WesTrac Enters $100 Million Sale Leaseback of Property Portfolio in Australia

Sydney Morning Herald - March 18, 2010

Kerry Stokes has transferred more than $100 million of property out of his earth-moving business, WesTrac, to his private company, Australian Capital Equity, and will lease it back to the merged Seven Group Holdings for $18 million a year.

Documents sent to Seven Network shareholders about the merger of Mr Stokes's media interests with his earth-moving business WesTrac Group reveal a deal excising some of WesTrac's ''non-core'' assets was struck the day before Seven and WesTrac announced merger plans in February.

Part of the deal involves ''all freehold properties owned by WesTrac Group and used in the WesTrac business being transferred out of WesTrac Group to Fairburn Nominees,'' later identified as a wholly-owned subsidiary of Mr Stokes's ACE.

The Australian Financial Review is this morning reporting Mr Stokes as having said there will be no revised offer.

After the sale and leaseback valuing the properties at $100.6 million, Mr Stokes's ACE becomes a landlord in another related party transaction.

"These properties used in WesTrac business will then be leased back to the WesTrac Group under triple net leases. The rent of these properties will be [about] $18 million per annum, increasing to [about] $40 million per annum" when a series of projects are complete.

The day after the deal for WesTrac Group to pay rent on the properties, Seven said it would merge with WesTrac Group to become Seven Group Holdings.

That day, Seven announced an "agreed enterprise value" of $2 billion for WesTrac, including half-equity and half-debt.

The property deal includes a 3 per cent annual rent increase on a 10-year term, the lessee paying maintenance costs on the property up to $100,000 per month before the owner may be asked to contribute, and the lessee paying the owner's legal costs.

ACE is being paid $1 billion in Seven Group Holdings shares for the WesTrac business. Mr Stokes will emerge with 68 per cent of the new merged SGH business. The documents also show a series of related party transactions including an eight-year deal WesTrac has with a subsidiary of ACE to use its aircraft for a monthly fee of $165,000.

The documents reveal that $10.8 million in fees is payable by Seven Network should the deal not proceed.

Also disclosed: Seven's listed investments contain "an unrealised and unadjusted loss of [about] $60 million"; and KKR, Seven Network's joint venture partner in Seven Media Group, can exit its stake at will, triggering payment of a deferred tax liability of $600 million. Sphere: Related Content