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FY20 result: BWP Trust (ASX:BWP) delivers 24% profit growth

BWP Trust (ASX: BWP) has reported its FY20 result to investors, revealing revenue and distribution growth despite the challenges presented by COVID-19. Although the BWP share price is up nearly 1% in early morning trade, it is lagging the S&P/ASX 200 (INDEXASX: XJO) which has shot out of the gates to be up by more than 2%.

BWP Trust is a real estate investment trust (REIT) that owns commercial properties across Australia. Most of these properties are large-format retail buildings, particularly warehouses leased to hardware giant Bunnings.

Wesfarmers Ltd (ASX: WES), who owns the Bunnings business, also has a large stake in BWP Trust. The trust has a core portfolio of 68 properties with an average lettable area of 14,054m2, with 82% of those properties located in metro areas.

What did BWP Trust report?

In FY20, BWP Trust reported that its revenue dropped slightly by 0.3% to $155.8 million. Despite this, profit before gains on investment properties increased by 1% to $117.1 million.

Like-for-like rental growth was 2.4% for the 12 months to 30 June 2020, with the average inflation on consumer price index (CPI) linked leases of 1.6%

The REIT also benefited from $96.7 million of gains in the value of its investment properties, much higher than last year’s $53 million increase. This led to statutory net profit of $210.6 million, an increase of 24.4%.

BWP also revealed that its net tangible assets (NTA) per unit/share increased by 4.8% to $3.06.

At 30 June 2019, BWP said its gearing, being debt divided by total assets, was 19.7%. This is healthy for a REIT and more or less within the Board’s preferred range of 20% to 30%.

Impact of COVID-19

BWP revealed that it received 98.8% of rent during March to June 2020 as Bunnings and the majority of its other tenants were able to operate on an unrestricted basis throughout the back-end of the financial year. 

However, a small number of tenants, such as gym operators, were forced to close for some (or all) of the months from March to June this year. This led to rent abatements of $435,886 being granted during the period.

BWP Trust distributions

Pleasingly for shareholders, BWP managed to increase its final and total distribution compared to FY19. This morning, the board declared a 9.27 cents per unit (cpu) distribution, in line with estimates announced in late June. This brings total FY20 distributions to 18.29 cpu, representing a 1% increase on distributions declared in FY19.

What’s next?

Looking forward, BWP stated it is well-positioned in the current economic environment with low gearing, sufficient liquidity and sustainable cashflow. It expects demand for Bunnings properties to remain relatively stable in the near-term given the strength of the Bunnings covenant. However, BWP acknowledged that continuing COVID-19 outbreaks may require further rent abatements and/or deferments for some tenants.

In terms of investment, BWP’s primary focus will be on leasing vacancies in the portfolio, progressing store upgrades, and extending existing leases with Bunnings through the exercise of options.

Finally, the trust expects FY21 distributions to be similar to that of FY20, with capital profits being utilised to support the distribution as necessary. That said, BWP 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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Disclosure: At the time of publishing, Cathryn does not have a financial or commercial interest in any of the companies mentioned.

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