20/06/2017 - 16:16

Outback Trust investors face uncertainty

20/06/2017 - 16:16

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Perth entrepreneur Craig Mitchell and property funds manager Angelo Del Borrello are facing off over the future of four large roadhouses in northern WA, with the outcome having a big bearing on investors who pumped $22.5 million into four related property trusts.

Perth entrepreneur Craig Mitchell and property funds manager Angelo Del Borrello are facing off over the future of four large roadhouses in northern WA, with the outcome having a big bearing on investors who pumped $22.5 million into four related property trusts.

The dispute between Mr Del Borrello’s Acure Asset Management and Mr Mitchell’s Outback Travel Centres, which has paid up capital of $15.4 million, has come to light after OTC was placed into administration.

OTC operated four modern roadhouses at Karratha, Newman, Port Hedland and Karratha, on properties part-owned by the four unit trusts.

The directors of OTC and a related entity, Outback Fuel Distributors, appointed Ferrier Hodgson partner Martin Jones as voluntary administrator last Thursday, on the basis the business was likely to become insolvent.

Mr Mitchell said this followed six months of repeated attempts to renegotiate rental agreements with the trustee - which Business News has learnt was Acure Funds Management.

Mr Mitchell said the business was squeezed by high rentals and plunging revenue.

“After taking a controlling stake in OTC in December 2016, the new management team initiated a turnaround strategy which included renegotiating OTC’s rental agreements with the property trustee, which were struck at the height of the mining construction boom,” he said in a statement.

“OTC has experienced up to two-thirds decline in revenues resulting from a substantial reduction in road traffic.

“Ultimately the high rental costs and decline in revenue made the company’s financial position unsustainable leaving the directors with no option but to place OTC into VA.”

Mr Del Borrello had a very different take on OTC’s problems, and said he was now seeking new tenants for the four properties.

“The tenant was given every opportunity to come back to use with terms that make sense,” he told Business News.

“It’s implicit on us as trustees to go to the market to get the best deal.”

Mr Del Borrello said the rents were set by the tenant, and were inherited by Acure when it raised money through the unit trusts.

"We inherited the 15-year leases; we attempted to restructure them," he said.

He also disputed Mr Mitchell's claim that trading revenue had fallen by up to two thirds.

"On the numbers we've seen, they haven't gone down by two thirds."

Mr Del Borrello maintained there was potential for a satisfactory outcome with a new tenant.

"There is a sustainable business there for the right tenant.

"We believe we will get a satisfactory outcome for our investors."

Business News understands the four roadhouses are still operating and approximately 100 staff have been retained.

Acure Asset Management was established by Mr Del Borrello after he left property company Aspen Group in 2010.

Acure manages eight property trusts, including four related to Outback Travel Centres.

These trusts own 80 per cent of the Carnarvon and Newman properties, 49 per cent of Port Hedland and 45 per cent of Karratha.

Mr Mitchell’s holding company Outback Network owned the balance.

Acure offered high yields to attract investors, who have put $22.5 million into the four trusts.

Outback Unit Trust No 2, which has an interest in the Carnarvon and Newman properties, was forecasting an average distribution of 15.8 per cent per annum over seven years.

Outback Karratha Unit Trust was forecasting a distribution of 14.7 per cent.

Mr Del Borrello said he and other principals at the Acure business had personally invested in the unit trusts.

Mr Mitchell built up the OTC business over the past 4-5 years.

His backers included Altai Capital Partners, an investment group advised by Azure Capital.

Recapitalisation of the business during 2016 left Mr Mitchell (via his holding compay Outback Network) owning 95 per cent of the equity, according to the latest Asic return.

Mr Mitchell said the appointment of administrators would have no impact on Outback Network or its property and accommodation interests.

These interests include Capricorn Village in Newman, which was named last July as a preferred supplier to BHP Billiton after the iron ore miner agreed to close its own Kurra Village Fifo camp.

The other company that won work from BHP, privately-owned Tribute Group, was placed into receivership two months later.

McGrathNicol partners Rob Kirman and Jason Preston were appointed receivers and managers over a number of entities within Tribute Group, at the request of its directors. 

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