BWP Trust’s $143M Deal to Internalise Management and Double Bunnings Lease Terms
BWP Trust proposes to internalise its management by acquiring BWPM from Wesfarmers for $142.6 million, restructure 62 Bunnings leases to extend lease terms and options, and commit $86 million to capital upgrades. The transaction is forecast to be accretive to FY2026 distributions and requires investor approval.
- Internalisation of management via $142.6 million acquisition of BWPM from Wesfarmers
- Restructuring and extension of 62 Bunnings leases, doubling weighted average lease expiry
- Commitment to $56 million store expansions and $30 million network upgrades at Bunnings sites
- Creation of stapled securities combining BWP Trust units and BWP Property Group shares
- Transaction forecast to increase FY2026 distributions by 2.0–2.3%
Background and Proposal
BWP Trust, a long-established ASX-listed real estate investment trust focused on large-format retail properties, has announced a significant corporate restructuring and capital commitment. The trust’s largest tenant, Bunnings Group Limited, accounts for approximately 81.5% of rental income, underscoring the importance of the relationship between the two entities.
On 27 June 2025, BWP entered into an Implementation Deed with Wesfarmers Limited, its ultimate holding company, to execute a three-part Proposed Transaction. This includes the internalisation of management functions by acquiring BWP Management Limited (BWPM) from Wesfarmers for $142.6 million, restructuring and extending 62 Bunnings leases, and committing to $86 million in capital expenditure for store expansions and network upgrades.
Internalisation of Management
The internalisation involves BWP Property Group Ltd acquiring BWPM, which currently manages BWP Trust externally. This acquisition will convert BWP into an internally managed real estate investment group, aligning management and investor interests more closely. The purchase price comprises $100 million in cash funded by debt facilities and approximately 10.9 million stapled securities issued to Wesfarmers.
Following internalisation, BWP will no longer pay management fees to Wesfarmers, potentially lowering operating costs and the cost of capital. Senior management, including Managing Director Mark Scatena, will continue with the group under new employment contracts, ensuring continuity.
Lease Reset and Extension
The Proposed Transaction restructures 62 Bunnings leases, significantly extending the lease terms. The weighted average lease expiry (WALE) for the portfolio is set to increase from 4.4 years to 8.0 years, while the WALE for Bunnings leases more than doubles from 4.6 years to 9.5 years. Lease options will be restructured to provide between 4 and 8 option periods of 6 years each, with market rent reviews capped at 10% increases.
This extension provides greater income certainty by reducing vacancy risk and is expected to uplift property valuations by approximately $49.9 million, reflecting an 8 basis points compression in the weighted average capitalisation rate to 5.35%.
Capital Expenditure Commitments
BWP and Bunnings have committed to $56 million in store expansion capital expenditure across five sites, with works to commence within three years of implementation. This expenditure will be rentalised at a funding rate tied to the five-year swap rate plus a margin of 200 basis points, contributing to future rental growth.
Additionally, $30 million will be jointly funded by BWP and Bunnings for network upgrades to extend the useful life of ageing Bunnings sites. These upgrades will not be rentalised but are expected to enhance asset quality.
Financial and Governance Implications
The transaction will create stapled securities combining BWP Trust units and BWP Property Group shares, trading under the existing ticker 'BWP'. Wesfarmers will remain a significant investor with a 23.5% stake and retain the right to nominate a director to the board.
Financially, the transaction is forecast to be accretive to FY2026 distributions by 2.0% to 2.3%, increasing the forecast distribution to 19.41 cents per stapled security, a 4.1% increase over FY2025. Pro forma gearing will increase modestly from 20.6% to 23.0%, remaining within target ranges. Net tangible assets per security are expected to reduce slightly due to the recognition of goodwill and intangible assets.
Corporate governance will be enhanced through internal management, improved transparency, and investor alignment. Investors will gain the ability to vote on director appointments and remuneration structures, aligning with market standards for Australian REITs.
Investor Approval and Risks
The Proposed Transaction requires approval by BWP Trust unitholders at an extraordinary general meeting scheduled for 28 July 2025. The independent expert, Deloitte Corporate Finance, has concluded the transaction is fair and reasonable to investors not associated with Wesfarmers.
Risks include increased gearing, potential for higher operating costs if expenses exceed expectations, changes in risk profile due to internalisation, and personal tax implications for investors, particularly capital gains tax arising from the in-specie distribution of shares.
If the transaction is not approved, BWP will continue with external management, pay management fees to Wesfarmers, and forgo the benefits of extended lease terms and capital commitments.
Bottom Line?
Investor approval on 28 July will be pivotal as BWP Trust seeks to reshape its management and lease profile for long-term growth.
Questions in the middle?
- Will the increased gearing impact BWP’s credit rating or borrowing costs over time?
- How will the internalisation affect BWP’s operational efficiency and cost structure in practice?
- What are the potential tax consequences for different classes of investors from the in-specie distribution?
