Hotel Property Investments: Hotel harmony

About the author:

Fiona Buchanan
Author name:
By Fiona Buchanan
Job title:
Co-Head of Research, Senior Analyst
Date posted:
22 September 2021, 8:00 AM
Sectors Covered:
Property, AREITS

  • HPI has announced further acquisitions, a lease harmonisation program and a capital raising.
  • FY22 DPS guidance is unchanged at 20.5c which equates to a yield of 6.2%.
  • We retain an Add rating with a revised price target of (login to view).

Acquisitions, lease harmonisation and capital raising

HPI has entered into an agreement to acquire a freehold mixed use complex (The Edwardes Lake Hotel) for $28m (5.0% cap rate) and is in advanced negotiations on a second acquisition for $7.9m (5.4% cap rate).

HPI has also announced a ‘lease harmonisation’ which involves a payment of $38.8m (4.5% rental yield) to its major tenant QVC.

To partially fund the acquisitions HPI has completed an underwritten institutional placement raising $50m at $3.40 and has launched an SPP to raise up to $10m (opens 22 September and closes on 13 October).

FY22 DPS guidance remains unchanged at 20.5c.


Acquisitions - The Edwardes Lake Hotel is located in Reservoir which is 12km from the Melbourne CBD. It sits on a 49,000sqm site and is being acquired from existing tenant Francis Group (the ongoing operator).

The asset has a 19.4 year WALE (2x20 year option); triple net lease structure; and 2.5% fixed rental reviews. The second potential acquisition HPI has flagged has a 20 year WALE. Both assets are 100% occupied.

The portfolio is now valued at +$1bn across 56 assets (majority leased to QVC/AVC). Metric remain solid: WALE 11.3 years; WACR 5.9%; 100% occupancy.

Lease harmonisation - HPI will pay $38.8m to its major tenant QVC for 249 gaming licences (4.5% rental yield with a reviews comprising the lower of CPIx2 or 4%). Prior to this transaction, HPI owned 1,684 gaming licences which now increases to 1,933 (vs a total of 2,031 across the portfolio).

This standardises the lease agreements across HPI’s portfolio resulting in a greater majority of gaming entitlements reverting to HPI at lease expiry (standard lease structure detailed overleaf).

Post the above transactions, gearing stands at 37.8%. We note existing debt facilities of $30.2m have also been used.

NTA is $3.28 vs $3.30 at June 2021. 

Forecast and valuation update

We adjust our forecasts for the two acquisitions, lease harmonisation and placement. FY22 DPS guidance of 20.5c remains unchanged.

Following changes, our blended DCF/NAV valuation moves to (login to view) based on a 5.9% cap rate.

Investment view

HPI is an internally managed REIT with exposure to pub and accommodation assets. It has minimal near-term leasing risk with a long-term weighted average lease expiry profile. The portfolio remains weighted towards QLD assets.

Based on FY22 DPS guidance of 20.5c, HPI offers a distribution yield of +6%.

Price catalysts

Key catalysts include accretive acquisitions (HPI has a strong relationship with its main tenant QVC/AVC); M&A; and asset revaluations.


Key downside risks relate to any potential regulatory changes that could negatively impact property valuations or JV strategy; non-renewal of leases; and unknown COVID impacts on the key tenant.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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