The final steps to a Redcape IPO have begun, with the owner-operator model being touted as the key to potential.
Redcape Hotel Group lists operations in 22 hotels in New South Wales and three in Queensland, overwhelmingly demonstrating a focus on gaming (see venue rankings below).
The Group is owned by York Capital and Värde Partners, which purchased it in a fire-sale scenario in conjunction with New York finance giant Goldman Sachs, following massive LVR failings in the wake of the GFC.
The then-listed company was acquired at the same time as its operating partner, the similarly troubled National Leisure & Gaming, and their assets were amalgamated.
In late 2013, York and Värde spun off Hotel Property Investments (HPI) in an IPO, offering up landlord to 41 pubs and seven bottle shops, leased to Coles’ Spirit Hotels. HPI has seen its share value rise around 35 per cent since its listing on the ASX.
But the prospects for the remaining Redcape portfolio could be quite different, as its track record with optimising venues in gaming-centric precincts brings greater control in growth potential.
Redcape has been ‘fine-tuning’ out of venues that don’t fit its operations model, including some that are inconveniently remote as well as some possibly not bringing enough potential in gaming or other revenue streams.
Similarly, it has taken on some new acquisitions including the top-20 ranked Crown Hotel in Revesby for $30 million in February, which was its largest purchase to date.
Advisors UBS and JPMorgan are handling the Redcape IPO, and are expected to launch a book-build this month ahead of the August reporting season, when fund managers focus on companies’ growth.
JPMorgan valued Redcape at $532-604 million, representing around 5.5 per cent yield and an implied 17-times valuation on the FY16 forecast of EBITDA $47.6 million, net profit of $34.5 million.
Redcape predicts 64 per cent of its revenue next year will come from gaming, and has exercised an aggressive and systematic re-modelling campaign in its venues, largely to optimise this.
The size of the IPO is yet to be announced, and dictated by the share York and Värde decide to retain, which could be as much as 20 per cent. They have entertained offers from other investment banks for a share of the lead manager role.
The Australian Financial Review reports the IPO could begin as soon as next month, with positive reactions from investors during talks over the past few weeks.
Redcape NSW venues and their place on the OLGR list of top gaming venues:
