The share price of BWP Trust (ASX: BWP) has dropped 25% since hitting a high of $3.91 at the start of August.
The good news is that at the current share price of $2.92, shares are yielding 5.8%. For a reliable company and the owner of 80 Bunnings warehouses around Australia, that's a decent return (although it is unfranked).
The success of Bunnings – owned by Wesfarmers Ltd (ASX: WES) – has rubbed off on BWP Trust, and allowed the property trust to increase its rental income and distributions to shareholders. Over the five years since 2011, total distributions have grown by 40%.
Wesfarmers also owns around a quarter of the trust's shares on issue, so it clearly has a stake in the trust's performance.
On the downside, BWP Trust doesn't look like an appealing investment, even after the price fall.
For one, shares are trading well above net tangible asset value of $2.56. Property trusts should trade around net tangible asset value, plus or minus a few percentage points based on many factors including quality of their clients, locations of their properties, performance of the sectors they are in and the outlook for those sectors, competition and the all-important yield.
Unfortunately, BWP's dividend yield is unfranked and equates to a fully franked dividend yield of just over 4%. By comparison, the big four banks are paying fully franked dividend yields on average of ~6.4% – which grosses up to over 9%.
The distribution (dividend) is expected to grow by about 3% in the 2017 financial year (FY17) compared to 6% in FY16. That is disappointing – and most likely the reason for the 25% fall in the share price.
At the current price, that distribution represents a slightly higher yield of 5.9%, but still not that appealing compared to what else is on offer in the market. Industrea REIT (ASX: IDR) and 360 Capital Industrial Fund (ASX: TIX) operate in similar sectors and offer yields of 7.5% and 8.9% respectively.
Foolish takeaway
Despite its high profile client, the growth in distributions is falling and investors might want to steer clear of BWP Trust at these prices.
