Moelis Australia snaps up Redcape Hotel Group's pubs for $677 million

Leading hospitality group Redcape Hotel Group and its 25 pubs have been bought by a Moelis Australia managed fund in a $677 million deal, as it prepares for a public float of its pub fund.

The deal to acquire Redcape and its 25 pubs in NSW and Queensland from US hedge fund owners Varde Partners and York Capital comes at a time when pub values are rising, according to The Australian Financial Review.

Moelis Australia CEO Andrew Pridham said the plan was to float the pub fund in 12 to 18 months.

Most of the Redcape portfolio is in Sydney and includes the El Cortez Hotel in Canley Heights, Minsky's Hotel in Cremorne, the Willoughby Hotel in Willoughby North and the Eastwood Hotel in the eastern suburbs.

Moelis and Redcape had signed a heads of agreement last year, which allowed a final due diligence.

Redcape was formed after the two US hedge funds snapped up the distressed pub portfolios of National Leisure and Gaming and the Hedley Group when pub values collapsed in the aftermath of the GFC. 

In 2013, they carved out 41 Coles-managed pubs and successfully floated them as Hotel Property Investments (HPI) leaving the remaining pubs up for grabs.

Moelis Australia is funding the acquisition from a combination of existing managed funds, wealthy investors, family offices and Moelis Australia directors and executives.

Moelis Australia will invest $40 million in Moelis Australia Redcape Hotel Group as a strategic investment that will represent a 10 per cent interest in the fund. The fund is forecast to deliver an initial cash yield to investors of 8.75 per cent per annum.

"We know the market well through our investments in pubs since 2014. The attributes of this portfolio is its solid returns and the fact that all the properties are in densely populated areas that will benefit from investment in nearby infrastructure," Pridham was quoted as saying by the AFR.

On the back of the deal and its acquisition of Armada Funds Management, ASX-listed Moelis, raised its forecast underlying earnings (EBITDA) for the year ending December 31 to $29 million, a 25 per cent increase on its IPO Prospectus forecast.

Moelis expects to have more than $2.5 billion of assets under management by December 31.