About a month ago a short debate raged around the merits of buying individual Bunnings Warehouse warehouses (ie the actual warehouse that gets leased to Wesfarmers Ltd (ASX: WES) ) versus, say, investing in residential property or the sharemarket. It was very, very silly in my opinion, here's why:
The Story
The gentleman who bought a number of warehouses, which were leased back to Bunnings on 12-year leases, cost around the $10 million mark and yielded him an 'impressive' 5.1% yield (I can only guess this was net yield, as it was compared to 3 to 3.5% net yield for residential property).
It was in his super fund and would pay him around $400,000 per year in relatively passive income, so one would assume he also paid cash, or used maybe 20% debt, to pay for it.
Should you buy a Bunnings Warehouse?
I think it's fair to say that most people would struggle to find $8 million cash to invest into a commercial property, but if we're honest he's probably right that it's lower maintenance than buying 20 x $500,000 residential properties.
Now, the yield, and the biggest problem with this story.
There's a little $2 billion property trust listed on the ASX called BWP Trust (ASX: BWP). BWP stands for, you guessed it, Bunnings Warehouse Property, and was spun out of Wesfarmers back in 1998.
The trust's share price has pulled back nicely from $3.44 in August to just $3.07 now, implying a forward yield of 5.4% based on the average of 8 analysts. BWP is a real-estate investment trust and consequently doesn't pay out franking credits – tax is paid at the investor level, instead of at the trust level.
The Trust owns over 70 Bunnings warehouses, diversifying the investors' risk to many locations and also holds a total land area of over 250 hectares, presumably in relatively high-demand areas. As such, BWP Trust would've been a better investment.
