The BWP Trust (ASX: BWP) share price is climbing on Wednesday after the real estate investment trust (REIT) reported its full-year FY22 earnings.
The highlight was an 85% increase in net profit to $486.6 million compared to $263.2 million in FY21.
In addition, BWP's property portfolio gained 14.1%, or $379.1 million, in value over FY22. BWP said the result reflected "the ongoing attractiveness of Bunnings Warehouse properties to investors".
The REIT declared a final distribution of 9.27 cents per unit payable on 19 August. Total annual distributions for FY22 were the same as FY21 at 18.29 cents.
Based on the BWP share price of $4.29 at the time of writing, this is an annual yield of 4.26%.
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BWP share price up as property portfolio gains 14%
BWP reported the following additional results:
- Unitholders' equity of $2.5 billion and total liabilities of $500 million
- Net tangible assets of $3.87 per unit at 30 June, up 17.6% on FY21
- Final distribution of 9.27 cents includes 0.44 cents per unit of capital profits released from the undistributed income reserve, which is 20% less than FY21
- Weighted average cost of debt (finance costs as a percentage of average borrowings) 2.7%
- Gearing (debt/total assets) was 15.1% at 30 June
- Other operating expenses in FY22 were $8.7 million, up 1.16% on FY21
- Management expense ratio of 0.64% in FY22, up from 0.63% in FY21.
What else happened in FY22?
BWP investment properties raked in an extra $1 million in rental income in FY22. This was largely due to annual rent increases and new leases. Like-for-like rental growth was 3.3% in FY22. The trust granted rent abatements of $300,000 to tenants affected by COVID-19 shutdowns, compared to $500,000 in FY21.
At 30 June, 97.5% of the portfolio was leased. The weighted average lease expiry (WALE) is 3.9 years.
In FY22, Bunnings Warehouse exercised five-year options for its stores in Geraldton (WA), Mornington (VIC), Frankston (VIC), Gladstone (QLD), Greenacre (NSW), Craigieburn (VIC), and Scoresby (VIC).
BWP also agreed to a $12.8 million upgrade of the Lismore (NSW) Bunnings Warehouse property.
The trust's Scope 2 emissions position at 30 June was net-zero. BWP said this was a result of using "green electricity" and carbon credits. The trust incurs Scope 2 emissions from electricity usage at a small number of properties where the trust has responsibility for power usage.
What's next?
BWP said inflation, the cost of funding, and future investor demand would influence its performance in FY23 and beyond. Any further COVID-related disruptions and the time and cost of repositioning properties vacated by Bunnings would also have an impact.
The trust relies on the health of the Bunnings network, which is owned by Wesfarmers Ltd (ASX: WES). It therefore also relies on the popularity of home improvement and lifestyle products.
BWP said:
For the year ended 30 June 2022, there continued to be strong investor demand for Bunnings Warehouse properties. This was driven by the low interest rate environment and the search by investors for running yields higher than interest rates, the strong Bunnings financial covenant, and the relative risk of a Bunnings Warehouse investment, compared to other property and other asset classes.
In FY23, BWP said it will be focused on filling vacancies in the portfolio, progressing store upgrades, extending existing leases with Bunnings through the exercise of options, completing market rent reviews, and continuing the rollout of energy efficiency improvements at its properties.
BWP added:
Subject to there being no major COVID-19 or other disruption of the Australian economy, the Trust could expect the distribution for the year ending 30 June 2023 to be similar to the ordinary distribution paid for the year ended 30 June 2022.
BWP share price snapshot
BWP has outperformed the benchmark S&P/ASX 200 A-REIT Index (ASX: XPJ) significantly. The index is down 7.46% over 12 months and 19.23% lower year to date.
