Edwardes Lake Hotel. Image: Cropley Commercial, posted on realcommercial.com.au.
  • Edwardes Lake Hotel purchased for $28M
  • Another purchase is in the works, worth $7.9M
  • Portfolio now includes 56 properties

Hotel Property Investments (ASX: HPI) has recently entered into agreements to acquire Edwardes Lake Hotel.

Located towards the south-western corner of Edwardes Lake, the mixed-use complex is located in the suburb of Reservoir in Victoria, half an hour north of Melbourne’s CBD.

The consideration for the deal was $28 million, with HPI noting it is also in the advanced stages of a second acquisition, subject to final contract approvals; HPI expects the deal to be worth $7.9 million.

HPI will acquire a 100% freehold interest in the Edwardes Lake Hotel, reporting the yield as 5%; the property has a long-term triple net lease with fixed rental reviews of 2.5%, with the current lease expiring in March 2041 with two 20 year options.

“Edwardes Lake Hotel is a well-known pub located 12km from the Melbourne CBD on a large site of approximately 49,000sqm.

The property has a 19.4 year WALE, a triple net lease structure and favourable 2.5% fixed rental reviews which is consistent with our stated strategy of acquiring high quality properties in attractive markets.

Don Smith, HPI CEO

The major tenant of the property is The Francis Group, an industry-leading family-run hotel operator in Victoria with over 30 years of experience and an existing tenant in the HPI portfolio.

In other news, HPI said it is also undertaking a lease harmonisation program involving a $38.8 million payment to its major tenant, Queensland Venue Company (QVC), to standardise leases across HPI’s portfolio with the investment to be realised.

Hotel Property Investments explained that the Lease Harmonisation involves a payment to QVC of $38.8 million to further standardise lease agreements across HPI’s portfolio resulting in a greater majority of gaming entitlements reverting to HPI at lease expiry.

“After the Lease Harmonisation, HPI will earn $1.7 million of incremental rental income growing in accordance with the underlying lease review mechanism, predominantly the lower of 2 x CPI or 4% (63% of additional rent),” said HPI, in a statement.

Portfolio Impacts

Current Acquisitions Pro forma
Investment properties value $952.6m $74.7m $1,027.3m
Number of properties 54 2 56
Weighted average capitalisation rate 5.90% 4.80% 5.90%
Weighted average hotel lease expiry 10.9 years 19.4 years 11.3 years
Hotel occupancy 100% 100% 100%

The company will also undertake a fully underwritten institutional placement to raise $50.0 million to partially fund the acquisitions and associated transaction costs in conjunction with existing debt facilities.

Today, the placement was announced as successfully completed. The company said there was strong demand from both existing HPI security holders and new investors.

The new securities were issued at $3.40 per security.

HPI also announced today, that it is undertaking a security purchase plan to raise up to $10 million, which will not be underwritten.

Under the plan, eligible security holders in Australia and New Zealand will be invited to subscribe for up to $30,000 in additional securities, free of any brokerage or transaction costs, at the Issue Price of $3.40 per security, which is the same as the Placement price.

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