BWP GROUP — Annual Report 2010

Aug 11, 2010

BUNNINGS WAREHOUSE PROPERTY TRUST Full year results 2010

Grant Gernhoefer General Manager Bunnings Property Management Limited

Andrew Ross Portfolio Manager Bunnings Property Management Limited

• Overview

• Results

• Portfolio

• Capital management

• • Governance

• Outlook

• Income growth and portfolio enhancements lift values

• 9.1% increase from 10 market rent reviews helps lift income by 7.3% from previous year

• Portfolio enhanced by extending leases of 35 Bunnings Warehouses

• 9.3 year weighted average lease expiry

• 99.2% occupancy

• BWP outperformed the S&P/ASX 200 A-REIT Accumulation Index for the year ended 30 June 2010 (23.3% vs 20.4% for the Index)

• BWP unit price outperformed indices

• (15.6% vs 12.6% for S&P/ASX 200 A-REIT)

Results - performance

Compound annual growth rate since inception of Trust 4.8%

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14
12
10 6.72
6.56
6.39
4.87 5.98
6.17
5.87
8 5.35
4.86 4.97
4.68
6
4
5.51 5.79 6.22 6.42 6.55 6.70 6.10
4.70 4.50 4.80 5.15
2
0
1 2 3
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Final DPU Interim DPU
cents per unit
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BWP total returns compared to market – periods ended 30 June 2010

53 Bunnings Warehouses

• 1 Bunnings distribution centre

• 1 Bunnings Warehouse development site

4 Industrial properties

• 2 Bulky goods showrooms*

• showrooms at Bayswater are on the same site as the Bayswater BWH

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BWP rental income
(as at 30 June 2010)
SA, 4%
WA, 16%
VIC, 39%
QLD,
19%
NSW
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currently vacant
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• 35 leases extended by either 5 or 10 years (average 6 years)

• Secures future rental income

– Approximately $280m* over the average 6 years’ increased committed term

• Reduces re-leasing or vacancy risk

• Increases value of some subject properties

• Approximately $14m increase in portfolio value

• Enhances the Trust’s Portfolio

• “Locks in” high quality tenant

• Secures existing lease terms and conditions beyond current expiry

• Introduces 10 year optional terms on 7 properties

9.3 year weighted average lease expiry (by rental income)

Typical Bunnings Warehouse Property Trust lease features:

• 15 years (plus 2 x 5 year options)

• – annual CPI escalation

• 5 yearly market rent reviews (majority uncapped)

• – Wesfarmers covenant (BBB+ credit rating)

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12
Non Bunnings
Bunnings
8
12
3
9
4
4 6
1 1 5 5
4
3 3 3
2 2
1 1 1
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Years to expiry (ended 30 June)
Number of leases
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Proportion of rental income Average increase
15% Market 9.1%
6%
Fixed 4.0%
2.9%
like-for-like
CPI 1.6%
rental growth
79%
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Like-for-like rental growth

	FY04	FY05	FY06	FY07	FY08	FY09	FY10
BWP	8.2%	4.1%	3.0%	4.4%	2.8%	7.1%	2.9%

Portfolio – FY10 market rent reviews[#]

Property location	Passing rent ($’000)	Determined rent ($’000)	Uplift ($’000)	Uplift (%)	Effective date
Albany, WA	570	745	178	+30.6	1 Nov 09
Bibra Lake, WA	1,217	1,489	272	+22.3	1 Nov 09
Fountain Gate, VIC*	1,281	1,325	44	+3.4	1 Feb 10
Hoppers Crossing, VIC*	1,127	1,163	35	+3.1	22 Mar 10
Maitland, NSW*	1,088	1,160	72	+6.6	18 Oct 09
Minchinbury, NSW#	1,402	1,525	123	+8.8	31 Dec 08
Morayfield, QLD^	1,368	1,508	140	+10.3	22 Mar 10
Mornington, VIC*	1,374	1,450	760	+5.5	13 Dec 09
Nunawading, VIC	1,927	2,065	138	+7.2	11 Feb 10
Thornleigh, NSW*	1,128	1,190	62	+5.5	6 Sep 09
Weighted average				+9.1

• Cap rate compression following lease extensions

• Consistent sales evidence (refer Appendix B for details): CY 2009 – 11 sales average yield 7.79%, WALE 9.75 years; no sales in CY 2010

• 17% of BWP portfolio independently valued in June 2010

• Independent valuations = 13bps cap rate compression on 31 Dec 2009

• 2.9% increase in fair value of portfolio (due to rental growth and cap rate tightening)

• June 2010 weighted average capitalisation rate 7.65%

• Dec 09: 7.78% and June 09: 7.81%

• Refer to Appendix C for valuation process and Jun 10 valuation summary

Future Bunnings Warehouse revaluations and market rent reviews

	FY11	FY12	FY13	FY14	FY15
Rent reviews	4	7	7	21	11
% of total	8%	13%	13%	40%	21%
Revaluations	15	24	20	15	24
% of total	28%	45%	38%	19%	45%

Refer Appendices C & D for outline of valuations and market rent review process

Portfolio – developments

• Balance sheet strength supported by:

• low gearing - 18.8% at 30 June 10 (19.3% covenant gearing)

• strong lease covenant in Bunnings/Wesfarmers

• solid rental base with growth from CPI and programmed rent reviews

• low level of committed capex

• Maintaining 100% pay-out ratio of distributable profit

• Distribution Reinvestment Plan (“DRP”) remains on

• DRP for second half issued at $1.8028 per unit (2.5% discount to 10 day VWAP)

• – 45.4% take up including 100% take up by Wesfarmers

• $100m bank bill facility reduced by $50m during half-year to reduce

As at	30 June 10	Limit ($m)	Drawn ($m)1	Expiry
	ANZ	100	48.8	31 Jul 2013
	CBA	100	49.9	14 Jan 2012
	WBC	80	45.5	2 Jul 2012
	NAB	50	50.0	Evergreen2
		330	194.2

• 1 amount drawn includes accrued interest of $0.7 million as at 30 June 2010

• 2 facility is extended annually in March each year provided there has been no event of default or potential event of default with any change to pricing to apply from 1 April the following year

• $192.0m hedged (99%) at 5.94% average

• 9.40% weighted average cost of net borrowings during the year after hedging and including margins and fees (2009: 6.55%)

• 3.26 years weighted average maturity, including delayed starts (2009: 3.07 years)

	Hedge book profile
	by half-year ending:	Jun 10	Dec 10	Jun 11	Dec 11	Jun 12	Dec 12	Jun 13
	Active swaps
	($ millions)	192	192	180	170	145	140	125
	Swap rates (%)
	Maximum	7.85	7.85	7.72	7.35	5.82	5.77	5.77
	Minimum	5.61	5.61	5.61	5.15	5.15	5.15	5.15

Governance – structure

• Adopted sustainability principles based on United Nations Principles for Responsible Investment

• Passive nature of BWP’s operations result in relatively minor impacts

• Current focus: climate change priority, building knowledge/data, and improved reporting

• More details in new sustainability section of 2010 Annual Report

• Strong balance sheet to fund growth

• organic growth through rent reviews and upgrades of existing assets

• – focus on acquiring quality assets that meet the Trust’s investment criteria

• availability of appropriate properties will be a challenge

– finance cost will continue to constrain earnings growth in the short to medium term: increased pricing offsets benefits of reducing limits

Rent review type FY11

	First	Second
	half	half	FY11
CPI	351	18	53
Fixed	3	5	8
Market	4	0	4
Total	42	23	66

Market rent reviews[2] Morley, WA Rockingham, WA Vermont South, VIC Northland, VIC 8% of portfolio[3]

Visit: www.bwptrust.com.au

Responsible entity: Bunnings Property Management Limited Tel: (08) 9327 4356 Email: ggernhoefer@bwptrust.com.au

The information provided in this presentation should be considered together with the financial statements for the

• Extended and smoothed lease expiry profile

Lease expiry pre lease extensions Post Extended Lease Tenure

	Appendix B: Sales evidence	Appendix B: Sales evidence	Appendix B: Sales evidence	Appendix B: Sales evidence	Appendix B: Sales evidence
	Bunnings Warehouse		Sale price $m	Yield %	Date
	Rothwell	QLD	16.70	7.93	Mar 09
	Nerang	QLD	16.35	7.60	Jun 09
	Campbelltown	NSW	21.35	7.66	Jun 09
	Nowra	NSW	11.60	7.75	Jun 09
	Rockdale*	NSW	25.35	8.15	Dec 09
	Mill Park	VIC	16.45	7.75	Apr 09
	Box Hill	VIC	21.50	8.00	Jun 09
	Bendigo	VIC	8.68	7.40	Apr 09
	Keysborough	VIC	19.15	7.54	Nov 09
	Belconnen	ACT	20.50	7.63	Jun 09
	Kalgoorlie	WA	6.10	8.20	Jun 09
*Inclu	Total/weighted av des two showrooms; analyse	erage d yield for B	183.73 unnings Warehouse 8.15%	7.79		24

• Process

• entire portfolio revalued every 6 months

• independent valuations on a 3 year cycle for each property

• balance of portfolio – directors’ valuation using recognised valuation methodology

• directors’ valuations methodology reviewed by an independent valuer and have regard to market evidence and the independent valuations completed at the time

• Valuations at 30 June 2010 by State/Territory

		No. of properties	Rental	Cap rate	Value $m
			$m/annum
	VIC	21	29.8	7.55%	403.6
	NSW/ACT	14	16.6	7.73%	215.1
	QLD	10	14.4	7.85%	164.7
	WA	12	13.1	7.62%	170.9
	SA Total	3 60	3.4 76.1	7.47% 7.65%	45.8 1,000.1

• Typical Bunnings Warehouse market rent review clause

• assumes free and open market with vacant possession

• has regard to the rent paid by Bunnings at other Bunnings Warehouses

• has regard to the rental value of other properties of a similar size and similar standard of construction and used for similar purposes

• no regard to store turnover (i.e. no turnover or percentage rent)

•

Process

Trust’s asking rent based on advice from an independent valuer

• negotiation period with Bunnings

if not agreed with Bunnings then referred to determination

determination by independent valuer jointly agreed or nominated by the President of the Australian Property Institute