1H20 Results Presentation 19 February 2020 Contents For personal - - PowerPoint PPT Presentation

1H20 Results Presentation

19 February 2020

For personal use only

Key Stakeholders 3 About Redcape 4 Strategic Growth Drivers 5 1H20 Highlights 6 1H20 Financials 10 Outlook 14 Appendices 16

Contents

For personal use only

Team Promise

We create and nurture an environment of trust SO THAT... Our people have clarity of purpose and feel enriched, empowered, energised and valued.

+50

Customer NPS1 +34 Current

4.5/5

Redcape Staff Satisfaction 4.1 Current

+9.2cps

Distributable Earnings Guidance2 8.8 cps FY19

Care

We seek to understand others. We recognise and praise great behaviour.

Collaborate

We’re open to sharing our concerns, knowledge, experience & success. We value our promises.

Courage

We are curious and think innovatively.

Focussed on Key Stakeholders

• 1. Management use Net Promoter Score as a tool to measure customer advocacy and loyalty. NPS rating scale between -100 and +100.
• 2. Distributable earnings are not prepared in accordance with IFRS and are not audited.

For personal use only

Townsville 2 freehold assets Mackay 2 freehold assets Gold Coast 1 freehold asset Greater Brisbane 1 leasehold asset Greater Sydney 21 freehold assets 1 leasehold asset Shellharbour / Wollongong 4 freehold assets

32

Total

A leading hospitality group with scalable systems and capable people, led by an experienced and proven management team driving growth through active management of a high quality real estate backed portfolio. Australian Venue Locations

• 1. Portfolio consists of 30 Freehold Going Concerns and 2 Leasehold Going Concerns

32

1

30 Freehold Going Concerns Freehold ownership allows for responsive refurbishment and asset

• ptimisation optionality.

21

21 in greater Sydney High growth suburban infjll markets, many with latent land value opportunities.

5

5 Year refurbishment pipeline of assets Asset optimisation program delivering community hubs.

About Redcape

For personal use only

Strategic Growth Drivers

• Invest in our people
• Data insights driving effjciencies
• Data insights providing lead

indicators

• Customer experience focused
• Grow high-quality asset base
• Refurbishment pipeline maximises

portfolio value

• Asset optimisation and

alternate use

• Capital structure to support growth
• Flexible debt arrangements
• Active portfolio management

Corporate Social Responsibility (‘CSR’) Capital Optimisation Growth Capital Enhance Operations

• Continuous improvement of
• perating governance frameworks
• Advancement of harm minimisation

programs

• Contribution to local communities

For personal use only

1H20 Highlights

Dan Brady, CEO

1H20 Results Presentation

For personal use only

Financial Performance

4.78cps

1H20 Distributable Earnings1 up 10.9%2 on pcp >9.20 cps full year distributable earnings guidance3 upgrade

4.41cps

1H20 Distributions 8.75 cps full year guidance unchanged

7.81%

Annualised Distribution Yield based on $1.12 share price as at 18 February 2020

Operational Performance

$160.6m

Revenue, up 12.7% LFL4 revenue growth 6.2%

$17.4m

Statutory NPAT up +$29.0m5 Underlying NPAT $21.4m

$26.4m

Distributable earnings increase by 20.8%2 on pcp Strong operating performance, portfolio enhancement

Portfolio & Capital Management

35.9%

Gearing at lower end of 35%-45% target range6 Interest Cover Ratio of 4.65x7

$6.8m

Growth Capex8 Spend FY20 progressing to budget and schedule

$1.06b9

Portfolio value 32 venues including 1 acquisition and 1 divestment in 1H20

• 1. Distributable earnings defjned as underlying NPAT adjusted for non-cash items such as fair value adjustments, depreciation and amortisation and other unrealised and non-recurring items less maintenance capex.

• 2. The difference in absolute distributable earnings growth and distributable earnings per security growth is due to the increase in number of weighted average securities on issue from 1H19 to 1H20.
• 3. Subject to no change in economic conditions, standard management fee construct and/or portfolio numbers.
• 4. Like for Like (“LFL”) revenue growth is based on venues that traded for the full year FY19 and 1H20 and thus excludes any part year acquisitions and divestments.
• 5. Refer to reconciliation on P14 for an explanation of the differences between Statutory and Underlying NPAT.
• 6. Gearing defjned as total borrowings less cash as a percentage of total assets less cash.
• 7. Interest Cover Ratio (“ICR”) calculated as Total EBITDA / Net Finance costs less amortisation of borrowing costs (on a 12 month rolling basis).
• 8. Growth Capex includes major refurbishments, one off acquisition costs and tactical capital expenditure.
• 9. Includes asset held for sale, Royal Hotel Granville.

1H20 Overview

For personal use only

1H20 Financial Highlights

• Full year distributable earnings guidance lifted to 9.20 cps1 or greater
• Distributable earnings2 per security of 4.78 cents, up 10.9% on pcp
• Distribution of 4.41 cents per security
• Distributable earnings of $26.4m were 20.8% up on pcp due to the

normalisation of acquired venues and strong growth in underlying earnings

• LFL revenue up 6.2%, total revenue up 12.7% to $160.6m

– Gaming revenue up 13.2% on pcp – Food and beverage revenue up 24.8% on pcp mainly refmecting hotel portfolio composition and refurbishment program – All trading departments delivered positive LFL revenue growth

• Operating EBITDA of $38.7m3, up 19.8% refmecting strong revenue growth

and cost out initiatives implemented in 2H19

• Operating cashfmow excluding non-recurring items4 of $24.5m versus

distribution to security holders of $24.3m, which demonstrates the highly cash generative nature of the business and the sustainability of distributions

$m 1H203 Underlying 1H193 Underlying $ Change % Change Gaming revenue 102.7 90.7 12.0 13.2% On-premise revenue 33.0 26.4 6.6 24.8% Off-Premise revenue 24.3 24.85 (0.5) (2.1%) Other revenue 0.6 0.5 0.1 25.1% Total revenue 160.6 142.5 18.1 12.7% Gross profjt 85.7 75.2 10.5 14.0% Operating EBITDA 38.76 32.3 6.4 19.8% Distributable earnings ($m) 26.4 21.9 4.5 20.8% Distributable earnings (cps) 4.78 4.31 0.47 10.9% Distribution (cps) 4.41 4.41

• $m

1H20 1H19 $ Change Statutory NPAT 17.4 (11.6) 29.0

• 1. Subject to no change in economic conditions and/or further acquisitions or divestments.
• 2. Distributable Earnings is not prepared in accordance with IFRS and are not audited.
• 3. Revenue, gross profjt and expenses reclassifjed to comply with accounting standards with no net change to operating EBITDA.
• 4. Non-recurring operating cash fmow costs comprise refjnancing and establishment costs of $4.5m and hedge break costs of $3.8m.
• 5. 1H19 includes divested Belrose Hotel Liquor Store.
• 6. AASB16 increases 1H20 EBITDA by $0.9m. 1H20 EBITDA is 17.1% higher on pcp on comparable basis.

For personal use only

1H20 Portfolio Update

• 1. All values exclude transaction costs.
• 2. LGC – Leasehold Going Concern.
• 3. Target settlement date 24 February 2020.
• 4. FGC – Freehold Going Concern.
• 5. Premium over book value as at 30 June 2019.
• 6. Excludes Eden Brewhouse acquisition (valued at acquisition price) and St George divestment.
• 7. Statutory NAV $1.15 refmects net increment to land only in accordance with accounting standards.
• Acquisitions made in FY19 fully integrated and trading well
• Active portfolio management1 - 2 acquisitions and 2 divestments

– Acquisition of Eden Brewhouse, Redbank Plains for $11.5m (LGC2) – Sale of St George Hotel, Belmore for $47.1m at a premium to book value5 (FGC) Contracted to settle in 2H: – Acquisition of the Kings Head Tavern3, South Hurstville for $27.0m (FGC4) – Sale of Royal Hotel, Granville3 for $51.0m at a premium to book value5 (FGC)

• Executing on fjve year pipeline of refurbishment opportunities

– Smaller projects completed on Australian Hotel & Brewery, Central Hotel, Crescent Hotel, Shamrock Hotel, Vauxhall Hotel and Unanderra Hotel – Mt Annan major refurbishment progressing

• Progressing asset optimisation optionality

– Cabramatta - A proponent lead planning proposal with a 6.1:1 FSR is expected to be lodged in 4Q20 consistent with recent urban design studies – Keighery - A development application is currently in progress for a mixed use residential scheme consistent with the new draft Auburn Town Centre LEP – Revesby Pacifjc - Aged Care option considered to be suboptimal to highest and best use being a pub, ongoing assessment to continue

• Directors NAV per security of $1.167

For personal use only

1H20 Financials

Tim Fawaz, CFO

1H20 Results Presentation

For personal use only

1H20 Income Statement

• Revenue of $160.6m, up 12.7%, with LFL revenue growth
• f 6.2%
• LFL cost growth was below CPI due to cost out initiatives

implemented in 2H19

• Gross profjt was $85.7m, up 14.0%; gross margin was 53.4%

(1H19: 52.8%)

• Operating EBITDA margin was higher at 24.1% (1H19: 22.7%)

due to revenue mix and tight focus on costs

$m 1H201 Underlying 1H191 Underlying $ Change % Change Revenue 160.6 142.5 18.1 12.7% Gross profjt $ 85.7 75.2 10.5 14.0% Gross profjt % 53.4 52.8 0.6% Employment costs (21.5) (19.0) (2.5) (13.3%) Other operating costs (16.9) (15.2) (1.7) (11.1%) Management fees (8.6) (7.9) (0.7) (8.9%) Rent expense (0.1) (0.8) 0.8 90.9% Operating EBITDA $ 38.7 32.3 6.4 19.8% Operating EBITDA % 24.1% 22.7% 1.4% Venue acquisition costs (0.9) (7.6) 6.7 88.7% Gain / (loss) on the sale of venues 0.42 1.03 (0.7) (64.4%) Gain / (loss) on the sale of non-current assets (0.4) (0.5) 0.1 14.1% Gain / (loss) on asset revaluation

• (5.8)

5.8 100.0% EBITDA 37.8 19.5 18.3 94.2% Depreciation (6.6) (5.2) (1.4) (26.7%) Depreciation on right of use assets (0.8)

• (0.8)
• EBIT

30.4 14.3 16.1 112.8% Interest on lease liability (0.4)

• (0.4)
• Net fjnance costs

(8.1) (8.4) 0.3 4.0% Profjt before tax 21.9 5.9 16.0 273.2% Tax benefjt / (expense) (0.5)4 (0.6) 0.1 12.1% NPAT 21.4 5.3 16.1 306.7%

• 1. Refer to reconciliation on P13 for an explanation of the differences between Statutory and Underlying NPAT.
• 2. Gain on sale of St George Hotel.
• 3. Gain on sale of Belrose Hotel.
• 4. Includes capital gains tax on sale of St George Hotel ($1.6m).

For personal use only

1H20 Balance Sheet

• On 2 September 2019, management secured a new $503m bank

debt facility with weighted average term of 4 years – All four major Australian banks – Improved pricing, covenants and fmexibility

• All in interest cost have improved by ~110bps from September 19

consistent with our prior update

• $66.3m1 of facility headroom at 31 December 2019
• Gearing of 35.9% (bottom end of 35-45% range), interest cover
• f 4.65x
• Distribution Reinvestment Plan suspended as at December 2019

$m 31 Dec 2019 Statutory 31 Dec 2018 Statutory $ Change % Change Cash 29.6 21.6 8.0 37.1% Property assets 1,007.6 1,057.4 (49.8) (4.7%) Right of use assets 42.9

• 42.9
• Other assets

76.22 28.5 47.7 167.7% Total assets 1,156.3 1,107.5 48.8 4.4% Borrowings (429.3)3 (428.3) (1.0) (0.2%) Lease liability (45.1)

• (45.1)
• Other liabilities

(46.0) (55.9) 10.0 17.9% Total liabilities (520.4) (484.3) (36.1) 7.5% Net asset value (NAV) 635.9 623.2 12.7 2.0% Stapled securities on issue 552.2 551.4 0.7 0.1% NAV per security - Statutory ($) 1.15 1.13 0.02 1.9% NAV per security - Directors ($)4 1.16 1.13 0.03 2.9% Gearing 35.9% 37.5% 1.6%

• 1. $66.3m headroom excludes ancillary facility of $3.0m.
• 2. Includes Asset held for sale of $49.5m (Royal Hotel, Granville).
• 3. Comprises bank borrowings of $433.7m less capitalised borrowing costs of $4.4m.
• 4. Directors NAV is a non- IFRS metric refmecting directors’ valuations and differs to the Statutory NAV which refmects revaluations to land only in accordance with accounting standards.

For personal use only

Distributable Earnings Reconciliation

• Underlying Net Profjt After Tax (NPAT) of $21.4m
• Statutory Net Profjt After Tax (NPAT) of $17.4m
• Maintenance capital expenditure normalised to

expected gaming technology investment levels

• Distributable earnings1 of $26.4m, up 20.8%2

– 4.78 cents per security, up 10.9% on pcp – Distribution of 4.41 cents per security consistent with prior year and guidance

• 0.8
• Interest on lease liability

• 0.4
• Cash rent adjustment

• (0.9)
• Amortisation of borrowing costs

• 5.8

• Underlying to statutory NPAT reconciliation

• (4.0)

• (0.2)

• 0.3

• (20.6)

• 3.6

• 1. Distributable earnings are not prepared in accordance with IFRS and are not audited.
• 2. The difference in absolute distributable earnings growth and distributable earnings per security growth

• 3. See reconciliation below for differences between Statutory and Underlying NPAT.

For personal use only

Outlook

Dan Brady, CEO

1H20 Results Presentation

For personal use only

FY20

Guidance

• FY20 distributable earnings expected to be 9.20cps or greater1
• FY20 distributions maintained at 8.75cps equating to a 7.81% yield2
• Payout ratio less than 100% of distributable earnings
• LFL revenue growth expected to be CPI or greater

Key Priorities

• Optimise performance of recent acquisitions
• Enhance operating performance through management platform capability
• Continual advancement of refurbishment pipeline
• Grow portfolio by acquiring assets that align with strategy and yield profjle
• Progress asset optimisation optionality
• 1. Subject to no change in economic conditions and/or further acquisitions or divestments.
• 2. Based on RDC share price as at 18 February 2020.

For personal use only

Appendices

1H20 Results Presentation

For personal use only

Impact of Adopting AASB 16

Accounting Change Summary

• From 1 January 2019, AASB 16 changed

the accounting treatment of leases

• P&L charge for leases with terms

> 1 year will move out of operating costs to be expensed through depreciation and interest

• Minor impact on Redcape given

limited property leases

Income Statement Impact

• In 1H20, rental expense will be lower at

$0.1m compared to $0.9m had there been no change to AASB 16

• This is offset by lease amortisation
• f $0.8m and lease interest expense
• f $0.4m (additional $1.2m partially

refmective of Eden Brewhouse acquisition)

• Net Profjt After Tax will be $0.4m lower

in 1H20 due to implementation of AASB 16

• No change to distributable earnings

as non-cash entries added back

Balance Sheet Impact

• Recognise right-of-use assets of $42.9m

and lease liabilities of $45.1m

• Applies to leasehold venues comprising

Eden Brewhouse, Cedars Tavern and two attached bottle shops

Cash Flow Impact

• No impact to cash fmow

For personal use only

Platform Competitive Advantages

The Management Platform supports scalable growth.

Strategic Direction

• Experienced

Management team and Board

• Clearly defjned strategy
• Alignment of Manager

strategies to Redcape strategic objectives Platform Expertise

• Deep operational expertise
• Financial and analytical

capability

• Property management
• Procurement expertise
• A centralised platform
• f systems, people

and processes

• Leading data and

technology capability Independent Board

• Well formed

governance structure

• Independent board
• Clearly defjned

delegations of authority Risk Management

• Understand how to

protect our licence to operate

• Robust risk management

policies, structure and assessment

• A well understood

risk appetite Disciplined Capital Allocation

• Well-structured

methodology for capital allocation

• Gearing target of

35% to 45% designed to ensure effjcient capital structure whilst maintaining conservative risk profjle Portfolio Management

• Deep market knowledge

and networks

• High analytical capability

and disciplined approach

• Experience in structuring

deals and processes

For personal use only

Contributing to our Communities and Social Impact

Our contribution to our people

Eventus Program Launched 9 month development program for business leaders. 17 leaders completed in 1H covering all business areas from managing teams to fjnance, marketing and more. Women in Gaming & Hospitality Partnership Partnership established to advance women into leadership positions across the business and sector. The Next 15 Program The Next 15 leaders program designed to drive leadership across the business with the aim of developing 100 leaders.

Our contribution to community

800+ Local staff employed at our venues. 106/321 106 local community groups, charities, schools and sports teams provided with direct and in-kind fjnancial assistance across 32 communities. $80m1 Contributed in taxes annually.

Harm minimisation leadership

Responsible Gaming – Redcape designed platform created to increased awareness and communication of available tools for customers to responsibly monitor and manage gambling activity. Promotes responsible gambling tools including Voluntary Pre-Commitment and Player Activity Statements. Simplifjes access to counselling, support and exclusion programs.

• 1. Based on FY19.

For personal use only

Industry and Regulatory Overview

1

Redcape is committed to market leading innovation, harm minimisation and compliance across all segments of the hotel industry.

• 1. All data sourced from AHA, IBISWorld and EatingOut In Australia (as at 30 June 2018, latest available data). Refer to Redcape PDS for more information.

Regulation

• Highly regulated industry: Hotel licenses under

state based jurisdiction, high barriers to entry

• Effective harm minimisation: Comprehensive

self-exclusion programs and consumer protection laws

• Connectivity: Industry, governments, regulators and

communities aligned on continuous improvement Gambling Industry

• Contribution to GDP: Over $4.9 billion p.a.
• Australian gambling CAGR: Across all

forms grew at 2.9% from 2012-2017

• Frequency: 39% of Australian adults

gamble monthly, 64% annually Hotel Industry

• Industry revenue: ~$17.3 billion
• Employment: ~188,000 jobs nationwide
• Pubs provide food, beverage, accommodation,

entertainment and social experiences Food and Beverage

• Contribution to economy: $32.8 billion in FY17
• HDI: Household F&B spend in FY16:

– NSW ~$104 per week – QLD ~$74 per week

• Growth: Expenditure on eating and drinking out grew

by 4.2% FY10-FY16

For personal use only

Venues

Andergrove Tavern 64 Andergrove Road, Mackay, QLD 4740 Australian Hotel and Brewery 350 Annangrove Road, Rouse Hill, NSW, 2155 Cabramatta Inn 170 Cabramatta Road, Cabramatta West, NSW, 2166 Campbelltown Club Hotel 32 Blaxland Road, Campbelltown, NSW, 2560 Cedars Tavern 139-173 Popondetta Road, Emerton, NSW, 2770 Central Hotel Shellharbour 3 Memorial Drive, Shellharbour, NSW 2529 Crescent Hotel 81 The Crescent, Fairfjeld NSW 2165 Eastern Creek Tavern 64 Huntingwood Drive, Huntingwood, NSW, 2766 Eastwood Hotel 89-115 Rowe Street, Eastwood, NSW, 2122 Eden Brewhouse 381 Redbank Plains Rd, Redbank Plains QLD 4301 El Cortez Hotel 337 Canley Vale Road, Canley Heights, NSW, 2166 Figtree Hotel 47 Princes Highway, Figtree, NSW 2525 Hermit Park Hotel 100 Charters Towers Road, Hermit Park, QLD, 4812 Keighery Hotel 47-51 Rawson Street, Auburn, NSW, 2144 Lakeview Hotel Motel 4 Government Road, Oak Flats, NSW, 2529 Landmark Hotel 20 West Parade, Eastwood, NSW, 2122 Leumeah Hotel 80 O’Sullivan Road, Leumeah, NSW, 2560 Minskys Hotel 287 Military Road, Cremorne, NSW, 2090 Mt Annan Hotel 12 Main Street, Mt Annan, NSW, 2567 Prospect Hotel Motel 3 Great Western Highway, Prospect, NSW, 2148 Red Lantern Hotel 280 South Terrace, Bankstown NSW 2200 Revesby Pacifjc Hotel 178 The River Road, Revesby, NSW, 2212 Royal Hotel Granville 16-20 South Street, Granville, NSW, 2142 Shamrock Hotel Motel 163-175 Nebo Road, Mackay West, QLD, 4740 St Mary’s Hotel 33 Queen Street, St Mary’s, NSW, 2760 The Crown Hotel Revesby 4 The River Road, Revesby, NSW, 2212 The Sun Hotel 6 Ross River Road, Mundingburra QLD 4812 The Wattle Hotel 1 Brygon Creek Drive, Upper Coomera, QLD, 4209 Unanderra Hotel 27 Central Rd, Unanderra, NSW 2526 Vauxhall Inn 284/286 Parramatta Rd, Granville NSW 2142 Wattle Grove Hotel Cnr Australis Avenue & Village Way, Wattle Grove, NSW 2173 Willoughby Hotel 315 Penshurst Street, Willoughby, NSW, 2068

For personal use only

The material in this presentation has been prepared by Redcape Hotel Group Management Ltd (ACN 610 990 004) (AFSL 505 932) (RHGM) as responsible entity of the Redcape Hotel Group (comprising Redcape Hotel Trust I ARSN 629 354 614 and Redcape Hotel Trust II ARSN 629 354 696) (“Redcape Hotel Group” or “Redcape”). This presentation contains selected summary information and does not purport to contain all of the information that may be relevant

• r which a prospective investor may require in evaluations for

a possible investment in Redcape. The presentation should be read in conjunction with Redcape’s periodic and continuous disclosure announcements which are available at www.redcape.com.au. The recipient acknowledges that circumstances may change and that this presentation may become outdated as a result. This presentation and the information in it are subject to change without notice and RHGM is not obliged to update this presentation. This presentation is provided for general information purposes

• nly. It is not a product disclosure statement or other

disclosure document for the purposes of the Corporations Act (Cth) 2001 and has not been, and is not required to be lodged with the Australia Securities & Investment Commission. It should not be relied upon by the recipient in considering the merits of Redcape

• r the acquisition of stapled securities in Redcape. Nothing in

this presentation constitutes investment, legal, tax accounting or

• ther advice and it is not to be relied upon in substitution for the

recipient’s own exercise of independent judgment with regards to the operations, fjnancial condition and prospects of Redcape. The information contained in this presentation does not constitute fjnancial advice. Before making an investment decision, the recipient should consider its own fjnancial situation, objectives and needs and conduct its own independent investigation and assessment of the contents of this presentation including obtaining investment, legal, tax, accounting and such other advice as it considers necessary or appropriate. This presentation has been prepared without taking account

• f any persons’ individual investment objectives, fjnancial situation
• r particular needs. It is not an invitation or an offer to buy or sell
• r a solicitation to invest in or refrain from investing in securities in

Redcape or any other investment product. The information in this presentation has been obtained from and based on sources believed by RHGM to be reliable. To the maximum extend permitted by law, RHGM and its related bodies corporate make no representation or warranty, express or implied as to the accuracy, completeness, timeliness or reliability of the contents of this presentation. To the maximum extent permittee by law, RHGM does not accept any liability (including, without limitation, any liability arising from fault or negligence) for any loss whatsoever arising from the use of this presentation or its contents or otherwise arising in connection with it. This presentation may contain forward-looking statements regarding intend, belief or current expectations with respect to Redcape’s businesses and operations, results of operations, fjnancial conditions and risk management practices. Forward Statements including guidance or outlook on future revenues, distributions or fjnancial position and performance or return or growth are provided as general guide only and should not be relied upon as an indication or guarantee of future performance. No independent third party has reviewed the reasonableness of such statements or assumptions. No member of RHGM represents as or warrants that such forward statements will be achieved or will provide to be correct or gives any warranty, express or implied as to the accuracy, completeness, likelihood of achievement

• r reasonableness of any forward statement contained in this
• presentation. Past performance is not a reliable indicator of

future performance. RHGM believe the fjnancial and Distributable Earnings information is useful to users as it:

• reveals the underlying run rate business economics of the Group

which enhances the reader’s understanding of past performance;

• provides insight into Management’s decision making as

Management uses these measures to run the business, allocate resources and make fjnancial, strategic and operating decisions;

• forms the basis of the Group’s annual budgeting and internal

forecasting processes; and

• forms the basis of the fjnancial metrics relevant to the determination
• f variable components of executive and employee remuneration.

Financial information such as Distributable Earnings is not prepared in accordance with IFRS and is not audited. Differences in measurement can have both a positive and negative impact on the fjnancial information presented. Specifjcally, some adjustments give rise to material reductions in underlying measures but align with the principles by which RHGM views and manages Redcape internally. All dollar values are in Australian dollars ($ or A$) unless stated otherwise.

Redcape Half Year Presentation Disclaimer

For personal use only

For personal use only