Steelmakers' Investment Strategy

The following statement was made to potential investors in the Information Memorandum dated 20 November 2018

The Investment Manager believes that the Properties present an attractive long-term investment.

 

The Emu Plains Property in particular appears to be of significant strategic value to BlueScope. The terms of the lease are such that BlueScope has been able to secure long term occupancy at a predictable cost which is significantly below current market.

 

The Investment Manager believes that the Granville Property presents an attractive and accretive investment for the Trust. The current rent represents a yield of 6.37% on the purchase price of $24.225 million. However, additional capital expenditure of up to circa $1 million is anticipated. The current rent is also estimated to be circa 20% below market. The acquisition yield becomes 7.3%, being the expected market rent in April 2020 if BlueScope exercises its first renewal option, on the aggregate of the purchase price plus the cost of the additional capital works. In the current market this represents an attractive acquisition yield for a well located Western Sydney property with a high quality embedded tenant.

 

The value of industrial land in Western Sydney has grown substantially over the last few years due principally to a loss of industrial space to residential and office use and higher levels of logistics and distribution activity within the greater Sydney area. The Investment Manager believes that industrial rents do not yet reflect the increase in land values and that the Granville Property will experience significant market rental growth and that the Property consequently has the potential to generate good capital gains over the remaining investment term of the Trust (7 years).

 

The Investment Manager believes that the optimal strategy would be to relocate the operations from Granville into a new building on surplus land in Emu Plains and to obtain a higher and better use for the Granville site. This has been discussed with BlueScope and the prospect would be attractive but only when the existing machinery was being replaced rather than relocated. This opportunity may not present itself prior to the termination of the Trust and consequently is not factored into Pipeclay’s base case projections and forecasts.

 

The combined value of the Properties, on acquisition of the Granville Property is estimated to be $60 million. BlueScope area quality tenant. The Investment Manager believes that the two Properties will attract interest from institutional investors if sold as a package. Properties that attract institutional capital are currently trading at tighter yields than sub-institutional grade properties.

Source: Information Memorandum dated 20 November 2018

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