Hotel Property Investments (ASX:HPI) has announced that is has locked in longer term leases with Queensland Venue Company (QVC) for 28 of its venues.

QVC, a joint venture between Coles and the Australian Venue Company (AVC), currently leases the 28 hotels and retail liquor stores from HPI, however the new lease agreements commit the partnership for a further 15 years at 20 of the venues, and 10 years at the remaining eight venues. These deals were negotiated for leases that were set to expire in 2021.

Don Smith, CEO of HPI, said the new agreements solidify the relationship between the two companies, and allow them to each focus on their core competencies.

“AVC is a world-class hotel operator with a track record of success. They are experts in venue management and know how to deliver on community expectations of the modern pub. Similarly, Coles are equally well credentialed and currently operate the second largest retail liquor portfolio in Australia. We are thrilled to be able to extend our partnership with them both.”

The extended pub leases represent 57 per cent of HPI’s current passing income, and increases its WALE from 3.8 years to 11.8 years. However, in order to secure the stability of the longer-term leases, income from rent will take a slight hit. The rent will remain unchanged for the 20 venues that have had their leases extended by 15 years (3 x 5 years), but for the eight venues where the lease has only been extended by 10 years (2 x 5 years), the rent will be reset $3m lower than the passing rent as at June 2020. This new rent rate will come into effect on 1 July 2020.

Paul Waterson, CEO of AVC, was pleased with the long-term commitment to the partnership, and what it would mean for QVC’s operations.

“We are delighted with how our joint venture with Coles has progressed since its inception. Our strategy has always been to find the unique potential in each pub, bar or restaurant and make it shine. The sites acquired in our joint venture with Coles have proved to be strong operators in their own right and today’s announcement shows our continued long-term commitment to these venues’ success.”

Capex commitment

As part of the new lease agreements, HPI will contribute $30 million in capex over the next two years, for improvements to the 28 venues.

“The pubs and retail liquor stores in our portfolio are attractive assets with strong growth potential. With an injection of cash and the expert management of QVC we see our portfolio primed for growth,” Mr Smith said.

“The extended leases allow HPI to make these substantial capital investments with confidence. The capital expenditure program has been developed in conjunction with QVC to best maximise the quality and operational performance of each venue.”

Waterson said the capex would help the fledgling joint venture cement its presence in Queensland and allow venue managers to create first-rate experiences for their communities.

“Over the last 10 months AVC has been focused on giving these venue managers the tools and support to help them create amazing experiences for their customers. They benefit from having extensive operational and marketing support from our head office, whilst maintaining their unique venue identities specific to the local market.

“The additional investment in refurbishing and upgrading these sites will help accelerate growth in these businesses and we look forward to working closely with HPI and our venue managers to deliver outstanding results for our customers.”

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