Thank you very much, and good morning, everyone. Thanks for joining us. My name is Mark Scatena, and I'm the Managing Director of BWP Trust, and I'm joining you from Perth. With me today is Andrew Ross, the Trust Head of Property, and David Hawkins, the Trust Chief Financial Officer. Today, we're pleased to announce the Trust's results for the full year, ending 30 June 2025. The Trust has released to the ASX this morning its full-year results announcement, annual report, and investor briefing presentation. I'll now go through the presentation before taking questions, turning to slide three. To commence today, we acknowledge 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, present, and emerging. Turning to slide six and highlights for the year.
The year saw a continued focus on portfolio optimisation and profitable growth, which supported increased rental income and distribution growth. In optimising the portfolio, the Trust recorded strong like-for-like rental growth of 3% over the year, with 12 Bunnings Market Rent Reviews also completed, achieving a 3.4% weighted average increase. Our Northland property was leased to a single third-party tenant prior to lease expiry and at Fountain Gate. This major redevelopment was advanced with statutory approvals received, and leasing will progressed. Specific to profitable growth, Bunnings upgrades at Scoresby and Dubbo were completed, and agreements were reached for a AUD 14 million Bunnings expansion at Pakenham and a car showroom refurbishment and expansion for AUD 11 million at Midland.
Portfolio renewals saw two property sales advanced, being Port Kennedy and Morley, with these divestment completions expected in the first half of the 2026 financial year, and progress was made on refinancing 2026 debt maturities. Finally, and importantly, the transaction comprising the BWP Management internalisation, Bunnings lease reset and extension, and capital expenditure commitments was approved by unit holders after the end of the financial year, with transaction completion achieved on 1 August 2025. Turning to slide seven and key portfolio metrics. During the year, the balance sheet strength was maintained, with portfolio quality and capitalisation rate improved, and with weighted average lease expiry or WALE, distribution and net tangible assets increased. In regard to some key portfolio metrics, total income for the year to 30 June 2025 was AUD 203.3 million, 16.5% above last year.
Net profit for the year ended 30 June 2025 was AUD 265.6 million, including AUD 135.9 million in net unrealized gains and a fair value of investment properties and derivatives. This compares with net profit including fair value gains of AUD 180.2 million in the prior year. Net profit before revaluations was AUD 129.7 million, up 8.7% on the prior year, and excluding AUD 3.3 million of one-off transaction costs incurred during the year, net profit before revaluations was up 11.5%. The net tangible asset backing of BWP's units was AUD 3.98 per unit at 30 June 2025, an increase of 5% on last year. A final distribution of AUD 0.0945 per ordinary unit has been declared and will be made on 27 August 2025 to unit holders on the register at 5:00 P.M. Eastern Standard Time on the 30th of June 2025.
The final distribution takes the total ordinary distribution for the year to AUD 0.1865 per ordinary unit, an increase of 2% on the previous year. Turning to slide nine and financial performance. Whilst I won't spend time on slides nine and 10, they provide an overview of financial performance for the year, with key metrics focused on income, expenses, portfolio valuation, distributions, investments, and cash generation and capital structure. Turning to slide 12 and the strategic framework. In delivering BWP's objective of providing unit holders a secure and growing income stream and long-term capital growth, the group's key areas of focus aligned with three strategic pillars: portfolio optimisation, profitable growth, and portfolio renewal. To enable these strategic pillars, BWP prioritizes commercial discipline, effective capital allocation and access, sustainability, and active and effective collaboration with key stakeholders. Portfolio optimisation focuses on optimizing and leveraging the existing network while managing asset repurposing requirements.
Profitable growth seeks to expand the core portfolio, assess adjacent growth segments, and addressable markets where feasible. Portfolio renewal focuses on active value creation through capital recycling and reinvestment in growth initiatives to complement the core portfolio while maintaining a strong and flexible balance sheet. Our supporting principles of operating excellence, efficient capital structure, and effective asset management underpin these strategic pillars. Now turning to slide 14 and an update on the proposed transaction.
A transaction which we announced on 27th of June and we completed on 1st of August involved forming a new company, BWP Property Group, distributing one fully paid ordinary share in this new company, BWP Property Group, for each existing unit held by BWP Trust investors at the stapling record date, stapling each BWP Property Group share to each BWP Trust unit to form a new stapled security, BWP Property Group acquiring BWP Management Ltd, together with its subsidiary entities from Wesfarmers , the current owner of the management company, thereby internalising the management of BWP. Wesfarmers agreeing to provide transitional services to BWP. BWP and Bunnings resetting the terms of 62 Bunnings leases, and BWP and Bunnings committed to enhance the quality of the portfolio through a combination of store expansion and network upgrade capital expenditure.
We were very pleased to hold our AGM on the 28th of July, at which BWP unit holders approved the resolutions in relation to the transaction. Turning to slide 15. The proposed transaction comprised three elements. Firstly, the internalisation to create an independent platform allowing BWP unit holders to enjoy a lower cost of doing business and enhance the opportunity for growth, whilst being immediately accretive to distributions. Secondly, the lease reset and extension, where Bunnings has made a long-term commitment to occupy BWP's properties. This represents strong alignment with BWP's largest tenant, Bunnings, with this commitment providing investors with certainty of income and security of tenant covenant through a materially longer weighted average lease expiry. Thirdly, the capital expenditure commitments, which sees BWP and Bunnings both committing capital to BWP's assets to fund store expansions and network upgrades, which will increase income and enhance asset life. Turning to slide 16.
BWP has demonstrated a prudent and disciplined approach to acquisitions and developments, with a track record of generating superior returns for investors since listing in 1998. BWP was established as a platform for income and capital growth and has sought to sustainably deliver this objective during its 27 years since listing. The transaction represents a significant development and reflects BWP's disciplined approach to capital allocation and also the attractiveness of the opportunity. The transaction further enhances BWP's platform for future income and capital growth, consistent with BWP's objective of providing unit holders a secure and growing income stream and long-term capital growth. In highlighting the key benefits of the transaction, it secures one of Australia's leading retailers in Bunnings for additional lease terms certain, ensuring continued covenant strength and income certainty for BWP.
The transaction is also an important enabler for growth, increasing the addressable market via a lower cost of capital and affording increased optionality regarding growth platforms. Turning to slide 17. Following the transaction, portfolio WALE increases to 7.7 years and the Bunnings WALE increases to 9.1 years, removing all short and medium-term Bunnings vacancy and income risk. The transaction is also expected to be accretive to FY26 distributions, where, following implementation, BWP's distribution forecast for FY26 is AUD 0.1941, reflecting 2% accretion to the forecast FY26 distribution pre-implementation and 2.3% accretion on a pro forma full-year basis. BWP's forecast distribution for FY26 of AUD 0.1941 represents a 4.1% increase on the FY25 distribution of AUD 0.1865. Turning to slide 19.
For the 12 months to 30 June 2025, and excluding rental income from properties acquired, sold, upgraded, or vacated and re-leased during or since the prior corresponding period, rental income increased by 3% on a like-for-like basis, compared to 4.2% for the 12 months to 30 June 2024. For the year ending 30 June 2026, CPI reviews will apply to 46% of the base rent, with leases subject to a market rent review comprising 3% of the base rent, with a balance of 51% reviewed to fixed increases of 2% to 4%. Turning to slide 20 and market rent reviews. Market rent reviews on 12 Bunnings Warehouse properties were finalised during the year, with rent increasing on average 3.4% on the passing rent at the time of the market rent review. 10 of the 12 reviews were negotiated between the parties and were based on available market evidence.
While slightly above the three-year average of 3%, we remain of the view that overall the portfolio is largely at market. Reflecting the lease reset component of the transaction, only two market rent reviews are scheduled for the 2026 financial year, both of which are unresolved reviews carried forward into the new financial year. Turning to slide 21 and lease covenants. The Trust lease covenant mix remains strong, with Wesfarmers Group covenant coverage at 80.8% at the end of the year and national retailer coverage at some 97% of rental income. Turning to slide 22 and capitalisation rates. Interest rate outlook and increased alignment between buyer and seller expectations supported an increase in transaction activity over the 2025 financial year. This continued interest and support for the Bunnings covenant, together with this improved investor appetite, were reflected in transaction capitalisation rates compressing over the year.
Turning to slide 23 and valuation summary. During the six months to 30 June 2025, the Trust's entire investment portfolio was revalued, with property revaluations performed by independent valuers for 29 properties. The remaining 53 properties were subject to directors' valuations. Following the revaluations, the Trust's weighted average capitalisation rate for the portfolio at 30 June 2025 was 5.40%, down 14 basis points from 30 June 2024 and 3 basis points compared to 31 December 2024. At 30 June 2025, the average cap rate for the Bunnings warehouses within the portfolio was 5.06%, with a tighter cap rate for standalone Bunnings properties reflecting the relative covenant strength of these single-tenanted assets. Turning to slide 25 and profitable growth. During the six months to 30 June 2025, the Trust...
BWP committed to fund the expansion of its Pakenham Bunnings Warehouse, Victoria, at a cost of AUD 14 million, which included the acquisition of adjoining land, with the annual net rent increasing by approximately AUD 0.9 million, reflecting a rentalisation rate of 6.5%. BWP also committed to fund the redevelopment and car showroom expansion of Midland, Western Australia, at a cost of AUD 11 million, with capital to be rentalised at a rate of 7.5%. Following completion of the expansion, a new 15-year lease will be entered into with one 10-year option. In March 2025, the expansion of the Dubbo Bunnings Warehouse was completed at a cost of AUD 13.1 million, inclusive of the acquisition of adjoining land of AUD 0.4 million. The parties have entered into a 10-year lease with six five-year options exercisable by Bunnings, with annual rent increasing post-completion by AUD 0.5 million.
Finally, in the second half of the financial year, car park works totaling AUD 1.4 million were completed at the Bunnings Warehouse in Scoresby. The parties have entered into a 10-year lease with three five-year options exercisable by Bunnings. Turning to slide 27 and portfolio renewal. The 2026 financial year sees material repositioning works planned, which includes significant redevelopments, with increased activity reflecting cumulative Bunnings lease vacancy impacts. As an example, at Noarlunga, development approval for a 12,100 square meter large format retail center with a food and beverage pad site was received in April, and negotiations were advanced with several large format retailers representing more than 60% of available lettable area. Turning to slide 28 and Fountain Gate. The Fountain Gate redevelopment reflects BWP Trust's repurposing capabilities, including feasibility assessment, planning approval, construction, and leasing.
The scope of the project includes the subdivision of the ex-Bunnings Warehouse into multiple large format retail tenancies, extensions made to the northern and southern ends of the existing building, and the inclusion of a standalone quick service restaurant to be constructed in the northwestern corner. Construction is expected to commence in September 2025 for an approximate cost of AUD 35 million, with agreements for lease executed with the Super Retail Group for a significant portion of the site. Further to Super Retail Group, leasing is well advanced with another large format retailer and a food and beverage restaurant operator. Turning to slide 29. In renewing the portfolio, the group continues to recycle actively by divesting non-core assets, currently focused on Port Kennedy and Morley, and reallocating capital to higher returning opportunities and reinvesting in growth initiatives to complement its core portfolio.
We expect the Port Kennedy and Morley divestments to complete by the end of the 2025 calendar year. Turning to slide 30 and debt. Finance costs of AUD 35 million were 37.7% higher than last year, largely due to a higher level of average borrowings for the year, with borrowings of AUD 799.9 million, 36.2% higher than the previous year at AUD 587.5 million, with increased borrowings largely due to the MPI debt acquired as part of that acquisition. The weighted average cost of debt for the year was 4.4%, in line with the previous year. During the year, the group extended the terms of facilities with Bank of China, Commonwealth Bank of Australia, Sumitomo Mitsui Banking Corporation, and Westpac Banking Corporation. An additional AUD 50 million facility was also entered into with Bank of China for four years, maturing in June 2029.
The next debt maturity is April 2026, with a tranche of the Trust's corporate bonds maturing. The Trust is currently considering various refinancing options for this tranche, including the potential for a new bond issue, obtaining additional finance from current debt providers, and exploring options with new lenders. The group's gearing ratio at 30 June 2025 was 21.6%, which compares to 21.5% at 30 June 2024, which is at the lower end of the board's preferred range of 20% to 30%. The group entered into interest rate swaps and fixed-rate corporate bonds to create certainty of interest costs over the medium to long term. At 30 June 2025, the group's interest rate hedging cover was 48.3% of borrowings, and the weighted average term for maturity of hedging was 1.4 years.
BWP is committed to maintaining an investment grade rating, currently A- stable by Standard & Poor's and A3 negative by Moody's, through appropriate capital and balance sheet management. Now turning to slide 32 and outlook. The 2026 financial year sees the peak impact of Bunnings vacancies, with material site repurposing activity impacting rental income and capital profit release to support distribution growth. As the charts illustrate, during FY26, there is an expected increase in rental income downtime and site repurposing capital expenditure, reflecting nine Bunnings departures. This results in the requirement for additional capital profit release to support DPU growth, excluding the benefits of the internalisation and lease reset, with CapEx spend in 2026 expected to be some four times that of 2025. Turning to slides 33 and 34.
In delivering BWP's strategic agenda of portfolio optimisation, profitable growth, and portfolio renewal, BWP's focus for the 2026 financial year will continue to include progressing the repurposing of ex-Bunnings properties, filling any vacancies, progressing and completing store upgrades. As discussed, the 2026 financial year sees the peak impact of Bunnings vacancies, with a material increase in site repurposing works. The benefits of internalisation and lower operating costs are expected to support earnings, with a release of capital profits from prior asset disposals expected to support distributions to mitigate the impacts on rental income due to increased repurposing activity. With completion of the transaction achieved in early August 2025, the coming year will see a strong focus on the transition to an internalised model, where management will focus on optimising operations, including in collaboration with Wesfarmers Group under the Cooperation and Services Agreement.
Management will also focus on leveraging the reduction in the cost of doing business via a lower cost of capital and the increased available time and resources to assess and action opportunities to grow the portfolio and create value. This activity will focus on reinvesting in the core portfolio to support tenant optimisation plans, acquiring accretively, and growing the portfolio. In renewing the portfolio, the group will recycle actively by divesting non-core assets focused on Port Kennedy and Morley, reallocating capital to higher returning opportunities, and reinvesting in growth initiatives to complement the portfolio while maintaining a strong and flexible balance sheet. Following unit holder approval of the transaction at the AGM of 28 July, the number of market rent reviews has reduced significantly.
To that end, for the year ending 30 June 2026, leases subject to market review represent only 3% of the base rent, with CPI reviews to apply to 46% of the base rent and the balance of 51% to be reviewed to fixed increases of 2% to 4%. Prior to the transaction, the distribution for the 2026 financial year was forecast to be AUD 0.1903 per BWP Trust unit, including capital profits released at AUD 5.6 million, reflecting 2% growth. Following implementation of the transaction and subject to no major disruption to the Australian economy or material change in market conditions, BWP Trust expects the distribution per year per unit for the year ending 30 June 2026 to be AUD 0.1941, representing a 4.1% increase on the prior year's distribution of AUD 0.1865.
That concludes my prepared remarks, and I now hand back to the moderator to facilitate any questions, where myself, Andrew Ross, the Trust Head of Property, and David Hawkins, the Trust's Chief Financial Officer, are available.
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star two. Your first question today comes from Tom Bodor from UBS. Please go ahead.
Good morning, Mark. I'd just be interested in the acquisitions, or sort of the set of acquisition opportunities out there, and particularly any comment on the BPI portfolio that Wesfarmers took back on balance sheet. Is that something you could look at or would be of interest to you?
Hi Tom. Yes, so broadly, that suite of acquisition opportunities is, I think, like it's always been, Tom. Clearly, assets that are aligned to the foundation of the business, so Bunnings Warehouse, large format retail centers that, as we discussed before, carry similar traits in regards to addressable markets, industry structures, etc., covenants. They're things clearly we're always looking at. The internalisation supports that, as we've guided in regards to perhaps having the capacity at the right time to leverage a lower cost of capital. Specific to BPI, Tom, yes, that process, I think there's been some market commentary in regards to that process being live. We participated in that process, and we understand we weren't successful in moving through to the next phase. Yes, that subtranche of that BPI was a tranche of the BPI assets that was put to market.
We were interested, but there are other preferred bidders. We understand probably a question for Wesfarmers Group as well, Tom.
I think to understand that. In terms of the cap rates, if I look at the transaction cap rate slide, it sort of feels as if everything's pretty centered in around that 5.0% sort of mark. I'd be interested in your comments around where you sort of think you can acquire things successfully, sort of post-internalisation. Obviously, it improves your cost of capital, but getting assets in the low fives, I presume, is a bit of a stretch. It just seems to be where the market is.
Yeah, Tom, I think that's right. I think even that chart, Tom, is relatively illustrative in terms of perhaps where we've seen value in a recent transaction, where the market's at. Clearly, I think, as you said and as we've indicated, a lower cost of capital and the absence of that full management fee provides more currency in terms of our ability to acquire. Yes, relative to the cost of capital, Tom, of course, something at that absolute margin can be challenging from an accretion perspective. We're very mindful of unit holder returns, Tom. Hopefully, over time, we can leverage that cost of capital to deploy really effectively. Just a constant focus, Tom.
Thanks. Just a final one from me. I mean, how do you see your current valuation relative to those transactions? Do you think you're conservative or do you think you're sitting where you should be at sort of mid-fives on the cap rate?
Tom, Andrew Ross here. Maybe if you have a look at slide 23, what we've done there is we've shown the cap rates for the individual standalone Bunnings Warehouse BWP has in our portfolio. You'll see that our weighted average cap rate for those properties is almost 5%. We feel like our valuations of the standalone Bunnings Warehouse are consistent with the transactions.
Yeah, okay, thanks.
Thank you. Your next question comes from Lauren Berry from Morgan Stanley. Please go ahead.
Hey, morning guys. Thanks for the additional disclosure around the CapEx. Just on your flag that it's going to be a four-time step up in FY2026, are you able to talk about what you think the quantum of CapEx will be after FY2026? Like, is this a one-year step up and it'll taper off after that? Are we heading into a period, a prolonged period of really high CapEx requirements? Thank you.
Yeah, thanks Lauren. Look, I think the reason we call that out, Lauren, is exactly that point. That is, you know, as we guided again in the commentary, it is peak what we call repurposing activity, reflective of, you know, all three relatively significant projects, including Pakenham, Noarlunga, and Fountain Gate, and some repurposing of Rockley, and some other support of customers like Midland. There is clearly a swing and an increase to CapEx in 2026. Some of that repurposing activity, a little bit of that will carry forward into 2027, but we do expect that to fall back again in 2027, Lauren. Perhaps somewhat in line with history, but again, that'll just be a reflection of perhaps timing of construction and where those projects ultimately end through the course of the 2026 financial year. Yes, a material step down again in CapEx in 2027.
Great. In terms of the capital release to support the distribution, is FY26, it's obviously a big step up this year. Should there be a material step down in FY27 in line with the CapEx requirements?
I think probably a number of factors in that. Probably, Lauren, if you think about the transaction support to earnings from a lower cost of doing business as it relates to the internalisation and lease reset, that will be a tailwind in the run rate from 2026 into 2027. That will defray some of the requirement to release capital profits. We expect a lower capital profit release in 2027. Again, some of that will be timing of tenanting, timing of construction completion, and that'll go ultimately to how we've re-tenanted those repurposed activities that are in a heightened sense of activity at the moment. Yes, we expect most certainly that to fall, Lauren.
Great. Final one from me. Just on Fountain Gate, given the additional disclosures about the CapEx, it looks like the CapEx is over 100% of your book value for the asset at the moment. Are you able to give a bit more color on the step up in rents that you're expecting following the completion of that development, particularly in regards to what Bunnings was paying on that pre-kickoff?
Yeah, Lauren, Andrew Ross here. There's a significant step up in the rents for this asset. We're still finalizing lease negotiations on a couple of tenancies. I wouldn't guide you to anything, but what I could guide you to though is the valuation on completion is circa AUD 90 million.
Great, that's good. Thank you. Thanks, guys.
Thank you. Once again, if you would like to ask a question, please press star one and wait for your name to be announced. Your next question comes from Richard Jones from JP Morgan. Please go ahead.
Thanks for the opportunity to ask questions. Mark, can you just recap who drove the internalisation, and then just follow on how you see your business changing as an internalised vehicle, and anything you could perhaps call out, you know, within the first two weeks that you've been internalised?
I thought the first two weeks.
I should say.
Yes. No, sorry, thanks, Richard. In terms of the transaction itself, I think, you know, not dissimilar to MPI, you can imagine that our corporate plans, our strategic plans over many years have addressed different drivers of value. Internalisation was clearly one of those drivers of value. Through that kind of strategic planning process in the middle part of last year, we resurfaced the concept. We integrated to some degree MPI at that point. If you think about the third quarter of the last calendar year, we started to think about how do we again foundationally improve this business. Its outlook in terms of prospects was a little bit more prospective. The cost of doing business and cost of capital was one of those drivers, and internalisation was an enabler of that.
We took obviously at length, we went through a review process with the board, and then towards the back end of the calendar year, we clearly very formally approached Wesfarmers Group with a concept which included the three elements being the internalisation, the extension and reset of the lease portfolio with Bunnings , and also some commitment to expansion and upgrade. That was very much at our instigation. We took that to Wesfarmers , and that negotiation took more than about six months, Richard, to complete. In late May, we executed a binding term sheet, and then we went through that process of documenting the relevant transaction documents. It was a very strong process and long process. As you can imagine, Richard, negotiating with Wesfarmers and Bunnings is not necessarily easy, so that did take some time. That was a very formal process.
I suppose the second part of the question, which is about what perhaps is different, what do we see as different? I think a couple of things, even in this early period, Richard, like we're still clearly, as I've said in the comments, we need to internalise well, and we need to set ourselves up structurally really effectively as we move forward. From a property perspective, a growth perspective, there is more time available to think about incrementality and growth and options for the portfolio. I even see that in Andrew already. I won't speak on behalf of Andrew, but I see him having capacity to think about growth and investment in a slightly different way perhaps than when we were focused on Market Rent Reviews for many months in relatively competitive ways. That's one discernible change which will continue.
Clearly, there is a stronger alignment, Richard, in regards to unit holders. Very simplistically, my remuneration is now far more aligned, as is all of the team's remuneration to outcomes for security holders of the BWP stapled group. There was always an incredibly acute focus on unit holder returns, as you would know. I suppose we're even more aligned now in terms of remuneration mix as it relates to that. I think, Richard, this focus on optimizing the cost of capital, that's a very strong focus, continued focus. We want to leverage that as best we can. Making sure that we're evaluating opportunities really effectively, we're spending more time on that. There are a couple of the very, very near-term opportunities. Of course, Richard, we have a relationship with Wesfarmers from a shared service perspective.
Making sure we set up well and foundationally we're well established to exchange and over time separate, that's really important as well.
What's the headcount of the group?
Yeah, it's not particularly big, Richard. We've got about 13 in the team.
Okay, all right, thank you. That was good clarity on the background and the changes, so thanks for running through that, Mark. Just in terms of the major renewal projects earlier to Lauren's question, can you just provide a target yield on cost or other return metrics you're looking at for Noarlunga and Fountain Gate?
Yeah, sure, Richard, Andrew Ross. In terms of the additional CapEx that we're spending, we're looking at getting double-digit IRR, low double-digit IRR for Noarlunga and for Fountain Gate. Because we're funding at a higher rate, we're getting a higher return on the Midland development with the car dealership people that we've got tenanted in that building.
Okay, and then sort of initial yields, are they in what, 6%, 7% range? Is that?
Yeah, for the Midland asset, I think it's about 7%. For Fountain Gate, it's 5.75% or 6%, given the location of that asset and the covenants that we have secured there. Noarlunga is mid-6%.
Great, thanks, Andrew.
Thank you. Your next question comes from Murray Connellan from Moelis Australia. Please go ahead.
Morning, Mark and team. Congratulations on getting the internalisation finalised. I was wondering whether you could just quickly comment, noting the comments that you've made earlier around potential growth ambitions. Would you be able to comment on your appetite to take on additional gearing and how that target might change going forward relative to where that number's been historically?
Thanks, Murray. I think even in our commentary, we've said our preference is to maintain an investment grade rating. That gives you some framework for what we operate within that accommodates leverage metrics, credit metrics, or interest cover metrics, clearly gearing, etc. I think that gives you some framing for perhaps where leverage might go. You can see we've positioned post the internalisation a couple of percentage points into the range. We're comfortable there. I think I'd just guide you again to our expectation around rating, and that should frame the opportunity now. In saying that, Murray, I think historically, and you would know the history as well, we've been very successful with unit holder support for capital raisings at the right time.
We're very attuned to what the capital structure needs to be, and we think we've got a capability in terms of funding opportunities of scale with essentially both currencies and managing that rating and credit profile. We're not averse, of course, Murray, to raising equity at the right time as well, and that's something that has been supported historically.
Thank you. Would you be able to comment around, I guess, how you would expect the Bunnings share of the total portfolio to change, if at all, in the coming years? Just noting the opportunities if it is out there.
Yes, I think that I suppose the mathematics are relatively simple on this one, Murray. That is the extent we increment the portfolio with, for example, large format retail showroom properties or a non-Bunnings asset, a non-Bunnings asset, on the basis that essentially that 80% of income is now committed for an extended period of time. Any overlay to that would dilute the Bunnings representation or Bunnings penetration. I think our expectation over time is on the basis that we grow into large format retail showroom properties. Hopefully, we absolutely grow into Bunnings as well. I think it's probably fair to say that there's some expectation that that will somewhat moderate over time.
Got it. Thank you very much.
Thank you. Your next question comes from CK Tan, a company shareholder. Please go ahead.
Morning, Mark and team. Hi. How's everyone? Okay.
Thank you.
Just to draw the attention to slide 30 on the cost of funding. Okay, obviously, I think the rate's coming off. Also, I think if I look at the weighted average term to maturity of some of the hedges, it seems to be winding off as well. Could you shed some color as to, you know, what's your team's view on the cost of funding? Has it reached a peak? Going forward, are we going to get some relief/tailwind, you know, in terms of cost of funding? Because, you know, obviously last year, the debt's gone up 36.2% because of MPI, but borrowing cost has actually gone up even more. Are we going to see, you know, winding off of the impact of peaking interest rates?
Thanks for your question, CK. We expect at the moment, based on where current interest rates are forecast to be, our borrowing costs to be roughly around 4.4%, 4.5% for this year, subject to the refinancing of the MTN. If interest rates go down further, the potential that rates could go down slightly less than the 4.5% that we're forecasting, the cost last year would literally largely line. The cost of debt last year was 4.4%. The year before was 4.4% as well. It's mainly because we've increased the debt with the MPI transaction.
Yeah, obviously there's going to be a lag impact. Are we going to see the cost of debt going maybe not for 2026 out to 2027? Are we going to see it coming off?
It's really hard to judge two years out where interest rates will be. That's the challenge we've got. If you look at the forecast, a three-year swap rate's at about 3.35% at today's rate. You expect it to be around 4.2%, 4.5% for the next couple of years based on that rate.
Okay, thank you.
Thank you. Once again, if you would like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Simon Chan from Morgan Stanley. Please go ahead.
Hey, good morning guys. I just have one question on your distribution. 4.1% growth, that's very good. It's funded by AUD 5.6 million of capital profits release. Guys, I was just wondering, what's the point of that? Why didn't you just keep dividends flat? I mean, it wouldn't be going backwards if you didn't have a capital profits release. Why didn't you just keep it flat and then wait for the, you know, operating earnings growth to come through in 2027 and then grow it that way? Is this more of a broader strategy of smoothing your dividend growth profile for the medium term and you don't want any step changes? Can you just walk us through the rationale?
Yeah, thanks Simon. I think it's kind of important just to think about the driver of the release also this year in 2026. I think, Simon, it was called out, you know, some months of rental loss, I think, on one of the later slides. That was to guide the market to say that across essentially Rockley, Noarlunga, and Fountain Gate, and two of those assets are relatively high, they were highly productive from an income perspective assets. That 15 months of cumulative rent across those three assets is not an insignificant headwind as it relates to income loss. Our view is that repurposing, Simon, as I said, is kind of one-off in nature in the sense that it's the peak of the Bunnings recycling activity. Given what's been achieved with the lease reset and extension, those levels of recycling and Bunnings vacancy clearly we won't see going forward.
I think I'd probably look at 2026 as somewhat of a one-off. I wouldn't think about that in a run rate sense. Perhaps that's what I'd guide you to, Simon.
That's terrific. Thanks, Mark.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Mark Scatena for any closing remarks.
Thanks very much for joining the call today, everybody. I appreciate you taking the time. We look forward to seeing many of you next week and engaging as needed over any telephone calls. I'd be delighted to speak to anyone as needed. Hope everyone has a nice day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.