BWP Trust reports rising dividends: What you need to know

BWP Trust (ASX:BWP) reports its full-year results

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Real estate investment trust (REIT) BWP Trust (ASX: BWP) today reported its results for 2016. BWP owns many of the properties of Bunnings Warehouse, the home improvements retailer that is owned by Wesfarmers Ltd (ASX: WES).

Revenue rose 3.7% to $150.2 million and profit before gains on investment properties was up 6.2% to $107.9 million. Properties revalued during the period added a further $202.6 million to profit and net tangible assets per security rose 14.3% to $2.56.

The market's response to the results was muted with shares trading at $3.73 down 0.5% earlier this morning. Total distributions for the year rose 6% to 16.8 cents placing the stock on a dividend yield of 4.5%.

Debt

Gearing, defined as debt divided by total assets, was 21.5% as at 30 June 2016 down from 24.1% in 2015. This is at the low end of the board's preferred range of 20% to 30% and so there is significant room to further leverage the balance sheet should attractive opportunities arise.

BWP's weighted average cost of debt was 5% for the year down from 5.5% in the prior year and charges should continue to fall in line with interest rates. Despite this, BWP hedges its interest rate risk and at 30 June 2016, 79.4% of debt was hedged either with fixed rate bonds or using interest rate swaps.

Revaluations

All properties were revalued twice during the year including 36 valuations done by independent parties. Total revaluation gains of $202.6 million benefited from rental increases and a fall in capitalisation rates to 6.77% at 30 June 2016, down from 7.33% a year earlier.

Capitalisation rates are defined as net operating income divided by the current market value of the property. Falling interest rates and a brighter global economic outlook have been partly responsible for the recent fall in BWP's capitalisation rates.

The other key ingredient has been strong demand from investors for Bunnings Warehouse properties. This is no surprise given Bunnings is a large and extremely creditworthy tenant that holds a dominant market position.

Growth

Growth comes from rent reviews, store expansions and new developments. On a like-for-like basis rental income increased by 2.3% during the year, with fixed or CPI based rent rises applied to 99 leases.

62% of rental income is subject to CPI increases with the remainder increased by a fixed 3% to 4% each year. Therefore, low inflation significantly harms revenue growth and last year the average CPI increase was just 1.6%. In addition, every five years all properties are subject to a rental review based on market prices.

A number of store expansions were completed during the year which will flow through into increased rental income in 2017. The board has a disciplined approach to acquisitions and so the trust is unlikely to be active in the property market until prices fall.

Foolish takeaway

BWP expects distributions to rise by 3% per unit next year and so an investment in BWP certainly looks better than buying a term deposit. Not only does BWP offer a superior starting yield of 4.5% versus around 3% for a term deposit, but its distributions are partly tax advantaged and are likely to steadily climb over future years unlike interest rates which seem destined to move in the other direction.

Motley Fool contributor Matt Brazier has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »