Investment and Portfolio

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    Un i v e r s i t y o f T e c h n o l o g y , S y d n e y ( U T S )

    08 Fall

    16332

    Inves tment and Port fo l io

    Individual Assignment

    Student Name: Ami Doshi

    Student No.: 1082 0049

  • Investment and Portfolio

    -2-

    CONTENTS 1. Introduction 3

    2. A-REIT (Bunnings Warehouse Property Trust) 4

    3. Bunnings Warehouse Property Trust Performance between 2006 2010 5

    4. Bunnings Warehouse Property Trust Investment Strategy 8

    a. How the Strategy was executed and funded? 8

    b. Level of Success 9

    c. Factors that influenced Success 9

    d. Impact on overall investment returns 9

    5. Outlook for Bunnings Warehouse Property Trust 10

    6. A-REIT Investing Overseas (Astro Japan Property Group) 11

    7. Astro Japan Property Group Performance between 2006 2010 12

    8. Astro Japan Property Group Investment Strategy 14

    a. How the Strategy was executed and funded? 14

    b. Level of Success 15

    c. Factors that influenced Success 15

    d. Impact on overall investment returns 15

    9. Outlook for Astro Japan Property Group 16

    10. Benchmark Index of Financial Performance for the A-REIT sector 17

    11. Macroeconomic & Microeconomic Impacts 18

    12. A-REIT Outlook 19

    13. References 20

  • Investment and Portfolio

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    INTRODUCTION Australian Real Estate Investment Trusts (A-REIT) are companies, which are traded on the

    Australian Securities Exchange (ASX) by investors which allows them to buy an interest in a

    professionally managed portfolio of commercial real estate1. A-REITs usually own portfolios of

    large number of properties, which, because of their size and value cannot be managed by an

    average private investor. Thus, these investments are divided into units of smaller value, which

    can be easily purchased and managed by private investors who are known as unit-holders.2

    Investors can diversify their portfolio by purchasing interests of multiple companies across a

    diversity of geographic regions, lease lengths and tenant types and thus, gain exposure to both

    the value of real estate that trust owns and the regular rental income generated from the

    properties. A-REIT investments may include the following types of real estate:

    Office buildings

    Industrial estates

    Retail shopping centres

    Hotels and pubs and

    International (USA, Asia, Japan and Europe)

    Multi sector (diversified)3

    Returns from A-REITs are in the form of income and capital return, which is distributed on quarter

    or half-yearly basis.

    A-REITs are traded as unit security or stapled security. A stapled security is comprised of two

    parts (unit of the trust and share of the company), which are inseparable. Stapled security is

    influenced by both parts and thus must be treated as one unit at all times.

    1 ASX A-REITs - ASX-listed Australian Real Estate Investment Trusts Fact Sheet 2 http://en.wikipedia.org/wiki/Australian_real_estate_investment_trust 3 ASX A-REITs - ASX-listed Australian Real Estate Investment Trusts Fact Sheet

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    Bunnings Warehouse Property Trust (BWP Trust) is a trust that holds interest in premium

    commercial real estate throughout Australia. The majority owners of their properties are

    Bunnings Warehouse and tenanted by Bunnings Group Limited, wholly owned subsidiary of

    Wesfarmers Limited.4

    BWP Trust offers its unit-holders a healthy outlook in the form of secure and growing income

    stream and long-term capital growth. It trades as BWP on the ASX as unit securities.

    BWP Trust has properties in mainland Australia with a variety of types as shown on the

    geographic diversification below:

    Source: BWP Trust Portfolio Overview

    4 http://www.bwptrust.com.au/index.php?id=68

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  • Investment and Portfolio

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    PERFORMANCE OVER THE LAST 5 FINANCIAL YEARS 1 July 2005 30 June 2006

    Total Income ($m) 55.1 Net profit/(loss) ($m) 75.2 Unrealised gain/(loss) in fair value of investment properties ($m) 37.2 Total Assets ($m) 731.6 Borrowings ($m) 200.9 Gearing (%) 27.5 Net Tangible Backing Per Unit ($) 1.67 Unit Price as at 30 June 2006 ($) 1.93

    The 2006 financial year was successful for BWP Trust as profit earned on revenue was $55.1

    million due to additional income generated from new properties, refurbishment and rent review.

    BWP Trust had a positive market rent review and strong upward revaluation of properties across

    the portfolio. Distributable income was $38 million, which was an increase of 5.5% from the

    previous year.

    The quality and value adding to the portfolio meant capital expenditure was $33.8 million. It

    included an acquisition of a Bunnings warehouse in WA, completion of a warehouse and a

    showroom complex as well as one major property upgrade in Victoria. The Trust had a market

    capitalisation of $602.9 million.

    In order to allow for the effective use of debt funding, BWP Trust has established a preferred

    range of 20 to 40% for the Trusts gearing ratio (debt to total assets), which is monitored on a

    monthly basis. At 30 June 2006, the Trust was conservatively geared at 27.5%.

    1 July 2006 30 June 2007

    Total Income ($m) 59.8 Net profit/(loss) ($m) 207.0 Unrealised gain/(loss) in fair value of investment properties ($m) 167.9 Total Assets ($m) 963.4 Borrowings ($m) 258.6 Gearing (%) 26.8 Net Tangible Backing Per Unit ($) 2.24 Unit Price as at 30 June 2006 ($) 2.23

    BWP Trust was subdued in the value adding of their portfolio, which increased by 31.8% to

    $950.2 million due to acquisition of five properties and completion of major property upgrades.

    Capital expenditure and revaluation increased total assets and the Trust had a market

    capitalisation of $696 million. Market rent review was a highlight of the year as the four out of the

    five reviews increased the rental to 12%.

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    BWP Trust has $280 million debt facilities with three main Australian Banks and the board

    continues to consider the best option for funding existing debt and future acquisitions.

    At 30 June 2007, the Trusts low gearing of 26.8%, provides substantial capacity to debt fund

    acquisitions and developments as opportunities arise.

    1 July 2007 30 June 2008

    Total Income ($m) 65.9 Net profit/(loss) ($m) 0.7 Unrealised gain/(loss) in fair value of investment properties ($m) (39.3) Total Assets ($m) 979.9 Borrowings ($m) 308.5 Gearing (%) 31.5 Net Tangible Backing Per Unit ($) 2.12 Unit Price as at 30 June 2006 ($) 1.65

    Growth of revenue increased total assets, however, there was a decline of $39.3 million in

    revaluations and capital expenditure of $51.4 million. The Trusts market capitalisation was

    $515.5 million. The closing unit price shows a decline of 26% due to variations in market

    conditions, which resulted in a 40% decline in the S&P/ASX 200 A-REIT index.

    It is projected that due to reduced availability of capital and higher cost of funding, the property

    market will be submissive in selling investment grade properties, as it is a buyers market.

    BWP Trust now has $380 million debt facilities with four main Australian Banks; $100 million with

    Commonwealth Bank, ANZ Bank and NAB each with remaining $80 million with Westpac.

    1 July 2008 30 June 2009

    Total Income ($m) 73.2 Net profit/(loss) ($m) (11.7) Unrealised gain/(loss) in fair value of investment properties ($m) (52.1) Total Assets ($m) 999.9 Borrowings ($m) 225.9 Gearing (%) 22.6 Net Tangible Backing Per Unit ($) 1.79 Unit Price as at 30 June 2006 ($) 1.63

    The GFC shows little affect on BWP Trust as it had an average 12.2% increase in annual rent

    due to the 19 market rent reviews. However, the portfolio value was down by $6.7 million

    because of the loss of net revaluation of $52.1 million and capital expenditure of $45.4 million.

  • Investment and Portfolio

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    BWP Trusts financial position was enhanced through the $150 million capital raising and two

    banks agreeing to extend the existing banking facilities to $180 million, which has been used to

    reduce the Trusts debt.

    The real strength of a Trust is measured by comparing it performance relative to the market.

    BWP Trust was the only A-REIT to make a positive total return of 5.2% during the year as

    opposed to the negative 42.3% of the sector.

    1 July 2009 30 June 2010

    Total Income ($m) 78.5 Net profit/(loss) ($m) 92.2 Unrealised gain/(loss) in fair value of investment properties ($m) 41.8 Total Assets ($m) 1,026.4 Borrowings ($m) 193.5 Gearing (%) 18.8 Net Tangible Backing Per Unit ($) 1.88 Unit Price as at 30 June 2006 ($) 1.89

    This financial year took the value of the portfolio to $1000.1 million meaning an increase of $44.5

    million due to net revaluation gain of $41.8 million and capital expenditure of $2.7 million.

    BWP Trust had an increase of 7.3% in income as market rent review increased rents by 9.2% on

    average of 9 properties. The weighted average lease expiry was 9.3 years and net tangible

    as