BWP Trust Enjoys Cap Rate Compression but Earnings marginally lower10 February 2022
The BWP Trust announced the results of the Trust for the six months to 31 December 2021 showing a $204m gain in Net Profit for the period to $348.3 million. The gain includes $291.8 million of unrealised gains in the fair value of investment properties and offset by a drop in earnings.
Total income for the period was $75.9 million, a decrease of 0.3 per cent over the previous corresponding period, after taking into account rent abatements of $332,372 provided to tenants impacted by the COVID-19 shutdowns during the six months to 31 December 2021 (2020: $403,658).
- Net profit for the six months was $348.3 million, which included $291.8 million of unrealised gains in the fair value of investment properties
- Distributable amount of $57.9 million for the six months – in line with the previous corresponding period
- Interim distribution of 9.02 cents per unit – in line with the previous corresponding period
- Like-for-like rental growth of 2.2 per cent for the 12 months to 31 December 2021
- Weighted average lease expiry of 4.3 years at 31 December 2021 with 97.6 per cent leased
- Gearing (debt/total assets) 15.5 per cent as at 31 December 2021
- Weighted average cost of debt of 3.2 per cent per annum for the six month period
- $2.9 billion portfolio valuation as at 31 December 2021
- Net tangible assets of $3.75 per unit at 31 December 2021
Finance costs of $7.5 million were in line with the previous corresponding period, with the weighted average cost of debt remaining at 3.2 per cent. The average level of borrowings was largely in line with the previous corresponding period ($466.2 million compared with $467.8 million). Average utilisation of debt facilities (average borrowings as a percentage of average facility limits) for the period was similar to the previous corresponding period (77.1 per cent compared with 77.3 per cent).
Other operating expenses remained at the same level as the previous corresponding period at $4.3 million.
For the half-year the Trust reported a distributable amount of $57.9 million, in line with the previous corresponding period, and which included a partial release of retained capital profits of $1.5 million (31 December 2020: $1.0 million).
At 31 December 2021, the Trust’s total assets were $2.9 billion, with unitholders’ equity of $2.4 billion and total liabilities of $0.5 billion.
The underlying net tangible asset backing of the Trust’s units increased by 46 cents per unit during the period, from $3.29 per unit at 30 June 2021, to $3.75 per unit at 31 December 2021. This increase was largely due to the net unrealised gains on revaluation of investment properties.
An interim distribution of 9.02 cents per ordinary unit has been declared. This is the same as the previous corresponding period (9.02 cents per unit).
Capital expenditure of $2.3 million was incurred during the period. It comprised minor works at various properties (31 December 2020: $2.4 million).
Acquisitions and Divestments
In July 2021, the Trust completed the sale for $14.5 million to an unrelated third party of its Mindarie, Western Australia property which had previously been occupied by Bunnings. The Trust did not acquire any properties during the period, but have since agreed to acquire land adjacent to the Lismore Bunnings for $1.5 million to expand the store at a cost of $11.3 million. The annual rental will increase by approximately $0.5 million.
At 31 December 2021, the portfolio was 97.6 per cent leased with a weighted average lease expiry term of 4.3 years (30 June 2021: 4.2 years, 31 December 2020: 4.3 years).
The rent payable for each leased property is increased annually, either by a fixed percentage or by CPI, except when a property is due for a market rent review.
Forty seven of the leases of Trust properties were subject to annual fixed or CPI reviews during the period. The weighted average increase in annual rent for 23 CPI reviews was 3.3 percent and the 24 fixed reviews was 3.4 per cent.
The market rent reviews that were due for eight Bunnings Warehouses during the year ended 30 June 2021 and four that were due during the six months to 31 December 2021 are still being negotiated or are being determined by an independent valuer and remain unresolved. The market rent reviews completed during the half-year are shown in the following table.
|Property location||Passing rent||Market review||Variance||Effective date|
|($ pa)||($ pa)||(%)|
|Fountain Gate, VIC||1,760,103||1,770,000||0.6||1-Feb-20|
|Mt Gravatt, QLD||1,406,886||1,368,000||(2.8)||17-Dec-20|
|Total/ Weighted average||9,118,118||8,907,000||(2.3)|
Like-for-Like Rental Growth
Excluding rental income from properties acquired, upgraded or vacated and re-leased during or since the previous corresponding period, rental income increased by approximately 2.2 per cent for the 12 months to 31 December 2021 (compared to 1.8 per cent for the 12 months to 31 December 2020 which was previously disclosed as a 2.0 per cent increase, but has now been updated following the finalisation of the six market rent reviews related to that period).
The unresolved market reviews at 31 December 2021 are not included in the calculation of like-for-like rental growth for the year.
During the half-year, the Trust’s entire investment property portfolio was revalued. Property revaluations were performed by independent valuers for 10 properties during the period. The remaining 63 properties were subject to directors’ valuations. Following the revaluations, the Trust’s weighted average capitalisation rate for the portfolio at 31 December 2021 was 5.11 per cent (30 June 2021: 5.65 per cent; 31 December 2020: 5.84 per cent).
The value of the Trust’s portfolio increased by $280.6 million to $2,916.7 million during the half-year following capital expenditure of $2.3 million and revaluation gains of $291.8 million, after adjusting for the straight-lining of rent of $1.0 million and less net proceeds from divestments of $14.5 million.
The Trust’s debt facilities as at 31 December 2021 are summarised below:
|Limit ($m)||Amount drawn ($m)||Expiry date|
|Bank debt facilities|
|Westpac Banking Corporation||135.0||48.5||30 April 2023|
|Commonwealth Bank of Australia||110.0||43.4||31 July 2023|
|Sumitomo Mitsui Banking Corporation1||–||–||–|
|Fixed term five-year corporate bonds||110.0||110.0||11 May 2022|
|Fixed term seven-year corporate bonds||150.0||150.0||10 April 2022|
|Fixed term seven-year corporate bonds||100.0||100.0||24 March 2028|
During the previous year, the Trust restructured its debt facility with Sumitomo Mitsui Banking Corporation. In March 2021 the Trust issued a new fixed term seven-year bond of $100 million which matures in March 2028. The funds from this bond issue were used to repay the $100 million debt facility with Sumitomo Mitsui Banking Corporation which was due to expire in May 2024. The debt facility with Sumitomo Mitsui Banking Corporation was restructured and replaced with a $110 million five- year forward start cash advance term facility, with an effective start date in March 2022, with drawdown likely in April 2022. This restructured facility has been established to repay the $110 million fixed term five-year corporate bond that matures in May 2022.
Rent reviews are expected to contribute incrementally to property income for the half-year to 30 June 2022. There are 46 leases to be reviewed to the CPI or by a fixed percentage increase during the second half of the 2021/22 financial year. There are also 16 market rent reviews of Bunnings Warehouses that remain unresolved and are in the process of being finalised.
The primary focus for the remainder of the financial year is on filling any vacancies in the portfolio, progressing store upgrades, re-zonings and extending Bunnings leases through the exercise of options. The Trust will continue to look for opportunities to acquire assets where there is good potential for value creation.
Subject to there being no major COVID-19 or other disruption of the Australian economy, the Trust could expect the distribution for the year ending 30 June 2022 to be similar to the ordinary distribution paid for the year ended 30 June 2021. Capital profits may be utilised to support the distribution.