The shares of BWP Trust (ASX: BWP) touched its all-time high of $3.34, after it announced its divestment of its multi-tenanted industrial property in Blackburn, Victoria, by entering into an option agreement. The group has acquired this property in 2008, and has sold the property for an amount of $17.525 million, which is slightly higher than the independent valuation of $17.0 million during December 2014. The company also entered into an option that is exercisable by next year July, with Folkstone for its Altona property. BWP Trust will use these proceeds to cover its debt.
The group has built a strong portfolio of assets and has completed several properties at Bunnings Warehouse during the first half of 2015. The company acquired the land at Manly West, QLD in September 2013 for $7.2 million. The group completed the development of this property in September 2014 which is now worth of over $21.3million, as of December 2014. The property has 12,870 square meters of total enclosed covered area, with the starting annual rent of $2.1 million. As per the West Ipswich, QLD property, the group acquired the land for $13.1 million during September 2013 which is a 14,977 square meters of a fully-enclosed covered area. The property is worth over $17.9 million (as of December 2014) with a starting annual rent of $2.3 million. With regards to the Brendale, QLD property, the company bought the land which has 11,822 square meters of fully-enclosed covered area during June 2014 for $8.1 million. The development of the property was completed during December 2014 and the starting annual rent of $1.9 million. The lease term for all the above discussed properties is 12 years as well as has five by six year options with annual fixed escalation of 3%.
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Geographic spread (Source: Company Reports)
Due to the group’s strong development pipeline ahead, the company has a huge capital commitment of $35.7 million. However, around nine Bunnings leases with 99% of occupancy will be expired in the next three years which might impact the firm’s rental income. But the company has long term expiry leases as well, wherein 32.5% of the group’s portfolio rental income will be expiring over the next five years. Twenty nine Bunnings leases which contributes 27.5% of portfolio rental income will be expiring in the next five years.
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Lease expiries and pipeline developments (Source: Company Reports)
On the other hand, the borrowing costs surged 40.2% to $13.3 million for first half of 2015, as compared to the last year. The average borrowing rose to $451.6 million, as compared to $274.1 million in 2013. Meanwhile, the weighted average cost of debt after hedging is 5.79%, as compared to 6.65% in 2013. This is one area where BWP trust is seeking to improve,by decreasing the cost of funding to 5.4% by 30 June 2015. Meanwhile, the interest cover deceased to 4.8x as of December 2014, against 5.6x in 2013, while the average duration including corporate bond is 3.4 years as of Feb 11
th, 2015.
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Capital management debt facilities (Source: Company reports)
BWP Trust (ASX: BWP) has given a very promising outlook for this fiscal year during its first half 2015 results announced in February, due to which the stock could deliver a year to date returns of 14.34%. The group expects Bunnings to continue to do well by achieving in store growth as well as improve rental income from its new development properties which are scheduled to be completed in the fiscal year of 2015. BWP is also targeting 43 CPI/ fixed rent reviews during the second half of 2015. Around ten Bunnings market rental reviews are expected to be finalized for this financial year and the second half distribution is estimated to be over 8.1 cents per unit, subject to the rent review results for the rest of the fiscal year. The firm is also working to improve its management of the current assets at Bunning.
However, BWP stock price could not sustain its all-time high level of $3.34 and immediately fell 1.85% till date. Rising capital commitments and immediate leasing expiries are some of the concerns. We recommend investors to be cautious before making further investments in the stock, as we believe that the positive news have already been factored in the stock. Moreover, even if the full year fiscal year 2015 results, that are scheduled to be released next month, are slightly below the expectations, than a further correction in the stock is evident.
Based on the foregoing, we reiterate our “EXPENSIVE” recommendation at the current price of $3.19, and would like to review the stock later.
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