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Results: Bunnings landlord BWP Trust delivers distribution growth despite COVID-19

Bunnings
Photo credit: AS 1979

The BWP Trust (ASX: BWP) share price will be on watch this morning following the release of its full year results.

How did BWP perform in FY 2020?

During the 12 months ended 30 June 2020, the Bunnings Warehouse landlord reported a 0.3% decline in revenue to $155.8 million. Over the period, the company reported like-for-like rental growth of 2.4% and an occupancy rate of 98%.

On the bottom line, thanks partly to lower finance costs, the property company delivered a 1% increase in profit before gains on investment properties to $117.1 million.

Including property gains, BWP’s profit was up 24.4% to $210.6 million. This was driven by a 75.1% or $93.6 million increase in the gains in fair value of its investment properties. Management notes that this reflects the continuing strong market support for Bunnings Warehouse properties from an investment and risk perspective.

In light of this positive form, the company is in a privileged position to be able to increase its distribution in FY 2020 despite the pandemic.

The BWP board has declared a final distribution of 9.27 cents per unit, which brings its full year distribution to 18.29 cents per unit. This represents a 1% increase on FY 2019’s distribution. Shareholders will be paid this final distribution on 21 August 2020.

What were the drivers of this result?

Management notes that its main tenant, Bunnings Warehouse, was able to operate on an unrestricted basis during the financial year. As did the significant majority of its other tenants.

This meant that just $435,886 of rent abatements were granted during the period, which means 98.8% of rent was collected as normal during the months of March to June. This is likely to be materially better than what the likes of Scentre Group (ASX: SCG) and Vicinity Centres (ASX: VCX) will report later this month.

FY 2021 outlook.

For the year ahead, the trust’s primary focus is on filling any vacancies in the portfolio, progressing store upgrades, extending existing leases with Bunnings through the exercise of options, completion of market rent reviews, and the continued rollout of energy efficiency improvements at its properties.

CPI reviews will apply to 48% of the base rent, with leases subject to a market rent review comprising 19% of the base rent, and with the balance of 33% reviewed to fixed increases of 3% to 4%.

However, due to the uncertain economic environment, management is being cautious with its distribution guidance. At this stage it expects its FY 2021 distribution to be in line with the one it has paid in FY 2020.

Though, it warned that the distribution may be reviewed in the event that COVID-19 impacts are more severe or prolonged than anticipated.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. 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 Scott Phillips.

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