BWP’s Internalisation Deal: Can It Sustain Growth Amid Rising Costs?

• Net profit rises to $265.6 million including $135.9 million unrealised property gains
• Full-year distribution increased 2.0% to 18.65 cents per unit
• Completed internalisation of management and Bunnings lease reset approved by unitholders
• Portfolio occupancy remains high at 98.6% with ongoing development projects
• Gearing stable at 21.6%, weighted average cost of debt steady at 4.4%

Solid Financial Performance Amid Market Stability

BWP Group has delivered a robust financial result for the year ended 30 June 2025, reporting a net profit of $265.6 million. This includes $135.9 million in unrealised gains from the revaluation of its investment properties and derivatives, reflecting the strength of the retail property sector despite a challenging economic backdrop. Revenue rose 16.5% to $203.3 million, bolstered by the full-year contribution from the Newmark Property REIT acquisition and steady rental growth across the portfolio.

The group’s operating environment was characterised by moderating inflation and stabilising interest rates, which supported resilient demand for large format retail properties. Supply constraints due to elevated construction costs and limited site availability helped sustain high occupancy and rental growth, underpinning asset values.

Strategic Internalisation and Lease Reset Transaction

In a significant development, BWP completed a transformative transaction with Wesfarmers in early August 2025, following unitholder approval in July. This transaction internalised BWP’s management functions, restructured 62 Bunnings leases, and committed to capital expenditure for store expansions and network upgrades. The move is expected to create a more cost-efficient and aligned real estate investment group, securing Bunnings as the largest tenant with extended lease tenure.

While the FY2025 results do not reflect the financial impact of this transaction, management anticipates benefits from lower operating costs and enhanced portfolio optimisation in the coming year.

Portfolio Optimisation and Growth Initiatives

BWP’s portfolio remains highly leased at 98.6%, with like-for-like rental growth of 3.0% for the year. The group advanced development projects at key sites including Fountain Gate in Victoria and Noarlunga in South Australia, alongside expansions at Pakenham and Midland. These projects are expected to contribute to rental income growth and asset value enhancement.

Capital expenditure of $24.8 million was invested in repositioning properties, warehouse expansions, and maintenance, supporting the group’s strategy of portfolio renewal. Meanwhile, sales campaigns for non-core assets in Western Australia continue as part of active portfolio recycling.

Financial Discipline and Outlook

BWP maintained a conservative gearing ratio of 21.6%, with a weighted average cost of debt steady at 4.4%. Interest rate hedging covers nearly half of borrowings, providing cost certainty amid fluctuating market conditions. Net tangible assets per unit rose 5.0% to $3.98, reflecting higher property valuations.

Looking ahead to FY2026, BWP expects to benefit from the internalisation transaction through reduced costs and improved operational focus. The group forecasts distribution growth of 4.1% to 19.41 cents per unit, supported by portfolio optimisation, repurposing of ex-Bunnings properties, and ongoing development activity. Management will also prioritize capital recycling and reinvestment to drive long-term value.

Bottom Line?

BWP’s strategic internalisation and steady financial footing set the stage for growth, but execution risks and market conditions will be key to watch.

Questions in the middle?

• How will the internalisation transaction impact BWP’s cost structure and profitability in FY2026?
• What are the prospects and timelines for repurposing ex-Bunnings properties amid rising vacancies?
• How will refinancing plans and debt maturities influence BWP’s financial flexibility?