In the near term, BWP should benefit from improved revenue, from additions to the portfolio and incremental rental growth, and lower average cost of debt.
Property income for the second half of 2012/13 will include a full six months' rental income from the Bunnings Warehouse-anchored homemaker centre in Gladstone, Queensland, acquired in September 2012.
Rent reviews are also expected to contribute incrementally to property income for the half-year to 30 June 2013. There are 6 market rent reviews of Bunnings Warehouses remaining to be completed this financial year and 39 leases will be reviewed to the CPI or by a fixed percentage increase during the second half of 2012/13. The level of income growth derived from rent reviews will depend on property-specific factors for the 6 market reviews and the rate of inflation growth for the 20 CPI indexed leases.
Assuming market interest rates are maintained around or below current levels, the Trust's average rate of borrowing costs (being the net finance costs, including interest and bank fees and margins, as a percentage of average borrowings) should reduce further over the second half. Refinancing of a $100 million bank facility is likely to take place during the second half, although overall we do not expect any significant variance in bank fees and margins across the Trust's bank facilities. The responsible entity continues to position the Trust to further improve the efficiency, diversity and duration of debt finance, particularly by enabling access to debt capital markets as opportunity permits.
The responsible entity will continue to look to acquire quality investment properties selectively. The availability of further acquisition opportunities will depend on market conditions moving forward, particularly the supply of quality properties and the competition for these assets. In a low interest rate environment, demand for commercial real estate as a yield investment is likely to increase and, at the same time, supply of quality properties may diminish as existing owners continue to hold assets for yield and/or anticipation of capital growth as a result of greater demand.
Improvements to the Trust's existing properties provide another means of improving earnings and the quality of the Trust's portfolio. Currently the Trust has committed to a $3.8 million upgrade of its Bunnings Warehouse at Rocklea, Queensland, and the development of a $19.5 million Bunnings Warehouse at Wallsend, New South Wales, which are likely to be completed during the calendar year ending 31 December 2013. The Trust is also considering several other upgrade proposals from Bunnings.
The responsible entity continues to assess potential divestments where properties have reached optimum value and selling them provides an opportunity to recycle capital and distribute potential capital profit to unitholders.
Taken from the BWP Trust 2012-13 Half-Year Report