- Total Income: $82.3 million, an increase of 4.7% from the previous corresponding period.
- Net Profit (excluding unrealized gains and losses): $57.4 million, consistent with the prior corresponding period.
- Distributable Amount: $57.9 million, in line with the previous corresponding period.
- Total Assets: $3 billion as of December 31, 2023.
- Unit Holders Equity: $2.4 billion.
- Total Liabilities: $586.8 million.
- Net Tangible Asset Backing: Decreased marginally from $3.75 per unit on June 30, 2023, to $3.74 per unit on December 31, 2023.
- Interim Distribution: $9.02 per ordinary unit, same as the previous corresponding period.
- Finance Costs: $10.5 million, 35.1% higher than the previous corresponding period.
- Gearing Ratio: 17.1% as of December 31, 2023.
- Weighted Average Capitalization Rate: 5.53%, up 15 basis points from June 2023.
- Property Acquisitions: $32 million during the half year.
- Capital Expenditure: $8.4 million during the half year.
- Unrealized Losses: $4.2 million during the half year.
- Proposed Merger with NPR: NPR securityholders to receive 0.4 BWP units for every one NPR security held, with an implied price of $1.39 per NPR security.
- Portfolio Value: Increased by $36.1 million to $2.9727 billion during the half year.
- Market Rent Reviews: Weighted average increase in rent of 4.2% for five reviews completed.
- Lease Covenant Coverage: 83.8% by Wesfarmers Group at the end of the half.
- Weighted Average Lease Expiry (WALE): Increased from 3.6 years to 3.9 years post-merger with NPR.
Release Date: February 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BWP Trust (ASX:BWP, Financial) reported a total income of $82.3 million for the period, marking a 4.7% increase from the previous corresponding period.
- The Trust completed the acquisition of two properties, Southport Showrooms in Queensland and Broadmeadows Homemaker Centre in Victoria, for a total of $30 million.
- An interim distribution of $9.02 per ordinary unit was declared, consistent with the previous corresponding period.
- The proposed merger with Newmark Property REIT (NPR) is expected to add nine high-quality properties to BWP's portfolio, increasing the combined portfolio to $3.5 billion.
- The Trust's gearing ratio remains low at 17.1%, providing flexibility for future investment opportunities.
Negative Points
- The underlying net tangible asset backing of the Trust units decreased marginally from $3.75 per unit to $3.74 per unit.
- Finance costs increased by 35.1% to $10.5 million due to higher interest rates and increased borrowings.
- Market rent reviews for three Bunnings warehouses remained unresolved at the end of the period.
- The Trust's weighted average capitalization rate increased by 15 basis points to 5.53%, reflecting a less favorable market environment.
- The distribution reinvestment plan (DRP) was suspended for the half year ending December 31, 2023, due to the proposed merger with NPR.
Q & A Highlights
Highlights of BWP Trust (ASX:BWP) Earnings Call
Q: Do you think the medium-term outlook for distribution growth will be different given the recent asset recycling and NPR transaction?
A: The strategy remains focused on growing income and improving the portfolio over time. The NPR acquisition and capital recycling are part of this objective. The merger is expected to create recurring earnings that will support distributions and improve returns over time. (Mark Scatena, MD, Executive Director)
Q: Are market rent reviews and re-leasing discussions becoming easier due to positive sales momentum from the main tenant?
A: The portfolio is broadly at market rent, and the recent 4% increase in market rent reviews is due to the specific mix of assets reviewed. The process remains consistent with past periods. (Andrew Ross, Head of Property)
Q: What are your expectations for further cap rate shifts and the bid-offer spread in the market?
A: Internal valuations are based on independent valuations and market evidence. Sentiment indicates a slight increase in cap rates, reflected in the 15 basis points increase across the portfolio. Future transactions will guide further valuations. (Andrew Ross, Head of Property)
Q: How do you view the overall returns on recent acquisitions with a 6.8% yield, considering potential CapEx for integration with existing Bunnings facilities?
A: Investments are assessed based on their ability to generate earnings and cash flow, supporting long-term value for unitholders. Future CapEx returns are expected to exceed the 4% achieved on recent projects. (Mark Scatena, MD, Executive Director)
Q: Will there be more leases with CPI caps in the future?
A: Each property negotiation is specific, but the general approach is to adopt the same annual rent review structure as existing leases. Caps on CPI are not expected to be a common feature in future lease negotiations. (Andrew Ross, Head of Property)
Q: What are the expected synergies from the NPR transaction, particularly regarding the cost of debt?
A: Synergies include reduced friction costs from administering two listed trusts and potential scale benefits. Discussions with common lenders are ongoing to balance rate and tenor, aiming for cost benefits over time. (Mark Scatena, MD, Executive Director)
Q: Are there any updates on the Port Kennedy and Hervey Bay projects?
A: Hervey Bay is under construction and expected to complete mid-year, tracking within budget. Port Kennedy requires more leasing commitments before proceeding with construction. (Mark Scatena, MD, Executive Director)
Q: Will there be double management fees with the NPR acquisition?
A: No, there will not be double management fees. Upon achieving control, the management arrangements will be consolidated under the existing responsible entity, eliminating any duplication of fees. (Mark Scatena, MD, Executive Director)
Q: Why pursue the NPR acquisition given it is not immediately accretive to earnings?
A: The acquisition provides incremental recurring income, geographic diversification, and a platform for growth. It aligns with the Trust's long-term strategy to improve the return profile and leverage the strong capital structure. (Mark Scatena, MD, Executive Director)
Q: Will the NPR transaction lead to an uplift in distributions in the next few years?
A: While specific guidance is not provided, the merger is expected to create opportunities for improved returns and synergies over time, supporting the Trust's objective of growing distributions. (Mark Scatena, MD, Executive Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
