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ALE Group

Lease Terms

ALE owns 86 pubs located throughout the five mainland states of Australia. ALE's high quality freehold pubs have long term leases that include a number of unique features that add to the security of net income and the opportunity for rental growth.

The following is an abbreviated list of the features that ALE's leasing and security arrangements currently provide, which of course should be read with the lease and intercreditor documents to gain a fuller understanding of the detailed terms and conditions.

  • 25 Year Initial Term - 79 of the 86 leases commenced in November 2003 with an initial term of 25 years and four options of 10 years for ALH to extend. Four other leases commenced between June 2004 and March 2009 on similar terms. The other properties are on shorter term double net leases.
  • Unlimited CPI Upside - annual CPI rent reviews are not subject to any cap or maximum growth rate. Rents do not decline with negative CPI, as any CPI decrease can be applied against future CPI increases.
  • 2018 Rent Review - in addition to CPI growth in the years where there is no market review, rents will be adjusted to market in November 2018 and are capped and collared at 10% above or below the rent paid in the period November 2017 to November 2018.
  • 2028 Rent Review - full open market rent reviews in November 2028 and, assuming ALH exercises options to extend the leases, each 10 year anniversary until 2058 (no caps and collars).
  • Earnings – earnings are a key determinant of market rent. Earnings from all improvements on ALE’s land are to be taken into account in determining market rent in 2018 and each 10 year anniversary that follows.
  • $1 - ALH funded property improvements revert to ALE for $1 on lease expiry.
  • Triple Net Leases - triple net leases require that ALH takes responsibility for rates, insurance and essentially all structural repairs and maintenance, as well as land tax in all states except Queensland. Three of the properties are on double net leases.
  • Cross Default - any (unlikely) ALH default on one lease may trigger cross defaults to 83 of the other leases, at ALE’s election.
  • ALH Committed - ALH is committed to meeting its lease obligations even if liquor or gaming licence laws change.
  • Change of Control Protections - a change in more than 20% of the ownership of ALH requires ALE's consent based on its reasonable opinion that ALH will continue to have the financial capacity, business skills, other resources and authorisations to enable it to conduct the permitted operating uses profitably and perform all of its lease obligations (an exception applies if ALH becomes an ASX listed entity).
  • Assignment Protections - in the event of any ALE approved assignments, ALE will continue to enjoy the benefit of an effective guarantee from ALH of any new tenant’s obligations for the remaining lease term, as ALH is not released on assignment.
  • Operating Profit Protections - subjest to regulatory changes and requirements, ALH has agreed that it will not reduce the number of gaming entitlements below 90% of the current numbers across ALE's properties.
  • Security - secured creditors of ALE have recourse to ALE’s property assets as well as ALH’s business assets (in certain circumstances when ALH is in lease default) to recover secured funding and hedging exposures (intercreditor arrangements).
  • Development Rights - ALH may exercise property development rights upon ALE approval and a make whole payment by ALH (ALE is fully compensated).
  • Unfettered Auction Rights - ALH does not have a first right of refusal on sale of the properties when ALE puts them to a public auction.

The above features are currently valuable and are expected to deliver material additional value to ALE's stapled securityholders in future years. The features compare very favourably with other ALH leased properties owned by other landlords in the pub property market as they do not have the benefit of all the above positive attributes.

Note: The above features apply to 80 of the 86 properties that ALE owns. Three other properties have slightly different review dates, commencing one to five years later, but otherwise have identical terms. Three properties have shorter lease terms. Two properties are on double net leases and these sit outside the intercreditor security arrangements