Westbridge expands hospitality footprint in second leasing collaboration with AVC

There is something quintessentially Australian about a great pub. What’s less well-known is that pubs and hospitality venues can also be rewarding investments.

This has been a key driver for Westbridge’s investment in several hospitality venues across a number of our property funds. In the process, our team is forging valuable working relationships that ultimately benefit our investors.

Expanding our hospitality footprint

Earlier this year, our commercial funds division entered into a contract to acquire the Hampstead Hotel and a standalone First Choice Liquor in Collinswood SA to seed the Westbridge Total Return Fund.

The impending acquisition marks our third expansion into the Australian pub sector, and our second tenancy collaboration with Australian Venue Co. – this time under their joint venture with Coles Group, Queensland Venue Co.

It follows our acquisition of Cobbler’s Tavern in Falcon, Mandurah (WA) earlier in 2022 as part of our strategy for the MPF Diversified Fund No.2 portfolio.

The acquisition saw our team negotiate a new 12-year lease with the national venue operator – a move set to maximise the value of both the Tavern and the adjoining First Choice Liquor already held in the Fund.

A strong tenancy partnership

Damian Collins, our Chairman at Westbridge Funds Management, explains, “The Australian pub and hospitality sector is currently experiencing a transitional phase with the emergence of several dominant corporate operators.

“Australian Venue Co. (AVC) is the second largest operator of pubs, bars and venues across Australia, with over 200 hotels nationally. This brings a reliable, blue-chip income stream for the hospitality assets held by our funds.

Damian adds, “By establishing a solid professional relationship with AVC, we have been able to work together to develop strategies that improve outcomes for both AVC as tenants and our Westbridge investors.”

As part of the value-add strategy for the Total Return Fund, the Westbridge acquisition team has worked with AVC and entered into an agreement to undertake a capital works upgrade to the Hampstead Hotel, including the addition of a new beer garden.

Subject to these works, Australian Venue Co. has agreed to commit to the property for a further 10-year term, taking the weighted average lease expiry (WALE) of the asset to 16 years.

Pubs and hospitality venues an attractive addition

Tenancy relationships aside, pub and hotel venues can form an attractive portfolio addition from an acquisition and leasing standpoint.

While hospitality venues rely on discretionary spending, pub revenues have historically proved to be resilient – even during times of broader economic uncertainty.

Simon Worth, our Head of Capital Transactions at Westbridge, explains, “Pubs and hospitality assets can act as a hedge against inflation as they are cash-generating businesses, and steady demand means the impact of rising costs can be passed more easily to the consumer.

“Pubs also benefit from a diversified revenue stream that blends food and beverages, and in some cases live entertainment,” he adds. “And an ancillary bottle store can add even more depth and value to this offering.”

Favourable fundamentals

Post-COVID, pubs have attracted considerable investor interest, with a record $2 billion-plus of venues changing hands in 2021 as institutional and private investors are attracted to favourable fundamentals.

“More often than not, pubs are located on high street or arterial road locations, which can see the underlying land represent a significant proportion of overall investment value,” Simon explains.

“Strict regulatory guidelines across all Australian states and territories also make it difficult to obtain new liquor licenses which, coupled with a scarcity of sites earmarked for pubs and ‘big-box’ liquor retailing, can support tenant retention.”

Damian concludes, “These favourable investment fundamentals, supported by a strong national tenant like Australian Venue Co., can make for a very valuable addition to a diversified property portfolio.”