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Emu Plains Investment Strategy

The following statement was made to potential investors in the Information Memorandum dated 18 December 2013

The Trustee believes that the Property offers an attractive risk reward proposition for investors.


The Property offers a long term, secure income stream. Bluescope, the tenant, is an ASX top 100 company with a market capitalisation of circa $3 billion. The steel cutting business conducted on site is substantial and appears resilient to import competition. The business requires heavily engineered buildings including a heavy duty concrete slab and a structural steel frame capable of supporting heavy haulage cranes. The operations on site also require an above average number of roller doors, drive-through capability, extensive concrete hardstand and relatively low site coverage to facilitate drive-round access, external storage and extensive truck parking.


The Property provides Bluescope with all of its business' specialist requirements but at a current rent which is attractive for an ordinary industrial site lacking these costly additional features.


The current lease has circa 12 years to run and provides for annual rent increases/reviews. The Trustee believes that holding the Property until Bluescope has determined whether to exercise its renewal option will maximize the long-term return to Unitholders. Typically long leases present twin challenges:

  1. As the remaining lease term shortens, then all other things being equal, the capitalisation rate used to determine the property’s value tends to increase which has a negative impact on value, and

  2. The risk of vacancy at the end of the lease term.


The Trustee currently believes that Bluescope are more likely to exercise its renewal option because sourcing a replacement facility with the same utility to its business at a comparative cost to its renewal option will become increasingly difficult. If the option is exercised, Bluescope will have freshly demonstrated its commitment to the site, which it has occupied since the early 1990’s, and any degradation in the capitalisation rate will be restored.


If Bluescope does not exercise its option, the Trust has the opportunity to relet the Property’s at the prevailing market rent. The current terms of the Bluescope lease caps annual rental growth to 3.67% (on average). Alternatively the Trustee could sell the Property to a purchaser who values the potential to improve the site's utilisation from the current 38% to the more common standard of 60%. The Trustee believes that industrial land in Emu Plains will generally outperform other industrial land in greater Sydney due to its location, improving transport once the recently announced enhancements to the M4 have been constructed and the opportunities presented by the area's relatively large and underdeveloped parcels of land.


The Trustee intends to take advantage of capital management opportunities if they arise and would seek to make a partial return of capital when it next refinances the Bank loan.


Source: Information Memorandum dated 18 December 2013


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