After seven premium sales, high-profile pub operators Redcape have not ruled out further adjustments to the asset sheet.
The Moelis-managed fund has continued its strategic divestment initiative, which sees another three this week, with Redcape saying all buyers were long-term industry participants, who have “been through the cycles and continue to see long term value in the sector”.
In July the company began letting the word out that some of its prized 35 hotels would be sold off, in August listing both the Shamrock and The Grove hotels in Mackay.
This came in the wake of Moelis freezing shareholder redemptions, as the gaming-centric valuations struggled. What has followed is a mix of on- and off-market deals, where buyers have largely approached the group with offers to purchase select properties.
Four sold recently are the Aspley Hotel in Brisbane, the Grove Hotel in Mackay, the Shafston Hotel in East Brisbane and the Central Hotel in Shellharbour.
The latest see the Mount Annan Hotel sold for north of $50 million, and both the Eastern Creek Tavern in western Sydney and the Unanderra Hotel in Wollongong passed on.
Tony Falcone, principal and founder at family-owned FAL Hospitality and FAL Construction, has taken the keys at Eastern Creek for around $20 million, with Redcape having reported sale of the two Sydney pubs generating more than $70 million combined.
The Eastern Creek counts 22 egms, generating rank with Liquor & Gaming of #258.
Falcone’s FAL Hospitality already holds the proximate Red Cow Hotel of Penrith, as well as the Office and Haymarket hotels in the Sydney CBD. His construction entity has done a number of large projects, including residential developments.
The off-market deal was brokered by HTL Property’s Sam Handy and Andrew Jolliffe, who suggest the family group “identified a strategic imperative” that resulted in the acquisition.
Redcape purchased both the Central and Unanderra Hotels from Denfish in late 2018.
Unanderra counts 26 gaming machine entitlements, ranking #337, 3am trading approval and 14 underutilised accommodation rooms, generating over $130k in weekly revenue across departments.
A sale was brokered for $14.5 million by JLL Hotels’ John Musca and Ben McDonald to the Gravanis brothers’ Oscars Hotel Group, which already has significant interests in Wollongong and the south coast and saw it as an “unmissable opportunity” to gain operational synergies.
Unanderra is a growing suburb of Wollongong, around six kilometres south of the CBD or 90 south of Sydney. The Hotel occupies a lot of approximately 4,000sqm in the centre of town, with scope for longer-term site optimisation.
In 2021 the group sold the nearby Five Islands Hotel, and the new acquisition demonstrates their commitment to the region.
Amid a flurry of off-market deals, agents report price discovery has been a key theme of 2023, but the market may be normalising again, in light of a reduction in “bid-ask spreads”.
Redcape’s recent divestment program has now exceeded $150 million, across sale of seven hotels within five months, which represents over 10 per cent of the group’s original $1.4 billion portfolio.
Feeling the pressure of higher borrowing costs, an investor update this week stipulated that lenders required Redcape to execute a “partial reduction” in its liabilities as it looks to refinance $250 million of debt, due late 2024. MA Hotel Management believes there is now ample liquidity to meet the lender requirement.
This has been bolstered by the group reporting “improved trading dynamics” across the portfolio, as hospitality maintains its appeal for patrons.
“This combination supports our confidence in the sector and positions the Fund well for investment in further growth initiatives and a sustainable reinstatement of the Fund’s liquidity facility in due course,” CEO Chris Unger offered in a statement.
Responding to questions from PubTIC, Unger reports they were pleased to see “a premium to director’s valuations” on the sales, in the current market, although the level of ‘premium’ was not provided, and further divestments remain an option as required.
“We feel that with the seven venues now contracted to be sold, we have gone a long way to providing the balance sheet strength we were aiming for,” responded Unger.
“That said, with the quality of hotels in the Fund and strong fundamentals of the sector, we regularly field interest in our assets.
“As we have done in the past, we will consider divestment if required to meet our liquidity objectives or as a way to recycle capital into higher yielding opportunities.”