By Andrew Starke
The Redcape Property Fund’s executive chairman Colin Henson has warned investors that the pub group still has a way to go before it will be able to restore profitability and distributions to security holders.
Formerly the Hedley Leisure and Gaming Property Fund, the entity’s survival has been in the hands of a banking syndicate for much of the past 18 months as it attempts to service debt.
“In many ways the 2010 Financial Year was as difficult as 2009 for the Redcape Property Fund,” said Henson at the company’s recent AGM.
“At the 2009 Annual General Meeting we reported on the serious adverse impact to the Redcape Property Fund arising from the world financial collapse and its devastating effect on international and domestic property values.”
Over the past financial year the Redcape board and management has had to deal with the receivership and administration of companies associated with Tom Hedley, the group’s major shareholder, and a breach by Redcape of its banking covenants.
“We dealt with each one of these critical issues and I am pleased to report that although Redcape has quite a way to go before it will be able to restore profitability and distributions to security holders, at least the efforts and achievements over the last 18 months have given Redcape an opportunity to survive and build value from its current base,” said Henson.
“It is expected that Redcape’s normal operations will continue in line with expectations during the current financial year, including meeting all of its obligations to it bank syndicate. Asset sales will continue and consequently the balance of the bank loans will be reduced.
“Although the costs associated with the bank debt is a serious negative to Redcape, with the bank facility in place until October 2012, Redcape has the opportunity to significantly reduce its debt by the sale of pubs, and other capital management solutions.
In this respect management is receiving regular enquiries, particularly from smart operators wishing to buy quality pubs at competitive prices, and is working with its key advisors in respect of alternative capital solutions.
“Many indicative proposals for the sale of a quantity of pubs in one line have been presented to Redcape over the last 12 months. Most of these however are from purchasers seeking to acquire pubs at a substantial discount to the written down book value.
“Given that sales to date have been achieved at an average of 6 percent above book value, there seems little sense in pursuing sales below recent independent valuations.
“It should be noted that many sales to date have been to pub industry professionals who are aware of value.”
The group recently sold the Kirra Hotel, Kirra Beach, Queensland for $15 million, which it claimed is equal to book value as at June 30, 2010.
In November Redcape announced the sale of the Mountain Yorkeys Knob Bottle Shop, Queensland for $500,000.