Ann: Change in Ownership of Responsible Entity , page-4

re: Ann: Change in Ownership of Responsible E... Dirk,

One factor weighing down the SP is the level of gearing in the trust. At c.65% it is higher than what is deemed comfortable by the banks in Australia. What needs to be understood is the nature of the debt beyond a headline gearing rate. Four out of the seven loans are Commercial Mortgage Backed Securities (CMBS) facilities which have no covenant tests. This means that provided you make your interest payments, nothing happens. This brings us back to the quality of the buildings and tenants and therfore the cashflow of the trust. In Australia we are hung up on LVRs etc because that is the way it works here. The other three loans with the CBA are covenant tested and have been the focus of our debt reduction efforts since taking over the trust.

Typically, debt in the US is fixed for these types of assets and the leases are triple net ratchet leases - which means that they jump up significantly every 4-5 years. Once again, we are used to annual market rental reviews and CPI indexing in the commercial leasing market in Australia.

Another factor weighing down the SP is the NTA, which is $0.31. The last round of valuations for June 09 were brutal plus we had the currency impact. While our income is fully hedged, there is no hedging on the capital account. This means that a strong A$ punishes the trust which has to mark to market for financial reporting. The fact is, even if we sold an asset, we may not repatriot the capital but use it to reduce debt further (CBA debt of course) or redeploy within the US REIT structure. The NTA process however, values the asset on the basis that it is converted back to A$. If anything, our capital raising in Aug/Sep 09 meant that we raised A$ to convert back to US$.

If you value the stock on its income production (bearing in mind the quality of it) then you may produce a different result to what the NTA implies. In the current environment, any negative overlay will punish you until you can prove otherwise.

As our ASX announcement last Friday supports, we are pushing on with a growth strategy for RCU. In this distressed market, you would rather be on the buy side if you can make it happen.