Redcape pub fund seeks $50m for two Mackay hotels

The previously ASX-listed fund, which owns and operates 35 hotels worth more than $1.4 billion, joined other unlisted property funds by freezing quarterly redemptions at the end of June for at least six months.

It told investors at the time that “economic uncertainty and deteriorating consumer confidence … has created volatility in venue performance”.

“To ensure the fund’s capital reserves are managed carefully and to support stability through this period of economic uncertainty, the directors of the responsible entity [Redcape Hotel Group Management] determined it is in the best interest of all unitholders to temporarily pause applications and withdrawals until conditions stabilise and the outlook becomes more certain,” Redcape said in a June quarter update.

At the time, Redcape received withdrawal requests totalling 6.5 per cent of the total units in the fund, worth about $45 million at a unit price of $1.70.

Redcape said more than 50 per cent of withdrawal requests were from just five investor/adviser groups.

It is understood the overwhelming majority of investors backed the decision to freeze redemptions to protect their quarterly distributions.

MA Financial, which owns 39 per cent of Redcape, delisted the fund from the ASX in September 2021 after an underwhelming three years as a listed entity in part to its heavy reliance on gaming revenues. The proposal to delist was backed by 95 per cent of shareholders that voted.

Investors then had the option of either transferring their shares to an open-ended unlisted fund or selling their shares back to the fund manager at $1.15 each through a $247 million buyback facility.

In the end, investors sold 126.5 million securities – about 28 per cent of the fund’s units – back to MA Financial for $145 million.

The offering of the two Mackay pubs follows Redcape selling the Aspley Hotel in Brisbane to a local operator for $10.5 million.

Chris Unger, head of MA Hotel Management, told The Australian Financial Review Redcape was “actively looking” at other assets to offload in an “orderly and measured process” as part of its efforts to manage the portfolio as well as its capital and liquidity requirements.

‘People are still buying a beer’

“It’s a good time to put assets on the market, and it gives us more optionality with our balance sheet,” Mr Unger said.

“We’re getting inbound inquiry on other assets, so we will look at trimming the portfolio a bit further.”

Operationally, Mr Unger said the group was “trading well relative to pre-COVID” though not at the same heightened levels of 2022, which was a watershed year for pubs as customers flooded back into venues.

“People are still buying a beer and coming into their local pub,” he said.

Redcape generated revenue of $384 million and operating earnings before interest, tax, depreciation and amortisation of $78.2 million over the year to June 2023.

This was higher than revenue of $335 million and earnings of $74.1 million reported in fiscal 2021, before Redcape delisted.

Its portfolio is made up of mostly NSW venues, many of them in western Sydney, and about half a dozen Queensland pubs.

The decision to sell the two Mackay hotels via a public campaign to be handled by HTL Property and JLL follows interest shown in both properties from investors, Mr Unger said.

HTL Property managing director Andrew Jolliffe said there was strong national interest in regional Queensland pubs, as shown by the $22 million sale of the Gracemere Hotel in Rockhampton to a NSW syndicate headed by well-known industry player Sean O’Hara,

The same syndicate also purchased Rockhampton’s Parkhurst Hotel for about $20 million.

”We’ve been fortunate to manage the sales of multiple Far North Queensland-based hotels to Sydney-based investors in the past month, indicating to us a robust transaction market for cross-border investment,” Mr Jolliffe said.