Takeover Looms as HPI Reports Solid Profit and Extends Debt Maturities

Strong Financial Performance Amid Market Stability

Hotel Property Investments (ASX: HPI) has delivered a robust first half for fiscal year 2025, posting a statutory profit of $16.7 million. This result reflects steady operational performance, underpinned by a 1.6% increase in rental income to $37.1 million, driven by contracted rent rises averaging 3.5% across its pub portfolio.

Despite the sale of several assets during FY24 and FY25, which trimmed rental income, HPI managed to grow its Adjusted Funds From Operations (AFFO) by 6.5% to $19.7 million. This improvement was largely attributed to interest cost savings following a strategic refinancing of its debt facilities.

Distribution Growth and Capital Management

HPI declared a final distribution of 3.3 cents per stapled security for the two months ending December 31, 2024, contributing to a total half-year distribution of 9.8 cents, a 3.2% increase over the previous corresponding period. The company reaffirmed its full-year distribution guidance at 19.7 cents per security, signaling confidence in its cash flow stability.

Notably, the Distribution Reinvestment Plan (DRP) was suspended for the December 2024 distribution, a move that may reflect management’s cautious capital allocation amid ongoing market uncertainties.

Debt Refinancing Strengthens Financial Position

During the period, HPI refinanced its Common Terms Deed debt facilities, securing an additional $100 million in debt capacity. This capital was earmarked for repaying a US Private Placement Note maturing in August 2025. The refinancing also extended the debt maturity profile, diversified lender relationships, and reduced overall borrowing costs.

As of December 31, 2024, HPI’s weighted average debt tenor stood at 3.1 years with an average cost of debt at 5.17%. Impressively, nearly 89% of the debt is fixed rate, insulating the company from interest rate volatility in the near term.

Portfolio Valuation and Market Position

The investment property portfolio was valued at $1.2237 billion, with an average capitalization rate of 5.61%, slightly up from 5.53% in June 2023. Seventeen of the 58 properties were externally valued at the half-year mark, underscoring the portfolio’s resilience despite modest cap rate expansion.

Occupancy remains at 100% leased for hotels, with a weighted average lease expiry (WALE) of 9.2 years, providing long-term income visibility. The sale of Hotel HQ in Underwood, Queensland, for $34 million in July 2024, was a notable transaction that contributed to portfolio optimization.

Strategic Developments and Takeover Progress

On the corporate front, the HPI Board has recommended acceptance of the Charter Hall and Hostplus takeover offer, with the bidders having secured 76.75% of securities as of early February 2025. This majority stake acquisition could herald significant changes in governance and strategic direction, although the full implications remain to be seen.

Meanwhile, the company incurred $8.5 million in takeover defence costs during the period, reflecting the contested nature of the bid and the board’s efforts to protect shareholder value.