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John Singleton and Geoff Dixon's pub fund sells three pubs for $47 million

Carolyn Cummins

In one of the last big deals for the year, good mates and businessmen Geoff Dixon and John Singleton have sold three iconic Sydney pubs as part of the divestment program by their $300 million Australian Pub Fund.

They are the Peakhurst Inn, Como Hotel and Bristol Arms Hotel in off-market transactions after multiple "compelling and unsolicited offers".

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Others pubs on the market owned by the fund, which was established by the duo in 2010 together with investment banker Mark Carnegie, include The Marlborough Hotel in Newtown, and Kinselas in Surry Hills.

They had a plan to buy up to 20 under-performing pub assets in prime locations and overhaul them to increase their value.

The deals mark the end of a very busy year for the pub sector where more than $800 million of assets have changed hands. According to agents, the demand comes from hospitality operators who see development potential through improved food offerings as patrons shun poker machines.

The largest of the three most recent sales was the Peakhurst Inn, which was sold for $22.5 million through  Andrew Jolliffe, Asia Pacific director of Ray White Hotels Australia. 

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The Como Hotel, in Sydney's Sutherland Shire, was sold for $5.6 million. The Oscars Hotel Group acquired both the Bristol Arms, for $19.5 million and the Como Hotel through JLL Hotels & Hospitality group national director John Musca. 

Mr Jolliffe said the Peakhurst Inn was acquired by JDA, controlled by John Feros. JDA recently sold the Tennyson Hotel in Mascot through Mr Jolliffe, to pub tsar Justin Hemmes, for a record auction price of $37.05 million.

Mr Jolliffe, who advised on the recent deal for the Clovelly Hotel with Solotel's Bruce Solomon and Matt Moran, with Daniel Dragicevich, national director, CBRE Hotels, believes the sale of the Peakhurst Inn indicates the continued market depth for A-grade freehold hotel assets.

"The off-market sale of the Peakhurst Inn is illustrative of an experienced hotelier buying and selling in the same market; a market that is still unable to satisfy the buy-side demand for quality freehold hospitality businesses in gateway east coast cities" Mr Jolliffe said.

Mr Musca also said the end to the year has been very busy, with JLL Hotels & Hospitality transacting five hotels in the week before Christmas worth nearly $100 million and also including the Lone Pine Tavern in Rooty Hill and others subject to confidentiality. 

Pub fund

During its ownership, the Australian Pub Fund transformed the Bristol Arms from being a two-day-a-week venue, famous for its Retro nightclub, into a highly successful, six-day trading, CBD pub, with a popular rooftop bar, while retaining the Retro-themed nightclub operating on the weekend.

"The assets demonstrated very different attributes with Como offering a range of operating or medium-term removal and redevelopment options and Bristol representing an exceptional piece of CBD real estate with extraordinary value-add and develop opportunities. We're excited to see Oscars Hotels'  next incarnation of that asset particularly," Mr Musca said.

Geoff Dixon, chairman of the Australian Pub Fund said he and Mr Singleton were "delighted with the prices we received".

"We were not actively marketing these three pubs for sale, but the prices offered for all three pubs were at capitalisation rates below 8 per cent and at these prices we decided the time was right to sell. The prices reflect the strong market demand for high-quality venues that are well managed," Mr Dixon said.

"As I have said previously, we are open to offers on all our venues, ultimately they are all for sale at the right price. These sales demonstrate that we will consider serious offers and will move quickly to meet buyers' timing requirements."

Mr Dixon added that the next hotels they will bring to the market will be Newtown's Marlborough Hotel, and Kinselas in Surry Hills; and these will both be marketed by Mr Jolliffe in an official sales program beginning in late January.

"Of the Marlborough and Kinselas, I expect the interest levels in both to be pronounced," Mr Jolliffe said.

"Over the past 18 months we've enjoyed the good fortune to manage the sale of in excess of 20 landmark hotels in Sydney and Brisbane, and the quality of purchaser profile for each has been a consistent theme.

"Fundamentally, purchasers in this market are better funded, better informed and better served by operational experience and competency; and these key factors underwrite our considered view that the prevailing market strength, and depth, will continue well beyond 2017."

Capital inflow

"Capital continues to find its way to the sector where a 400-500 basis point spread still exists between sustainable earnings and the cost of debt, an attractive proposition for not just experienced operators but increasingly syndicators as well," Mr Musca said.

"With over $800 million worth of hotels transacted nationally and in excess of half a billion of that in NSW alone, it's been the biggest transactional year for hotels since 2006, albeit in a far more attractive interest rate environment and with the entrance of new balance sheet representation among stakeholders now."

Daniel Dragicevich, the national director of CBRE Hotels said 2016 was a watershed year for transaction activity in the NSW pub market with several high-profile appointments executed successfully by CBRE Hotels, including the Keystone portfolio and a range of assets owned by Lantern Hotel Group.

"Along with strong metropolitan sales results, the prominence of coastal and regional asset sales throughout NSW also helped lift total transaction value in 2016 with some long-held private assets sold off," Mr Dragicevich said.

"As we look to 2017, we see no abatement of deal flow as market sentiment remains positive and the weight of capital fixated on the asset class increases. With the legislative and regulatory horizon relatively clear, market appetite for strong-performing pub assets will remain constant in the first half of 2017. We see stock levels being a contributing factor to deal volumes and the pricing ultimately achievable for assets 'in play'."

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