Redcape Hotel Group
Appendix 4E
Preliminary final report
1. Company details
Name of entity:
Reporting period:
Previous period:
Redcape Hotel Group
comprising Redcape Hotel Trust I (ARSN 629 354 614) and Redcape Hotel Trust II
(ARSN 629 354 696)
For the year ended 30 June 2020
For the year ended 30 June 2019
2. Results for announcement to the market
Revenues from ordinary activities
Profit/(loss) after tax for the year attributable to the
stapled securityholders
down
improved by
9.1%
327.7%
259,294
11,227
285,215
(4,930)
Consolidated
2020
$'000
Consolidated
2019
$'000
%
Basic earnings per stapled security
Diluted earnings per stapled security
Distributions
Distribution for the quarter ended 30 September 2019 (paid 29 November 2019)
Distribution for the quarter ended 31 December 2019 (paid 28 February 2020)
Distribution for the quarter ended 30 June 2020 (payable 31 August 2020)
2020
Cents
2019
Cents
2.03
2.03
(0.93)
(0.93)
Amount per
stapled
security
Cents
Franked
amount per
stapled
security
Cents
2.199
2.211
0.310
-
-
-
Comments
Redcape Hotel Group has adopted AASB 16 Leases for the year ended 30 June 2020 using the modified retrospective
approach and as such the comparatives have not been restated.
Commentary and analysis of the results can be found in the ASX released results announcement and presentation.
3. Net assets and Net tangible assets
Net assets per stapled security
Net tangible assets per stapled security (a)
Reporting
Period
Cents
Previous
Period
Cents
109.09
8.27
114.09
6.96
(a) Net tangible assets calculation excludes right-of-use assets, lease liabilities, goodwill and licences.
No. of stapled securities on issue at 30 June 2020 is 552,195,195 (30 June 2019: 551,445,932).
Redcape Hotel Group
Appendix 4E
Preliminary final report
4. Loss of control over entities
Not applicable.
5. Distributions
Current period
Distribution for the quarter ended 30 September 2019 (paid 29 November 2019)
Distribution for the quarter ended 31 December 2019 (paid 28 February 2020)
Distribution for the quarter ended 30 June 2020 (payable 31 August 2020)
Previous period
Distribution for the quarter ended 30 September 2018 (paid 31 October 2018)
Distribution for the quarter ended 31 December 2018 (paid 31 January 2019)
Distribution for the quarter ended 31 March 2019 (paid 31 May 2019)
Distribution for the quarter ended 30 June 2019 (paid 30 August 2019)
There is no foreign sourced distribution for the current and previous period.
Franked
Amount per
stapled
security
Cents
amount per
stapled
security
Cents
2.199
2.211
0.310
-
-
-
Franked
Amount per
stapled
security
Cents
amount per
stapled
security
Cents
2.205
2.205
2.158
2.182
-
-
-
-
6. Distribution reinvestment plans
The Distribution Reinvestment Plan ('DRP') was active for the FY20 September quarter distribution and suspended from
the FY20 December quarter distribution.
7. Details of associates and joint venture entities
Not applicable.
8. Foreign entities
Details of origin of accounting standards used in compiling the report:
Not applicable.
Redcape Hotel Group
Appendix 4E
Preliminary final report
9. Audit qualification or review
Details of audit/review dispute or qualification (if any):
The financial statements have been audited and an unqualified opinion has been issued.
10. Attachments
Details of attachments (if any):
The Annual Report of Redcape Hotel Group for the year ended 30 June 2020 is attached.
11. Signed
Signed ___________________________
Date: 19 August 2020
Nicholas Collishaw
Chairman
Sydney
A N N UA L R E P ORT – 30 J U N E 20 2 0
FY20
A N N UA L R E P ORT – 30 J U N E 20 2 0
Redcape Hotel Group (ASX:RDC) is a leading hospitality
group of 840+ dedicated people, who passionately serve
32 different communities across Australia’s east coast.
Redcape Hotel Group comprising Redcape Hotel Trust I (ARSN 629 354 614) and Redcape Hotel Trust II
(ARSN 629 354 696)
CONTE NTS
Key Highlights
Chairman's report
Chief Executive Officer's report
Directors' report
Auditor's independence declaration
Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
Directors' declaration
Independent auditor's report to the members of Redcape Hotel Group
Stapled Securityholders information
Corporate directory
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
4
6
8
12
23
24
25
27
28
29
68
69
77
79
Our Promise is
‘People First’
– our staff, our customers, our securityholders.
OU R VI S I ON
Our vision is to enrich communities through
our hospitality.
A B OUT R E D CAPE
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.
Our People
Our Communities
Our Assets
ASX:RDC
Annual Report 2020
3
Key
Highlights
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
K E Y H I G H LI G HTS
30 June 2020
Full year Distributable Earnings1 declined by 20.1% versus
growth of 22.1% in the eight months to February 2020
Financial Performance
22.1%
Distributable Earnings growth
(based on first 8 months of each year)
Operational Performance
6.1%
LFL Revenue2 growth
Total Revenue up 11.2%
(based on first 8 months of each year)
Capital Management
36.3%
Gearing4 at lower end of 35% - 45% target
range as at 30 June 2020
Interest Cover Ratio5 of 4.5x based on
the 12 months to 30 June 2020
$11.2m
Statutory NPAT in FY20
FY19 statutory NPAT: $(4.9)m
(based on the full 12 months of each year)
17.2%
Operating EBITDA3 growth
(based on the first 8 months of each year)
$1.09
Directors NAV per stapled security at 30 June 2020
The 4.4% decline in NAV6 highlights the resilience
of the businesss
Like for Like (“LFL”) Revenue - Based on venues that traded for the full year FY19 and FY20 and thus excludes any part year acquisitions and divestments
1 Distributable Earnings - Operating EBITDA less cash rent, cash interest and Maintenance capital (excludes other unrealised or non-recurring items such as IPO costs)
2
3 Operating EBITDA refers to Underlying Operating EBITDA
4 Gearing - Total borrowings less cash as a percentage of total assets less cash
5
6 Directors NAV at 30 June 2019 was $1.14 per stapled security. Statutory NAV at 30 June 2020 was $1.09 vs $1.14 per stapled security at 30 June 2019
Interest Cover Ratio (“ICR”) - Operating EBITDA / Net Finance costs less amortisation of borrowing costs (on a 12 month rolling basis)
5
Key
Highlights
ASX:RDCAnnual Report 2020 CHAI R MA N'S R E P ORT
30 June 2020
Dear Securityholders,
Redcape Hotel Group (“Redcape” or “the Group”) remains
well positioned to manage through an uncertain economic
environment with substantial liquidity and a highly
capable executive team.
Well positioned to deal with uncertainty
A year in three parts
COVID-19 has had a significant impact on our business
and on the financial results for the year given that most
of our operations were closed from 23 March 2020 to
1 June 2020. Our management team did (and continue
to do) an outstanding job in managing the impact of the
COVID-19 crisis and reinforced the Board’s view of their
capability across a wide range of operating environments.
In difficult circumstances, they successfully reopened the
business from 1 June 2020. They have seen good customer
loyalty leading to strong revenue performance – albeit
with higher costs as they focussed on delivering great
customer experiences.
The economic environment over the remainder of FY21
will remain highly uncertain. However, the positioning of
Redcape’s business together with its capable management
team means it is well placed to deliver optimal outcomes for
Securityholders across a range of operating conditions.
This financial year has seen the Group deliver on its strategy
for the first eight months, then deal with closure of most of
its operations in March, and finally recommence operating
in a very different environment from 1 June 2020.
In the first eight months of the year to the end of
February 2020, I am pleased to report that the business
was performing strongly with like-for-like (LFL) revenue
growth of 6.1%, Underlying Operating EBITDA up 17.2%
and Distributable Earnings growing 22.1%. The impact of
COVID-19 in the last four months of the year meant full
year performance was significantly affected. For the full
year, Total Revenue fell by 9.1%, Underlying Operating
EBITDA declined 14.8% and Distributable Earnings
were 20.1% lower.
Redcape was delivering on its strategy through to the end
of February 2020 with a focus on growing Distributable
Earnings that supported its Distributions, and generating
future growth through effective portfolio management.
The Group negotiated the sale of two pubs at premiums1
to book value and acquired another two pubs generating
total proceeds of $59.6m2 from the four transactions.
1 Premiums over their book values as at 30 June 2019
2 Excludes transaction costs
6
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II CHAI R MA N'S R E P ORT
30 June 2020
With the forced closure of all operations except our bottle
shops (Off-premise)3 and accommodation at two Venues,
management acted quickly to ensure it retained access
to capital, secure the assets and minimise operating losses.
They also spent considerable time caring for the welfare of
employees and remained engaged with their customers.
New South Wales venues commenced reopening from
1 June 2020. Queensland venues commenced reopening
from 10 June 2020 with gaming operational from 3 July
2020. The operating focus of the business since reopening
has been on delivering a high level of customer service
to build loyalty ahead of what may be a difficult economic
environment. This has been significantly assisted by the
digital platform in which the business has invested, giving
management the capability to remain engaged with its
customers during the shutdown. This assisted the Group
to deliver strong revenue performance from 3 July 2020
when all venues and channels had been reopened. The
strong return of trade has confirmed our view about the
resilience of Redcape’s revenue streams when its venues
are able to operate and is underpinned by the central
role played by our community focussed pubs.
Optimal performance in an uncertain environment
There remains significant uncertainty about the operating
environment over the next 12 months. The spread of
COVID-19 is proving to be unpredictable as are Government
restrictions in response to increased infection rates, and
any further economic stimuli. Finally, the response of our
customers to risks posed by COVID-19 and their decisions
around spending adds further uncertainty to the economic
outlook.
Notwithstanding this uncertainty, Redcape is well positioned
to manage and react to the challenges created by a volatile
operating environment. It has strong liquidity, a proven
ability to manage costs and a management team led by
Dan Brady that brings a wealth of experience across a
range of operating environments.
I am confident that as the impact of COVID-19 subsides,
Redcape’s industry leadership will be enhanced and its
venues will be even more important community hubs.
Its disciplined approach to investment combined with
conservation of its capital during the past year has provided
the Group with a strong liquidity position that, subject
to favourable operating conditions, will allow the Group
to continue with its venue improvement programme and
target the reinstatement of meaningful distributions.
On behalf of the Board of Directors, I would like to thank
our existing Securityholders, our employees and the
communities in which we operate for their continued
support through what has been a very difficult year.
Nicholas Collishaw, Chairman
3 Off-premise at Eastern Creek, Hermit Park and Crescent were closed for part of the shutdown period
7
ASX:RDCAnnual Report 2020 CH I E F E X E CU TIV E OFFI CE R’ S R E P ORT
30 June 2020
Key Management Metrics
4.1
32
22.1%
Staff Satisfaction1. Target 4.5 / 5.0 (as at 30 June 2020)
Customer NPS2. Target 50 (out of a range -100 to +100) (as at 30 June 2020)
Distributable Earnings growth in first 8 months of FY20
Financial Highlights
6.1%
17.2%
4.72
24.3%
LFL Revenue growth in first 8 months of FY20
Operating EBITDA growth for first 8 months of FY20
FY20 Operating EBITDA (full 12 months) of $57.1m compared with FY19 Operating EBITDA of $67.1m
Distribution (cents per stapled security - cps) to stapled securityholders in FY20 (4.41cps in 1H20 and 0.31cps
in 2H20)
Reduction in cash interest expense reflecting the benefit of a lower cash rate and a new debt facility3
$15.6m Growth capex4 spend in FY20 compared with $21.6m in FY19
36.3%
4.52x
$1.09
Gearing at 30 June 2020 down from 38.0% in FY19 and at the lower end of 35 – 45% target range
Interest cover ratio for FY20 compared to 3.95x in FY19
Directors and Statutory NAV5 per stapled security at 30 June 2020 compared with $1.14 at 30 June 2019
1 Staff Satisfaction - Internal tool used to measure and manage current and future performance with a rating of 0 to 5
2 Customer NPS - Net promotor score (NPS) is used as a tool to measure customer advocacy and loyalty with a rating scale between -100 and +100
3 Established 2 September 2019 and excludes hedge break costs of $3.8m
4 Growth Capex - Major refurbishments, one off acquisition costs and tactical capital expenditure on existing and acquired Venues
5 Non-IFRS decrement to Directors NAV was $16.2m; Statutory decrement to book value was $13.9m
8
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II CH I E F E X E CU TIV E OFFI CE R’ S R E P ORT
30 June 2020
While the volatility of regulatory restrictions exists, we
remain focussed on optimising our property and operating
businesses and prioritising our strategy to return to paying
sustainable distributions to Securityholders. Redcape’s
performance was tracking ahead of guidance prior to
March 2020 this year.
COVID-19
Operating Performance
As the COVID-19 industry wide shutdown commenced,
Management moved into crisis management mode; we
secured our cash reserves, ensured ongoing banking
support, worked to provide meaningful work to as many
of our people as possible and developed programs to
ensure our teams remained connected. We enhanced
communication and engagement, keeping connected
with our customers through our digital platform.
On the full reopening of all operations on 3 July 2020, we
focussed on delivering a seamless end-to-end experience
for our customers that allows them to reconnect to their
community in a safe manner, approaching health standards
with genuine care, and allowing for a fulsome hospitality
experience as we once again look to fulfill our role as
community hubs.
In the first eight months of this financial year, LFL Revenue
growth was up 6.1% and Distributable Earnings were
up 22.1% against the same period last year. All trading
departments delivered LFL Revenue growth for this eight
month period, consistent with the update in February 2020.
Food and Beverage (On-premise) was up 20.8% reflecting
changes to the hotel portfolio and the positive effect of prior
refurbishment programmes.
Underpinning this financial performance was the continued
improvement in underlying operating metrics of Staff
Satisfaction (4.1 out of a maximum of 5.0) and Customer
NPS6 (32 out of a range of -100 to +100). Targets of 4.5
and 50 respectively ensure there is continued focus on these
key metrics that are an invaluable tool for managing present
and future financial performance.
Upon shutdown in March 2020 when all operations except
some bottle shops were closed, Redcape went into crisis
management, focussing on securing the business. This
started with securing cash and working with our lenders to
gain variations to the loan agreements, ensuring our work
force was well informed and kept highly connected, securing
the properties in shut down and the continued engagement
with our customers.
6 Customer Net Promoter Score (NPS) measures customer experience and advocacy
9
ASX:RDCAnnual Report 2020 CH I E F E X E CU TIV E OFFI CE R’ S R E P ORT
30 June 2020
The Group established a new debt facility in September
2019 with Australia’s four largest banks. Working with
these banks immediately following shutdown, we agreed
to a number of variations that ensured debt financing
certainty through the shutdown. It also included temporary
amendments to financial covenants that were negatively
impacted by the closure of our venues. These will revert to
their original levels once the venues have reopened and the
business has had time to return to more normalised trading
conditions.
Simultaneously, management focussed on supporting staff,
keeping as many in meaningful employment as possible
whilst establishing programs and crisis performance metrics
which aimed to ensure that the ongoing mental health,
wellbeing and connection of teams remained high.
Our established technology platform enabled our continued
high engagement with customers and the development
of a research panel of known customers to work with us
on strategies to optimise the customer experience and
understand community attitudes in a post COVID-19 world.
The financial performance focus also shifted to cash burn
as management worked to minimise operating costs during
shutdown. Our initial estimates during shutdown forecast
operating costs of $3.3m per month, however successful
cost reduction initiatives and receipt of JobKeeper resulted in
operating costs prior to reopening on 1 June 2020 tracking
at $2.4m per month7.
Portfolio management
We continued active portfolio management in the first eight
months of the year with four transactions representing a
total of $136.6m8. Consistent with our prudent management
of capital, we divested two venues representing $98.1m
at premiums9 to their book values compared with the
acquisition of two smaller venues for which we paid $38.5m.
Eden Brewhouse in Redbank Plains (QLD) is a leasehold
going concern pub and was acquired for $11.5m in
December 2019. Kings Head Tavern in South Hurstville
(NSW) is a freehold going concern pub and was acquired
for $27.0m in March 2020. Both acquisitions will benefit
from our platform expertise and refurbishment capability.
Refurbishments continued up until shutdown at a similar
pace to last year. Since March 2020, projects have been
re-prioritised so that in the future, there will be fewer larger
projects and an increased focus on smaller projects.
We continue to assess alternate use optionality and asset
optimisation opportunities across the portfolio with a focus
on high priority projects. Development planning continues
at Cabramatta and Keighery Hotel in Auburn.
Vauxhall Inn
Includes JobKeeper of $0.7m per month while in shutdown. This increased to $1.2m in June.
7
8 Excluding transaction costs
9 Premiums over their book values as at 30 June 2019
10
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II CH I E F E X E CU TIV E OFFI CE R’ S R E P ORT
30 June 2020
Capital Management
Summary and Outlook
Gearing has decreased to 36.3% from 38.0% at the end
of last year reflecting a deliberate approach and purposeful
decision to reduce gearing through portfolio management.
The value of strong relationships with Australia’s four
largest banks, established as part of the $500m10 facility
in September last year, has proven invaluable as we have
worked through arrangements to provide certainty through
shutdown and reopening. This facility is repayable in equal
tranches on 1 September 2022 and 1 September 2024.
As at 30 June 2020, we had $101.4m of cash and cash
equivalents as well as $10m of undrawn facilities.
Directors and Statutory NAV was $1.09 per stapled security
as at 30 June 2020 ($1.14 at 30 June 2019) reflective of
Directors decrement of $16.2m and Statutory decline in
book value of $13.9m.
The performance of the Group in the first eight months
of this financial year reflected the Group’s continuing
strong underlying operating performance since listing.
When the shutdown occurred in March 2020, the depth
of experience within the management team, with support
from an experienced Board, enabled the Group to respond
effectively - securing assets and finance, and staying
connected and engaged with staff and customers.
This positioned the Group for an effective staggered
reopening from 1 June 2020 which saw strong
community support and profitable operations in June.
Notwithstanding the strong community support and
resulting revenue recovery in the early stages of re-opening,
there remains significant regulatory uncertainty about the
outlook for the next 12 months. We will remain focussed
on what we can control and that is the strong leadership
of our people and communities guided by our key
operating metrics of Staff Satisfaction and Customer
NPS. A continued supportive operating environment will
allow us to focus once again on returning sustainable
distributions to Securityholders.
Daniel Brady, Chief Executive Officer
The Eastwood Hotel
10 Excludes $3m ancillary facility
11
ASX:RDCAnnual Report 2020 Redcape Hotel Group
Directors' report
30 June 2020
The directors of the Responsible Entity present their report, together with the financial statements, of the consolidated
entity (referred to hereafter as 'Redcape' or 'Group') consisting of Redcape Hotel Trust I ('RHT I') and Redcape Hotel Trust
II ('RHT II') and the entities they controlled at the end of, or during, the year ended 30 June 2020. The manager of Redcape
(‘Trust Manager’ or ‘Management’) is MA Hotel Management Pty Ltd, a wholly owned subsidiary of Moelis Australia Ltd.
Directors
The following persons were directors of the Responsible Entity of Redcape for the year ended 30 June 2020 and up to the
date of this report, unless otherwise stated:
Mr Nicholas Collishaw
Mr Daniel Brady
Mr Andrew Ireland
Mr David Groves
Mr Hugh Thomson
Non-IFRS Disclosures
The Group utilises non-IFRS financial metrics such as Distributable Earnings in its assessment and presentation of Group
performance. In particular, the Group references Underlying Operating Earnings Before Interest, Tax, Depreciation and
Amortisation (‘Underlying Operating EBITDA‘), Distributable Earnings per Stapled Security and Underlying Net Profit After
Tax (‘Underlying NPAT’).
The directors believe the underlying financial 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 financial, strategic and operating decisions; and
forms the basis of the Group’s annual budgeting and internal forecasting processes.
Underlying NPAT and other financial metrics, such as Distributable Earnings are not prepared in accordance with
International Financial Reporting Standards and are not audited. A reconciliation of non-IFRS financial metrics to statutory
results is provided in the “Review of Operations”.
Principal activities
Redcape is an ASX listed, leading Australian hotel business operating a portfolio of 32 hotels across New South Wales
('NSW') and Queensland ('QLD'). Redcape owns 30 of the 32 hotels it operates. The hotels offer patrons:
●
●
●
●
Gaming
On-premise food and beverage
Off-premise packaged liquor through retail bottle shops
Other services
Freehold Going Concern ownership gives Redcape the ability to invest in refurbishment opportunities as well as provide
potential future capital gains from the real estate on which the hotels are situated.
12
3
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Directors' report
30 June 2020
Distributions
Distributions paid/payable during the financial year for the quarters ending:
30 September 2019 - 2.199 cents (30 September 2018: 2.205 cents) per stapled security
31 December 2019 - 2.211 cents (31 December 2018: 2.205 cents) per stapled security
31 March 2020 - zero cents (31 March 2019: 2.158 cents) per stapled security
30 June 2020 - 0.310 cents (30 June 2019: 2.182 cents) per stapled security
Consolidated
2020
$'000
2019
$'000
12,137
12,211
-
1,712
10,795
11,548
11,898
12,030
26,060
46,271
Review of operations
The statutory profit for Redcape after providing for income tax amounted to $11.2 million (30 June 2019: loss of $4.9
million).
During the financial year, the Coronavirus (COVID-19) pandemic had a material impact on the Group’s operating
performance due to the trading restrictions imposed by the Government.
On 19 March 2020, the Group announced that given the uncertainty in relation to the COVID-19 pandemic, it was
appropriate to withdraw its guidance for the financial year 2020 and reassess quarterly distributions based on trading
conditions.
As a result, the Group did not pay a distribution for the quarter ended 31 March 2020 and as part of closing out the
financial year ended 30 June 2020, announced a small fourth quarter distribution of 0.31 cents per stapled security taking
its financial year 2020 distributions to 4.72 cents per stapled security.
On 22 March 2020, the Federal and State Governments announced new Stage 1 restrictions on social gatherings with all
pubs closed from midday Monday 23 March 2020.
Accordingly, Redcape closed its 32 hotels, located in NSW and QLD. Most of the Group’s off-premise retail bottle shop
outlets, and accommodation at two of its hotels remained open, consistent with regulations in place at the time. As a result
of the closure of the hotels, the Group stood down most of its employees. Many of these stood down employees were
subsequently eligible for JobKeeper subsidy. During the stand down period, permanent staff were able to draw upon
accrued leave entitlements.
On 25 March 2020, the Group advised the market that it was in compliance with its loan facility terms except for those
clauses relating to “suspension of business”. On 1 May 2020, the Group announced that it had agreed with its lenders
requisite waivers the temporary amendment of a number of terms contained within the Group’s loan agreements which
ensured that it had financial certainty through the Government imposed temporary shutdown of its venues.
All hotels were re-opened throughout June and as at the date of the Directors report remain open albeit with government-
imposed restrictions. Of note:
●
●
●
26 NSW hotels commenced re-opening from 1 June 2020.
The remaining 6 QLD hotels commenced re-opening from 10 June 2020 (Gaming re-commenced from 3 July 2020).
All off-premise bottle shops (except Eastern Creek, Hermit Park and Crescent) and accommodation at two of its hotels
traded throughout the forced closure period.
4
13
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Directors' report
30 June 2020
The key metrics achieved during the year are set out below:
●
●
●
●
●
●
●
●
Distributable earnings of $37.2 million or 6.73 cents per stapled security (30 June 2019: $46.5 million or 8.80 cents per
stapled security)
Distributions of $26.1 million or 4.72 cents per stapled security (30 June 2019: $46.3 million or 8.75 cents per stapled
security)
Underlying Operating EBITDA of $57.1 million (30 June 2019: $67.1 million)
Operating cash flows of $32.9 million (30 June 2019: $36.0 million) includes one-off refinancing establishment costs of
$4.5 million, hedge break costs of $3.8 million and deferred State and Federal taxes of $15.4 million, resulting in
adjusted operating cash flows of $25.8 million.
Portfolio value decreased to $1,012.5 million (30 June 2019: $1,077.4 million). The decline in value reflects the net
impact of revaluation ($13.9 million) comprising $10.2 million loss recognised in asset revaluation reserve and $3.7
million loss recognised in income statement; acquisition of 2 hotels $38.5 million; divestment of 2 hotels ($95.4 million);
capital spend $20.8 million less depreciation ($14.2 million) and assets disposal ($0.7 million)
Statutory and Directors Net Asset Value of $1.09 per stapled security (30 June 2019: $1.14 per stapled security)
Total capital expenditure of $20.8 million (30 June 2019: $25.2 million) of which $15.6 million related to capital growth
and $5.2 million for capital maintenance
Cash and cash equivalents at year-end of $101.4 million (30 June 2019: $17.0 million) and net debt $388.6 million (30
June 2019: $419.7 million)
Assistance and support by governments and others
During the financial year, the Group received government support through the JobKeeper Payment Scheme (‘JobKeeper’).
JobKeeper is a temporary subsidy for businesses significantly affected by COVID-19, where eligible employers are entitled
to receive a JobKeeper payment to support the business in ongoing payments to employees. The Group was eligible to
receive JobKeeper from 30 March 2020. Total JobKeeper subsidy received/receivable from the ATO as at 30 June 2020
was $4.6 million, with an impact to current year earnings of $2.7 million. The Group is expected to continue receiving
JobKeeper subsidy payments up to the fortnight ended 27 September 2020.
In addition to JobKeeper, the Group received payment deferrals of State and other taxes amounting to $15.4 million. These
amounts are expected to be repaid in full in financial year 2021.
14
5
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Directors' report
30 June 2020
Reconciliation of non-IFRS financial metrics to statutory results
(i)
Reconciliation of Underlying Operating EBITDA to Statutory NPAT
Revenue
Gross profit
Gross profit (% of Revenue)
Operating costs
Employment costs
Management fees
Underlying Operating EBITDA (a)
Underlying Operating EBITDA (% of Revenue)
Business acquisition costs
(Loss)/gain on disposal of non-current assets
Loss on asset revaluation
Underlying EBITDA
Depreciation expense on right-of-use assets
Depreciation expense
Underlying EBIT
Interest on lease liabilities
Net finance costs
Underlying profit before income tax expense
Income tax expense
Underlying NPAT
Swaps and borrowing costs write off
One-off employee share grants
Restatement of management fees pre-IPO
Listing costs and performance fee
Tax effect of underlying adjustments
Statutory NPAT
Consolidated
2020
$'000
2019
$'000
259,294
285,215
137,609
53.1%
(29,755)
(35,992)
(14,731)
57,131
22.0%
(1,687)
(110)
(3,669)
152,194
53.4%
(32,162)
(38,522)
(14,421)
67,089
23.5%
(7,631)
502
(17,998)
51,665
41,962
(1,991)
(14,180)
-
(11,360)
35,494
30,602
(843)
(13,932)
-
(17,324)
20,719
13,278
(5,500)
(1,328)
15,219
11,950
(3,992)
-
-
-
-
-
(199)
254
(20,562)
3,625
11,227
(4,930)
(a) Underlying Operating EBITDA in FY20 includes the impact of AASB16 adoption which resulted in a shift of $2.0
million lease expense classification from operating costs to depreciation expense on right-of-use assets and
finance costs. The underlying comparative results have not been restated on adoption of AASB16.
6
15
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Directors' report
30 June 2020
(ii)
Reconciliation of Underlying Operating EBITDA to Distributable Earnings
Consolidated
2020
$'000
2019
$'000
Underlying Operating EBITDA (a)
57,131
67,089
Cash rent adjustment (b)
Cash interest expense (c)
Maintenance capital expenditure
Distributable Earnings
Distributable Earnings per Stapled Security (cents)
Distribution to Stapled Securityholders
Distribution per Stapled Security (cents)
(2,034)
(12,750)
(5,175)
37,172
6.73
26,060
4.72
(45)
(16,839)
(3,683)
46,522
8.80
46,271
8.75
(a) Refer to (i) for reconciliation of Underlying Operating EBITDA to Statutory NPAT.
(b) Cash rent adjustment in FY20 reflects rent payments not included in Underlying Operating EBITDA due to AASB16.
FY19 comprises non-cash straight-line lease expense adjustments.
(c) Cash interest expense reflects net finance costs less amortisation of capitalised borrowing costs and one-off costs
such as hedge break costs.
Management strategies and future prospects
Continuing the strategy to optimise sustainable distributions
The Group is well placed to manage the volatility around COVID-19. It has strong liquidity, demonstrated cost management
capability, a motivated workforce and supportive customers. It is well positioned should regulatory restrictions be eased
and conversely, to withstand a more difficult environment where restrictions are tightened.
Since the return to full operations on 3 July 2020, Redcape has experienced strong revenue performance. Underlying
Operating EBITDA in July 20201 was above July 2019.
The Group is looking to improve the performance-based metrics of Staff Satisfaction and Customer Net Promoter Score
(‘NPS’) and is targeting the reinstatement of meaningful Distributions in financial year 2021.
Material business risks
Redcape is subject to a range of factors, both specific to the Group and general in nature which may impact the operating
and financial performance of the Group. These risks are regularly reviewed for their possible impact.
Major business disruption events
The Group’s continued success is underpinned by its ability to anticipate, prevent and respond to and recover from events
which have the potential to prevent the continued operation of the Group’s venues for a sustained period of time. The
Group’s business continuity framework enables identification of material risks and outlines the response and recovery of
the business to minimise the impact of a major disruption on the business.
Regulatory risk
The Group operates in a highly regulated industry, where changes to liquor or gaming licences could significantly impact
the trading performance and therefore impact EBITDA and long-term profitability of the Group. The Group is unable to
control regulatory changes that may impact on the Group’s venues however this is closely monitored to ensure that any
potential impacts are mitigated as much as possible.
1 Excludes JobKeeper.
16
7
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II Redcape Hotel Group
Directors' report
30 June 2020
Financial management
The ability to maintain financial performance and a strong balance sheet enables the Group to fund future growth
opportunities on commercially acceptable terms. The Group annually establishes a financial budget which underpin the
setting of performance targets incorporated in management incentive plans. Financial performance is continuously
monitored for any variations from annual financial budgets and forecast.
Significant changes in the state of affairs
Other than the matters noted in the “Review of Operations”, there was no significant change in the state of affairs of the
Group during the financial year.
Matters subsequent to the end of the financial year
The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has had a material impact for the Group up to
30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The
situation is rapidly developing and is dependent on measures imposed by both Federal and State Governments and other
countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus
that may be provided.
The COVID-19 pandemic has created unprecedented uncertainty of the economic environment, in particular the lack of
market transactions which are ordinarily a strong source of evidence for valuations of Freehold Going Concern properties
and resultant land valuations. Actual economic events and conditions in future may be materially different from those
estimated by the Group at the reporting date. In the event the COVID-19 pandemic impacts are more severe or prolonged
than anticipated, this may have further adverse impacts to the fair value of the Group’s land and Directors valuation. At the
date of the annual report, an estimate of the future effects of the COVID-19 pandemic on the Group’s land and Directors
valuations cannot be made, as the impact will depend on the magnitude and duration of the economic downturn, with the
full range of possible effects unknown.
Further considerations in relation to the COVID-19 pandemic are included in the going concern disclosure in the notes to
the financial statements (refer note 2 Basis of preparation).
Other than the above matters, no other matter or circumstance has arisen since 30 June 2020 that has significantly
affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in
future financial years.
Likely developments and expected results of operations
Information on likely developments in the operations of the Group and the expected results of operations have not been
included in this report because the directors believe it would not be practicable to estimate the potential impact, positive or
negative, after the reporting date.
Environmental regulation
The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law.
8
17
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Directors' report
30 June 2020
Information on directors of the Responsible Entity
Name:
Title:
Experience and expertise:
Nicholas Collishaw
Independent Non-Executive Director and Chairman
Nicholas was appointed to the Board on 27 September 2018.
Nicholas has over 35 years’ experience in Australian and Global real estate and funds
management markets. He has considerable experience in the development and
management of residential, hotel, commercial, retail, industrial and retirement assets.
Nicholas is a Fellow of Australian Institute of Valuers, a Fellow of Royal Institute of
Chartered Surveyors, a Graduate Member of FINSIA and the Institute of Company
Directors.
Nicholas is currently a Non-Executive Director of Centuria Capital Group ('Centuria')
and was previously Chief Executive Officer ('CEO') - Listed Property Funds at Centuria.
Other current directorships:
Former directorships (last 3 years): None
Special responsibilities:
Interests in stapled securities:
Prior to his time at Centuria, Nicholas held the position of CEO and Managing Director
of Mirvac Group and successfully guided the business through the global financial crisis
and implemented a strategy of sustained growth for the Real Estate and Investment
Company.
Centuria Capital Group (ASX: CNI)
Chairman of the Board and Member of the Audit, Risk & Compliance Committee
Ordinary stapled securities – 100,000
Name:
Title:
Experience and expertise:
Daniel Brady
Non-Executive Director2
Daniel was appointed to the Board on 29 October 2018.
Daniel is currently CEO of MA Hotel Management Pty Ltd ('MAHM'), the manager
and hotel operator of Redcape. An accomplished Senior Executive with over 10
years’ experience, including 10 years’ board experience on various boards; Daniel is
a proven leader of large teams and businesses with diverse capital and ownership
structures.
Daniel’s disciplined approach to strategy development, execution and the
management of capital has seen him consistently deliver financial returns, ensuring
prosperity for all stakeholders.
Daniel values the power that capable people and systems can add to an organisation
and is acutely focused on performance with a foundation of strong ethical governance
and risk management.
Daniel is widely regarded as an industry specialist with over 25 years’ experience
from proprietary ownership of a single hotel operation to director and board member
of large hotel groups. Daniel is an active member of the Australian Hotels Association
and has contributed to the development of key policy decisions that continue to
positively impact the success and prosperity of communities and the Hotels industry.
Graduated from the Advanced Management Program, Harvard Business School
2016.
Other current directorships:
None
Former directorships (last 3 years): None
None
Special responsibilities:
Ordinary stapled securities – 576,991
Interests in stapled securities:
2 Daniel Brady is a Non-Executive Director of the Responsible Entity as he is not employed by the Group, however, is responsible for
managing the day to day affairs of the Group in his capacity as CEO of MAHM.
18
9
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II Redcape Hotel Group
Directors' report
30 June 2020
Name:
Title:
Experience and expertise:
Andrew Ireland
Independent Non-Executive Director
Andrew was appointed to the Board on 29 October 2018.
Andrew is currently Chairman of VIVID MLC, Director of Sports Australia and
Director of the Sydney Swans.
in September 2009 after
Prior to this, Andrew was Managing Director and CEO of Sydney Swans having been
appointed as CEO
in 2002 as
General Manager of Football. Since 1990, Andrew has been involved in the
management of leading Australian sporting teams including a successful tenure as
CEO of Brisbane Bears and Brisbane Lions (1990 – 2001). He led the Brisbane
Lions to their first premiership in 2001 as CEO and has overseen a strong and
successful football program and growth in commercial areas during his time at
Sydney Swans. During both tenures as CEO, Andrew had ultimate responsibility for
the AFL clubs’ substantial social clubs, which included bars, restaurants and EGMs3.
the club
joining
During his tenure at the Brisbane Lions, Andrew was appointed by the QLD Treasurer
as a Director of The Golden Casket Corporation, overseeing a gaming entity in a
highly regulated market.
Andrew holds a Bachelor of Science from La Trobe University, is a Graduate Member
of the Australian Institute of Company Directors and is a Life Member of the
Australian Football League.
Other current directorships:
None
Former directorships (last 3 years): None
Special responsibilities:
Interests in stapled securities:
Member of the Audit, Risk & Compliance Committee
Ordinary stapled securities – 50,000
Name:
Title:
Experience and expertise:
David Groves
Independent Non-Executive Director
David was appointed to the Board on 27 September 2018.
David has over 25 years’ experience as a company director.
David is a Non-Executive Director of Pengana Capital Group Limited, Pengana
International Equities Limited and Pipers Brook Vineyard Pty Ltd. He is a former director
of EQT Holdings Limited, Tassal Group Limited and GrainCorp Limited and a former
executive with Macquarie Bank Limited and its antecedent, Hill Samuel Australia. David
is a member of the Council of Wollongong University.
David is a member of the Australian Institute of Chartered Accountants and a Fellow of
the Australian Institute of Company Directors and holds a Bachelor of Commerce from
the University of Wollongong and a Master of Commerce from the University of NSW.
Pengana Capital Group Limited (ASX: PCG), Pengana International Equities Limited
(ASX: PIA)
Other current directorships:
Former directorships (last 3 years): Pyrolyx AG (ASX: PLX)
Special responsibilities:
Interests in stapled securities:
Chairman of the Audit, Risk & Compliance Committee
Ordinary stapled securities – 200,000
3 Electronic Gaming Machines (‘EGMs’).
10
19
ASX:RDCAnnual Report 2020 Redcape Hotel Group
Directors' report
30 June 2020
Name:
Title:
Experience and expertise:
Hugh Thomson
Non-Executive Director
Hugh was appointed to the Board on 26 February 2016.
Hugh is a Managing Director at Moelis Australia Limited ('Moelis Australia') within its
Advisory businesses. Prior to this, he was COO of Moelis Australia.
Hugh has over 24 years’ experience in Investment Management, with a particular
emphasis on the acquisition of alternative assets, finance and operations in Australia
across a range of industry sectors. Hugh’s previous roles include Chief Financial Officer
('CFO') and CEO of ING Real Estate Investment Management, COO of HiLife Health
& Beauty and CFO of Industrie Clothing.
Hugh has considerable expertise in managing ASX listed funds, including as an
executive Board member and Chairman of investment committees and operational risk
management committees.
Hugh is a qualified chartered accountant and holds a Bachelor of Arts (Honours) from
the University of East Anglia.
Other current directorships:
None
Former directorships (last 3 years): None
None
Special responsibilities:
Ordinary stapled securities – 50,000
Interests in stapled securities:
'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all
other types of entities, unless otherwise stated.
'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and
excludes directorships of all other types of entities, unless otherwise stated.
Company Secretary
Ms Rebecca Ong was appointed to the position of Company Secretary in October 2018.
Rebecca is General Counsel of Moelis Australia Limited ('Moelis Australia'). She has over 15 years of experience in areas
of corporate, regulatory and funds management.
Prior to joining Moelis Australia in 2018, Rebecca was Regional Counsel with UBS, with primary responsibilities for
advising its Asset Management businesses across Asia Pacific both from Sydney and Hong Kong.
Rebecca holds a Bachelor of Commerce (Finance Major) / Bachelor of Laws from the University of New South Wales and
is a Fellow with the Governance Institute of Australia.
Meetings of Directors
The number of meetings of the Responsible Entity's Board of Directors ('the Board') held during the year ended 30 June
2020, and the number of meetings attended by each Director were
Mr Nicholas Collishaw
Mr Daniel Brady (a)
Mr Andrew Ireland
Mr David Groves
Mr Hugh Thomson (a)
Full Board
Attended
Held
Sub-Committee of Board
Attended
Held
Audit, Risk & Compliance
Committee
Attended
Held
13
14
14
14
14
14
14
14
14
14
1
1
-
-
-
1
1
-
-
-
6
-
7
7
-
7
-
7
7
-
Held: represents the number of meetings held during the time the Director held office.
(a) Not a member of the Audit, Risk & Compliance Committee.
20
11
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II Redcape Hotel Group
Directors' report
30 June 2020
Remuneration report
Remuneration of the Responsible Entity is in accordance with the Constitutions of RHT I and RHT II. As the Responsible
Entity is wholly owned by Moelis Australia Limited (‘Moelis Australia’), Moelis Australia oversees the appointment of
Directors to the Board of the Responsible Entity and in this connection sets Director remuneration. Remuneration of the
Directors is paid either directly by the Responsible Entity or by entities associated with Moelis Australia. The Directors are
not provided with any remuneration by the Trusts. Directors are not entitled to any equity interests in the Trusts or any
rights to or options for equity interests in the Trusts as a result of their remuneration provided by the Responsible Entity.
There are no Directors or key management personnel employed directly by entities within the Group.
Corporate Governance Statement
Redcape Hotel Group is a stapled entity comprising of Redcape Hotel Trust I (ARSN: 629 354 614) and Redcape Hotel
Trust II (ARSN: 629 354 696). Redcape Hotel Group Management Ltd (ACN 610 990 004) is the responsible entity of
Redcape Hotel Group ('Responsible Entity') and the Board of the Responsible Entity in this capacity ('the Board') is
responsible for the overall corporate governance of Redcape and its controlled entities.
The Board has created a framework for managing Redcape, including adopting relevant internal controls, risk management
processes and corporate governance policies and practices which it believes are appropriate for Redcape’s business and
which are designed to promote the responsible management and conduct of Redcape.
The Corporate Governance Statement sets out the key features of Redcape's governance framework and reports against
the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations (4th edition) ('ASX
Principles and Recommendations').
The policies and charters referred to in the Corporate Governance Statement are available via the 'Corporate Governance'
section of Redcape's website which is available at www.redcape.com.au.
Indemnity and insurance of officers
In accordance with the Constitutions of RHT I and RHT II, the Responsible Entity is indemnified on a full indemnity basis in
respect of all taxes, costs and losses which it may pay or incur, in exercising any of its powers, rights, or obligations in
properly performing its duties in connection with RHT I and RHT II.
All Directors of the Responsible Entity are appointed by Moelis Australia. Moelis Australia has agreed to indemnify all
current and former Directors and Company Secretaries of the Responsible Entity against all liabilities to persons which
arise out of the performance of their normal duties as a Director or Company Secretary to the extent permitted by law
unless the liability relates to conduct involving wilful misconduct, bad faith or conduct known to be in breach of law.
During the financial year, RHT I and RHT II paid an insurance premium in respect of customary Directors' and Officers’
insurance coverage for the Responsible Entity. The contract of insurance prohibits disclosure of the nature of the liability
and the amount of the premium.
Indemnity and insurance of auditor
RHT I and RHT II have not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of
either trust or any related entity against a liability incurred by the auditor.
During the financial year, neither RHT I nor RHT II have paid a premium in respect of a contract to insure the auditor of
either trust or any related entity.
Proceedings on behalf of the Trusts
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on
behalf of either trust, or to intervene in any proceedings to which either trust is a party for the purpose of taking
responsibility on behalf of the trust for all or part of those proceedings.
12
21
ASX:RDCAnnual Report 2020 Redcape Hotel Group
Directors' report
30 June 2020
Non-audit services
There were no amounts paid or payable to the auditor for non-audit services providing during the current financial year.
Details of the amounts paid or payable to the auditor for non-audit services provided during the prior financial year by the
auditor are outlined in note 34 to the financial statements.
Officers of the Responsible Entity who are former partners of KPMG
There are no officers of the Responsible Entity who are former partners of KPMG.
Rounding of amounts
Amounts have been rounded to the nearest thousand dollars unless otherwise stated, in accordance with ASIC
Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191.
Auditor's independence declaration
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out
immediately after this directors' report.
Auditor
KPMG continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act
2001.
On behalf of the Directors
___________________________
Nicholas Collishaw
Chairman
19 August 2020
Sydney
___________________________
Daniel Brady
Non-Executive Director
22
13
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Redcape Hotel Group Management Ltd, as Responsible
Entity of Redcape Hotel Group
I declare that, to the best of my knowledge and belief, in relation to the audit of Redcape Hotel Group
for the financial year ended 30 June 2020 there have been:
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
i.
ii.
KPM_INI_01
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
KPMG
Paul Thomas
Partner
Sydney
19 August 2020
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
23
ASX:RDCAnnual Report 2020 Redcape Hotel Group
Consolidated statement of profit or loss and other comprehensive income
For the year ended 30 June 2020
Revenue
Cost of sales
Expenses
Operating costs
Employment costs
Management fees
Net finance costs
Depreciation expense on right-of-use assets
Depreciation expense
(Loss)/gain on disposal of non-current assets
Loss on asset revaluation
Business acquisition costs
Operating profit
Listing costs and performance fee
Profit/(loss) before income tax (expense)/benefit
Income tax (expense)/benefit
Profit/(loss) after income tax (expense)/benefit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
(Loss)/gain on the revaluation of land
Items that may be reclassified subsequently to profit or loss
Net change in the fair value of cash flow hedges taken to equity
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Profit/(loss) for the year is attributable to:
Unitholders of Redcape Hotel Trust I
Unitholders of Redcape Hotel Trust II
Total comprehensive income for the year is attributable to:
Unitholders of Redcape Hotel Trust I
Unitholders of Redcape Hotel Trust II
Consolidated
Note
2020
$'000
2019
$'000
6
259,294
285,215
(121,685)
(133,021)
7
8
9
10
19
17
16
39
11
12
(29,755)
(35,992)
(14,731)
(18,767)
(1,991)
(14,180)
(110)
(3,669)
(1,687)
(32,162)
(38,720)
(14,166)
(17,324)
-
(11,360)
502
(17,998)
(7,631)
16,727
13,335
-
(20,562)
16,727
(7,227)
(5,500)
2,297
11,227
(4,930)
(10,251)
37,573
2,404
(3,216)
(7,847)
34,357
3,380
29,427
31,327
(20,100)
10,691
(15,621)
11,227
(4,930)
23,480
(20,100)
45,048
(15,621)
3,380
29,427
Cents
Cents
Basic earnings per stapled security
Diluted earnings per stapled security
43
43
2.03
2.03
(0.93)
(0.93)
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes
24
15
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II Redcape Hotel Group
Consolidated statement of financial position
As at 30 June 2020
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Total current assets
Non-current assets
Land
Property, plant and equipment
Intangible assets
Right-of-use assets
Deferred tax
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Lease liabilities
Employee benefits
Distribution payable
Total current liabilities
Non-current liabilities
Other payables
Borrowings
Lease liabilities
Derivative financial instruments
Employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Accumulated losses
Equity attributable to the stapled securityholders of RHT II
Non-controlling interest
Total equity
Consolidated
Note
2020
$'000
2019
$'000
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
101,433
3,109
4,708
2,417
111,667
16,981
3,936
5,130
2,760
28,807
313,835
139,302
559,370
42,241
6,692
1,061,440
351,648
134,953
590,757
-
15,645
1,093,003
1,173,107
1,121,810
34,446
1,039
2,106
1,712
39,303
-
486,253
43,885
1,084
205
531,427
38,749
-
1,708
12,030
52,487
430
436,002
-
3,489
255
440,176
570,730
492,663
602,377
629,147
235,897
(68,302)
167,595
434,782
235,545
(43,293)
192,252
436,895
602,377
629,147
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
16
25
ASX:RDCAnnual Report 2020 Redcape Hotel Group
Consolidated statement of financial position
As at 30 June 2020
Equity attributable to RHT I (non-controlling interest)
Contributed equity
Reserves
Accumulated losses
Consolidated
Note
2020
$'000
2019
$'000
29
30
30
318,936
130,128
(14,282)
318,469
161,923
(43,497)
Total equity attributable to securityholders of RHT I (non-controlling interest)
434,782
436,895
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
26
17
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II Redcape Hotel Group
Consolidated statement of changes in equity
For the year ended 30 June 2020
Consolidated
Balance at 1 July 2018
Arising due to stapling arrangement
Profit/(loss) after income tax benefit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with stapled securityholders in their capacity as
stapled securityholders:
Contributions of equity, net of transaction costs (note 29)
Distribution payable (note 31)
Distributions paid (note 31)
Issued
capital
$'000
Accumulated
losses
$'000
Non-
controlling
interest
$'000
Total equity
$'000
199,549
(1,156)
-
198,393
-
-
-
-
(26,516)
387,410
360,894
(15,621)
-
10,691
34,357
(4,930)
34,357
(15,621)
45,048
29,427
35,996
-
-
-
-
-
50,708
(12,030)
(34,241)
86,704
(12,030)
(34,241)
Balance at 30 June 2019
235,545
(43,293)
436,895
629,147
Consolidated
Balance at 1 July 2019
Issued
capital
$'000
Accumulated
losses
$'000
Non-
controlling
interest
$'000
Total equity
$'000
235,545
(43,293)
436,895
629,147
Adjustment to opening retained earnings on transition to
AASB 16, net of tax
-
(4,909)
-
(4,909)
Balance at 1 July 2019 - restated
235,545
(48,202)
436,895
624,238
Profit/(loss) after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with stapled securityholders in their capacity as
stapled securityholders:
Distribution reinvestment plans
Distribution payable (note 31)
Distributions paid (note 31)
-
-
-
352
-
-
(20,100)
-
31,327
(7,847)
11,227
(7,847)
(20,100)
23,480
3,380
-
-
-
467
(1,712)
(24,348)
819
(1,712)
(24,348)
Balance at 30 June 2020
235,897
(68,302)
434,782
602,377
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
18
27
ASX:RDCAnnual Report 2020 Redcape Hotel Group
Consolidated statement of cash flows
For the year ended 30 June 2020
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Interest and other finance costs paid (a)
Net cash from operating activities
Cash flows from investing activities
Payment for business acquisition, net of cash acquired
Business acquisition transaction costs
Payments for property, plant and equipment
Payments for intangibles
Proceeds from disposal of business
Proceeds from disposal of property, plant and equipment
Net cash from/(used in) investing activities
Cash flows from financing activities
Proceeds from issue of stapled securities
Transaction costs from issue of stapled securities
Proceeds from borrowings
Repayment of borrowings
Repayment of leases
Distributions paid
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Consolidated
Note
2020
$'000
2019
$'000
42
39
17
18
29
31
286,080
(229,990)
311,559
(257,638)
56,090
162
(23,348)
53,921
259
(18,183)
32,904
35,997
(38,426)
(1,687)
(19,943)
(880)
95,682
253
(153,349)
(7,631)
(25,182)
-
20,430
112
34,999
(165,620)
819
-
152,650
(99,350)
(1,192)
(36,378)
89,757
(3,724)
119,000
(49,000)
-
(44,484)
16,549
111,549
84,452
16,981
(18,074)
35,055
Cash and cash equivalents at the end of the financial year
13
101,433
16,981
(a) Financial year 2020 includes one-off refinancing establishment costs of $4.8 million and hedge break costs of $3.8
million.
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes
28
19
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 1. General Information
Reporting Entity
In accordance with AASB 3 Business Combinations one of the entities in the stapled structure is required to be identified
as the parent for the purpose of preparing consolidated financial reports. In accordance with this requirement, RHT II was
identified as the parent entity.
Redcape is a for-profit entity and its principal activity is the ownership and operation of hotels. There has been no
significant change in the nature of the principal activities during the year.
Responsible Entity
Redcape Hotel Group Management Ltd ('RHGM') is the Responsible Entity of RHT I and RHT II effective 24 October 2018.
Scheme Registration
RHT I (ARSN 629 354 614) and RHT II (ARSN 629 354 696) are domiciled in Australia and were registered as managed
investment schemes on 26 October 2018 under the Corporations Act 2001.
Note 2. Basis of preparation
The Responsible Entity has prepared General Purpose consolidated financial statements for the year ended 30 June 2020
for the purpose of meeting the listing requirements of the Australian Securities Exchange ('ASX').
Compliance Statement
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and
Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as
appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards Board ('IASB').
The financial report has been prepared on a going concern basis. Notwithstanding the ongoing COVID-19 pandemic, the
Group is well placed to manage the volatility around COVID-19. It has strong liquidity, demonstrated cost management
capability, a motivated workforce and supportive customers. It is well positioned should regulatory restrictions be eased
and conversely, to withstand a more difficult environment where restrictions are tightened. Since the return to full
operations on 3 July 2020, the Group has experienced strong revenue performance. Underlying Operating EBITDA in July
20204 was above July 2019.
The consolidated financial report as at and for the year ended 30 June 2020 was approved by the directors of the
Responsible Entity on 19 August 2020.
Comparative figures
During financial year 2020, Redcape modified the classification of certain line items. In the consolidated statement of
financial position, capitalised borrowing costs have been reclassified from other current assets to non-current liabilities -
borrowings. As a result, the financial statements have been corrected by reclassifying each of the affected financial
statement line items for the prior period.
Basis of measurement
The financial statements have been prepared on the historical cost basis, except for the following that are measured at fair
value:
- land; and
- derivative financial instruments.
The methods used to measure fair values are discussed in the relevant notes.
4 Excludes JobKeeper.
20
29
ASX:RDCAnnual Report 2020 Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 2. Basis of preparation (continued)
Functional and presentation currency
The consolidated financial statements are presented in Australian dollars, which is Redcape's functional currency and
amounts have been rounded to the nearest thousand dollars unless otherwise stated, in accordance with ASIC
Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191.
Use of estimates and judgements
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying accounting policies. Estimates and judgements affect the
application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised and in any future periods affected.
The significant judgements made by management in applying Redcape’s accounting policies and the key sources of
estimation uncertainty were the same as those described in the last annual financial statements, except for the new
significant judgements related to lessee accounting under AASB 16, which are described in note 3.
Note 3. Significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
New or amended Accounting Standards and Interpretations adopted
Redcape has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian
Accounting Standards Board ('AASB') that are mandatory for the current reporting period.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.
The following Accounting Standards and Interpretations are most relevant to Redcape:
AASB 16 Leases
Redcape has adopted AASB 16 from 1 July 2019. AASB 16 introduced a single, on-balance sheet accounting model for
lessees. As a result, Redcape, as a lessee, has recognised right-of-use assets representing its rights to use the underlying
assets and lease liabilities representing its obligation to make lease payments. Lessor accounting remains similar to
previous accounting policies.
Redcape has applied AASB 16 using the modified retrospective approach, under which the cumulative effect of initial
application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for 2019
has not been restated - i.e. it is presented, as previously reported, under AASB 117 and related interpretations. The details
of the changes in accounting policies are disclosed below.
(a) Definition of a lease
Previously, Redcape determined at contract inception whether an arrangement was or contained a lease under AASB
Interpretation 4 Determining Whether an Arrangement contains a Lease. Redcape now assesses whether a contract is or
contains a lease based on the new definition of a lease. Under AASB 16, a contract is, or contains, a lease if the contract
conveys a right to control the use of an identified asset for a period of time in exchange for consideration. On transition to
AASB 16, Redcape elected to apply the practical expedient to grandfather the assessment of which transactions are
leases. It applied AASB 16 only to contracts that were previously identified as leases. Contracts that were not identified as
leases under AASB 117 and AASB Interpretation 4 were not reassessed. Therefore, the definition of a lease under AASB
16 has been applied only to contracts entered into or exchanged on or after 1 July 2019.
At inception or on reassessment of a contract that contains a lease component, Redcape allocates the consideration in the
contract to each lease and non-lease component based of their relative stand-alone prices.
30
21
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 3. Significant accounting policies (continued)
(b) As a lessee
Redcape leases many assets, including properties and equipment. As a lessee, Redcape previously classified leases as
operating or finance lease based on its assessment of whether the lease transferred substantially all of the risks and
rewards of ownership. Under AASB 16, Redcape recognises right-of-use assets and lease liabilities for most leases i.e.
these leases are on balance sheet.
However, Redcape has elected not to recognise right-of-use assets and lease liabilities for some leases of low-value
assets (e.g. equipment). Redcape recognises the lease payments associated with these leases as an expense on a
straight-line basis over the lease term.
The carrying amounts of right-of-use assets relate to land and building are $23.8 million at 1 July 2019 and $42.2 million at
30 June 2020.
(i) Changes in significant accounting policies
Redcape recognises a right-of-use asset and lease liability at the lease commencement date. The right-of-use asset is
initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and
adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, Redcape’s
incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by the lease payment
made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a
change in the estimate of the amount expected to be payable under the residual value guarantee, or as appropriate,
changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a
termination option is reasonably certain not to be exercised.
Redcape has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include
renewal options. The assessment of whether Redcape is reasonably certain to exercise such options impacts the lease
term, which significantly affects the amount of lease liabilities and right-of-use assets recognised.
(ii) Transition
Previously, Redcape classified property leases as operating leases under AASB 117. The leases typically run for a period
of 15 to 20 years. Some leases include an option to renew the lease for an additional 10 to 15 years after the end of the
non-cancellable period. Some leases provide for additional rent payments that are based on changes in local price indices.
At transition, for leases classified as operating leases under AASB 117, lease liabilities were measured at the present
value of the remaining lease payments, discounted at Redcape’s incremental borrowing rate as at 1 July 2019. Right-of-
use assets are measured at their carrying amount as if AASB 16 had been applied since the commencement date,
discounted using the lessee’s incremental borrowing rate at the date of initial application.
Redcape used the following practical expedients when applying AASB 16 to leases previously classified as operating
leases under AASB 117.
●
Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease
term.
Excluded initial direct costs from measuring the right-of-use asset at the date of initial application.
Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
●
●
(c) Impacts on financial statements
(i) Impacts on transition
On transition to AASB 16, Redcape recognised additional right-of-use assets and additional lease liabilities, recognising
the difference in retained earnings. The impact on transition is summarised below.
22
31
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 3. Significant accounting policies (continued)
Right-of-use assets
Deferred tax
Total assets impact
Current lease liabilities
Non-current lease liabilities
Non-current other payables
Total liabilities impact
Accumulated losses
Total equity impact
As reported
30 June 2019
$'000
AASB 16
transition
adjustments
Adjusted opening
balance
1 July 2019
$'000
-
15,645
15,645
-
-
(430)
(430)
(43,293)
(43,293)
23,753
(3,456)
20,297
(867)
(24,769)
430
(25,206)
(4,909)
(4,909)
23,753
12,189
35,942
(867)
(24,769)
-
(25,636)
(48,202)
(48,202)
When measuring lease liabilities for leases that were classified as operating leases, Redcape discounted lease payments
using its incremental borrowing rate at 1 July 2019. The weighted average rate applied is 2.92%.
Operating lease commitment at 30 June 2019 as disclosed in Redcape’s consolidated financial statements
Discounted using the incremental borrowing rate at 1 July 2019
Lease liabilities recognised at 1 July 2019
(ii) Impact for the period
1 July 2019
$'000
33,118
(7,482)
25,636
As a result of initially applying AASB 16, in relation to the leases that were previously classified as operating leases,
Redcape recognised $42.2 million right-of-use assets and $44.9 million of lease liabilities as at 30 June 2020.
Also in relation to those leases under AASB 16, Redcape has recognised depreciation and interest costs, instead of
operating lease expense. During the year ended 30 June 2020, Redcape recognised $2.0 million of depreciation charges
and $0.8 million of interest costs from these leases.
Cash paid in relation to the leases under AASB16 are separated into a principal portion (presented within the financing
activities) and interest presented within operating activities). Redcape recognised $1.2 million repayment of leases and
$0.8 million lease interest paid during the year ended 30 June 2020.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of RHT II as at 30 June 2020
and the results of all subsidiaries for the year then ended. RHT II and its subsidiaries together are referred to in these
financial statements as 'Redcape'.
Subsidiaries are all those entities over which Redcape has control. Redcape controls an entity when Redcape is exposed
to, or has rights to, variable returns from its involvement with the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to Redcape. They are de-consolidated from the date that control ceases.
32
23
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 3. Significant accounting policies (continued)
Intercompany transactions, balances and unrealised gains on transactions between entities in Redcape are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.
Accounting policies of subsidiaries align with the policies adopted by Redcape.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest,
without the loss of control, is accounted for as an equity transaction, where the difference between the consideration
transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity
attributable to the parent.
Where Redcape loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling
interest in the subsidiary together with any cumulative translation differences recognised in equity. Redcape recognises the
fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit
or loss.
Operating segments
Operating segments are presented using the 'management approach', where the information presented is on the same
basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). Redcape operates wholly within
one business segment being the ownership and operation of hotels in Australia.
Revenue recognition
Redcape recognises revenue as follows:
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the consideration to which Redcape is expected to be entitled in
exchange for transferring goods or services to a customer. For each contract with a customer, Redcape identifies the
contract with a customer, identifies the performance obligations in the contract, determines the transaction price which
takes into account estimates of variable consideration and the time value of money, allocates the transaction price to the
separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be
delivered and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer
to the customer of the goods or services promised.
Variable consideration is not material in the context of Redcape's 'total revenue'.
Gaming revenue
Gaming revenue is the net difference between gaming wins and losses and is recognised upon the outcome of the game at
the close of business.
Food and beverage revenue (On-premise and Off-premise)
Food and beverage revenue is recognised at the point in time the goods are provided and payment is collected.
Accommodation and other services
Revenue from accommodation and other services are recognised as services are performed.
Interest
Interest income is recognised using the effective interest method.
Government grants
Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them
with the costs that they are intended to compensate.
Income tax
RHT I
Under current income tax legislation, RHT I is not liable for income tax provided unit holders are presently entitled to all of
RHT I’s income at 30 June each year.
24
33
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 3. Significant accounting policies (continued)
RHT II
The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the
applicable income tax rate, adjusted by the changes in deferred tax assets and liabilities attributable to temporary
differences, unused tax losses and the adjustment recognised for prior periods, where applicable.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when
the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted,
except for:
● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor
taxable profits; or
● When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the
timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable
future.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those temporary differences and losses.
The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred
tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for
the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is
probable that there are future taxable profits available to recover the asset.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets
against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable
authority on either the same taxable entity or different taxable entities which intend to settle simultaneously.
RHT II and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax
consolidation regime, effective July 2017 and are taxed as a single entity from that date. The head entity and each
subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax
consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of
taxes to allocate to members of the tax consolidated group.
In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets)
and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax
consolidated group. These are recognised as amounts payable to or receivable from other entities in the tax consolidated
group in conjunction with any tax funding arrangement amount.
The members of the tax consolidated group have entered into a tax funding arrangement which sets out the funding
obligations of members of the tax consolidated group in respect of tax amounts. The tax funding arrangement requires
payments to or from the head entity equal to the current tax liability or asset assumed by the head entity and any tax-loss
deferred tax asset assumed by the head entity.
The members of the tax consolidated group have also entered into a tax sharing agreement. The tax sharing agreement
provides for the determination of the allocation of income tax liabilities between the entities should the head entity default
on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement
as payment of any amounts under the tax sharing agreement is considered remote.
In determining the amount of current and deferred tax RHT II takes into account the impact of uncertain tax positions and
whether additional taxes and interest may be due. RHT II believes that its accruals for tax liabilities are adequate for all
open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This
assessment relies on estimates and assumptions and may involve a series of judgements about future events. New
information may become available that causes RHT II to change its judgement regarding the adequacy of existing tax
assets and liabilities; such changes to tax assets and liabilities will impact tax expense in the period such a determination is
made.
Redcape has tested the recoverability of tax losses in light of recent events and derecognised $1.1 million tax benefit for
carried forward tax losses as the forecast recoverability period is beyond five years.
34
25
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 3. Significant accounting policies (continued)
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly
liquid investments with original maturities of three months or less.
Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective
interest method, less any allowance for expected credit losses.
Redcape has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss
allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue.
Other receivables are recognised at amortised cost, less any allowance for expected credit losses.
Inventories
Inventories include food and beverages, these are costed on a weighted average basis and stated at the lower of cost and
net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale.
Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on
whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
Derivatives are classified as current or non-current depending on the expected period of realisation.
Cash flow hedges
Cash flow hedges are used to hedge Redcape's interest rate risk exposures. The effective portion of the gain or loss on the
hedging instrument is recognised in other comprehensive income through the cash flow hedges reserve in equity, whilst
the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in
the measurement of the hedged transaction when the forecast transaction occurs.
Cash flow hedges are tested for effectiveness on a regular basis prospectively to ensure that each hedge is highly effective
and continues to be designated as a cash flow hedge. If the forecast transaction is no longer expected to occur, the
amounts recognised in equity are transferred to profit or loss.
If the hedging instrument is sold, terminated, expires, exercised without replacement or rollover, or if the hedge becomes
ineffective and is no longer a designated hedge, the amounts previously recognised in equity remain in equity until the
forecast transaction occurs.
Property, plant and equipment
Recognition and measurement
With the exception of land, all other items of property, plant and equipment are measured at cost less accumulated
depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets
includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working
condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are
located, and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is
capitalised as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate
items (major components) of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from
disposal with the carrying amount of property, plant and equipment and are recognised net within other income in profit or
loss.
26
35
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 3. Significant accounting policies (continued)
Subsequent costs
The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it
is probable that the future economic benefits embodied within the part will flow to Redcape, and its cost can be measured
reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant
and equipment are recognised in profit or loss as incurred.
Depreciation
Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost,
less its residual value. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of
each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption
of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term
and their useful lives unless it is reasonably certain that Redcape will obtain ownership by the end of the lease term.
The estimated useful lives are as follow:
Freehold buildings
Property improvements
Furniture, fittings and equipment
Software
40 - 150 years
7 - 40 years
7 - 15 years
4 - 7 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting
date.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to
Redcape. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any
revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits.
Revaluation
Land is recognised at fair value based on periodic valuations by external independent valuers and/or six month director
valuations.
The valuations are undertaken more frequently if there is a material change in the fair value relative to the carrying amount.
Increases in the carrying amounts arising on revaluation of land are recognised in other comprehensive income and
accumulated in other reserves in shareholders’ equity. To the extent that the increase reverses a decrease previously
recognised in profit or loss, the increase is first recognised in profit or loss. Decreases that reverse previous increases of
the same asset are first recognised in other comprehensive income to the extent of the remaining surplus attributable to
the asset; all other decreases are charged to profit or loss.
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which
comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the
commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in
the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset,
and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful
life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of
the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted
for any remeasurement of lease liabilities.
The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with
terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss
as incurred.
36
27
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 3. Significant accounting policies (continued)
Intangible assets
Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value
at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible
assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are
subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss
arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the
carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually.
Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation
method or period.
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for
impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at
cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not
subsequently reversed.
Gaming licences
Separately acquired Gaming licences are shown at historical cost. Gaming licences acquired in a business combination
are recognised at fair value at the acquisition date. They have an indefinite useful life and are subsequently carried at cost
less accumulated impairment losses.
Gaming licences are not amortised but tested for impairment annually, or more frequently if events or changes in
circumstances indicate that they might be impaired, and are carried at cost less accumulated impairment losses.
Liquor licences
Separately acquired Liquor licences are shown at historical cost. Liquor licences acquired in a business combination are
recognised at fair value at the acquisition date. They have an indefinite useful life and are subsequently carried at cost less
accumulated impairment losses.
Liquor licences are not amortised but tested for impairment annually, or more frequently if events or changes in
circumstances indicate that they might be impaired, and are carried at cost less accumulated impairment losses.
Impairment
Non-financial assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested
annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.
Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the
present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or
cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to
form a cash-generating unit.
Financial assets
Redcape recognises a loss allowance for expected credit losses on financial assets which are either measured at
amortised cost. Redcape has adopted a lifetime expected loss allowance in estimating expected credit losses to trade
receivables. These provisions are considered representative across all customers of Redcape based on recent sales
experience, historical collection rates and forward-looking information that is available.
Trade and other payables
These amounts represent liabilities for goods and services provided to Redcape prior to the end of the financial year and
which are unpaid. Due to their short-term nature they are measured at amortised cost, are unsecured and are not
discounted.
28
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ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 3. Significant accounting policies (continued)
Loans and borrowings
Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They
are subsequently measured at amortised cost using the effective interest method.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present
value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed
payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts
expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option
is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend
on an index or a rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured
if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual
guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an
adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use
asset is fully written down.
Finance costs
Finance costs are expensed in the period in which they are incurred. Finance costs comprise interest expense on
borrowings, using the effective interest rate method, and unwinding of the discount on provisions.
Provisions
Provisions are recognised when Redcape has a present (legal or constructive) obligation as a result of a past event, it is
probable Redcape will be required to settle the obligation, and a reliable estimate can be made of the amount of the
obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present
obligation at the reporting date, considering the risks and uncertainties surrounding the obligation. If the time value of
money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the
provision resulting from the passage of time is recognised as a finance cost.
Employee benefits
Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service
is provided.
Other long-term employee benefits
The liability for long service leave not expected to be settled within 12 months of the reporting date are measured at the
present value of expected future payments to be made in respect of services provided by employees up to the reporting
date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience
of employee departures and periods of service. Expected future payments are discounted using market yields at the
reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the
estimated future cash outflows.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the
fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date; and assumes that the transaction will take place either: in the
principal market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its
highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data is
available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
38
29
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 3. Significant accounting policies (continued)
Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and
transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair
value measurement.
For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either
not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge
and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an
analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison,
where applicable, with external sources of data.
Issued capital
Ordinary stapled securities are classified as equity.
Incremental costs directly attributable to the issue of new stapled securities or options are shown in equity as a deduction,
net of tax, from the proceeds.
Distributions
Distributions are recognised when declared during the financial year and no longer at the discretion of the trust.
Provision is made for the amount of any distribution declared, being appropriately authorised and no longer at the
discretion of the trust, on or before the end of the financial year but not distributed at the reporting date.
Business combinations
The acquisition method of accounting is used to account for business combinations regardless of whether equity
instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments
issued, or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling
interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at the
proportionate share of identifiable net assets of the acquiree. All acquisition costs are expensed as incurred to profit or
loss.
On the acquisition of a business, Redcape assesses the financial assets acquired and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic conditions, Redcape's operating or
accounting policies and other pertinent conditions in existence at the acquisition-date.
Where the business combination is achieved in stages, Redcape remeasures its previously held equity interest in the
acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is
recognised in profit or loss.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent
changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss.
Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within
equity.
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling
interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment
in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair
value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a
gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and
measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred
and the acquirer's previously held equity interest in the acquirer.
30
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ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 3. Significant accounting policies (continued)
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the
provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based
on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement
period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the
information possible to determine fair value.
Goods and Services Tax ('GST') and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part
of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of
financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.
Note 4. Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions that
affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in
relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates
and assumptions on historical experience and on other various factors, including expectations of future events, which
management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will
seldom equal the related actual results. These judgements, estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next
financial year are discussed below.
Valuation of land
The fair value of land is reviewed regularly by management with reference to external independent valuations, recent offers
and market conditions existing at reporting date, using generally accepted market practices. The critical assumptions
underlying management’s estimates of fair value are those relating to the capitalisation rate, adopted earnings, market rent
assessment and notional fair value of licences and buildings. If there is any change in these assumptions or economic
conditions, the fair value of the land may differ. Refer to note 33 for additional information about the valuation approach,
inputs and sensitivities.
The COVID-19 pandemic has created unprecedented uncertainty of the economic environment, in particular the lack of
market transactions which are ordinarily a strong source of evidence for valuations of Freehold Going Concern properties
and resultant land valuations. In the absence of more fulsome market data at 30 June 2020, management have considered
the impact that COVID-19 may have on estimated yields. Management believe that transaction data may show an
expansion in capitalisation rates reflective of the impact that shutdown risk may have on future earnings.
Actual economic events and conditions in future may be materially different from those estimated by the Group at the
reporting date. In the event the COVID-19 pandemic impacts are more severe or prolonged than anticipated, this may have
further adverse impacts to the fair value of the Group’s land valuation.
Fair value measurement hierarchy
Redcape is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the
lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in
active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other
than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level
3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair
value and therefore which category the asset or liability is placed in can be subjective.
40
31
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 4. Critical accounting judgements, estimates and assumptions (continued)
Goodwill and other indefinite life intangible assets
Redcape tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill
and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in
note 3. The recoverable amounts of cash-generating units have been determined based on the higher of fair value less
costs of disposal and value-in-use calculations. These calculations require the use of assumptions, including estimated
discount rates based on the current cost of capital, growth rates of the estimated future cash flows and terminal growth
rates. Note 18 includes further details of key assumptions used in recoverable amount models related to these assets.
Impairment of non-financial assets other than goodwill and other indefinite life intangible assets
Redcape assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each
reporting date by evaluating conditions specific to Redcape and to the particular asset that may lead to impairment. If an
impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal
or value-in-use calculations, which incorporate a number of key estimates and assumptions. Notes 18 and 33 include
further details of key assumptions used in recoverable amount models related to these assets.
Lease term
The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement
is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the
underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods
to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical
incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease
commencement date. Factors considered may include the importance of the asset to Redcape's operations; comparison of
terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant leasehold
improvements; and the costs and disruption to replace the asset. Redcape reassesses whether it is reasonably certain to
exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in
circumstances.
Incremental borrowing rate
Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to
discount future lease payments to measure the present value of the lease liability at the lease commencement date. Such
a rate is based on what Redcape estimates it would have to pay a third party to borrow the funds necessary to obtain an
asset of a similar value to the right-of-use asset, with similar terms, security and economic environment.
Note 5. Operating segments
Identification of reportable operating segments
Redcape operates as one business segment being the owner and/or operator of hotels, and in one geographic segment
being Australia. These operating segments are based on the internal reports that are reviewed and used by the Board of
Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in
determining the allocation of resources. There is no aggregation of operating segments.
The CODM assesses the performance of the operating segment based on a measure of Underlying Operating EBITDA,
Distributable Earnings per Stapled Security and Underlying NPAT. The accounting policies adopted for internal reporting to
the CODM are consistent with those adopted in the financial statements.
The information is reported to the CODM on a monthly basis.
Note 6. Revenue
Disaggregation of revenue
The disaggregation of revenue from contracts with customers is as follows:
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41
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 6. Revenue (continued)
Major revenue streams
Gaming revenue
On-premise revenue
Off-premise revenue
Other services
Revenue
Consolidated
2020
$'000
2019
$'000
157,131
50,977
50,051
1,135
179,099
56,877
48,022
1,217
259,294
285,215
All major revenue streams are within Australia and timing of revenue recognition is when goods or services transferred.
Note 7. Operating costs
Administrative expenses
Advertising and marketing expenses
Operating expenses
Repairs and maintenance expenses
Property outgoing expenses
Rental expenses relating to operating leases
Short-term lease payments
Note 8. Employment costs
Employment costs
Consolidated
2020
$'000
2019
$'000
3,812
4,701
10,121
2,376
8,592
-
153
3,287
5,082
11,771
2,161
8,613
1,248
-
29,755
32,162
Consolidated
2020
$'000
2019
$'000
35,992
38,720
Employment costs include defined contribution superannuation expense amounting to $3.0 million (30 June 2019: $3.1
million) and JobKeeper benefit of $2.7 million (30 June 2019: nil).
Note 9. Management fees
Hotel operating fee (a)
Asset management fee
(a) Prior period includes $1.45 million waiver of the hotel operating fee.
42
33
Consolidated
2020
$'000
2019
$'000
9,449
5,282
9,138
5,028
14,731
14,166
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 10. Net finance costs
Finance income
Finance costs
Interest on lease liabilities
Hedge break costs
Capitalised loan establishment costs written off
Note 11. Listing costs and performance fee
Listing costs (a)
Performance fee (b)
Total listing costs and performance fee
Consolidated
2020
$'000
2019
$'000
(162)
14,094
843
3,821
171
(259)
17,583
-
-
-
18,767
17,324
Consolidated
2020
$'000
2019
$'000
-
-
-
6,762
13,800
20,562
(a) Prior period expensed costs associated with listing Redcape on the ASX.
(b) Prior period fee payable to the Responsible Entity, in its personal capacity, on the overall performance of Redcape and
realised upon IPO event. Comprises fee of $13.5 million plus non-claimable GST of $0.3 million.
Note 12. Income tax expense/(benefit)
Income tax expense/(benefit)
Deferred tax - origination and reversal of temporary differences
Aggregate income tax expense/(benefit)
Deferred tax included in income tax expense/(benefit) comprises:
Decrease/(increase) in deferred tax assets (note 20)
Numerical reconciliation of income tax expense/(benefit) and tax at the statutory rate
Profit/(loss) before income tax (expense)/benefit
Tax at the statutory tax rate of 30%
Prior year tax losses derecognised (a)
Trust profit not subject to tax and transactions between group entities
Non-deductible expenses
Gain on disposal of business
Prior year adjustment
Income tax expense/(benefit)
Consolidated
2020
$'000
2019
$'000
5,500
(2,297)
5,500
(2,297)
5,500
(2,297)
16,727
(7,227)
5,018
(2,168)
1,105
(2,576)
307
1,625
21
-
(787)
658
-
-
5,500
(2,297)
34
43
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 12. Income tax expense/(benefit) (continued)
Amounts credited directly to equity
Deferred tax assets (note 20)
Consolidated
2020
$'000
2019
$'000
-
(674)
(a) During the year ended 30 June 2020, RHT II utilised $12.9 million of carried forward tax losses, resulting in unutilised
tax losses of $3.7 million at year end.
While the Group expects to be able to utilise these tax losses in the future, the forecast period of recoverability is in
excess of five years. This has been driven by deduction of prior period IPO and equity raising costs. As such, a deferred
tax benefit has not been recognised on the carried forward tax losses.
Note 13. Current assets - cash and cash equivalents
Cash and cash equivalents
Note 14. Current assets - trade and other receivables
Trade receivables
Other receivables (a)
(a) Includes receivables from supplier rebates and government subsidy relating to JobKeeper.
Allowance for expected credit losses
There was no expense for expected credit losses for the year ended 30 June 2020.
Note 15. Current assets - other current assets
Prepayments
Consolidated
2020
$'000
2019
$'000
101,433
16,981
Consolidated
2020
$'000
2019
$'000
117
2,992
514
3,422
3,109
3,936
Consolidated
2020
$'000
2019
$'000
2,417
2,760
44
35
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 16. Non-current assets - Land
Land - at valuation
Reconciliation
Reconciliation of the fair values at the beginning and end of the current and previous
financial year are set out below:
Opening fair value
Disposals - business (a)
Additions - business acquisitions (a)
Revaluation (decrements)/increments (b)
Adjustment arising from stapling arrangement
Closing fair value
Consolidated
2020
$'000
2019
$'000
313,835
351,648
351,648
(31,239)
7,346
(13,920)
-
-
(1,821)
40,756
20,453
292,260
313,835
351,648
Refer to note 33 for further information on fair value measurement.
(a) Note 39 details the treatment for business combinations and disposals.
(b) Total revaluation decrement of $13.9 million includes loss of $10.2 million recognised in the asset revaluation reserve
and loss of $3.7 million recognised in the income statement.
Note 17. Non-current assets - property, plant and equipment
Buildings - at cost
Less: Accumulated depreciation
Property improvements - at cost
Less: Accumulated depreciation
Furniture, fittings & equipment - at cost
Less: Accumulated depreciation
Work in progress - at cost
Consolidated
2020
$'000
2019
$'000
59,349
(3,435)
55,914
52,205
(5,368)
46,837
49,620
(15,891)
33,729
59,505
(2,033)
57,472
37,189
(2,615)
34,574
41,869
(9,691)
32,178
2,822
10,729
139,302
134,953
36
45
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 17. Non-current assets - property, plant and equipment (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Balance at 1 July 2018
Disposals
Disposals - business (a)
Additions
Additions - business acquisitions (a)
Adjustment arising from stapling arrangement
Transfers in/(out)
Depreciation expense
Balance at 30 June 2019
Disposals
Disposals - business (a)
Additions
Additions - business acquisitions (a)
Transfers in/(out)
Depreciation expense
Building
$'000
Property
improve-
ments
$'000
Furniture,
fittings &
equipment
$'000
Work in
progress
$'000
-
-
(4,841)
86
16,751
46,804
-
(1,328)
57,472
-
(675)
-
564
-
(1,447)
23,537
(839)
(264)
3,518
-
-
10,634
(2,012)
34,574
(322)
(2,101)
-
534
17,677
(3,525)
25,416
(133)
(710)
6,513
6,975
-
2,137
(8,020)
32,178
(343)
(1,279)
-
2,339
10,042
(9,208)
8,549
-
(114)
15,065
-
-
(12,771)
-
10,729
(56)
(75)
19,943
-
(27,719)
-
Total
$'000
57,502
(972)
(5,929)
25,182
23,726
46,804
-
(11,360)
134,953
(721)
(4,130)
19,943
3,437
-
(14,180)
Balance at 30 June 2020
55,914
46,837
33,729
2,822
139,302
(a) Note 39 details the treatment for business combinations and disposals.
There has been no impairment recognised in relation to property, plant and equipment (‘PPE’) at 30 June 2020 (30 June
2019: nil). Refer to note 18.
Note 18. Non-current assets - intangible assets
Goodwill - at cost
Gaming and liquor licences - at cost
Consolidated
2020
$'000
2019
$'000
303,106
327,714
256,264
263,043
559,370
590,757
46
37
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 18. Non-current assets - intangible assets (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Balance at 1 July 2018
Additions - business acquisitions
Disposals - business (a)
Adjustment arising from stapling arrangement
Balance at 30 June 2019
Additions - business acquisitions (note 39)
Additions
Disposals - business (a)
Gaming and
liquor
licences
Goodwill
$'000
$'000
278,461
56,275
(7,022)
-
327,714
7,576
-
(32,184)
-
37,423
(5,509)
231,129
263,043
20,141
880
(27,800)
Total
$'000
278,461
93,698
(12,531)
231,129
590,757
27,717
880
(59,984)
Balance at 30 June 2020
303,106
256,264
559,370
(a) Note 39 details the treatment for business combinations and disposals.
Impairment testing
(i) Goodwill
Determining whether goodwill is impaired requires an estimation of the value-in-use (‘VIU’) of the group of cash-generating
units (‘CGUs’) to which goodwill has been allocated. These calculations reflect an estimated cash flow projection based on
a five-year forecast and requires the use of assumptions, including estimated discount rates, growth rates of estimated
future cash flows, and terminal growth rates.
The VIU method used in determining the recoverable amount of the group of CGUs is affected by management’s
assumptions used in the calculation. A summary of the key assumptions used in the calculation is detailed below.
Estimated future cash flows in Year 1 are based on a budget that has been approved by the Board. The budget reflects
forecasted trading performance considering current trading restrictions. The Group is expected to return to trading
performance pre-COVID restrictions in Year 2. These cash flows are projected for a further three years (i.e. Years 3 to 5)
based on an annualised growth rate of 3.0% (30 June 2019: 3.0%). The growth rate has been determined with reference to
historical performance of the Group.
The discount rates used in the VIU calculations are pre-tax and reflect management’s estimate of the time value of money,
as well as the risks specific to the Group. The discount rates have been determined using the weighted average cost of
capital and the current market risk-free rate, adjusted for relevant business risks. Discount rate applied in the current year
value-in-use model: 7.69% (30 June 2019: 8.10%).
A terminal growth rate of 2.96% (30 June 2019: 3.0%) has been assumed in the VIU calculation and reflects the long-term
growth expectations beyond the five-year forecast horizon, considering both industry comparatives and Redcape’s
consistent outperformance. In light of COVID-19, management have also modelled the impact of a six-month business
shutdown once every hundred years in the derived outcome of terminal growth rate.
Management has based the VIU calculations on the historical performance and future prospects of the business as
reported to the CODM, taking into consideration the like-for-like historical growth and impacts of COVID-19 on current
trading performance.
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ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 18. Non-current assets - intangible assets (continued)
Sensitivity
Management believes that based on current economic conditions and Group performance, any reasonably possible
change in the key assumptions used would not result in the Group’s carrying amount to exceed its recoverable amount and
result in a material impairment.
The below table shows the key assumptions used in the VIU calculation and the amount by which each key assumption
must change in isolation in order for the estimated recoverable amount to be equal to its carrying value.
Pre-tax
discount rate
%
Terminal
value
%
Assumptions used in value in use calculation
Rate required for recoverable amount to equal carrying value (a)
7.69%
8.69%
2.96%
1.82%
(a) Each rate is determined in isolation.
The above table excludes growth rates of future cash flows as this key assumption is not sensitive in determining
impairment of goodwill. Material changes to short-term cash flows do not result in estimated recoverable amount being less
than its carrying value.
There has been no impairment recognised in relation to goodwill at 30 June 2020 (30 June 2019: nil).
(ii) CGU assets comprising gaming and liquor licences and other non-financial assets
Gaming and liquor licences
In accordance with AASB 138, gaming and liquor licences are accounted for at cost. As both gaming and liquor licences
are not subject to renewal and do not have an expiry date, these are considered to have an indefinite useful life and are
tested for impairment annually.
Gaming and liquor licences of $256.3m are allocated across the Group’s 32 hotels, which equates to an average intangible
asset value of $8.0m per hotel.
Other non-financial assets
Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Due to the ongoing COVID-19 pandemic, these assets have been assessed for
impairment as outlined below.
Impairment assessment
Redcape tests assets for impairment at the CGU level being each individual hotel. This is the smallest group of assets that
independently generate cash flows and whose cash flow is largely independent of the cash flows generated by other
assets.
Redcape assesses the recoverable amount of each CGU based on the higher of its fair value less costs to dispose
('FVLCD') and VIU. The carrying amount of each CGU comprises land at fair value, buildings at cost less accumulated
depreciation, plant and equipment at cost less accumulated depreciation, work in progress and intangibles at cost
comprising gaming and liquor licences, and right-of-use assets less lease liabilities. At 30 June 2020, FVLCD methodology
was adopted for 29 hotels and VIU methodology adopted for the remaining 3 hotels.
FVLCD includes an estimate of the CGU’s fair value and costs of disposal. Each CGU’s fair value is based on the income
capitalisation method, which is determined with reference to maintainable earnings and adopted yield. Refer to note 33 for
details of key assumptions used. Costs of disposal is estimated at 2.0% of the hotel’s fair value, which has been
determined with reference to recent disposals.
VIU assumptions are consistent with those listed above in relation to goodwill impairment, being discount rate and terminal
growth rate.
48
39
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 18. Non-current assets - intangible assets (continued)
Sensitivity
Management believes that based on current economic conditions and CGU performance, any reasonably possible change
in the key assumptions used would not result in the CGU’s carrying amount to exceed its recoverable amount and result in
a material impairment.
As the recoverable amount from the FVLCD and/or VIU assessments exceeded the carrying amount for each CGU, no
impairment loss was recorded (30 June 2019: nil).
Note 19. Non-current assets - right-of-use assets
Land and buildings - right-of-use assets
Less: Accumulated depreciation
Consolidated
2020
$'000
2019
$'000
44,232
(1,991)
42,241
-
-
-
Redcape leases land and buildings for its offices and retail outlets under agreements of between 3 to 20 years with, in
some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are
renegotiated.
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out
below:
Consolidated
Balance at 1 July 2018
Balance at 30 June 2019
Adjustment to opening balance on transition to AASB 16
Additions
Depreciation expense
Balance at 30 June 2020
Land &
buildings
$'000
-
-
23,753
20,479
(1,991)
42,241
There has been no impairment recognised in relation to right-of-use assets at 30 June 2020 (30 June 2019: nil). Refer to
note 18.
40
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ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 20. Non-current assets - deferred tax
Deferred tax asset comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Tax losses
Property, plant and equipment
Employee benefits
Leases
Accrued expenses
Straight-line lease liability
Over market rent (Onerous rent) liability
Transaction costs
Other items
Deferred tax asset
Movements:
Opening balance
Credited/(charged) to profit or loss (note 12)
Credited to equity (note 12)
Charged to retained earnings - AASB 16
Closing balance
Note 21. Current liabilities - trade and other payables
Trade payables
Accrued interest
Performance fee
Other payables
State Government taxes
Refer to note 32 for further information on financial instruments.
Note 22. Current liabilities - lease liabilities
Lease liabilities
Refer to note 32 for further information on financial instruments.
50
41
Consolidated
2020
$'000
2019
$'000
-
1,574
688
805
308
-
-
3,317
-
4,975
1,249
589
-
163
1,659
2,360
4,636
14
6,692
15,645
15,645
(5,500)
-
(3,453)
12,674
2,297
674
-
6,692
15,645
Consolidated
2020
$'000
2019
$'000
4,873
574
-
10,276
18,723
3,972
1,944
6,400
8,125
18,308
34,446
38,749
Consolidated
2020
$'000
2019
$'000
1,039
-
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 23. Current liabilities - employee benefits
Annual leave
Long service leave
Note 24. Current liabilities - distribution payable
Distributions
Consolidated
2020
$'000
2019
$'000
1,687
419
2,106
1,453
255
1,708
Consolidated
2020
$'000
2019
$'000
1,712
12,030
Distributions
The provision represents distributions declared, being appropriately authorised and no longer at the discretion of the trust,
on or before the end of the financial year but not distributed at the reporting date.
Carrying amount at the start of the year
Distribution declared during the year
Payments relating to prior period
Payments relating to current period
Carrying amount at the end of the year
Note 25. Non-current liabilities - borrowings
Bank loans
Capitalised loan establishment costs
Total secured liabilities
The total secured liabilities (current and non-current) are as follows:
Bank loans
Consolidated
2020
$'000
2019
$'000
12,030
26,060
(12,030)
(24,348)
10,243
46,271
(10,243)
(34,241)
1,712
12,030
Consolidated
2020
$'000
2019
$'000
490,000
(3,747)
436,700
(698)
486,253
436,002
Consolidated
2020
$'000
2019
$'000
490,000
436,700
42
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ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 25. Non-current liabilities - borrowings (continued)
Syndicated Bank Facility
In the prior year, Redcape had a syndicated bank facility which was due to expire on 23 September 2020. The total facility
amount was $477.0 million (excluding $3.0 million ancillary facility). On 2 September 2019, Redcape refinanced its debt
facility which resulted in hedge break costs of $3.8 million and capitalised loan establishment costs of $0.2 million being
written off.
Common Terms Deed
On 2 September 2019, Redcape refinanced its existing debt arrangements with a Common Terms Deed. The total facility
amount is $500.0 million (excluding $3.0 million ancillary facility) comprising Tranche A facility $150.0 million, Tranche B
facility $250.0 million and Revolving facility $100.0 million. The Tranche A and the Revolving facilities expire on 1
September 2022. The Tranche B facility expires on 1 September 2024.
Assets pledged as security
The financiers in respect of the bank loans have first ranking security over all of the assets of each entity in Redcape, a
registered mortgage over each property and a fixed charge over each liquor and gaming licence.
Defaults and breaches
On 25 March 2020, the Group advised the market that it was in compliance with its loan facility terms with the exception of
clauses relating to a “suspension of business” caused by the forced shutdown of its venues. A formal waiver was agreed
and formally documented with the Group’s lending syndicate, ensuring that the Group remained in full compliance with its
loan agreement. In addition, the lender group has also agreed to temporarily amend financial covenants that are negatively
impacted due to the shutdown of the Group’s trading business. Once the venues have reopened and have had time to
return to more normalised trading conditions, the amended covenants will revert to their original levels.
Restrictions on distributions
As part of the waiver, an amendment pertaining to the restrictions on distributions was obtained. There have been no
breaches of the restrictions on distributions as described in the waiver for the year ended 30 June 2020.
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Consolidated
2020
$'000
2019
$'000
500,000
477,000
490,000
436,700
10,000
40,300
Consolidated
2020
$'000
2019
$'000
43,885
-
Total facilities
Bank loans
Used at the reporting date
Bank loans
Unused at the reporting date
Bank loans
Note 26. Non-current liabilities - lease liabilities
Lease liabilities
Refer to note 32 for further information on financial instruments.
52
43
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 27. Non-current liabilities - derivative financial instruments
Interest rate swap contracts - cash flow hedges
Refer to note 32 for further information on financial instruments.
Note 28. Non-current liabilities - employee benefits
Long service leave
Note 29. Equity - contributed equity
Consolidated
2020
$'000
2019
$'000
1,084
3,489
Consolidated
2020
$'000
2019
$'000
205
255
Contributed equity
552,195,195 551,445,932
235,897
235,545
Consolidated
2020
Stapled
Securities
2019
Stapled
Securities
2020
$'000
2019
$'000
Details
RHT II
Balance at beginning of the period
Units issued
Equity raising costs
Deferred tax asset
June 2020 June 2020 June 2019 June 2019
No of units
'000
No of units
'000
$'000
$'000
551,446
749
-
-
235,545
352
-
-
470,312
81,134
-
-
199,549
37,569
(2,247)
674
Balance at end of the period
552,195
235,897
551,446
235,545
Details
RHT I (non-controlling interest)
Balance at beginning of the period
Units issued
Equity raising costs
June 2020 June 2020 June 2019 June 2019
No of units
'000
No of units
'000
$'000
$'000
551,446
749
-
318,469
467
-
470,312
81,134
-
267,758
52,188
(1,477)
Balance at end of the period
552,195
318,936
551,446
318,469
Ordinary stapled securities
Each ordinary unit of RHT II is stapled to a unit of RHT I to form a stapled security. Each stapled security entitles the holder
to participate in distributions and the proceeds on the winding up of the Trusts in proportion to the number of and amounts
paid on the securities held. The fully paid stapled securities have no par value and each trust does not have a limited
amount of authorised capital.
44
53
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 29. Equity - contributed equity (continued)
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
stapled security shall have one vote.
Capital risk management
Redcape's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can
provide returns for stapled securityholders and benefits for other stakeholders and to maintain an optimum capital structure
to reduce the cost of capital.
Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated
as total borrowings less cash and cash equivalents.
In order to maintain or adjust the capital structure, Redcape may adjust the amount of distributions paid to stapled
securityholders, return capital to stapled securityholders, issue new stapled securities or sell assets to reduce debt.
Redcape would look to raise capital when an opportunity to invest in a business or company is seen as value adding
relative to the current trust's stapled securities price at the time of the investment.
Redcape is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk
management decisions.
The capital risk management policy remains unchanged from the previous reporting period.
Note 30. Equity - non-controlling interest
Contributed equity
Reserves
Accumulated losses
Consolidated
2020
$'000
2019
$'000
318,936
130,128
(14,282)
318,469
161,923
(43,497)
434,782
436,895
Contributed
equity
$'000
Hedging
reserve
$'000
Revaluation
reserve
$'000
Accumulated
losses
$'000
Total
$'000
RHT I
Balance at 1 July 2019
Profit for the year
Total other comprehensive income
Issue of securities
Interim distributions paid to unitholders
Provisions for distribution to unitholders
318,469
-
-
467
-
-
(3,488)
-
2,404
-
-
-
165,411
-
(34,199)
-
-
-
(43,497)
31,327
23,948
-
(24,348)
(1,712)
436,895
31,327
(7,847)
467
(24,348)
(1,712)
Balance at 30 June 2020
318,936
(1,084)
131,212
(14,282)
434,782
Hedging reserve – cash flow hedges
The reserve is used to recognise the effective portion on the gain or loss of cash flow hedge instruments that is determined
to be an effective hedge.
54
45
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 30. Equity - non-controlling interest (continued)
Revaluation reserve – land revaluation
The reserve is used to recognise increases in the carrying amount arising on revaluation of land, to the extent that the
increase is not reversing a decrease previously recognised in profit or loss. Decreases that reverse previous increases of
the same asset are first recognised in the revaluation reserve to the extent of the remaining surplus attributable to the
asset; all other decreases are charged to profit or loss.
Note 31. Equity - distributions
Distributions paid/payable during the financial year for the quarters ending:
30 September 2019 - 2.199 cents (30 September 2018: 2.205 cents) per stapled security
31 December 2019 - 2.211 cents (31 December 2018: 2.205 cents) per stapled security
31 March 2020 - zero cents (31 March 2019: 2.158 cents) per stapled security
30 June 2020 - 0.310 cents (30 June 2019: 2.182 cents) per stapled security
Consolidated
2020
$'000
2019
$'000
12,137
12,211
-
1,712
10,795
11,548
11,898
12,030
26,060
46,271
Note 32. Financial instruments
Financial risk management objectives
Redcape's activities expose it to interest rate risk, credit risk and liquidity risk. Redcape's overall risk management program
seeks to minimise potential adverse effects on the financial performance of Redcape. Redcape uses derivative financial
instruments such as interest rate swaps to hedge its interest rate risk exposure. Derivatives are exclusively used for
hedging purposes, i.e. not as trading or other speculative instruments. Redcape uses different methods to measure
different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and
ageing analysis for credit risk.
Risk management is carried out by senior finance executives ('Finance') under policies approved by the directors of the
Responsible Entity. These policies include identification and analysis of the risk exposure of Redcape and appropriate
procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within Redcape's operations.
Finance reports to the directors on a monthly basis.
Market risk
Foreign currency risk
Redcape is not exposed to any foreign currency risk.
Price risk
Redcape is not exposed to any significant price risk.
Interest rate risk
Redcape's main interest rate risk arises from long-term borrowings. Borrowings obtained at variable rates expose Redcape
to interest rate risk. Borrowings obtained at fixed rates expose Redcape to fair value interest rate risk. The policy is to
maintain at least 30% of the current borrowing facilities at fixed rates using interest rate swaps with Cap and Floor rates.
46
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ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 32. Financial instruments (continued)
As at the reporting date, Redcape had the following variable rate borrowings and interest rate swap contracts outstanding:
Consolidated
2020
2019
Weighted
average
interest rate
%
Balance
$'000
Weighted
average
interest rate
%
Balance
$'000
Bank loans
Interest rate swaps (notional principal amount)
1.81%
-
490,000
(150,000)
2.98%
-
436,700
(238,500)
Net exposure to interest rate risk
340,000
198,200
The bank loans outstanding, totalling $490.0 million (30 June 2019: $436.7 million), are interest payment loans. Monthly
cash outlays of approximately $0.7 million (30 June 2019: $1.1 million) per month are required to service the interest
payments. An official increase/decrease in interest rates of 100 basis points would have an adverse/favourable effect on
profit before tax of $4.9 million (30 June 2019: $4.4 million) per annum.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to
Redcape. Redcape has a strict code of credit, including obtaining agency credit information, confirming references and
setting appropriate credit limits. The maximum exposure to credit risk at the reporting date to recognised financial assets is
the carrying amount. Redcape does not hold any collateral. Redcape does not hold any collateral or have any expected
credit losses.
Liquidity risk
Redcape manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously
monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Redcape has
a voluntary working capital deficiency based on its capital management strategy of paying down debt with excess cash.
Due to the uncertainties associated with the ongoing COVID-19 pandemic, it was deemed prudent to maintain cash
reserves at 30 June 2020 to meet the ongoing working capital requirements of the Group.
Financing arrangements
Unused borrowing facilities at the reporting date:
Bank loans
Consolidated
2020
$'000
2019
$'000
10,000
40,300
56
47
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 32. Financial instruments (continued)
Remaining contractual maturities
The following tables detail Redcape's remaining contractual maturity for its financial instrument liabilities. The tables have
been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the
financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining
contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position.
Consolidated - 2020
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing - variable
Bank loans
Lease liability
Total non-derivatives
Derivatives
Interest rate swaps outflow
Total derivatives
Consolidated - 2019
Non-derivatives
Non-interest bearing
Trade payables
Other payables
Interest-bearing - variable
Bank loans
Total non-derivatives
Derivatives
Interest rate swaps outflow
Total derivatives
Weighted
average
interest rate
%
1 year or
less
$'000
Between 1
and 2 years
$'000
Between 2
and 5 years
$'000
Remaining
contractual
maturities
$'000
Over 5 years
$'000
-
-
1.49%
2.92%
0.25%
4,873
29,573
6,760
2,336
43,542
-
-
-
-
-
-
4,873
29,573
96,125
2,385
98,510
408,914
7,127
416,041
-
50,846
50,846
511,799
62,694
608,939
67
67
-
-
-
-
-
-
67
67
Weighted
average
interest rate
%
1 year or
less
$'000
Between 1
and 2 years
$'000
Between 2
and 5 years
$'000
Remaining
contractual
maturities
$'000
Over 5 years
$'000
-
-
3,972
34,777
-
-
2.98%
17,386
56,135
468,102
468,102
1.02%
611
611
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,972
34,777
485,488
524,237
611
611
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed
above. Redcape refinanced its bank loans in September 2019 and have extended the repayments by another four years.
The extension of the bank loans is not reflected in the June 2019 contractual maturities.
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
48
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ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 33. Fair value measurement
Fair value hierarchy
The following tables detail Redcape's assets and liabilities, measured or disclosed at fair value, using a three level
hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly
Level 3: Unobservable inputs for the asset or liability
Consolidated - 2020
Assets
Land
Total assets
Liabilities
Interest rate swaps
Total liabilities
Consolidated - 2019
Assets
Land
Total assets
Liabilities
Interest rate swaps
Total liabilities
Level 1
$'000
Level 2
$'000
Level 3
$'000
Total
$'000
Level 1
$'000
-
-
-
-
-
-
-
-
-
-
313,835
313,835
313,835
313,835
1,084
1,084
-
-
1,084
1,084
Level 2
$'000
Level 3
$'000
Total
$'000
-
-
-
-
351,648
351,648
351,648
351,648
3,489
3,489
3,489
3,489
Derivative instruments comprising interest rate swaps were reclassified from level 3 in prior year to level 2 in the current
year. There were no transfers between levels during the financial year.
The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair
values due to their short-term nature.
The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market
interest rate that is available for similar financial liabilities.
Valuation techniques for fair value measurements categorised within level 2 and level 3
(i) Land
Land is recognised at fair value based on periodic valuations by external independent valuers and/or six-monthly Director
valuations. Independent external assessments are conducted by a professionally qualified valuer, having recent
experience in the location and category of land being valued. Land is revalued by the Directors each half-year where an
independent valuation has not been sought. The Group last obtained independent land valuations for a portion of the land
on 31 May 2019.
The carrying amount of land would be $204.3 million if it were carried at cost.
Valuation process
Directors’ valuations were undertaken for all Freehold Going Concern properties at 30 June 2020. In assessing fair value of
these properties, the Directors’ valuations adopted the same adjustment process as used by external independent valuers
in prior period. This included changes in assumptions that have been applied to specific properties based on the outcome
of a risk assessment of each property, as well as consideration of market indicators.
58
49
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 33. Fair value measurement (continued)
Freehold Going Concern valuations are based on the income capitalisation method, which is determined with reference to
maintainable earnings and adopted yield. The overall increment/decrement to the portfolio’s Freehold Going Concern
valuation is allocated across its various components (both Freehold and Leasehold) based on prior independent
valuations, noting that with the exception of land, all other components are recorded at historical cost less impairment and
accumulated depreciation (for buildings and PPE). Freehold valuation for each venue comprises land, licences and
buildings. Total value assigned to land is based on a market accepted residual approach after attributing a fair value to the
licences and buildings based on recently available market data and indicators associated with the value of licences and
buildings.
The COVID-19 pandemic has created unprecedented uncertainty of the economic environment, in particular the lack of
market transactions which are ordinarily a strong source of evidence for valuations of Freehold Going Concern properties
and resultant land valuations. In the absence of more fulsome market data at 30 June 2020, management have considered
the impact that COVID-19 may have on estimated yields. Management believe that transaction data may show an
expansion in capitalisation rates reflective of the impact that shutdown risk may have on future earnings.
All internal valuations have been reviewed and approved by the Board.
The level 3 assets and liabilities unobservable inputs are as follows:
Description
Significant unobservable
inputs
Freehold Going Concern
Licences
Buildings
-
Capitalisation rates
(7.75% - 13.0%)
- Weighted average
adopted earnings
($3.4m)
-
-
-
FY20 Weighted
average gaming growth
rate (5.66%)
Building replacement
costs ($2,000 - $3,750
per sqm)
Economic life
remaining (25% - 85%)
Inter-relationship between key
unobservable inputs and fair value
measurement
The estimated fair value would increase
(decrease) if:
-
-
Capitalisation rates were lower
(higher)
Adopted earnings were higher
(lower)
- Gaming growth rates were higher
(lower)
-
-
Building replacement costs are
higher (lower)
Economic life remaining is higher
(lower)
Sensitivity analysis
Due to the uncertainty the COVID-19 pandemic is currently having on property values, sensitivity analysis has been
undertaken to understand the impact of changes in key unobservable inputs on the Group’s valuation of land at 30 June
2020.
Assuming all other factors remained constant, an expansion of capitalisation rates by an additional 25 bps in the
valuation model resulted in a $17.7 million decrease in land value. Assuming all other factors remained constant, a 20%
decrease in adopted earnings for the next 12 months, with a subsequent return to stabilised earnings would result in a
$10.8 million decrease in land value.
(ii) Derivative financial instruments
Derivative financial instruments comprise interest rate swaps and have been valued using quoted market rates. This
valuation technique maximises the use of observable market data where it is available.
50
59
ASX:RDCAnnual Report 2020 Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 33. Fair value measurement (continued)
Level 3 assets and liabilities
Movements in level 3 assets and liabilities during the current and previous financial year are set out below:
Consolidated
Balance at 1 July 2018
Gains recognised in other comprehensive income
Loss recognised in profit or loss
Disposals - business
Additions - business acquisition
Adjustment arising from stapling arrangement
Balance at 30 June 2019
Loss recognised in profit or loss
Loss recognised in other comprehensive income
Disposals - business
Additions - business acquisition
Balance at 30 June 2020
Land
$'000
-
38,451
(17,998)
(1,821)
40,756
292,260
351,648
(3,669)
(10,251)
(31,239)
7,346
313,835
Total gains for the previous year included in other comprehensive income that relate to level 3 assets held
at the end of the previous year
38,451
Note 34. Remuneration of auditors
During the financial year the following fees were paid or payable for services provided by KPMG, the auditor of the Group:
Audit services - KPMG
Audit or review of the financial statements
Other services - KPMG
IPO related services including due diligence
Consolidated
2020
$
2019
$
384,000
349,075
-
-
799,914
799,914
384,000
1,148,989
Redcape may decide to employ the auditor ('KPMG') on assignments additional to their statutory audit duties where the
auditor's expertise and experience are important. The Chair of the Audit, Risk & Compliance Committee (or authorised
delegate) must approve any other services provided by KPMG.
Note 35. Contingent liabilities
Redcape has provided bank guarantees to a supplier and landlord as at 30 June 2020 of $2.6 million (30 June 2019: $1.8
million).
60
51
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 36. Commitments
Lease commitments - operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
More than five years
Consolidated
2020
$'000
2019
$'000
-
-
-
-
1,322
5,803
25,993
33,118
The Group adopted AASB 16 from 1 July 2019 and recognised right-of-use assets and lease liabilities for leases previously
classified as operating leases under AASB 117.
Note 37. Related party transactions
Parent entity
Redcape Hotel Trust II is the parent entity.
Transactions with related parties
(a) Responsible Entity
MA Asset Management Ltd (i)
Asset management fee
Debt arrangement fee
Acquisition fee
Disposal fee
Redcape Hotel Group Management Ltd (ii)
Asset management fee
Debt arrangement fee (iii)
Acquisition fee
Disposal fee
Performance fee (iv)
Transaction
values for
the year
ended 30
June 2020
$
Balance
outstanding
as at 30 June
2020
$
Transaction
values for
the year
ended 30
June 2019
$
Balance
outstanding
as at 30 June
2019
$
-
-
-
-
-
-
-
-
-
-
1,466,532
250,000
1,080,000
210,000
3,006,532
-
-
-
-
-
5,281,673
2,500,000
385,000
981,250
-
3,561,614
432,811
-
-
500,000
-
-
-
- 14,400,000
435,667
-
-
-
6,400,000
9,147,923
432,811
18,461,614
6,835,667
(i) MA Asset Management Ltd (formerly known as Moelis Australia Asset Management Ltd) ceased to be the Responsible
Entity on 24 October 2018.
(ii) Redcape Hotel Group Management Ltd was appointed the Responsible Entity of the Trusts from 24 October 2018. Fees
paid to the Responsible Entity are subsequently paid to MA Hotel Management Pty Ltd in its capacity as Trust Manager.
(iii) Debt arrangement fee equates to 0.5% of the $500.0 million debt refinanced in September 2019.
52
61
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 37. Related party transactions (continued)
(iv) Performance fee of $0.9 million was capitalised to equity and $13.5 million was expensed in FY19.
(b) Other related party transactions
The aggregate amounts recognised during the period relating to transactions between Redcape and related entities were
as follows:
Related Entity
Transaction
Underwriting fee
Moelis Australia Advisory Pty
Limited
Moelis Australia Advisory Pty
Limited
MA Hotel Management Pty Ltd Hotel operating fee (a)
MA Hotel Management Pty Ltd Project development fee
Transaction fee
Transaction
values for
the year
ended 30
June 2020
$
Balance
outstanding
as at 30 June
2020
$
Transaction
values for
the year
ended 30
June 2019
$
Balance
outstanding
as at 30 June
2019
$
-
-
2,375,000
-
-
9,449,372
399,723
-
1,254,639
16,115
3,115,670
9,137,915
743,851
-
(409,473)
73,822
9,849,095
1,270,754
15,372,436
(335,651)
(a) Includes the $1.45 million waiver of the hotel operating fee by the Trust Manager in the prior year.
Note 38. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Loss after income tax
Total comprehensive income
Parent
2020
$'000
2019
$'000
(3,305)
(12,815)
(3,305)
(12,815)
62
53
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 38. Parent entity information (continued)
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Contributed equity
Accumulated losses
Total equity
Parent
2020
$'000
2019
$'000
191,516
191,798
218,870
232,443
163
163
3,559
3,559
235,897
(17,190)
235,545
(6,661)
218,707
228,884
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The subsidiaries of RHT II are the original guarantors under the Common Terms Deed of Redcape Hotel Property Trust's
bank facility, a subsidiary of RHT I. Redcape Hotel Fund Pty Ltd, a subsidiary of RHT II also has in place a Deed of Cross
Guarantee in relation to the debts of certain subsidiaries.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2020 and 30 June 2019.
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2020 and 30 June 2019.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of Redcape, as disclosed in note 3, except for the
following:
●
Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
54
63
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 39. Business combinations and disposals
Business acquisitions
Redcape acquired the business and net assets of Eden Brewhouse (Leasehold Going Concern) in December 2019 and
Kings Head Tavern (Freehold Going Concern) in March 2020 for total cash consideration of $38.6 million.
The consideration transferred, major classes of assets acquired, and liabilities assumed at the acquisition dates are final as
at 30 June 2020 and are detailed as follows:
Cash and cash equivalents
Other current assets
Land (note 16)
Property, plant and equipment (note 17)
Gaming and liquor licences (note 18)
Trade and other payables
Employee benefits
Net assets acquired
Goodwill
Acquisition-date fair value of the total consideration transferred
Representing:
Cash paid or payable to vendor
Acquisition costs expensed to profit or loss
Cash used to acquire business, net of cash acquired:
Acquisition-date fair value of the total consideration transferred
Less: cash and cash equivalents
Net cash used
Fair value
$'000
140
166
7,346
3,437
20,141
(209)
(31)
30,990
7,576
38,566
38,566
1,687
38,566
(140)
38,426
Acquisition related costs
Business acquisition costs of $1.7 million comprising stamp duty, legal fees and due diligence costs were included in
Redcape's consolidated statement of profit or loss and other comprehensive income.
Contribution to the Group’s results
From each hotel’s date of acquisition to 30 June 2020, both hotels contributed $2.6 million to consolidated Group revenue.
The aggregate of these venues’ Underlying Operating EBITDA was immaterial to the Group’s results.
Business disposals
Redcape disposed of the business and net assets of two hotels during the year ended 30 June 2020, resulting in a gain on
disposal of $0.3 million. At the date of disposal, the carrying amount of land amounted to $31.2 million, property, plant and
equipment $4.1 million and intangibles $60.0 million.
Note 40. Interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy described in note 3:
64
55
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 40. Interests in subsidiaries (continued)
Subsidiaries of RHT II
(All incorporated in Australia)
Redcape Hotel Fund Pty Ltd
MAHF Custodian Pty Ltd
MAHPT TT Pty Ltd
Redcape Group Limited
Redcape Hotel Group Pty Ltd
RHG Operations Pty Ltd
Redcape Services Pty Ltd
RGM TT Pty Ltd
Subsidiaries of RHT I
(All incorporated in Australia)
Redcape Hotel Property Trust
St George Hotel Trust
Doonside Hotel Trust
El Cortez Hotel Trust
Keighery Hotel Trust
Lakeview Hotel Motel Trust
Prospect Hotel Trust
Royal Hotel Trust
St Marys Hotel Trust
Belrose Hotel Trust
Red Lantern Hotel Trust
Campbelltown Hotel Trust
Eastwood Hotel Trust
Leumeah Hotel Trust
Mount Annan Hotel Trust
Revesby Pacific Hotel Trust
Willoughby Hotel Trust
Eastern Creek Tavern Hotel Trust
Landmark Hotel Trust
Crown Revesby Hotel Trust
Minskys Hotel Trust
Shamrock Hotel Trust
Hermit Park Hotel Trust
Wattle Hotel Trust
Carrington Hotel Trust
Andergrove Tavern Hotel Trust
Cabramatta Hotel Trust
Crescent Hotel Trust
Wattle Grove Hotel Trust
Sun Hotel Trust
Vauxhall Hotel Trust
Australian Hotel & Brewery Trust
Central Hotel Trust
Unanderra Hotel Trust
Figtree Hotel Trust
Kings Head Hotel Trust (incorporated on 13 December 2019)
Consolidated Consolidated
2020
%
2019
%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Consolidated Consolidated
2020
%
2019
%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
-
56
65
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 41. Events after the reporting period
The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has had a material impact for the Group up to
30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The
situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries,
such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be
provided.
The COVID-19 pandemic has created unprecedented uncertainty of the economic environment, in particular the lack of
market transactions which are ordinarily a strong source of evidence for valuations of Freehold Going Concern properties
and resultant land valuations. Actual economic events and conditions in future may be materially different from those
estimated by the Group at the reporting date. In the event the COVID-19 pandemic impacts are more severe or prolonged
than anticipated, this may have further adverse impacts to the fair value of the Group’s land and Directors valuation. At the
date of the annual report, an estimate of the future effects of the COVID-19 pandemic on the Group’s land and Directors
valuations cannot be made, as the impact will depend on the magnitude and duration of the economic downturn, with the
full range of possible effects unknown.
Further considerations in relation to the COVID-19 pandemic are included in the going concern disclosure in the notes to
the financial statements (refer note 2 Basis of preparation).
Other than the above matters, no other matter or circumstance has arisen since 30 June 2020 that has significantly
affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in
future financial years.
Note 42. Reconciliation of profit/(loss) after income tax to net cash from operating activities
Profit/(loss) after income tax (expense)/benefit for the year
11,227
(4,930)
Consolidated
2020
$'000
2019
$'000
Adjustments for:
Depreciation expense on right-of-use assets
Depreciation expense
Loss on asset revaluation
Net loss/(gain) on disposal of non-current assets
Business acquisition costs
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
Decrease in inventories
Decrease/(increase) in deferred tax assets
Increase in capitalised loan establishment costs
Decrease/(increase) in prepayments
Increase/(decrease) in trade and other payables
Increase in employee benefits
1,991
14,180
3,669
110
1,687
827
484
5,500
(3,049)
446
(4,485)
317
-
11,360
17,998
(502)
7,631
(2,520)
237
(2,297)
-
(2)
8,880
142
Net cash from operating activities
32,904
35,997
66
57
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Redcape Hotel Group
Notes to the consolidated financial statements
30 June 2020
Note 43. Earnings per stapled securities
Profit/(loss) after income tax
Weighted average number of ordinary stapled securities used in calculating basic and
diluted earnings per stapled security
Basic and diluted earnings per stapled security (cents)
Consolidated
2020
$'000
2019
$'000
11,227
(4,930)
551,981,676 528,811,312
2.03
(0.93)
58
67
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Directors' declaration
30 June 2020
In the directors' opinion:
●
●
●
●
the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the
Corporations Regulations 2001 and other mandatory professional reporting requirements;
the attached financial statements and notes comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board as described in note 3 to the financial statements;
the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June
2020 and of its performance for the financial year ended on that date;
there are reasonable grounds to believe that the entity will be able to pay its debts as and when they become due and
payable.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
___________________________
Nicholas Collishaw
Chairman
19 August 2020
Sydney
___________________________
Daniel Brady
Non-Executive Director
68
59
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
Independent Auditor’s Report
To the stapled security holders of Redcape Hotel Group
Opinion
We have audited the Financial Report of
Redcape Hotel Group (the Stapled Group).
In our opinion, the accompanying Stapled
Group’s Financial Report is in accordance
with the Corporations Act 2001, including:
•
•
giving a true and fair view of the
Stapled Group’s financial position as
at 30 June 2020 and of its financial
performance for the year ended on
that date; and
complying with Australian Accounting
Standards and the Corporations
Regulations 2001.
The Financial Report of the Stapled Group comprises:
• Consolidated statement of financial position as at
30 June 2020
• Consolidated statement of profit or loss and other
comprehensive income, Consolidated statement of
changes in equity, and Consolidated statement of
cash flows for the year then ended
• Notes including a summary of significant accounting
policies
• Responsible Entity’s Directors’ Declaration.
The Stapled Group consists of Redcape Hotel Trust II
and the entities it controlled at the year-end or from
time to time during the financial year and Redcape Hotel
Trust I and the entities it controlled at the year-end or
from time to time during the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
the audit of the Financial Report section of our report.
We are independent of the Stapled Group and Redcape Hotel Group Management Ltd (the
Responsible Entity) in accordance with the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the
Code.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
69
ASX:RDCAnnual Report 2020 Key Audit Matters
The Key Audit Matters we identified are:
• Valuation of land
• Valuation of goodwill
• Valuation of gaming and liquor
licenses and other non-financial assets
Key Audit Matters are those matters that, in our
professional judgement, were of most significance in
our audit of the Financial Report of the current period.
These matters were addressed in the context of our
audit of the Financial Report as a whole, and in forming
our opinion thereon, and we do not provide a separate
opinion on these matters.
Valuation of land ($313.8m)
Refer to Note 16 to the Financial Report
The key audit matter
How the matter was addressed in our audit
It is the Stapled Group’s policy that land is
recognised at fair value based on valuations that
are conducted by the Directors of Redcape
Hotel Group Management Ltd (the Responsible
Entity) of the Stapled Group and its external
valuation experts. As at 30 June 2020, the
valuation of land is based on Directors’ of the
Responsible Entity valuations on a residual
valuation methodology.
We considered valuation of land as a key audit
matter, given the:
Working with our real-estate valuation specialists,
our procedures included:
•
understanding the Stapled Group’s process
regarding the valuation of land including
specific considerations for the impact of
COVID-19;
• we assessed the appropriateness of the
accounting policies applied by the Stapled
Group, against the requirements of the
accounting standards;
•
inherently subjective nature of property
valuations due to the use of assumptions
containing estimation uncertainty and
increased complexity of the valuation
methodology. These estimates lead to
additional audit effort due to differing
assumptions such as prevailing market
conditions, the individual nature, condition
and location of each property and the
expected future income for each property.
This was further heightened with the
existence of the COVID-19 pandemic,
decreasing the volume of market
transactions which are ordinarily strong
sources of evidence regarding fair value;
•
relative size of land in the statement of
financial position (being 27% of total
assets); and
• we assessed the scope, competence and
objectivity of Stapled Group’s Directors to fair
value the individual developed properties and
its components;
• we assessed the valuation methodology used
by the Directors of the Stapled Group for
consistency with the Stapled Group’s
valuation policy, and compliance with
accounting standards and industry practice;
• we assessed the specific valuation
assumptions (including the capitalisation rate
and market rental income) for a sample of
property valuations, through comparison to
market data published by commercial real
estate agents, and our knowledge of historical
performance of the properties held by the
Stapled Group and their condition and location;
70
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II •
quantum of the revaluation gains/losses
that directly impact the Statement of profit
or loss and other comprehensive income
through the fair value fluctuations.
We focused on the significant forward looking
assumptions and estimations contained in the
valuation methodology used by the Stapled
Group with particular consideration given to the
impact of COVID-19:
•
•
•
Capitalisation rate: reflects the yield
that an investor would look to recover
on an investment. COVID-19 has
resulted in a lack of transactional
evidence and other market data points
being difficult to obtain;
Forecast cash flows: this includes
stabilised net operating profit (EBITDA)
and market rental income. These
assumptions are more judgemental
because the extent of the uncertainty
of how COVID-19 may impact on
future cash flows; and
Component fair values: these are the
notional fair values ascribed to
buildings and licenses which are
subsequently removed from the
property valuation to derive a land
residual value.
We involved real-estate valuation specialists to
supplement our senior audit team members in
assessing this key audit matter.
• we compared the stabilised net operating
profit (EBITDA) used in the valuations to
historical results of the Stapled Group’s
operations including specific considerations
for the impact of COVID-19. We adjusted for
expected changes such as the annualisation of
results of properties acquired by the Stapled
Group during the year. We used our
knowledge of the Group, its past
performance, business and customers, and
our industry experience;
• we assessed the methodology and specific
valuation assumptions for a sample of
individual components including building and
license valuations. We used our knowledge of
the Stapled Group, its past performance,
business and customers, condition of the
buildings and our industry experience;
• we visited a sample of properties to observe
the condition and location of the land.
• we checked amounts recorded in the
statement of profit or loss and other
comprehensive income, to movements in the
fair value of the land for the year from the
Stapled Group’s Statement of financial
position; and
• we assessed the disclosures in the financial
report using our understanding obtained from
our testing and against the requirements of
the accounting standards.
71
ASX:RDCAnnual Report 2020 Valuation of goodwill ($303.1m)
Refer to Note 18 to the Financial Report
The key audit matter
How the matter was addressed in our audit
Annual testing of goodwill impairment is a key
audit matter, given the size of the balance
(being 26% of total assets) and the significantly
higher estimation uncertainty continuing from
the business disruption impact of the COVID-19
global pandemic. We focussed on the
significant forward-looking assumptions the
Stapled Group applied in its value in use model
for the group of cash generating units
(“CGUs”), including:
•
forecast cash flows, growth rates and
terminal growth rates – the Stapled Group
has experienced significant business
disruption, as a result of the trading
restrictions imposed by the government
due to COVID-19. These conditions
increase the possibility of goodwill being
impaired, plus the risk of inaccurate
forecasts or a significantly wider range of
possible outcomes, for us to consider. We
focused on the expected rate of recovery
for the Stapled Group, what the Stapled
Group considers as its future business
model when assessing the feasibility of the
Group’s revised COVID-19 forecast cash
flows; and
•
discount rates - these are complex in nature
and vary according to the conditions and
environment in which the group of CGUs
operate.
The Stapled Group uses a complex model to
perform its annual testing of goodwill for
impairment. The model is largely manually
developed, uses adjusted historical
performance, and a range of internal and
external sources as inputs to the assumptions.
Complex modelling, particularly those
containing highly judgemental forward-looking
assumptions tend to be prone to greater risk for
potential bias, error and inconsistent
application. These conditions necessitate
additional scrutiny by us, in particular to address
the objectivity of sources used for assumptions,
and their consistent application.
Working with our valuation specialists, our
procedures included:
• we considered the appropriateness of the
value in use method applied by the Stapled
Group to perform the annual test of goodwill
for impairment, for the group of CGUs, against
the requirements of the accounting standards;
• we assessed the integrity of the value in use
model used, including the accuracy of the
underlying calculation formulas;
• we considered the sensitivity of the model by
varying key assumptions, such as forecast
growth rates, terminal growth rate and
discount rate, within a reasonably possible
range. We did this to identify those
assumptions at higher risk of bias or
inconsistency in application and to focus our
further procedures;
• we compared the forecast cash flows
contained in the value in use model to revised
forecasts approved by the Board, reflecting the
Stapled Group’s COVID-19 adjusted model;
• we assessed the accuracy of previous Stapled
Group forecasts to inform our evaluation of
forecasts incorporated in the model;
• we challenged the Stapled Group’s significant
forecast cash flow including specific
considerations of the impact of COVID-19 such
as expected rate of recovery and growth
assumptions by comparing the forecast to
historical results of the Stapled Group’s
operations and applied increased scepticism to
areas where previous forecasts were not
achieved. We compared forecast growth rates,
including terminal growth rate to published
studies of industry trends and expectations.
We used our knowledge of the Stapled Group,
its past performance, business and customers,
and our industry experience;
72
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II The Stapled Group has a large number of
individual developed properties, necessitating
our consideration of the Stapled Group’s
determination of CGUs, based on the smallest
group of assets to generate largely independent
cash inflows. We considered the Stapled
Group’s allocation of goodwill to the group of
CGUs to which they belong based on the
management and monitoring of the business.
We involved valuation specialists to supplement
our senior audit team members in assessing
this key audit matter.
• we independently developed a discount rate
range considered comparable using publicly
available market data for comparable entities,
adjusted by risk factors specific to the Stapled
Group and the industry it operates in;
• we considered the Stapled Group’s
determination of its CGUs based on our
understanding of the operations of the Stapled
Group’s business, and how independent cash
inflows were generated, against the
requirements of the accounting standards;
• we analysed the Stapled Group’s internal
reporting to assess the Stapled Group’s
monitoring and management of activities, and
the consistency of the allocation of goodwill to
the group of CGUs; and
• we assessed the disclosures in the financial
report using our understanding obtained from
our testing and against the requirements of the
accounting standards.
Valuation of gaming and liquor licenses ($256.2m) and other non-financial assets ($181.5m)
Refer to Note 18 to the Financial Report
The key audit matter
How the matter was addressed in our audit
The Stapled Group is required to perform an
annual impairment assessment for gaming and
liquor license which are intangible assets with
indefinite useful lives. Other non-financial
assets comprising of property, plant and
equipment and right-of-use assets are assessed
for impairment when there is an indicator of
impairment such as the business disruption
impact of the COVID-19 global pandemic. As
part of the Staple Group’s impairment
assessment for gaming and liquor licenses and
other non-financial assets, the Stapled Group
estimated its recoverable amount and
compared it to its carrying value for each of the
Stapled Group’s cash generating units
(“CGUs”). The Stapled Group uses the higher
of the fair value less cost of disposal and value
in use models to perform its impairment
assessment for the CGUs. This further
increased our audit effort in this key audit area.
Working with our valuation specialists, our
procedures included:
• we considered the appropriateness of the fair
value less cost of disposal and value in use
models applied by the Stapled Group to
perform the impairment test for the CGUs,
against the requirements of the accounting
standards;
• we assessed the integrity of the fair value less
cost of disposal and value in use models used,
including the accuracy of the underlying
calculation formulas;
• we assessed the capitalisation rate for a
sample of fair value less cost of disposal
models, through comparison to market data
published by commercial real estate agents,
and our knowledge of historical performance
of the properties held by the Stapled Group
and their condition and location;
73
ASX:RDCAnnual Report 2020 We focussed on the significant forward-looking
assumptions the Stapled Group applied in its
fair value less cost of disposal and value in use
models for the CGUs, including:
•
•
capitalisation rates which reflects the yield
that an investor would look to recover on an
investment in the fair value less cost of
disposal models. COVID-19 has resulted in
a lack of transactional evidence and other
market data points being difficult to obtain.
forecast cash flows including stabilised net
operating profit (EBITDA), growth rates and
terminal growth rates – the Stapled Group
has experienced significant business
disruption, as a result of the trading
restrictions imposed by the government
due to COVID-19. These conditions
increase the possibility of a CGU being
impaired, plus the risk of inaccurate
forecasts or a significantly wider range of
possible outcomes, for us to consider. We
focused on the expected rate of recovery
for each CGU, what the Stapled Group
considers as their future business model
when assessing the feasibility of the CGU’s
revised COVID-19 forecast cash flows; and
•
discount rates – these are complex in
nature and vary according to the conditions
and environment the specific CGUs is
subject to from time to time.
The models are largely manually developed, use
adjusted historical performance, and a range of
internal and external sources as inputs to the
assumptions. Complex modelling, particularly
those containing highly judgemental forward-
looking assumptions, tend to be prone to
greater risk for potential bias, error and
inconsistent application. These conditions
necessitate additional scrutiny by us, in
particular to address the objectivity of sources
used for assumptions, and their consistent
application.
We involved valuation specialists to supplement
our senior audit team members in assessing
this key audit matter.
• we compared the stabilised net operating
profit (EBITDA) used in the fair value less cost
of disposal model to historical results of the
Stapled Group’s operations including specific
considerations for the impact of COVID-19.
We adjusted for expected changes such as
the annualisation of results of properties
acquired by the Stapled Group during the
year. We used our knowledge of the Group,
their past performance, business and
customers, and our industry experience;
• we considered the sensitivity of the value in
use models by varying key assumptions, such
as forecast growth rates, terminal growth rate
and discount rate, within a reasonably possible
range. We did this to identify those
assumptions at higher risk of bias or
inconsistency in application and to focus our
further procedures;
• we compared the forecast cash flows
contained in the value in use model to revised
forecasts approved by the Board, reflecting the
Stapled Group’s COVID-19 adjusted model;
• we assessed the accuracy of previous Stapled
Group forecasts to inform our evaluation of
forecasts incorporated in the models;
• we challenged the Stapled Group’s significant
forecast cash flow including specific
considerations of the impact of COVID-19 such
as expected rate of recovery and growth
assumptions by comparing the forecast to
historical results of the Stapled Group’s
operations and applied increased scepticism to
areas where previous forecasts were not
achieved. We compared forecast growth rates,
including terminal growth rate to published
studies of industry trends and expectations.
We used our knowledge of the Group, their
past performance, business and customers,
and our industry experience;
• we independently developed a discount rate
range considered comparable using publicly
available market data for comparable entities,
adjusted by risk factors specific to the CGU
and the industry it operates in;
74
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II • we considered the Stapled Group’s
determination of their CGUs based on our
understanding of the operations of the Stapled
Group’s business, and how independent cash
inflows were generated, against the
requirements of the accounting standards; and
• we assessed the disclosures in the financial
report using our understanding obtained from
our testing and against the requirements of
the accounting standards.
Other Information
Other Information is financial and non-financial information in Redcape Hotel Group’s annual reporting
which is provided in addition to the Financial Report and the Auditor's Report. The Directors of
Redcape Hotel Group Management Ltd (the Responsible Entity) are responsible for the Other
Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the Financial Report, our responsibility is to read the Other
Information. In doing so, we consider whether the Other Information is materially inconsistent with
the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
We are required to report if we conclude that there is a material misstatement of this Other
Information, and based on the work we have performed on the Other Information that we obtained
prior to the date of this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors of Redcape Hotel Group Management Ltd (the Responsible Entity) are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001
•
•
implementing necessary internal control to enable the preparation of a Financial Report that
gives a true and fair view and is free from material misstatement, whether due to fraud or
error
assessing the Stapled Group’s ability to continue as a going concern and whether the use of
the going concern basis of accounting is appropriate. This includes disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless they
either intend to liquidate the Stapled Group or to cease operations, or have no realistic
alternative but to do so.
75
ASX:RDCAnnual Report 2020 Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from
material misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1_2020.pdf. This description forms part of our
Auditor’s Report.
KPM_INI_01
KPMG
Paul Thomas
Partner
Sydney
19 August 2020
76
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II Redcape Hotel Group
Stapled Securityholders information
30 June 2020
The stapled securityholder’s information set out below was applicable as at 17 August 2020.
Distribution of equitable securities
Analysis of number of equitable securityholders by size of holding:
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Holding less than a marketable parcel
Equity securityholders
Twenty largest quoted equity securityholders
The names of the twenty largest securityholders of quoted equity securities are listed below:
The Trust Company (Australia) Limited
Western Funds Management Pty Ltd
Moelis Australia Asset Management Ltd
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
Carpe Diem Asset Management Pty Ltd
National Nominees Limited
Rhino Trade Pty Ltd
TPIC Pty Ltd
Peters Meats (Export) Pty Ltd
Top 4 Pty Ltd
Netwealth Investments Limited
Mr Duan Chao
Australian Brands Pty Ltd
BNP Paribas Nominees Pty Ltd
Liangrove Media Pty Limited
Chalt Pty Limited
AJA Investments Pty Ltd
J B Holdings Pty Ltd
Unquoted equity securities
There are no unquoted equity securities.
Number
of holders
of ordinary of ordinary
Number
stapled
securities
stapled
securities
439
332
534
1,945
313,947
965,819
4,352,208
81,549,552
497 465,013,669
3,747 552,195,195
-
-
Ordinary stapled securities
% of total
stapled
securities
issued
Number held
118,881,938
51,541,700
43,624,355
30,060,412
29,223,748
11,879,566
10,000,000
5,567,069
5,000,000
5,000,000
4,629,630
4,522,192
3,182,229
3,120,000
3,000,000
2,629,789
1,991,360
1,653,982
1,568,243
1,552,900
338,629,113
21.53
9.33
7.90
5.44
5.29
2.15
1.81
1.01
0.91
0.91
0.84
0.82
0.58
0.57
0.54
0.48
0.36
0.30
0.28
0.28
61.32
68
77
ASX:RDCAnnual Report 2020
Redcape Hotel Group
Stapled Securityholders information
30 June 2020
Substantial holders
Substantial holders in Redcape are set out below:
Securities held
at date of notice
Percentage of
securities held
at date of notice Date of notice
Substantial Holders
%
Moelis Australia Limited (including its related
bodies corporate)
213,953,331
38.80%
4 December 2018
Voting rights
The voting rights attached to ordinary stapled securities are set out below:
Ordinary stapled securities
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
stapled security shall have one vote.
There are no other classes of equity securities.
78
69
Redcape Hotel Group comprising Redcape Hotel Trust I and Redcape Hotel Trust II
COR P ORATE D I R E CTO RY
30 June 2020
Responsible Entity
Redcape Hotel Group Management Ltd - ABN: 87 610 990 004
('Responsible Entity')
Directors of the Responsible Entity Mr Nicholas Collishaw
Company Secretary of the
Responsible Entity
Entity Information
Registered office
Principal place of business
Share register
Auditor
Mr Daniel Brady
Mr Andrew Ireland
Mr David Groves
Mr Hugh Thomson
Ms Rebecca Ong
Redcape Hotel Trust II - ARSN: 629 354 696 ('RHT II' or 'Parent Entity')
Redcape Hotel Trust I - ARSN: 629 354 614 ('RHT I')
together form the stapled entity;
Redcape Hotel Group ('Redcape' or ‘Redcape Hotel Group’)
Level 27
Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
(02) 8288 5555
Level 1
Minskys Hotel
287 Military Road
Cremorne NSW 2090
(02) 9719 4000
Boardroom Pty Ltd
Level 12
Grosvenor Place
225 George Street
Sydney NSW 2000
1300 737 760
KPMG
Level 38
International Towers Sydney
300 Barangaroo Avenue
Sydney NSW 2000
Stock exchange listing
Redcape Hotel Group stapled securities are listed on the Australian Securities
Exchange (ASX code: RDC)
Website
www.redcape.com.au
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ASX:RDCAnnual Report 2020