Good morning, everyone, and thank you for joining us. My name is Mark Scatena. I'm the Managing Director of BWP Trust, and I'm joining you from Perth. With me today is Andrew Ross, the Trust's Head of Property, and David Hawkins, the Trust's Head of Finance. Today, we're pleased to announce the proposed merger of BWP Trust and Newmark Property REIT. The Trust has released announcements and presentation to the ASX this morning, and I will go through the presentation. Following this presentation, we'll have time for questions. Turning to Slide 4. At the start, we acknowledge that the traditional owners of country throughout Australia, and the continuing connection to lands and waterways upon which we depend. We pay our respects to their elders, past and present. Turning to Slide 5.
Today, we announced that BWP Management Limited, as a responsible entity for BWP Trust, has entered into a bid implementation deed with Newmark REIT Management Limited as a responsible entity of Newmark Property REIT, in relation to a proposal to merge BWP and NPR by way of an off-market takeover. The merger proposal is for an all-script transaction, where NPR security holders will receive 0.4 BWP units for every one NPR security held. Based on BWP's closing price yesterday of AUD 3.47, this represents an implied price of AUD 1.39 for NPR security, which is a 43.1% premium for NPR's closing price. The merger proposal is highly compelling, and we're excited about the opportunity it affords both BWP unit holders and NPR security holders.
We believe that the merger proposal is in the best interest of both BWP unit holders and NPR security holders, and provides an opportunity to combine complementary portfolios of quality assets and similar tenant profiles. Importantly, the independent directors of NPR have unanimously recommended the merger proposal in the absence of a superior proposal. NPR has made a separate release to the ASX today that details the background to the merger proposal and the directors' recommendation. In addition, Newmark Group and associated entities, collectively, the largest security holder in NPR, have entered into a pre-bid acceptance agreement with BWP, providing a commitment to accept their combined 18.3% holding in NPR into the takeover offer. BWP is delighted with the support from the Newmark Group for the merger proposal. Turning to Slide 6.
Merger proposal reflects BWP's focus on profitably growing the portfolio through assets with strong location attributes and tenant governance. It demonstrates BWP's ability to leverage its capital structure, its discipline and focus on portfolio growth, and is consistent with the trust's objective of providing unit holders with a secure and growing income stream and long-term capital growth. The merger proposal offers a number of key benefits for BWP unit holders, which I will talk to as we move through each of the following slides. Turning to Slide 7.
The merger proposal is a continuation of BWP's ongoing strategy to create long-term value through the addition of nine quality, large-format retailing assets, assets that are predominantly leased to Bunnings. Through the combination of the two highly complementary portfolios, the merger proposal will create a AUD 3.5 billion portfolio of 84 geographically diversified properties across Australia.
This represents an approximate 20% increase in BWP's investment portfolio. The merger proposal provides an opportunity to increase the trust's exposure to assets in Victoria. It maintains the weighting of the trust's assets in New South Wales and Queensland, and provides the opportunity for the trust to own its first asset in Tasmania. BWP has undertaken valuations for 31 December 2023 in accordance with the trust's valuation policy. Total investment properties have been valued for the half year ending 31 December 2023 at AUD 2.97 billion, at a weighted average capitalization rate of 5.53%. A 15 basis point widening from values at 30 June 2023. Full details of the trust's valuations will be provided in BWP's half year results disclosures, to be released on the seventh of February.
NPR has also undertaken valuations for 31 December 2023, which have been provided to BWP as part of our due diligence. Outlined in Appendix B of this presentation, are details of the NPR portfolio, including 31 December 2023, 2023 valuations. Total NPR investment properties have been valued by NPR for the half year ending 31 December 2023, at AUD 517 million, at a weighted average capitalization rate of 5.37%, reflecting a 26 basis point widening from values at 30 June 2023. Turning to Slide 8. NPR portfolio is highly complementary to BWP's portfolio, with a quality tenant mix that is 73% owned—Sorry, 73% leased to Wesfarmers owned tenants, comprising Bunnings, Officeworks, and Kmart. Almost 66% of NPR's income comes from Bunnings.
As a result of the merger proposal, BWP will continue to maintain its high-quality tenant governance, with 82% of the income coming from Wesfarmers tenants, including 79.3% from Bunnings. Turning to Slide 9. BWP has demonstrated a prudent and disciplined approach to acquisitions and developments, with a track record of generating strong returns for unit holders, having outperformed the S&P ASX 200 A-REIT Index and the broader ASX over the long term. The trust was established as a platform for income and capital growth and has sought to sustainably deliver this objective during the more than 25 years of the trust's existence.
The merger proposal is the first significant portfolio acquisition the trust has undertaken in a number of years, and highlights both the disciplined approach to capital allocation over time and a prudent balance sheet management of the team under my predecessor, Michael Wedgwood's leadership. The merger proposal also reflects the attractiveness of the NPR portfolio, given the point in the cycle and acknowledging the divergent views of direct and listed pricing. Pleasingly, the merger proposal is accretive to BWP's NTA, with pro forma NTA of AUD 3.75, nearly 1 cent higher than 31 December 2023, and in line with the trust's NTA as at 30 June 2023.
The merger proposal is neutral to BWP's DPU guidance of AUD 9.27—Sorry, 9.27 cents for the second half, ending 30 June 2024. Addition of the NPR assets to the BWP portfolio will further enhance BWP's platform for future income and capital growth, consistent with BWP's core purpose of providing unit holders a secure, growing income stream and long-term capital growth. Turning to Slide 10.... inclusion of the nine NPR assets will further enhance BWP's portfolio diversification and maintain geographic diversity. As I mentioned earlier, the proposed acquisition of the Launceston property will notably be BWP's first portfolio asset in Tasmania. The merger proposal will improve BWP's weighted average lease expiry profile from three years and six months , as at 31 December 2023, to three years and nine months .
Occupancy will also be improved, as the NPR assets are 100% leased. BWP's occupancy, as at 31 December 2023, was 97.4%, and this will improve to 97.8% as a result of the merger proposal. Turning to slide 11. As mentioned, the merger proposal leverages BWP's capital structure to profitably grow the portfolio through assets with strong location attributes and tenant covenants. BWP has a strong capital position. It is rated A- from S&P and A3 from Moody's. Pro forma gearing of 22.7% is at the lower end of BWP's target range of 20%-30%. This conservatively geared balance sheet, combined with BWP's significant headroom under existing facilities, will give BWP continued financial flexibility to undertake capital improvements to existing properties and to consider further acquisition opportunities.
In addition, BWP has previously announced that the sale of the Trust's asset of Wollongong, with a sale price of AUD 40 million, representing an approximate 82% premium to the fair value of AUD 22 million as at 30 June 2023. The Trust expects settlement to occur in June 2024. Turning to slide 12. The merger proposal is conditional upon a number of matters set out in the Bid Implementation Deed, which was included with BWP's ASX announcement released today. The merger proposal includes a minimum acceptance of at least 50.1% of all NPR securities. At any time from when the offer period opens to when the offer period closes, BWP may choose to waive certain conditions of the merger proposal, declare the merger proposal unconditional, and/or extend the offer period.
NPR security holders who accept the offer will be entitled to BWP's distribution for the six-month period ending 30 June 2024, if the merger proposal has become unconditional. The Bid Implementation Deed prevents NPR from declaring any distributions during the period. Turning to slide 13. Consistent with BWP's advance notice released on 15 December 2023, BWP will release its results for the half year ended 31 December 2023, on Wednesday, 7 February. In mid-February, BWP expects to lodge its bidder statement with ASIC and dispatch it to NPR security holders to formally open the offer. Turning to slide 14. As a result of today's announcement, and consistent with the terms of the Distribution Reinvestment Plan, the directors determined to suspend the DRP for the half year ended 31 December 2023.
BWP unitholders who had elected to participate in the DRP will receive payment of a distribution in the form of a direct credit into their nominated bank account on the expected distribution entitlement payment date, 28 February 2024. The balance of the presentation contains a pro forma balance sheet, and as previously mentioned, an overview of the NPR portfolio. That concludes my prepared remarks, and I'll now hand back to the moderator to facilitate any questions where myself, Andrew Ross, the Head of Property, and David Hawkins, the Head of Finance, are available. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on speakerphone, please pick up the handset to ask your question. Your first question comes from Tom Bodor from UBS. Please go ahead.
Good morning, Mark. Thanks very much for the presentation. I'd just be interested in understanding where the passing rents sort of sit relative to the cap rate. So sort of over-under rented at present.
Yeah, Tom, Andrew Ross here. We think that the portfolio is at or about market, so similar to BWP's portfolio, we think it's pretty close.
Okay, that's great.
Obviously, there's gonna be ups and downs, but across the board, it's close.
Yeah, no, that's clear. And then on the Chadstone asset, I seem to remember Bunnings were indicated that they might vacate that asset. Is that correct? And I noticed that the sort of lease passing yield on it is quite high. Does that reflect the risk that they leave, or that they are intending to leave, or not?
I don't think Bunnings has made any representations in relation to whether or not they're going to exercise their option or not. I mean, it's about four years out before their lease expires. So, generally, Bunnings doesn't make that call well in advance of their lease expiry date to any event.
Okay, so what's your expectation there? And then also, just be interested in understanding the other tenants or sort of understanding why that asset's on such a high passing yield.
Well, look, that's a multi-tenanted property. Bunnings only comprises a small portion of the income related to that property. So you'd expect its cap rate to be higher than, say, Nelson or Preston, which are standalone Bunnings warehouses. It's a multi-tenanted asset. I t's got two levels of car parking underneath, two levels of a retail area. It's a fully enclosed internal mall configuration, large format retail center. So look, it comes with more risk than buying just a standalone Bunnings warehouse property.
Yeah, that makes sense. And then just a, maybe just a more sort of high-level question around sort of the leases in this portfolio and just what the impact is to the growth. I appreciate you don't have 25 guidance out there, but the distribution being held, given their support from capital is kind of somewhat arbitrary. So, where, what is the expectation around the rental reviews on this portfolio and what it actually does for the growth for BWP?
Well, I can talk to the leases. The great majority of this portfolio has fixed increases. I think it's close to about 80-85%, with the balance being CPI reviews, and there's a Kmart in this portfolio that pays percentage rent. So there's a component of that, albeit that's only less than 5% of the total income from this portfolio.
Yeah, thanks, Tom. And look, we haven't given guidance for 25. But I think we're very comfortable with the portfolio we're acquiring, the income stream that we're acquiring. P leasingly, that is that is a tranche of recurrent earnings that will contribute to distributions over time. So we're very comfortable, Tom, with that income stream. And we're confident that, as we've said, that is very much in the interest of unitholders.
So, so can you tell me what the fixed rental reviews average out at on the 85% that are fixed?
I'll have to get back to you on that one. I don't know the exact number.
Yeah. No, that'd be, that'd be good. Okay, thanks.
Thank you. Your next question comes from Richard Jones from JP Morgan. Please go ahead.
Good morning, Mark and Andrew. Did Bunnings own any units in NPR at the moment?
No. No, Richard, I think. No.
Okay. Are you taking on any of the Newmark staff out of the transaction? Is there the intention to do that?
With you, Richard, no, we're not.
So, Richard, just in regards to the share sale and purchase agreement, there will be some transitional services provided through the handover, but save for that, no one is coming across.
Okay. And Mark, obviously, you haven't been the chair a long time, and it's fair to say that there wasn't a lot of acquisitions done that the prior management. Do we read anything into, you perhaps having a more aggressive approach than we've been used to with Bunnings over the last decade or so?
Thanks for the question, Richard. Look, no, no, I don't think I would conclude that in any way. I think if I just, reflect on, the current front end of space, and portfolio that Michael and the team have managed, incredibly well, over a long period of time, with capacity to act, when we think there is a suitable opportunity, I think this just reflects, a capacity that was there to act. I suspect, this portfolio, it's always been of interest.
I know the team has always liked the network attributes of the portfolio, so, and clearly, we think there's an opportunity here, that's in the interests of both unitholders and security holders of us and NPR respectively. So no, Richard, I don't think I would say this is, this is a trend or some kind of behavior change. It's more, I think, consistent with our objective of wanting to deliver a secure and growing income stream, but also grow the portfolio. I think where the opportunities fit, we'll act and, and Michael and the team have always built the capacity to transact, and this just capitalizes on that.
Yep. No, fair enough. Looks, reasonably prudent move. So just in terms of the portfolio within NPR, is there any of those assets that you would consider to be non-core?
Thanks, Richard. Look, we like, the fundamental attributes of the portfolio, so hence, we've taken our time through due diligence to understand the respective assets. So no, I don't think we come at this from. It's necessarily a core and non-core portfolio here. Of course, like anything, Richard, in the portfolio to the extent that maybe there's some higher and better use to access or someone else values these assets more than we value them than that, then, of course, portfolio renewal perhaps kicks in. But no, there's nothing here that goes into a divestment bucket.
Okay. Good one. Thanks. Thanks, Mark.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Adrian Atkins from Morningstar. Please go ahead.
Hi, Mark. Well done on the acquisition. I understand it's not gonna be taking you accretive in the near term, but are there any opportunities to kind of enhance returns, like stripping out costs or refinancing debt more cheaply over the medium term?
Thanks, Adrian, for the question. The answer is yes. I mean, that hasn't informed our value. However, most certainly we have thought deeply about how we fractionalize our cost base, how we leverage the skills and capabilities we've got, and of course, something like debt and how we fund those assets is important. So yes, we've had to think through that, and we think we've got some paths over time. Some of those things are a little more de minimis, like listing fees, but some of those are a little bit more mature, like those you've thought, too. So we've got a path, one, to complete the transaction first, and once we've completed this transaction, we'll most certainly work hard on extracting value.
But, no, we're confident that with our capability and capacity that we've got Adrian in the team and with our relationships, that over time there is benefit of combining the two portfolios.
Okay. And just also, you talked about Newmark being a platform for growth. I just kinda wanted to clarify, do you mean, in terms of like developments, redevelopments, or are you just talking, organic rent growth?
I think the latter, Adrian, on that. Yes, it's, it's more if you just think about some nice recurring earnings, with, with a nice portfolio, that we have confidence in. It's the latter.
Okay, thank you very much.
Thank you. Next question comes from Lou Pirenc. Please go ahead.
Thank you. Good morning. Most of my questions have been answered, but maybe one for David. Does this merger structure require you to refinance any of the NPR debts or hedges or whatnot? Or should we just take NPR's disclosure around their cost of debt and hedging as what you will take on going forward?
That's the premise to start with, Lou. In the sense that until we get 100% ownership of NPR, we couldn't refinance, but over the long term, we will probably look to refinance the structure going forward.
Yeah, and is their cost of debt very different from, from your existing cost of debt?
There could be some savings there, Lou, but also we may just actually turn out for a longer period of debt as well.
Okay, thank you.
Thank you. There are no further questions at this time. I'll now hand the conference back to Mr. Scatena for closing remarks.
Thank you, everyone, very much, for the questions and your participation today. In closing, I'd like to reiterate my earlier comments. The merger proposal is highly compelling. We're very excited about the opportunity it affords both BWP unit holders and NPR security holders. In the coming days and weeks, we look forward to engaging with investors to discuss the merger proposal further. We look forward to opening the offer with the dispatch of the bidder statement later in February, and over time, welcoming NPR security holders as BWP unit holders. Thank you, everyone, and have a good day.