Hotel Property Investments: Interim result 2016

In Hotel Property Investments: Result 2015 we noted that 'despite most of its properties being located in Queensland, which is still suffering from the mining downturn, we wouldn't be surprised if capitalisation rates fell given the competition for pubs, particularly those like HPI's which are leased to subsidiaries of Woolworths and Wesfarmers'.

This is precisely what happened in the six months to 31 Dec 15, with the average capitalisation rate for this pub owner falling from 7.42% to 7.28%.

The major cause of this reduction was the 15 Queensland properties that were independently valued in the half. Their capitalisation rates declined on average by 0.41%.

HPI's lower average capitalisation rate resulted in a $16m rise in the value of its property portfolio which, helped by the net addition of one pub compared to the prior corresponding period, is now valued at $580m. This contributed to HPI's net tangible assets (NTA) per share rising 11%, from $1.96 to $2.18, over the past year.

HPI is still working on obtaining an Australian Financial Services Licence (AFSL). If HPI is successful in this regard, this will allow it to internalise management and reduce its costs.

HPI shares are steady since Hotel Property Investments: Result 2015 (Hold — $2.55). Offering an unfranked distribution yield of 7.1%, we continue to recommend you HOLD.

Note: The Intelligent Investor Equity Income portfolio owns shares in Hotel Property Investments. You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.