Takeover Costs Weigh on HPI as Charter Hall and Hostplus Secure 76.75% Stake

Solid Financial Performance Amid Market Challenges

Hotel Property Investments (HPI) has delivered a strong financial result for the half-year ended 31 December 2024, reporting a profit after tax of A$16.7 million. This represents a significant uplift from the A$9.5 million recorded in the prior corresponding period, underscoring resilience in its core pub property portfolio despite ongoing market uncertainties.

The increase in profitability was underpinned by a 1.77% rise in rent revenue to A$37.1 million, reflecting annual rent escalations across the portfolio. This growth was partially offset by rental income foregone due to asset sales during the fiscal year. Notably, fair value adjustments to investment properties swung positively by 195.83%, with a gain of A$7.8 million reversing prior period losses and signaling improved market valuations.

Distribution and Capital Management

HPI declared an interim distribution of 3.3 cents per stapled security, adding to the 6.5 cents per security paid in November 2024, bringing the total distribution for the half-year to 9.8 cents. This distribution aligns with the company’s commitment to pay out 100% of its Adjusted Funds From Operations (AFFO), which stood at A$19.7 million after adjustments for maintenance capital expenditure and non-cash items.

Despite a slight decrease in net tangible assets per security to $3.99 from $4.01, the trust maintains a robust balance sheet with net assets of A$784.2 million and a portfolio valued at approximately A$1.26 billion. The weighted average lease expiry remains stable at 9.2 years, supporting income visibility.

Takeover Offers and Strategic Outlook

The period was marked by significant corporate activity, with Charter Hall Retail REIT and Hostplus launching an off-market takeover offer for HPI securities. As of early February 2025, the bidders have secured a 76.75% stake, with the HPI board recommending acceptance of the offer. The takeover has introduced A$8.5 million in defence-related costs, impacting reported profits but reflecting the high stakes involved.

Looking ahead, the new majority owners have signalled intentions to replace directors, potentially externalise management, and conduct a strategic review that may include delisting from the ASX. These developments inject a degree of uncertainty but also potential for portfolio optimisation and capital management initiatives.

Portfolio and Operational Highlights

HPI’s portfolio remains concentrated in freehold pubs predominantly in Queensland, with 58 properties under management. The company continues to pursue growth through venue enhancements, active portfolio management, and site intensification, including exploring alternative uses such as quick service restaurants and EV charging stations. Capital expenditure commitments remain in place to support these initiatives.

Financially, HPI’s debt profile is well-structured, with total borrowings of A$458.7 million drawn against facilities of A$615 million. The majority of debt is fixed rate, mitigating interest rate risk amid a rising rate environment. The weighted average debt maturity of just over three years provides a manageable refinancing horizon.

Governance and Market Position

Governance changes are underway with several board resignations effective February 2025 and new appointments announced, reflecting the evolving ownership structure. The company maintains a focus on environmental, social, and governance (ESG) responsibilities, with systems in place to manage compliance and sustainability risks.

Overall, HPI’s half-year results demonstrate operational strength and financial discipline, even as it navigates the complexities of a major takeover bid. The company’s strategic focus on secure income from community-centric assets positions it well for the medium term, though investors will be watching closely how the ownership transition unfolds.