Is the BWP Trust (ASX: BWP) a buy for income after reporting its interim result to 31 December 2018?
BWP Trust is a real estate investment trust (REIT) that owns buildings that mostly Bunnings Warehouse operate in. Wesfarmers Ltd (ASX: WES) owns the Bunnings business and also has a large stake in BWP Trust. It has a core portfolio of 67 properties with an average lettable area of 14,025m2, with 82% of those properties located in metro areas.
BWP Trust’s half year report
BWP Trust reported that total revenue increased by 2.7% to $79 million. This was helped by 2.5% growth of like for like rental income. BWP managed to achieve an occupancy rate of 99.1% for its property portfolio, which is very high for the sector.
The property trust also reported that its portfolio achieved revaluation gains of $22.7 million and its weighted average lease expiry (WALE) was 4.3 years.
Distributable profit increased by 4.25% to $58.8 million, with $1.4 million credited to the undistributed income reserve, leaving $57.4 million for distribution for the period, which was slightly higher than the consensus profit figure of $57 million according to Bell Potter.
BWP Trust interim distribution per unit
The BWP Trust distribution per unit increased by 1.7% to 8.93 cents thanks to the increase in distributable profit.
Gearing
BWP Trust remains quite well positioned with its debt. Gearing was 18.4% at the end of December 2018 and the cost of debt was 4.3%. Lower debt is important these days with rising interest rates.
Repositioning and divestments
After the collapse of Woolworths Group Ltd’s (ASX: WOW) Masters, Wesfarmers decided to put a number of Bunnings inside the old Masters locations. That left BWP without its main tenant at quite a few properties.
It has been busily divesting or re-positioning its properties to adjust for the change.
It has repositioned its Mentone property to have an Officeworks and Crunch Fitness. The Mandurah property now has an Amart Furniture. Management are considering what to do with the Cairns site, perhaps turning it into a multi-tenant industrial park.
There are four other BWP Trust properties where Bunnings’ lease ends within the next two and a half years, so management are planning what to do with these as well.
BWP has sold four properties for $71.7 million and another two are in the process of negotiation for sale.
Outlook
BWP Trust said that steady rental growth should help the distribution continue to grow at 1.7% in the second half of the FY19 year.
Management are working with Bunnings to progress opportunities to re-invest in the existing property portfolio. The REIT is also looking for additional acquisitions.
Is BWP Trust a buy?
With today’s increase to the distribution, BWP offers a distribution yield of 4.9%. According to the report, its net tangible assets (NTA) were valued at $2.89 per unit at December 2018, compared to the current unit price of $3.67.
The 13% run-up of the price since mid-October has made BWP seem fairly expensive compared to its assets, and reduced the potential income yield.
I don’t think BWP Trust is a buy at the current price, I would wait until it’s valued closer to its assets, or even at a discount.
Instead, if you want reliable ASX shares at good prices then I would consider the ones in the free report below.
3 proven ASX shares offering potentially more reliability than BWP Trust
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