Bunnings property trust navigates lockdowns

The listed BWP Trust, which owns Bunnings warehouses, has provided a flat outlook as COVID restrictions slow the economy.

A Bunnings warehouse in Melbourne. Picture: Bloomberg

The listed BWP Trust, which owns Bunnings warehouses around the country, says it is well positioned for the challenges created by the global COVID-19 pandemic, even as its anchor tenant readies for trade restrictions in Melbourne.

The landlord, which has a $2.5bn portfolio of Bunning warehouses and other bulky goods stores, is promoted as one of the safest stocks on the market but it provided a flat outlook as pandemic-related restrictions slow the economy.

Bunnings operated on a largely unrestricted basis during the first phase of the coronavirus crisis but now its stores in Melbourne are open only for trade customers and pick-ups. Under stage four lockdowns, doors will be shut to in-store retail customers.

BWP Trust managing director Michael Wedgwood said that tenants were required to pay rent whether or not they were open and the trust was watching both cash flows and sales.

Melbourne makes up less than 4 per cent of annual rental income and he noted that Bunnings had adapted well during COVID-19 and he expected them to continue to do so.

BWP has already been affected by the crisis and has leases with tenants like gym operators, which were subject to COVID-19 mandatory closures earlier this year, which it is dealing with under the Morrison government’s leasing code.

BWP said its performance would be influenced by the strength of recovery of the Australian economy from the impacts of COVID-19, financial implications for its tenants, future investor demand for property, and the time and cost of repositioning vacant properties.

In a nod to tough conditions the trust said COVID-19-related economic uncertainty may mean it will grant further rent abatements or rent deferrals, especially to those tenants who qualified under the Morrison government’s leasing code.

BWP called out the length and timing of any mandatory closures and government-mandated restrictions as influencing the requirement to waive or defer further rent.

Longer term it said how Bunnings performed and changes to how long it occupied warehouses would influence its business, with some properties having alternative uses.

Investor demand for Bunnings warehouse properties is still strong due to low interest rates and the search by investors for running yields higher than interest rates.

About 57 per cent of the trust’s rental income is subject to consumer price index annual adjustment and it expects lower incremental rental growth while inflation remains low, saying its distribution this year would be similar to last year and it could be backed by capital profits if needed.

“The distribution may be reviewed in the event the COVID-19 impacts are more severe or prolonged than anticipated,” BWP said.

UBS analysts said the result highlighted resilience of the portfolio in the COVID-19 world and noted guidance was provided, though qualified given COVID-19 uncertainty. investors drove BWP shares up 3.9 per cent to $3.98.

The trust’s net profit hit $210.6m, including $93.6m in gains on investment properties, up from last year’s profit of $169.4m, which included gains of $53.4m on properties.

Rent abatements of $435,886 were granted during the last half and the trust received 98.8 per cent of rent due during the months of March to June this year, higher than mall rivals.

BWP reported a full-year ordinary distribution of 18.29c per unit, an increase of 1 per cent on the previous year’s distribution.