BWP TRUST ANNUAL REPORT 2015
14
Minchinbury, NSW
of the buildingwas structurally safe for Bunnings to re-commence
trading from an unaffected portion of the building. Work is continuing
in clearing the damaged area, and determining and implementing an
appropriate longer term rectification plan.
Under the terms of the lease, Bunnings is responsible for insuring
the replacement of the building, but not for improvements below
ground. As a result, the stormwater pipes are not covered under
the policy and remain the Trust’s responsibility. The expected capital
cost to be incurred by the Trust in implementing a new stormwater
run-off solution is approximately $2.0 million, and is likely to take
nine months to complete.
The Trust has loss of rent insurance for 12 months to cover the loss
of rental income while the store is being repaired.
OTHER IMPROVEMENTS
Approximately $0.9 million was spent on various other non-income
producing improvements to the portfolio during the year.
CAPITAL COMMITMENTS
AGREEMENT TO EXPAND BUNNINGSWAREHOUSE
LISMORE, NEWSOUTHWALES
In November 2014, the Trust committed to expand its Lismore
Bunnings Warehouse, New SouthWales, at a cost of $4.6 million.
The annual rental will increase by approximately $0.3 million.
Following completion of the expansion, expected in August 2015,
the parties will enter into a new 12 year lease of the Bunnings
Warehouse with four, five year options, exercisable by Bunnings.
The rent will increase by a fixed three per cent per annum. At
the end of the initial term and at the exercise of each option by
Bunnings, the rents are subject to a market review. Market rent
reviews are subject to a 10 per cent cap, meaning the rent cannot
increase more than 10 per cent above the preceding year’s rent, and
a 10 per cent collar, meaning that the rent cannot fall more than 10
per cent below the preceding year’s rent.
AGREEMENT TO EXPAND BUNNINGSWAREHOUSE
ROCKINGHAM, WESTERN AUSTRALIA
In September 2013, unitholders approved a proposal for the Trust to
acquire fromBunnings a portfolio of 10 properties and the expansion
of three existing BunningsWarehouses, including the Rockingham
BunningsWarehouse. The work on the Rockingham store is expected
to be completed in late 2015 at a cost of $4.4 million. The net annual
rental income is expected to increase by approximately $0.3 million.
Following completion of the expansion, the parties will enter into a new
12 year lease of the BunningsWarehousewith four, six-year options,
exercisable by Bunnings. The rent will be reviewed annually to CPI
and is subject to a market rent reviewat the exercise of each option.
At the exercise of the first option, at the commencement of year 13,
the revised rent can be no lower than the rent in the immediately
preceding year, but may not increase by more than 10 per cent of the
preceding year’s rent. Thereafter, market rent reviews are subject to a
10 per cent cap and collar, meaning that the rent cannot rise or fall by
more than 10 per cent of the preceding year’s rent.
RENT REVIEWS
The rent payable for each leased property is increased annually,
either by a fixed percentage or by the CPI, except when a property
is due for a market review. Market reviews occur for most of the
Trust’s Bunnings Warehouses every five years from the date of
the commencement of the lease. The market rental is determined
according to generally accepted rent review criteria, based on
rents paid at comparable properties in the market.
ANNUAL ESCALATIONS
During the year, 94 leases in the portfolio had annual fixed or CPI
increases, resulting in an average increase of 2.7 per cent in the
annual rent for these properties.
MARKET RENT REVIEWS
During the year, market rent reviews were concluded on 17
Bunnings Warehouses and three showroom tenancies. Market
rent reviews for five of the Trust’s Bunnings Warehouses due
during the year are still being negotiated and remain unresolved.
The results of the completed market rent reviews are shown in the
table on the following page.
BUSINESS REVIEW
