Company Interview / A near 400% profit bump for BWP

Key points:

Stable income growth and strong asset revaluation drive BWP's trust significant profit surgeThe NPR portfolio represents key strategic addition to diversify and enhance the existing asset baseBWP's trust is set to optimise growth despite competition and potential pitfalls in rental income growth

BWP Trust (ASX:BWP), Australia's biggest owner of Bunnings Warehouse Properties, experienced a whopping surge in full-year profit by close to 400%. Mark Scatena attributes this positive performance partly to the revaluation of assets after a challenging prior year. Observing robust income growth of about 10%, Mark reveals a new line of acquisitions, referred to as the NPR portfolio, comprising nine strategically-located assets. The move, he states, is to further consolidate BWP Trust's geographic footprint.

Apart from securing highly advantageous leases, Mark also underscores his company's enormous privilege in having Bunnings as their key tenant. The benefits also extend to their other lessees like Davao and Scoresby, as Mark opens up opportunities to expand their assets. Looking ahead to full year in 2025, Mark forecasts some rental income growth but cautions that it might be slightly off pace from the CPI-led growth of year 24.

Finishing on the matter of competition and expansion, Mark comments on how BWP Trust's robust balance sheet, right capital structure, and discerning insight contain the potential for more acquisitions. He also touches on the fluctuations in share price, leaving the final decision in the hands of the market. Nonetheless, he remains convinced that focusing on optimising and growing BWP Trust's portfolio will inevitably bear fruit.

Full unedited transcript:

0:11

BWP trust, the largest owner of Bunnings Warehouse Properties in Australia, increased its full year profit by almost 400% and added to its portfolio value in FY 24. The market responded favourably to the results which came out last week. A little earlier, Juliet caught up with Marc's Catena BWP trust managing director.

0:30

Yeah, so that that's post, um, our revaluation of our assets. So, um, in the prior year, uh, we had some revaluation, uh, go the other way in a negative sense as we mark to market the portfolio and complete our valuations every year across our, our real estate portfolio. So this year we had a favorable gain, uh, which drove that very large reported difference. Uh, but on an underlying basis, as you say, in terms of income, some nice income growth of about 10%

0:59

when we look at a raft of new acquisitions that you had in the year as well, the NPR portfolio. Just tell us about some of the opportunities for growth and scale here.

1:10

Yeah. Thanks. Really. We're really pleased to announce that in January and also complete that transaction, uh, in late June. Um, so that portfolio was nine assets, really complementary assets. Uh, with again, a very, a very, a very good tenant, uh, largely tenanted by Bunnings. Um, those assets are high quality assets in great locations with nice attributes from a network planning perspective. Um, we were pleased with some of the tenure that existed in some of those leases or a little bit longer tenure, and also gave us a little bit more geographic diversity across the portfolio. So, um, look, we were really pleased, um, to identify that opportunity and complete that transaction really in the second half of the financial year. So those nine assets complement the existing base really nicely and give us some leverage to grow.

2:01

And speaking of the existing base, a lot of people know you as the largest owner of Bunnings warehouses in the country. Just tell us how your portfolio there is growing and also an increase in some of these rental agreements.

2:15

Yes. So I think we called out rental growth of 4.2% for the year. So that was supported by some of our leases driven by CPI. Uh, and some of our leases are fixed in regards to rental escalation, about 50 over 50 notionally for the year. So we uh, we recorded some nice, uh, revenue growth. Look, we're delighted to have, um, you know, a tremendous tenant, uh, across much of our portfolio in Bunnings. You know, that business is incredibly resilient, uh, and continues to evolve its proposition. Uh, it has a real growth mindset. Uh, so we're, you know, as a landlord, very privileged to have Bunnings as our key tenant, um, and our other portfolio, I think in the year, we also, uh, we called out that we had repurposed one of our assets so Bunnings and vacated one of our warehouses, one in Harvey Bay, and delighted to bring on E-mart Ahmad and some of the super retail group portfolio, um, into that asset. So again, some really great national tenants, national

3:15

retailers, uh, with great, um, with great capability. So again, really pleased to have them in the portfolio.

3:21

So when we look at the start of full year 25, what are you seeing so far Mark. And I guess do you expect some rental income growth too.

3:29

Yeah. As I said we've got um, we've got a number of our leases that are driven by CPI and um, that, that are fixed. Um, and I think we guided um, to that mix, um, in the result. So we would expect obviously some continued path through of some of that CPI growth, albeit we're seeing CPI moderate, um, as we all understand. So we expect rental growth again in 25. Uh, perhaps a little uh, tapering away from the CPI led growth of, of 24. Uh, but still really pleased with the composition of um, the underlying portfolio. So we're looking forward to, um, really focusing on that existing uh, that existing asset base we've got, um, looking to expand assets on behalf of some of our tenants, like Davao and Scoresby. Um, and repurposing some of the assets as well. Uh, like fountain Bay and no longer in the network. So a combination of optimizing, um, expanding and growing and really supporting our tenants with their growth, uh, platforms.

4:29

Of course, there are local ways. Depends on what the economy is doing, too, and what we're seeing with interest rates. If you don't see any major disruption, what sort of guidance can you give in terms of distribution payout? Yes. So this year, um, we um, we guided to 2%, uh, growth, um, in our distribution per unit. So again, very delighted to, um, give that guidance, um, and a number of variables at play during the year. But um, again to give to give that guidance and give unitholders, um, some, some foresight into where distributions will go or a place to do that. So we, we delivered 18 uh, cent, 18.2 $0.09 in the financial year just completed. So uh, a 2% growth on that number is what we've got into. So again, um, we're very pleased to do that.

5:17

How do you think you're faring compared to your competitors, Mark?

5:23

Yeah, we've got a it's a it's a pretty vibrant, um, competitor set. We've got Juliette. So, so, um, everything from other listed, uh, rights and fund managers to syndicates to high net worth individuals. Um, and I think what we've always said is, um, you know, as a, as a, as a competitor in this, in this sector and as, um, other competitors seek to deploy capital, um, into this area and, and support our tenants and their expansion and network planning journeys. Um, you know, having a conservative balance sheet, um, having the right capital structure, um, and being opportunistic, uh, in leveraging that, as we've done in the 24 year with MPR and some other investments. Um, you know, we think we're well placed. Um, and, you know, we just focus on optimizing what we have, growing and recycling the portfolio where it makes sense to do so for unit holders. So we've we we've always had lots of competition. We're very much used to that. And, um, ensuring that we're well placed to capitalize on opportunities is important to us.

6:23

And is that well placed to capitalize on opportunities mean that we could see another acquisition spree over the next couple of years.

6:31

Um, I'm not sure about acquisition spree. I think we've always said that if we have the right settings in terms of capital structure being well set, our gearing is in the right range. We've got the support of our capital providers, both equity and debt. Then when the opportunity is there and we think that's a creative over time for unit holders like MPR and our other acquisitions of 24, then we're really pleased to act. So I think having capacity and capability and then matching that with opportunity will guide how active or inactive we are, um, in any year. So we don't have an ambition, uh, to be particularly active or inactive. We just make sure we've got capacity and will deploy that whenever the opportunity sets. So we'd be delighted to do more. Um, but there will be a function of visiting the interest of unitholders.

7:16

And, Mark, I know you can't control the market, but when you see where your share price has gone after the results. But then analysts say you're a bit too expensive and a recommendation to sell. What do you say to that?

7:28

Yeah. No, I, um, look, we can control most certainly, um, uh, how we configure the portfolio, how we optimize it, how we grow it, and how we recycle assets. Um, and we really hope to deliver our objective, uh, which is, um, growing, um, growing the distribution over time for unit holders. And I certainly creating more value in the portfolio for our unit holders. So we control those two things. Uh, we'll continue to do that. And, um, I suspect if we deliver that objective than the market will at some point, um, take, take notice of that. And um, but but again, um, you know, we've got lots of market participants, um, looking at what we do and, and I unfortunately, as much as we guide them, um, they make their own decisions and we're really pleased with our, our strategy. Uh, the action sets we've got in place and we'll continue to try and deliver those. They're the things we can control.