The BWP Trust (ASX: BWP) share price fell 1% to $2.92 this morning, after the company released its annual report for 2017 this morning.
Here's what you need to know:
- Revenue rose 2% to $152 million
- Profit before gains on property values rose 4% to $112 million
- Distributions rose 4% to 17.51 cents per unit
- Portfolio is 99.9% leased
- Weighted Average Lease Expiry of 5.0 years at 30 June 2017
- Gearing of 20.4%, average time to debt maturity of 2.8 years
- Net tangible assets (NTA) of $2.95 per unit
So what?
Modest growth for BWP Trust this year, with rents rising due to a combination of market rent reviews and annual fixed increases. 62% of BWP's rent is subject to annual increases in line with growth in consumer price index (CPI). 38% of rents received a fixed annual increase. Every 5 years, each property receives a market rent review to ensure that rents are in line with other similar properties.
With modest debt and a strong tenant in the form of Wesfarmers Ltd (ASX: WES) – owned Bunnings Warehouse, BWP appears a reliable investment for those seeking dividend income. However, it is important to note that the Trust's portfolio is 99.9% leased and rents are unlikely to grow much faster than, say, a few % per annum.
This means that the unit price is unlikely to grow very rapidly, unless the commercial property market really heats up. There is also some uncertainty with parts of the portfolio, as several Bunnings warehouses are exiting their tenancy over the next few years in order to relocate. Management reports they are making progress in finding replacement tenants or alternate purposes for the buildings.
Now what?
At $2.92 per unit, BWP is priced at a slight premium to its net tangible assets (NTA) of $2.95 per unit. In general, it is best to buy property companies at or below their NTA, however, given a strong tenant and modest debt I would feel comfortable buying BWP for income at today's prices.
