Redcape bullish on pubs sector despite tougher times
Redcape CEO Dan Brady at the Byron Beach Hotel.
Privatised pubs business Redcape Hotel Group expects the hotel sector to remain resilient in the face of rising rates and patrons having less to spend.
After a buoyant few years for hoteliers despite the challenges of Covid lockdowns and restrictions, Redcape chief executive Dan Brady believes the next hurdle of inflation will be easy to overcome.
Many of the owner-operator’s 36 locations are positioned in suburban areas which Mr Brady believes will offer a cheaper entertainment option for local patrons.
“In a higher inflation environment, these assets actually lend themselves better to still have an entertainment purchase point and value proposition,” he said. “In localised suburban urban areas, in particular, this form of entertainment becomes more affordable and more frequented and other forms of entertainment tend to fall away.”
Redcape was delisted from the ASX last August after five years, with management arguing the portfolio – currently worth an estimated $1.44bn – had been undervalued by the market for a prolonged period.
The business was delisted by MA Financial at $1.15 per share after a lacklustre run on the sharemarket and the value of its portfolio has since lifted to about $1.65 per share,
Popular north shore hangout The Oaks Hotel is heading to the market for the first time in more than 50 years, with a price tag set to fetch more than $175m.
On a like-for-like basis, total revenue for the quarter increased by 13.2 per cent over the June quarter last year. Redcape cited a combination of strong trading results and continued investor demand for hotel assets as boosting its portfolio.
Mr Brady said moving from the volatility of the listed market had been beneficial for the business and investors alike, with the focus now on an accelerated growth strategy over the coming five years. “Over the last five years, we’ve moved from around $650m in an enterprise value to around $2bn. That’s been largely driven from organic growth through earnings, with very little capital raising,” he said.
“Both the trading conditions and also the transactional environment are both strong and there’s good evidence of transactions taking place,” Mr Brady said. “It’s still very healthy.”
“Potentially, cap rates may have levelled out at this point in time … (but) earnings continue to grow, which then feeds itself to improve valuations and improved performance. There’s more to go, but there’s more to go sustainably.”
Mr Brady said that Redcape – which has 36 assets under management – is keeping an eye on opportunities in the market after offloading Minskys Hotel in Cremorne for $39m in May on a 3.9 per cent yield. But he did rule out making a play for the nearby The Oaks Hotel, which came on the market in Neutral Bay for $175m last week after 50 years of Thomas family ownership.
