Bunnings records 25% profit rise

Bunnings Warehouse has recorded a strong upturn in operating profit of 24.6 per cent to $50.4 million for the 2010 financial year.

In a statement to the Australian Securities Exchange Bunnings Property Management, the hardware retailers responsible entity, said the company's income for 2010 was $78.5 million.

This is up 7.3 per cent on the previous year.

Bunning Property Management said it would make a final distribution of 5.98 cents per ordinary unit on 27 August 2010 to unitholders on the Trust's register.

See full company statement below:

The directors of Bunnings Property Management Limited, the responsible entity for the Bunnings Warehouse Property Trust, today announced the results of the Trust for the financial year to 30 June 2010.
Highlights
- Income of $78.5 million for the year - up 7.3 per cent on the previous year
- Full-year distribution of 12.08 cents per unit - up 4.4 per cent on the previous year
- Market rent reviews on 9 properties completed during the year - average 9.2 per cent increase in annual rent
- Portfolio value $1,000.1 million - up by $44.5 million following full-year net revaluation gain of $41.8 million and capital expenditure of $2.7 million during the year
- Net Tangible Assets of $1.88 per unit at 30 June 2010 (2009: $1.79)
- Weighted Average Lease Expiry of 9.3 years at 30 June 2010 (2009: 6.3 years)
- Gearing (debt/total assets) 18.8 per cent at 30 June 2010 (2009: 22.6 per cent) Covenant gearing (debt + non-current liabilities/total assets) 19.3 per cent (2009: 23.1 per cent)

Financial results
Total income for the full-year to 30 June 2010 was $78.5 million, up by 7.3 per cent from last year, due to increases in rental income from rent reviews, a full year of new income received from acquisitions and developments completed last year and increased interest income.
Finance costs of $19.1 million were 10.1 per cent lower than last year due to a lower average level of debt, in spite of the higher average cost of borrowings. The average level of debt was 38.1 per cent lower at $198.2 million compared with $320.2 million for 2009, as a result of debt reduction following the $150 million capital raising in May 2009. The weighted average cost of net borrowings (finance costs less finance income/average borrowings) was 9.40 per cent, compared with 6.55 per cent in the previous year. The average cost of borrowings was higher due to:
- increases in bank fees and margins on facilities that were repriced during the last two years;
- the increased bank fees being applied to lower levels of borrowings, increasing the effective rate.

Distributable profit for the year was $50.4 million, an increase of 24.6 per cent on the distributable profit last year; although last year's profit was affected by the one-off costs of approximately $3.3 million associated with debt reduction from proceeds of the $150 million capital raising in May 2009. Distributable profit for the year ended 30 June 2010 excludes the unrealised net gain of $41.8 million on the revaluations of the fair value of the portfolio at 30 June 2010.
The management expense ratio for the year ended 30 June 2010 (expenses other than property outgoings and borrowing costs as a percentage of average total assets) was 0.70 per cent (2009: 0.69 per cent).
As at 30 June 2010 the Trust's total assets were $1,026.4 million (2009: $999.9 million), with unitholders' equity of $792.8 million and total liabilities of $233.6 million. Investment properties made up the majority of total assets, comprising $1,000.1 million (2009: $955.6 million).
The underlying net tangible asset backing of the Trust's units ("NTA") at 30 June 2010 was $1.88 per unit, an increase of 2.7 per cent from $1.83 per unit at 31 December 2009 (30 June 2009: $1.79). The increase in NTA over the six months to 30 June 2010 is mainly due to the increase in the fair value of the portfolio during the six months.
The Trust's gearing ratio (debt to total assets) at 30 June 2010 was 18.8 per cent (2009: 22.6 per cent), slightly below the board's preferred range of 20 to 40 per cent. Covenant gearing (debt and non-current liabilities to total assets) was 19.3 per cent (2009: 23.1 per cent). The interest cover ratio (earnings before interest and tax to interest expense) was 3.7 times (2009: 2.9 times).

Distribution to unitholders
A final distribution of 5.98 cents per ordinary unit has been declared and will be made on 27 August 2010 to unitholders on the Trust's register at 5.00 pm on 30 June 2010.
The final distribution takes the total distribution for the year to 12.08 cents per unit, a 4.4 per cent increase on last year.
The tax advantaged component of the distribution is 23.93 per cent.
Units issued under the Trust's Distribution Reinvestment Plan ("DRP") in respect of the final distribution will be issued at $1.8028 per unit, representing a 2.5 per cent discount to the volume weighted average price of the Trust's units for the 10 trading days following the record date.
Capital management
As a result of the $150 million capital raised in May 2009, the Trust was able to reduce its bank borrowings from more than $340 million at the time of the capital raising, to less than $200 million at 30 June 2010. In order to remove unnecessary borrowing costs associated with holding excess debt capacity, while maintaining sufficient debt capacity for future growth, in March 2010 the Trust reduced its debt facility limits by $50 million, to $330 million. Details of the Trust's current facilities are provided below.

Distribution to unitholders
A final distribution of 5.98 cents per ordinary unit has been declared and will be made on 27 August 2010 to unitholders on the Trust's register at 5.00 pm on 30 June 2010.
The final distribution takes the total distribution for the year to 12.08 cents per unit, a 4.4 per cent increase on last year.
The tax advantaged component of the distribution is 23.93 per cent.
Units issued under the Trust's Distribution Reinvestment Plan ("DRP") in respect of the final distribution will be issued at $1.8028 per unit, representing a 2.5 per cent discount to the volume weighted average price of the Trust's units for the 10 trading days following the record date.

The Trust's DRP was reinstated during 2008 and applied to both the interim and final distributions for the year ended 30 June 2010. During the year 10,710,718 new units were issued under the DRP. The Trust has continued to maintain an active DRP as a component of longer-term capital management, in spite of current low gearing levels and the strong cash position of the Trust.
At 30 June 2010, the Trust's hedging cover was 99.2 per cent of borrowings, with $192.0 million interest rate swaps against interest bearing debt of $193.5 million. The weighted average term to maturity of hedging was 3.26 years, including delayed start swaps.

Property Acquisitions
Land adjoining Bunnings Warehouse, Broadmeadows, Victoria
In May 2010 the Trust acquired a small parcel of vacant land adjoining the Trust's Bunnings Warehouse in the suburb of Broadmeadows, approximately 15 kilometres north-west of the Melbourne central business district.
The 433 square metres of land, acquired for $0.3 million (including acquisition costs), combined with another small adjoining parcel acquired in 2004, enables the expansion of the adjoining Bunnings Warehouse. Bunnings Group Limited pays the Trust an access fee of eight per cent per annum on the Trust's total capital outlay until the adjoining Bunnings Warehouse is expanded over the additional sites. Details of the proposed expansion of the Bunnings Warehouse are provided in the following section.

Developments and upgrades
Upgrade of Bunnings Warehouse Broadmeadows, Victoria
A $5.4 million upgrade of the existing Trust-owned Bunnings Warehouse store at Broadmeadows, Victoria, was commenced by Bunnings Group Limited as project manager for the Trust during the year. The upgrade, utilising surplus land, will increase the retail area by 1,287 square metres and is expected to be completed towards the end of the 2010 calendar year.
On completion of the development, the Trust will receive an eight per cent return on the development cost and the parties will enter into a new ten year lease of the Bunnings Warehouse with one ten year option, exercisable by the tenant. The rent will be reviewed to market every five years and by the Consumer Price Index in all other years. All other terms and conditions of the existing lease will remain the same.

Other improvements
Mechanical ventilation and associated works were completed at the Trust's Hawthorn Bunnings Warehouse, at a cost of $0.3 million. The Trust will receive a return of eight per cent per annum on the cost of the improvements.
Improvements to roof safety and access at 17 properties were completed during the year at a cost of approximately $1.1 million.
Approximately $1.0 million was spent on other non-income producing improvements to the portfolio during the year.