The ASX dividend stock BWP Trust (ASX: BWP) has a lot of pleasing attributes and I think the real estate investment trust (REIT) could be a useful addition to a dividend-focused portfolio. It looks particularly attractive after a 22% decline since December 2020, as the chart below shows.
It's best known for owning a large portfolio of warehouses that are leased to Bunnings, the huge hardware business owned by Wesfarmers Ltd (ASX: WES).
BWP and Wesfarmers recently revealed an important development that could be a game-changer for BWP.
Before I get to that announcement, let's look at what the passive income potential of the ASX dividend stock is first.
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The ASX dividend stock's distribution yield
The business is expecting to pay a normal distribution of 19.03 cents per security in FY26, which translates into a forward distribution yield of 5.4%.
But, the business is also working on a significant transaction with Wesfarmers which could take the forecast distribution to 19.41 cents per security. That means the business could deliver investors a 5.5% distribution yield, which is better than what term deposits are offering now (and further RBA rate cuts could lead to lower returns from term deposits).
Now, let's turn to the transaction that BWP and Wesfarmers announced last week.
BWP Trust internalisation, Bunnings lease reset and capital investment
BWP and Wesfarmers signed an agreement that has three components.
First, it internalises the management of BWP, removing the management fee payable to Wesfarmers.
Second, it resets the terms of Bunnings leases within the BWP's portfolio. The term of 62 Bunnings leases will be extended, with the weighted average lease expiry (WALE) of those leases more than doubling from 4.6 years to 9.5 years. This has increased the certainty of future rent, relating Bunnings' medium-term vacancies.
The expected increased WALE should lead to an uplift of property valuations for the ASX dividend stock estimated at $49.9 million, according to BWP.
As mentioned, the transaction is expected to help boost the distribution of the business in FY26 and hopefully beyond.
The third component is store expansion expenditure commitments and network upgrade expenditure commitments at some Bunnings sites. This will help unlock stronger rental income and extend the useful life of some of the Bunnings sites. Those upgrades will be completed within five years of the proposed transaction being implemented.
Overall, I think this is a good time to invest, particularly as the RBA is expected to cut rates further, which is likely to reduce debt costs and increase the value of the ASX dividend stock's properties.
