Regional pubs roll-up Harvest Hotels combines two funds; preps exit
Harvest Hotels, owner of large-format regional pubs like The Courthouse Hotel in Tamworth and Brady’s Railway Hotel in Albury, has begun early preparations to exit eight assets worth $220 million in a platform deal.
The Windsor Castle Hotel is the biggest property in the combined portfolio.
Street Talk understands Harvest Hotels is merging its first two funds – launched in 2019 and 2021 – to build a bigger portfolio better suited to attracting prospective buyers. Its recent, Adelaide-focused, fund would remain separate.
It’s the first step in what should be an exit down the line, but Harvest want to pin down a few more acquisitions – where it sees pubs available to 9 per cent cap rates – and implement a capital works program before it starts to look for buyers seriously.
In tandem with the consolidation, it has put a small $15 million raise to investors. Prospective backers are being told to think of a liquidity event within 36 months, and circa 19 per cent IRR to exit peppered with quarterly cash distributions of 6 per cent to 7.5 per cent during the wait.
The portfolio would include Tamworth’s Courthouse Hotel, Wagga Wagga’s The William Farrer and The Victoria Hotel, East Maitland’s The Windsor Castle, The Woy Woy Hotel and Albury’s The Northside Hotel and Brady’s Railway Hotel. The Windsor Castle is the biggest of the lot, and set a record when Harvest Hotels paid $50.5 million for it last year.
Put together, the eight pubs are expected to make about $70 million revenue this financial year, up from $59 million in the 2023 financial year. Nearly half of this comes from the bar and kitchen, followed by gaming and bottle shops. It expects to lift EBITDA margins to 24 per cent by June 30.
The pubs’ valuations have grown significantly too – as an example Harvest paid $9.6 million for Brady’s Hotel in December 2020 and has just had it valued at $26 million after squeezing out operational improvements.
Of the current portfolio, three hotels are marked for capital works while one – The Milestone Hotel in Dubbo – has just been put up for sale via JLL.
Harvest Hotels has been around since 2014 and was founded by former pub operators Chris Cornforth and Fraser Haughton. It buys pubs from existing owners, including families, and makes improvements. It also runs their day-to-day operations, using a slice of the profits to pay a quarterly distribution to the investors.
Its investment committee includes former JPMorgan managing director Rob Nankivell, long-time publican Tony Catalano, Pitcher Partners’ Sydney boss Charlie Viola and corporate adviser Craig Hughes.
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