Bunnings rights issue announced

As expected, Bunnings Trust (ASX: BWP) has announced along with its annual results a capital raising to purchase and leaseback another 11 sites, said to be in prime retail locations throughout the country.

The $300 million raising will be a 1 for 6.18 accelerated non-renounceable entitlement offer to help buy 10 Bunnings Warehouses and one bulky goods centre, realising $271 million for ultimate owner Wesfarmers (ASX: WES), which said this morning it was also having discussions with “other parties that would result in a separate transaction involving a Bunnings portfolio of freehold properties to release further capital from (its) balance sheet”.

The total price for the assets now being sold is $312 million at an overall yield of 7.35 per cent and the share offer will be at $2.30, compared to $2.41 when Bunnings went into a trading halt yesterday, saying a media inquiry indicated confidentiality about the raising may have been breached.

The purchase is reckoned to have a neutral effect on Bunnings balance sheet in 2014, but the company has forecast a 2% increase in distribution in 2015 over the 14.6 cents per unit forecast for 2014.

Bunnings Trust earns more than 90% of its income from the sites it leases to 67 Bunnings Warehouses owned by Wesfarmers. After being spun off by Wesfarmers in 1998, it has a current market capitalisation of $1.3 billion and is expected to resume trading tomorrow.

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Motley Fool contributor Andrew Ballard owns shares in Bunnings Trust and Wesfarmers.

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