• Total Income: Increased 22.2% to $100.6 million.
• Net Profit: $157.1 million, including $93.2 million in net unrealized gains.
• Interim Distribution: $9.20 per ordinary unit, up 2.0% from the previous year.
• Portfolio Occupancy: Increased to 98.7%, up 1.3 percentage points.
• Weighted Average Lease Expiry (WALE): Increased to 4.4 years.
• Rental Growth: Like-for-like rental growth of 3.3%.
• Market Rent Reviews: Average increase of 2.7% for five Bunnings warehouses.
• Weighted Average Capitalization Rate: Fell 10 basis points to 5.43%.
• Net Assets: $3.92 per unit, compared to $3.74 per unit at December 31, 2023.
• Gearing Ratio: 21.4%, at the lower end of the preferred range of 20% to 30%.
• Interest Rate Hedging Cover: 52.4% of borrowings with a weighted average term of 1.4 years.

• Warning! GuruFocus has detected 5 Warning Sign with ASX:BWP.

Release Date: February 04, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• BWP Trust reported a like-for-like rental growth of 3.3% for the half-year ending December 31, 2024.
• The portfolio occupancy increased to 98.7%, reflecting a 1.3% improvement from the previous period.
• The Trust achieved a net profit of $157.1 million, including $93.2 million in net unrealized gains.
• An interim distribution of $9.20 per ordinary unit was declared, marking a 2.0% increase from the previous year.
• BWP Trust successfully negotiated expansions and upgrades with key tenants, including a $14 million Bunnings expansion in Pakenham and an $11 million redevelopment in Midland.

Negative Points

• Operating cash flow was significantly lower than net profit, raising questions about cash management.
• Expense growth slightly outpaced income growth, attributed to higher CPI inflation and increased management fees.
• The Trust's gearing ratio increased to 21.4%, though still within the Board's preferred range.
• Moody's downgraded BWP Trust's outlook, partly due to concerns over debt refinancing.
• Some lease options remain unexercised, creating uncertainty about future occupancy and rental income.

Q & A Highlights

Q: Can you explain the difference between your profits and operating cash flow? A: David Hawkins, Head of Finance: The difference is due to transaction costs related to NPR that were paid on July 1.

Q: How is the outlook for inorganic growth given the current market conditions? A: Mark Scatena, Managing Director: We are actively looking at opportunities and have seen increased transaction activity. We remain focused on delivering growth in earnings and are optimistic about the market.

Q: Are there any plans to optimize the cost of capital? A: Mark Scatena, Managing Director: Optimizing the cost of capital is a key focus. We are considering how to fund upcoming maturities and improve our cost structure to enhance competitiveness.

Q: Regarding the revaluation, was the uplift concentrated on new market assets or broader across the portfolio? A: Andrew Ross, Head of Property: The majority of the uplift was in the non-NPR assets, with NPR assets compressing by seven basis points.

Q: Can you discuss the lease structures for the new developments at Pakenham and Midland? A: Mark Scatena, Managing Director: The Pakenham lease includes a 10-year term with CPI reviews capped at 3%, while Midland has a 15-year lease with escalations at the greater of 3.5% or CPI. These terms reflect our cost of capital and tenant needs.

Q: Is a buyback being considered as a capital management option? A: Mark Scatena, Managing Director: While we evaluate different uses of capital, our current focus is on investing in growth opportunities and optimizing the existing estate.

Q: Were the FY26 options exercised within the standard notice period? A: Andrew Ross, Head of Property: Yes, all options were exercised within the standard notice period.

Q: Regarding the Northland lease, what is the rental spread compared to Bunnings, and is there any CapEx required? A: Andrew Ross, Head of Property: The new tenant's rent is about 20% lower than Bunnings, but no CapEx or incentives are required.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.