Maurice Dunlevy | April 03, 2008
HEDLEY Leisure & Gaming Property Fund is planning to sell up to $200 million worth of pubs to reduce its $805 million debt at the same time as the equally troubled tenant National Leisure and Gaming is offloading eight hotels for about $66 million.
HLG's sales are expected in most states, as the fund embarks on a strategy of appeasing the market by reducing its current 67 per cent gearing to below 60 per cent. That will involve the disposal of $150-$200 million in assets, giving HLG more breathing space under debt covenants, according to market sources.
Lower yielding pubs, and development sites that do not generate income, will be on the block, with the sales in addition to two transactions flagged by the group on March 19. Those sales -- one for approximately $17 million and the other for $8 million -- will reduce HLG's gearing by only 0.7 per cent.
Bell Potter analyst Damien Williamson said yesterday additional sales would give HLG a much more comfortable spread amid current pub sector turmoil. One of HLG's biggest pub tenants, National Leisure and Gaming, yesterday downgraded its full-year before-tax 2008 profit estimate from $12.6 million to $9.9 million and its 2009 EBITDA from $29 million to $15 million.
NLG, which leases 32 HLG pubs in Queensland and NSW, said the reasons for the downgrade were delays in the rollout of a capital works program at its NSW venues, and the proposed sale of the eight venues.
But in rare good news for NLG, the group said it was confident of re-negotiating finance facilities with NAB subsidiary the Bank of New Zealand Australia (BNZA) that expire on June 30. More than 90 hotels and a handful of development sites currently account for HLG's $1.25 billion in total assets, which also includes a 23.7 stake in the ALE pub group.
Since listing on the ASX last August, HLG has made nine acquisitions -- six pubs and three development sites -- for a total purchase cost of $86 million.
The coming selldown will provide a litmus test for the troubled hotel sector, with analysts predicting a hefty fall in valuations on the back of smoking bans.
HLG, whose biggest shareholder is Cairns millionaire Tom Hedley, quickly established a reputation for paying top dollar for poker machine-based hotels.
HLG's first hotel sale is likely to be the Kirra Beach hotel on the Gold Coast, which was purchased in October 2006 for $16.7 million.
The Kirra is understood to be the $18 million property flagged for sale in HLG's March 19 announcement.
Trading in HLG shares resumed yesterday after a suspension that was triggered last Friday by the sale of 10.8 million margin shares. The transaction, part of the Opes Prime fiasco, was subsequently cancelled by the ASX.
But HLG disclosed yesterday that its suspension had triggered a margin call on Tom Hedley's private company, TWH (Qld) Pty Ltd, which holds an $8 million margin loan on more than 20 million shares. But according to sources the margin call involved "insignificant" share numbers and would be paid in cash.
HLG shares yesterday closed up 16c to 95c.