Governance Changes and Takeover Bid Cast Shadow Over HPI’s Growth Outlook

Strong Financial Performance Amidst Strategic Transition

Hotel Property Investments (HPI) has delivered a solid first half for FY25, maintaining a portfolio valued at approximately $1.26 billion and reporting a statutory profit of $16.7 million. This performance reflects operational resilience, with rental income rising 1.6% year-on-year and like-for-like rent growth of around 3.5%, despite the sale of some assets.

HPI’s adjusted funds from operations (AFFO) increased by 6.5% to $19.7 million, underpinning a 3.2% rise in distributions per security to 9.8 cents for the half-year. The company has upgraded its full-year distribution guidance to 19.7 cents per security, marking a 3.7% increase over FY24 and positioning HPI’s yield growth in the top quartile among its peers.

Governance Changes Amid Takeover Bid

The period has been marked by significant governance upheaval following the acquisition of a 76.75% stake in HPI by Charter Hall and Hostplus. This has prompted the resignation of key board members Lachlan Edwards and Anne Michaels, as well as CEO John White. In their place, David Harrison and Greg Paramor have joined the board, with Blair Strik appointed as acting CEO. An Independent Board Committee has been established to manage conflicts arising from the takeover offer, signaling a cautious approach to governance during this transition.

Portfolio Enhancements and Capital Management

HPI’s portfolio remains fully occupied, with 58 properties across key Australian markets including Queensland, South Australia, and Victoria. The company has actively pursued venue enhancements, completing refurbishments at the Berserker Tavern and Mile End Beer Garden, while commencing upgrades at Mango Hill and Everton Park hotels. Notably, the sale of the Hotel HQ for $34 million at a 5.5% cap rate has helped reduce gearing to 36.1%, at the lower end of HPI’s target range.

Capital management initiatives have included refinancing bank debt facilities to increase capacity by $100 million and diversify lenders, alongside executing interest rate swaps to manage exposure. These moves have lowered the all-in cost of debt to 5.39%, with 90% of debt now fixed, enhancing financial stability amid market uncertainties.

Strategic Outlook and Growth Levers

Looking ahead, HPI is focused on leveraging multiple growth drivers, including lease extensions that have pushed the weighted average lease expiry (WALE) to 9.2 years, and embedded rent review mechanisms capped at the lesser of twice CPI or 4%. The company is also exploring site intensification opportunities and asset recycling to optimize portfolio returns.

Exclusive due diligence is underway for potential acquisitions in Hervey Bay and Sydney, while development applications are progressing for several projects including Coomera Lodge and Boomerang Hotel. HPI’s strategy to blend secure income streams with embedded growth and capital recycling aims to sustain distribution growth and enhance shareholder value over the medium to long term.