Investment in Bunnings Warehouse Property

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BWP was founded in 1998 as a REIA (Annualreports.com, 2018, p.1). The trust mainly comprises of retailing properties specifically the Bunnings godowns, which are leased, to the Bunning Group of companies. Bunnings is the number one retailer of outdoor living equipment and home improvement in New Zealand and Australia and key supplier to commercial trade businesses, product constructors and in general the housing sector participants (Asx.com.au, 2018). A responsible external firm known as BWP Management Company, which is appointed in accordance with the constitutive document and operates using a, manages BWP. An entity is charged as the administrator of the Trust based on a n annual fee. The firm owns about 24.8% of the units issued in the trust.

Main Investor

The primary investor of the BWP trust is the public, which mainly comprises of retail investors. They have a stake of 53.8% in the REIT as shown by their equity shareholding (Annualreports.com 2018 p.14). With their significant size of ownership, the retail investors can easily influence the decision that impacts on shareholders returns, for instance, the appointment of directors and dividend income. They also can decline collectively mergers or acquisitions that are not likely to improve the profitability of the firm. Other investors are institutional investors with a stake of 21% and public companies with a stake of 24.8 percent (Annualreports.com, 2018, p.1).

Structure

WBP has an external REIT structure. It has an outside manager, known as the BWP management company who managed the real estate trust with no direct employees. The third party manager received a flat rate fee and an incentive bonus for managing the WBP portfolio of assets. However, issues have occasionally been raised concerning externally managed rates like in the cause of BWP as the manager may advance their interest instead of those of the shareholders (Asx.com.au 2018, n.p). The fees for the external managers are structures in such a way that the external manager will receive an incentive payment if the net asset value of the REIT rises above the previous value.

Vision

The WBP trust has a vision to give those holding the units a growing, a secure earnings source, a long rate, and a long rate capital appreciation by aligning with and by meeting the growing needs of the customers (Annualreports.com 2018 p.6).

Location of Properties

Location

Percentage

Metropolitan

80%

15 kilometers of the central business district (CBD)

20%

30 Kilometers of the CBD

40%.

The company has established its property strategically within the local community and has made them accessible for retail businesses and community services. BWP also observes the zoning laws that have been found to ensure avid in legal problems with the authorities (Annualreports.com 2018 p.7). The facilities are available for renting and provision of services such as supermarkets, residential, home improvement facilities and healthcare residence.

Location of Properties in every State

Types of Properties

BWP owns various types of properties, which they rent out to meet the needs of different clients. Its portfolio of assets makes it a unique REIT company (Annualreports.com 2018, p.14. By the end of 2017, BWP owned REIT properties with a valuation of AU$2,294.6 million in Australia this making it one of the best performing trust (Annualreports.com, 2018, p.1).

warehouses

71

Warehouses plus showrooms

8

Retail showrooms

1

Total

80

BWP therefore own different type of property. In certain cases, a trust may decide to invest only in one type of investment property. However, for BWP it has a portfolio of properties, which is helping it in meeting the diverse needs of the many clients.

Size

The trust has a market capitalization of AU$2.2 billion with 642 million outstanding shares. The trust is therefore medium in size.

Debt

Limit

Amount drawn

Expiry date

Bank debt facilities

ANZ banking group

60

-

July 1, 2019

Commonwealth Bank of Australia

110

79.5

July 31, 2019

Westpac Banking Corporation

135

81.4

Corporate Bonds

Fixed term 5-year corporate bonds

200

200

Fixed term f5-year corporate bond

110

110

Total

615.0

740.9

 

The weighted average time for BWP in 2017 was 2.8 years. While its average utilization of its debt facilities for the same year 85% (Annualreports.com, 2018, p.1). The trust uses fixed rate coupons bonds and interest swaps to hedge against their interest risk of the medium terms to long-term borrowings. In 2017, the trust’s hedging strategies had covered 96% of the borrowings (Annualreports.com, 2018, p.1). The gearing ratio of the trust was 20.4%, at the lower end of the boards agreed range. The interest coverage ratio of BWP was 6.3 times this hosing that the trust a relatively favorable debt position and that the investments of the shareholders are not exposed to excessive risk (Chan et al.2012, p.432). The bank has easy access to funds and therefore it can borrow whenever there is a need to do so.

Conclusion

BWP mainly relies on rent paid by the Bunning form and other customers as its primary source of income. The rents are obtained from the properties that the firm has leased to its many clients. Rent incomes received depend on the floor spaced that has been leased to clients and not the profits that have been made by the customers while using the facilities. The rental income growth is determined by the acquisition of more leased properties and increases in rent charges in the already existing properties (Annualreports.com, 2018, p.1). The rent increased in the properties that the trust own originate form yearly rent increased determined by period’s market reviews in line with the lease agreements. The main expense items that are incurred by BWP are borrowing cost associating with the debt capital that the trust acquires and uses for time to time. The amount of fees the REIT trust pays to the management is determined by the gross value of the property that the REIT has had at the end of the respective periods.

The assets of BWP consist mainly of the investment property held by the. The investments are revalues on a semiannual basis to ascertain the fair value of the assets while incorporating the prevailing market factors and the conditions surrounding each property. Shifts in the fair value of the assets due to revaluations are recognized either as loses for the respective periods. However, such items do not affect distributive earnings. Using debts to finance investments for the most significant part of the trust’s finance obligations and primarily represent between 20 and 30% of the overall values of BWP assets. As dictated by the trusts constitutive document distributes all the profits earned to the unitholders every half-yearly, and this excludes all the unrealized changes in the fair value measurement of the values of the assets.

Investment Potential

For the year ended June 20, 2017, there is increased demand for Bunning's warehouse properties. Economic factors favored investing in an estate in Australia, and the value of BWP's portfolio shows the increasing market value. The trend is likely to persist until the time when a risky occurrence takes place. During the 2017 fiscal period, the trust has a revenue of $152.5 million, which represented a 1.5 % growth (Annualreports.com, 2018, p.1). The increase in revenue is because of rental growth that occurred during the period. The trust enjoys a lower interest rates because of minimal borrowing risks (Gertler & Kiyotaki 2010, p.550). The PWB is was cost efficient in 2017 as indicated by the decline in the total expenses. Moreover, the trust it is highly profitable as shown by the profitability figures. In 2017 PWB had a net profit of $223.8 million (Annualreports.com, 2018, p.1). Although there was a slight decline in the profit figure compared to the previous period, it remained highly profitable in 2017. Therefore investing in the trust is likely to guarantee periodic earnings to investors to purchase shares in the trust (Innocent, Mary & Matttew, 2013, p.107). Additionally, the firm has a huge asset pool that acts as security and helps it in generating the earnings. In 2017, BWP had an asset pool worth $2.312 billion. The largest portion of the asset pool comprises of the investment property and assets held for resale purposes. The trust is therefore relative safely and this if an investor buts shares in the trust his or her investment is likely to be safe.

Moreover, the Trust is suitable for investors who require a regular stream of income since it offers 100% distributable profit for every periods as indicated in the constitution. In terms of capital management, PWB maintains a strong investment grade and it currently rates as Grade A investment. Thus, investments held in the trust are of high quality. BWP uses both equity and debt financing (Innocent, Mary & Matthew, 2013, p.107). Although equity financing is relatively, safe debt is cheaper. Therefore, trusts must establish the right trade-off between debt financing and equity financing. The trust uses debt adequately to invest in rental property, and this generates an increased return for the shareholders. Too much debt is often risk as it may result in bankruptcy. However, in the case of BWP, the firm has a large pool of assets and a steady stream of revenues that adequately pays the interest deducing without affecting the profitability of the venture negatively.

The assets also acts as a cushion during financial meltdown. Therefore, given that the firm has a large asset pol it is less likely to become bankrupt. The high and steady revenues generated by the trust further enhance this.

Lastly, the firm is actively engaged in various sustainability initiatives. The firm provides effective r conditioning systems throughput the rented properties. Moreover, BWP uses refrigerants that do not affect the ozone. The property of the trust use energy efficient led bulbs, and this ensures energy conservation. Lastly, the firm is in constant touch with Bunnings as its primary client on sustainability issues, and this provides sustained growth and performance. The Trust through its activities ensures that the interests of all the stakeholders are addressed and that they are satisfied.

Head Office

St Georges Terrace, PERTH, WA, Australia, 6000.

Declaration.

References

Annualreports.com. (2018). 2017 Annual Report. [Online] Available at: http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BWP_2017.pdf [Accessed 18 Sep. 2018].

Asx.com.au. (2018). BWP Trust Details. [Online] Available at: https://www.asx.com.au/asx/share-price-research/company/BWP/details [Accessed 18 Sep. 2018].

BWP trust. (2018). About Us BWP Trust |. [Online] Bwptrust.com.au. Available at: http://www.bwptrust.com.au/site/About-Us/overview [Accessed 18 Sep. 2018].

Chan, K.C., Hendershott, P.H. and Sanders, A.B., 1990. Risk and return on real estate: evidence from equity REITs. Real Estate Economics, 18(4), pp.431-452.

Gertler, M. and Kiyotaki, N., 2010. Financial intermediation and credit policy in business cycle analysis. In Handbook of monetary economics (Vol. 3, pp. 547-599). Elsevier.

Innocent, E.C., Mary, O.I. and Matthew, O.M., 2013. Financial ratio analysis as a determinant of profitability in Nigerian pharmaceutical industry. International journal of business and management, 8(8), p.107.

September 04, 2023
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