Investors to get opportunity to own Coles’ pubs

According to a report in the Australian Financial Review, Redcape Hotel Group, which owns around 55 pubs leased to the Coles group – owned by Wesfarmers (ASX: WES) – is planning to float the pub portfolio via an initial public offering.

A listing of the Redcape portfolio will add to an increasing number of property plays investors now have access too that are backed by leases to retailing giants Wesfarmers and Woolworths (ASX: WOW).

Within the pub space, the closest comparison to Redcape is the $540 million ALE Property Group (ASX: LEP). ALE is Australia’s largest listed freehold owner of pubs, owning around 90 pubs, all of which are leased to a joint venture between Woolworths and the Bruce Mathieson Group. As the chart below shows, the ALE pub portfolio has delivered a market beating performance for investors over the past 10 years, returning nearly 165% compared with a 61.5% return from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). This market beating performance is sure to help entice investors to Redcape’s portfolio.


Source: Google Finance

Apart from pubs, there are two other ways to gain exposure to Woolworths’ and Wesfarmers’ underlying property requirements. The Bunnings home improvement retail chain leases a significant number of its stores from the $1.4 billion BWP Trust (ASX: BWP), while Woolworths leases a number of its supermarket sites from the recently listed Shopping Centres Australasia Property Group (ASX: SCP).

Foolish takeaway

The appeal of buying into a portfolio of pub assets is understandable given the overall defensive nature of the pub industry. While the ‘devil is in the detail’ when it comes to assessing the longevity of leases and financing arrangements, the fact that the portfolio is backed by such a major tenant as Coles certainly adds to the investment case for the upcoming Redcape float.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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