Recent CBD closures won't stop the ALE flowing

The listed property sector got through the recent 'Brexit' sell-off relativley unscathed. While the ASX 200 has fallen almost 6% in the last month, the S&P/ASX 200 A-REIT Index has actually increased almost 1%.

This isn't surprising as Australian real estate dominates the balance sheets of most of Australia's listed property sector. Also, with an average distribution yield of around 5% underpinned by strong leases, the listed property sector is an obvious target for investors keen to generate reliable income.

The strength of the listed property sector suggests that there may indeed be some safety in bricks and mortar. However, the old real estate maxim of ‘location, location, location' appears to be a big factor for at least the listed pub owners.

Despite owning well known and popular bars and restaurants in the Sydney CBD, such as Cargo Bar and Jamie Oliver-linked Jamie's Italian restaurants, the unlisted Keystone Group has been placed into receivership after failing to renegotiate its debt.

The reason management gave for the company's struggles was Sydney's controversial lockout laws — which supporters claim is the reason for a sharp drop in assaults on Sydney's streets and critics blame for many iconic Sydney nightlife venues closing for good. It's also rumoured that some pub owners have reconsidered potential floats onto the ASX as a result of the laws.

It's a different story for our Equity Income Portfolio, where our holdings in pub-owners ALE Property Group (ASX:LEP) and Hotel Property Investments (ASX:HPI) have returned 106% and 47% respectively.

There are some differences of course. Whilst Keystone Group operated its venues, ALE and HPI are landlords who lease their venues to others such as Coles and Woolworths-backed ALH Group. Their only revenue comes from rent and long-term leases, which means they're largely unaffected by swings in the pubs' operational performance.

Another difference is that whilst ALE owns properties in Sydney, they're in outer-metropolitan suburbs such as Crows Nest, Manly, Narrabeen and Penrith, rather than the ‘Sydney CBD Entertainment Precinct'.

These outer suburban venues have been booming as many revellers ignore the CBD and visit their local venues or head to new go-to entertainment areas in Newtown and Balmain. Further evidence can be found in last year's $50m purchase of the Northern Beaches' Newport Arms by Merivale Group, the owner-operator of some of Sydney's biggest venues.

Note: The Intelligent Investor Equity Income Portfolio owns securities in ALE Property and HPI. You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.