manhattan Hotel in Victoria, the Villa Noosa Hotel and Parkwood Tavern in Queensland, the Hyde Park Hotel in Western Australia and the Norwood Hotel in South Australia.
Woolworths said it would consider the most appropriate usage for the net sale proceeds, which may include a reduction in debt.
“The transaction is consistent with Woolworths’ Strategic Priority to act on our portfolio to maximise shareholder value,” said Grant O’Brien, Woolworths CEO.
“Woolworths’ and ALH’s preference is to enter into long term leases over its premises rather than holding property assets,” Mr O’Brien said. “Following completion of this transaction, Woolworths will have divested over $2.8 billion of property assets since 1 July 2010, including the creation of the Shopping Centres Australasia Property Group in December 2012,” he said.
Woolworths Hotels business FY14 results
The announcement of the sale and leaseback of the hotel properties comes after Woolworths announced that comparable sales in Woolworths Hotels business increased by 1 per cent in the 2014 financial year.
Woolworths said growth in its Hotels business had been impacted by subdued trading in Victoria and Queensland, where the majority of its hotels are located; a change to tax rates in Victoria applying to EGM revenue from 1 May 2014; and the impact during part of H2’14 of a legislative change limiting ATM withdrawals in gaming venues nationally.
Woolworths said the 2014 financial year CODB result was impacted by additional rental costs (net of depreciation savings) following property disposals in FY13 and leased sites acquired. However, Mr O’Brien said that the Hotels business’ EBIT result was “pleasing” in light of subdued trading conditions and the impact of regulatory changes.
“Hotels delivered a pleasing result despite regulatory changes and subdued trading conditions in Victoria and Queensland where the majority of hotel sites are located,” Mr O’Brien said. “We continued to deliver the initiatives that reinforce our focus on being Australia’s most responsible hotel operator,” he said.