Redcape sells $136m trio of pubs as market bounces back

The pub company is selling the hotels to well-known buyers in a sign values have stabilised and more deals are in the wings.

Hotel company Redcape has sold three high-profile pubs in Sydney for $136m in a sign the pub market is coming back as deep-pocketed investors are targeting large properties.

The company has sold the Kings Head Tavern in Hurstville, the Australian Brewery in Rouse Hill and the Eastwood Hotel in Eastwood in a series of separate deals which mark the largest transaction this year in the sector.

Values have come under pressure as interest rates have risen and boomtime consumer spending pulled back, but pubs are proving their resilience even as the economy cools down.

The pubs have been split between the newly-formed, but experienced, Sonnel Hospitality, which bought the Australian Brewery and the Eastwood, and the Melbourne-based Francis Venues, which picked up the Kings Head Tavern.

Sonnel Hospitality is understood to have paid about $105m for the two properties, accounting for the bulk of the buying which experts said marked the normalisation of the pub market.

Sonnel Hospitality is the newly-branded hospitality arm of the Nelson Meers Group, developed to drive the company’s investment in hospitality, in which it has a long history.

The sale also leaves the vendor well-positioned, as they were sold in line with book value, generating a blended yield in the 7-7.5 per cent range.

Francis Venues has purchased the Kings Head Tavern.

Redcape said the move was in line with its strategy of actively managing the portfolio. “At this point in the economic and real estate cycle, there is an opportunity to rebalance the portfolio with the objective of increasing fund earnings and further diversifying the fund’s revenue streams,” it told investors.

“This strategic move is part of Redcape’s active portfolio management strategy, aimed at enhancing fund earnings and returns for investors. We will now look to redeploy this capital into new assets that enable us to continue to build on our strong returns track record. We wish the purchasers well; they’ve picked up three great community pubs,“ Redcape managing director, Chris Unger, said.

Redcape has been active and put the proceeds of its recent sale of the Crescent Hotel in Fairfield, sold on a similar yield range, into the acquisition of The Criterion Hotel, a leasehold hotel in Sydney’s CBD adjacent to the City Town Hall on a yield of about 15 per cent.

The pub company said it was now investigating other opportunities presenting similar metrics as it aimed to increase earnings and distributions in the near term.

The sales were handled by HTL Property.

“Collectively, these three hotels represent a diverse mix of business styles, from very large format suburban in the form of the simply huge Australian Brewery in Sydney’s burgeoning North West corridor, to high street mature suburb community focus points in the form of both the Kings Head and Eastwood hotels,” HTL Property director, Dan Dragicevich, said. “However individually, all three accurately reflect the key fundamentals exhibited by AAA-grade hospitality indexed commercial property holdings, and accordingly continue to be highly sought after investment vehicles.”

HTL Property managing director Andrew Jolliffe said the “material sale” of the Redcape pubs highlights “the sharply improved market confidence throughout the constellation of pub sector investors nationally”.

Mr Jolliffe said experienced investors were active in the market with recent transactions involving groups such as private equity real estate group PAG and the billionaire Laundy family showing they had acquisition strategies.