Redcape ends a record-setting year in pub real estate with a bang, acquiring Hurstville’s Kings Head Tavern while divesting its Royal Hotel Granville for $51 million to the same party.
The ASX-listed Redcape Hotel Group (ASX: RDC) today announced a deal with hotelier and owner of AVS Security Pierre Sleiman to ‘exchange’ its Top30 corner pub in the Granville shopping precinct with the Kings Head in South Hurstville.
The transaction comes in at $51.0 million plus costs for the Royal, representing a 6.25 per cent premium to book value for the Group, which then pays $27.0 million for the Kings, in the growing south, around 20 kilometres from the CBD.
RDC has owned the Royal for 13 years, and having optimised capex at the venue sees limited future uplift for it to realise.
The deal effectively reduces RDC’s debt gearing to 35.6 per cent, at the bottom of target range, prompting it to suspend its Distribution Reinvestment Plan, and providing funding capacity of approximately $60-70 million for “pursuing additional acquisition or refurbishment opportunities”.
CEO Dan Brady reports operational performance has been strong and believes general market conditions remain favourable. The trade-down deal is emblematic of the strategy of portfolio optimisation by demonstrating RDC’s “continued focus on acquiring venues where we can increase value” through capex and enhancement.
The freehold going concern of the Kings Head is expected to benefit from significant capital investment and operational improvements.
“We are pleased with our progress in actively optimising the opportunities within our portfolio in the first half of FY20 and anticipate further activity will occur in the second half.
“The net sale proceeds will reduce borrowings, strengthen our balance sheet and provide the Group with significant debt capacity to pursue other growth opportunities.”
Sleiman’s purchase of the Royal is in line with plans in the area, the offices of AVS located on Parramatta Road at Granville, just across the train line. He is also proprietor of O’Malley’s Hotel in Woolloomooloo.
The Kings Head Tavern was acquired for $13 million in 2006, holding 27 gaming machines, multiple bars, bistro, beer garden and bottleshop. It is heavily pitched as a blue-collar pub, with weekly Topless Tuesdays and Thursdays.
Brady confirmed RDC won’t be continuing with the skimpies once it takes possession. Settlement is expected by March 2020.
Sleiman could not be contacted prior to publication.
