BWP Trust rides hardware shopping tide but outlook flat

Bunnings landlord BWP has done well in the Covid hardware shopping boom and it’s also hosting a vaccination centre and film studio.

Bunnings Warehouse, owned by Wesfarmers, is the largest hardware business in Australia.

Bunnings landlord BWP Trust is riding a tide of investment into the hardware sector as Australians stay home and renovate, with the company’s portfolio rising in value by 6 per cent.

The properties are being chased for their long leases to the hardware chain and certainty of income at a time when other areas of retail are struggling.

The trust also made good progress in improving Bunnings Warehouse properties and repositioning ex-Bunnings properties in the portfolio during the year, and it upgraded properties in Croydon and Port Melbourne, which has become a large format retail centre.

A non-binding agreement has been entered into for its Cairns property to be used as a film studio, and the trust struck a deal with the NSW government for the recently vacated Belmont North property to be used as a Covid-19 vaccination centre for up to two years.

The property has also been rezoned and works are underway to determine its best longer-term use. The trust‘s Midland property has been leased to a car dealership on expiry of the Bunnings lease in September.

But Bunnings also extended leases around the country at properties including Belmont, Caroline Springs, Cockburn, Fairfield Waters, Mount Gravatt, Pakenham, Smithfield, Wagga Wagga, Broadmeadows and Dubbo.

BWP’s property portfolio increased by $149.2m on the back of the ongoing attractiveness of Bunnings Warehouse properties to investors, with many assets trading at below 5 per cent yields.

Bunnings was able to operate on an unrestricted basis from the properties leased from the trust for the most of the pandemic and it received 99.6 per cent of rent. But some tenants like gym operators were closed and rent abatements of $473,571 were granted.

The trust’s net profit before revaluation gains was $114m, a 3 per cent reduction from the previous financial year, when profits were bolstered by deposit payments for a property deal that did not go ahead.

BWP reported a full-year distribution of 18.29 cents per unit, flat on the previous year. Capital profits were used to offset the lower net profit to maintain the same distribution. The portfolio had like-for-like rental growth of 1.6 per cent for the 2021 financial year.

BWP expects the distribution for the current financial year to be flat against last year. This reflects a fiscal 2022 distribution yield of about 4.5 per cent at last night’s closing price.

Morgan Stanley said BWP made good leasing progress in fiscal 2021, backfilling Bunnings’ vacancies but said that around 20 properties will expire between now and June 2024. And with Bunnings having a recent track record of moving premises, BWP “will likely have to peddle hard just to tread water”, broker said.