BWP GROUP — Interim / Quarterly Report 2018

Feb 6, 2018

Half-year results to 31 December 2017

February 2018

Important notice

The information provided in this presentation should be considered together with the financial statements for the period and previous periods, ASX announcements and other information available on the Trust's website.

This presentation has been prepared by BWP Management Limited as responsible entity for BWP Trust. The information provided is for information purposes only and does not constitute an offer to issue or arrange to issue, securities or other financial products, nor is it intended to constitute legal, tax or accounting advice or opinion. The information contained in this presentation is not investment or financial product advice and is not intended to be used as the basis for making an investment decision. This presentation has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person.

All reasonable care has been taken in preparing the information contained in this presentation, however no representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. Without limiting the preceding sentence, no representation or warranty, express or implied, is given as to the accuracy, completeness, likelihood of achievement or reasonableness of any forward looking statements, forecasts, prospects or returns contained in this presentation. Such forward looking statements, forecasts, prospects or returns are by their nature subject to significant uncertainties and contingencies, many of which will be outside the control of BWP Trust or BWP Management Limited. Also, past performance is no guarantee of future performance.

Before making an investment decision, you should conduct your own due diligence and consult with your own legal, tax or accounting adviser as to the accuracy and application of the information provided in this presentation and in respect of your particular investment needs, objectives and financial circumstances.

Presentation outline

Michael Wedgwood

Managing Director BWP Management Limited

Andrew Ross

Portfolio Manager BWP Management Limited

David Hawkins

Finance Manager BWP Management Limited

• Summary

• Results

• Portfolio

• Core portfolio

• Alternative use properties

• Capital management

• Outlook

Value drivers

Unique portfolio	underlying strength of the Australian Home Improvement market	long duration of occupancy by Bunnings	large sites in high population areas
Solid capital structure	ongoing Capital markets support	low re-financing risk	positioned for growth
Disciplined approach	returns	lease attributes	location

2017/18 Half-year summary

\$76.9m	\$56.4m	\$2.82 8.78 cpu			10.0% pa
Total revenue 1.6%1	Dist. profit 1.7%1		Distribution 1.7%1	NTA	8.5%1	10 yr total return
Portfolio performance			Portfolio management			Capital management
2.4% like-for-like rental growth			79 properties in portfolio			19.8% gearing
\$46.9 million portfolio revaluation gains			99.2% leased			1 bank facility extended
6.50% portfolio cap rate			4 Bunnings MRRs finalised			2.7 years debt duration
4.8 years portfolio WALE			4.1% Bunnings MRR growth			4.7% p.a. cost of debt at 31 Dec 2017
1 Per prior corresponding period

Results - financial performance 6 monthly

	6 months to Dec 17	6 months to Dec 16
Total revenue	\$76.9m	\$75.8m
Management expense ratio	0.61%	0.62%
Other expenses	\$2.9m	\$3.0m
Distributable profit	\$56.4m	\$55.5m
Property revaluation gains	\$46.9m	\$17.9m
Net profit including property revaluations	\$103.3m	\$73.4m
Number of units on issue	642.4m	642.4m
Six month distribution (per unit)	8.78 cents	8.63 cents
Total assets	\$2,353.3m	\$2,218.7m
Borrowings	\$465.5m	\$470.4m
Weighted average cost of debt1 (p.a.)	4.65%	4.69%
Net Tangible Assets (per unit)	\$2.82	\$2.60
NTA per unit excluding hedging liabilities	\$2.82	\$2.60
Weighted average cap rate	6.50%	6.77%

¹ Finance costs divided by average borrowings for the six months

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Portfolio - FY2018 Bunnings market rent review outcomes

Four Bunnings market rent reviews resulted in a 4.1% increase, three from FY2017, and one due during the period

Property location	Passing rent (\$pa)	Reviewed rent (\$pa)	Variance (%)	Effective date
Croydon, VIC1	1,868,741	1,900,000	1.7	31-Oct-16
Gladstone, QLD2	1,137,903	1,308,588	15.03	16-Feb-17
Scoresby, VIC1	1,881,763	1,881,763	0.0	1-Jun-17
Hervey Bay, QLD	1,252,063	1,300,000	3.8	23-Dec-17
Weighted Average			4.1

¹The market rent review was due during the year ended 30 June 2017, but the outcome of the negotiation was only completed during the current financial year

² The market rent review was due during the year ended 30 June 2017, but was determined by an independent valuer in the current financial year

³The independently determined rent was 25.8% above the passing rent however, the market rent review clause in the lease has a 15% cap on the increase

Portfolio - capitalisation rate trends

• Solid ongoing transactional support for new store yields

• Secondary market sales with shorter remaining term certain seeing strong support however at a 50-100 basis point yield margin to new store transactions

Bunnings transaction yields

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Portfolio - December 2017 revaluation

• December 2017 weighted average capitalisation rate 6.50% (June 2017: 6.59%)

• Stand alone Bunnings Warehouses weighted average cap rate of 6.38%
  • 12 independent valuations (15% of BWP portfolio value), average cap rate 6.31%
  • 67 internal valuations, average cap rate 6.54%

• HY2017/18 net fair value gain of \$46.9m¹ on revaluation

• Rental growth and cap rate compression equally contributed to the net fair value gain during the period
• Cap rate movement; 10 properties decreased, 58 properties no change, and 11 properties increased

Revaluation by state 31 Dec 2017	No. of properties	Rental \$m/annum2	Cap rate	Value \$m
NSW/ACT	18	33.8	6.68%	507.9
QLD	20	40.9	6.34%	604.2
SA	2	3.9	6.17%	63.1
VIC	23	47.2	6.35%	763.4
WA	16	26.7	6.86%	387.7
Total/weighted average	79	152.5	6.50%	2,326.3

1 Includes \$2.5 million gain on disposal of the Dandenong property

² Subject to rounding

Portfolio - December 2017 independent valuations

Property	State	Jun-17 Cap Rate	Jun-17 Valuation (\$m)	Dec-17 Cap Rate	Dec-17 Valuation (\$m)	Cap Rate Movement	Valuation Movement (\$m)	Dec-17 Term Certain (years)
Craigieburn	VIC	6.25%	26.0	6.00%	27.0	-0.25%	1.0	4.4
Hawthorn	VIC	6.75%	47.2	6.50%	49.0	-0.25%	1.8	2.8
Australind	WA	6.00%	22.1	6.00%	22.1	0.00%	0.0	9.5
Rockingham	WA	5.75%	35.6	6.00%	34.7	0.25%	-0.9	9.8
Cairns	QLD	13.19%	9.5	13.91%	9.0	0.72%	-0.5	0.1
Browns Plains	QLD	6.50%	40.7	6.25%	43.4	-0.25%	2.7	3.9
Mt Gravatt	QLD	7.00%	17.3	7.00%	18.0	0.00%	0.7	3.0
Artarmon	NSW	6.00%	28.4	6.00%	28.5	0.00%	0.1	5.1
Belrose	NSW	6.00%	35.2	6.00%	35.3	0.00%	0.1	5.1
Wollongong	NSW	7.50%	19.6	6.50%	22.7	-1.00%	3.1	5.1
Northland	VIC	6.00%	32.1	6.00%	33.0	0.00%	0.9	2.6
Nunawading	VIC	5.50%	45.3	5.50%	45.2	0.00%	-0.1	7.1
Total/weighted average	1	6 41%	359.0	6 31%	367.9	-0 10%	8.9	4.9

1 Subject to rounding

Portfolio - weighted average lease expiry profile

¹ Includes both proposed and completed upgrades

Core portfolio - summary

67	5.3 years
properties	portfolio WALE
3.3ha	13,990m2
average land area	average lettable area
78% metro located properties	40% metro located properties within 20kms of CBD
76% upgrade properties or occupied <12yrs	6.22% weighted average cap rate

Core portfolio - weighted average lease expiry profile

¹ Includes both proposed and completed upgrades

Core portfolio - lease expiries next 3 years

Property	Lease expiry	Options	Rent (\$'000pa)	Comments
Villawood	May 2018	5 x 5 yrs	1,739	Five year option exercised in February 2018
Port Macquarie	Nov 2018	2 x 5 yrs	1,034	Notification required by Aug 2018; property well located in Port Macquarie commercial area
Bayswater	Apr 2019	4 x 5 yrs	1,909	Notification required by Feb 2019; well located property, already upgraded
Browns Plains	May 2019	1 x 5 yrs	1,758	Notification required by Feb 2019; well located property near Grand Plaza sub-regional shopping centre
Thornleigh	Sep 2019	4 x 5 yrs	1,392	Notification required by Jul 2019; located within 300 metres of shopping centre and passenger train station; zoning allows mixed-use redevelopment opportunities
Noarlunga	Sep 2019	2 x 5 yrs	1,550	Notification required by Jun 2019; zoned Regional Centre
Maitland	Oct 2019	3 x 5 yrs	1,423	Notification required by Aug 2019
Albany	Oct 2019	2 x 5 yrs	886	Notification required by Jul 2019; planning approval for a store upgrade
Bibra Lake	Oct 2019	2 x 5 yrs	1,721	Notification required by Jul 2019
Fountain Gate	Jan 2020	2 x 5 yrs	1,697	Notification required by Oct 2019; potential upgrade
Port Melbourne	Mar 2020	4 x 5 yrs	2,071	Notification required by Dec 2019; planning application lodged for store upgrade; part of the Fisherman's Bend urban renewal precinct
Vermont South	Aug 2020	4 x 5 yrs	2,220	Notification required by Jun 2020
Northland	Aug 2020	2 x 5 yrs	1,966	Notification required by Jun 2020; planning application lodged for additional parking
Hawthorn	Oct 2020	4 x 5 yrs	3,255	Notification required by Jul 2020
Coburg	Nov 2020	3 x 5 yrs	1,531	Notification required by May 2020
Mt Gravatt	Dec 2020	4 x 5 yrs	1,326	Notification required by Sep 2020

During the period options were exercised for the Hervey Bay, Fyshwick and Wollongong properties

Bunnings Warehouse replacements

Property	Lease expiry1	Progress
Altona	Lease surrendered under Option Agreement	Awaiting Planning Minister approval for redevelopment before adjoining owner exercises option to acquire the property
Cairns	Feb 2018	Re-leasing campaign ongoing
Mentone	Sep 2018	Currently sub-leased to Amart Furniture. Non-binding heads of agreement for lease executed with a national large format retailer to replace Amart; expect DA and building approval by mid-2018 and reconfiguration works to commence in Oct 2018
Burleigh Heads	Oct 2018	Under option agreement to sell, exercisable in July 2018; settlement September 2018; rent payable to BWP to settlement; other opportunities continue to be considered
Underwood	Oct 2018	Leasing campaign underway
Epping	Mar 2019	Under option agreement to sell, exercisable in July 2018; settlement February 2019; rent payable to BWP to settlement; other opportunities continue to be considered
Mindarie	Sep 2021	Scheme amendment and structure plan proposal to be lodged with council mid-2018

¹To the end of the current lease term

Masters impacted stores

> Home Consortium transaction completed in late 2017

Property	Lease expiry1	Proposed alternative use/s
Mandurah	Nov 2018	Anchor tenant terms almost finalised; negotiations with national retailers for remaining lettable area progressing; expect to commence works on Bunnings lease expiry
Oakleigh South	Mar 2019	In January 2018 Bunnings extended lease by 12 months; under option to sell, exercisable July 2018, to settle February 2019 with rent payable to BWP to settlement; large format retail and business park opportunities continue to be considered
Morley	Jul 2020	Large format retail – re-leasing discussions progressing. Medium term residential and/or mixed-use development potential
Hoxton Park	Oct 2020	Large format retail, advanced re-leasing discussions. DA expected to be lodged in March 2018

¹To the end of the current lease term

One additional site is still subject to confidentiality, the lease expiry is early 2021

Dandenong

• Property sold (via direct negotiation off-market) to an unrelated third party for \$16.4 million in November 2017

• Bunnings relocated to the Dandenong South ex-Masters

• Demonstrates demand for well-located sites supporting strong underlying land value

Outcome
Purchase date	April 2002
Land purchase price	\$4.3 million
Additional capital invested	\$7.4 million
Total invested capital	\$11.7 million
Total rent received	\$19.9 million
Average annual rent growth since inception	3.5% (CAGR)
Sale price	\$16.4 million
June 2017 fair value	\$13.3 million

Capital management - debt facilities

• Average borrowings for the half-year \$476.3m (down 0.2% on pcp)

• 4.65% p.a. weighted average cost of debt after hedging (2016: 4.69% p.a.)
• Borrowing costs for the half-year \$11.2m (down 1.0% on pcp)

• All bank facilities can be extended a further year each year, subject to agreement

• Extended WBC bank debt facility to April 2021, ANZ facility cancelled

• Cost of debt at 31 December 2017: 4.7% p.a.

• Interest cover: 6.2x at 31 December 2017 (2016: 6.1x)

• Gearing: 19.8% at 31 December 2017 (2016: 21.2%)

• A- /Stable S&P rating maintained

As at 31 December 2017	Limit (\$m)	Drawn (\$m)	Expiry
CBA	110	85	31 Jul 2020
WBC	135	70	30 Apr 2021
Corporate bond	200	200	27 May 2019
Corporate bond	110	110	11 May 2022
Total/Weighted average	555	465	2 7 years

Capital management - debt duration

Capital management - interest rate hedging

Hedge book profile by half-year ending:	Dec 17	Jun 18	Dec 18	Jun 19	Dec 19	Jun 20
Active swaps (\$m)	128	88	58	98	98	85
Swap rates (%)
Maximum	5.54	5.54	4.92	4.92	4.92	4.12
Minimum	2.39	2.39	2.39	2.39	2.39	2.39
Weighted average (%)1	4.16	4.09	3.39	3.07	3.07	2.79

• Including fixed rate corporate bonds:

• \$437.5m hedged at 2.81%² weighted average to maturity, at 31 December 2017
• ¹ Weighted average at balance of active swaps
• ² Excludes margins payable on the fixed corporate bonds

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Outlook

> Macro economic environment

– Demand for Bunnings Warehouse properties expected to remain strong, while capital continues to flow into the Australian property sector

> Rental growth

• 18 CPI/ 23 fixed rent reviews in second half FY2018
• 5 Bunnings MRRs to be finalised this financial year

> Investment

• Strong focus on finalising negotiations and outcomes on alternative use sites
• Working with Bunnings to progress opportunities to re-invest in existing portfolio
• Well positioned for portfolio growth opportunities as market conditions permit

> FY2018 distribution

– For the second half of the financial year the Trust expects to maintain distribution growth at 1.7 per cent. Capital profits would be utilised to support distributions if required during this transition period for some of the properties in the portfolio

Further information

bwptrust.com.au

Responsible entity: BWP Management Limited Tel: +61 8 9327 4356 Email: investorrelations@bwptrust.com.au

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