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6. INVESTMENT PROPERTIES (CONTINUED)
Valuation Methodologies
Discounted cash flow
The discounted cash flowmethod calculates a property’s value by using
projections of reliable estimates of future cash flows, derived from the
term of any existing leases, and from external evidence such as current
market rents for similar properties in the same area and condition, and
using discount rates that reflect the current market assessments of the
uncertainty in the amount and timing of cash flows specific to the asset.
Capitalisation of income valuation
The capitalisation of income valuation method capitalises the current
rent received, at a rate analysed from the most recent transactions
of comparable property investments. The capitalisation rate used
varies across properties. Valuations reflect, where appropriate, lease
term remaining, the relationship of current rent to the market rent,
location, prevailing investment market conditions and for Bunnings
Warehouses, distribution of competing hardware stores.
Inputs used to measure
fair value
Range of individual
property inputs
Adopted capitalisation rate
5.75% – 10.50%
Gross rent p.a ($000)
246 – 4,284
Occupancy rate
99.7% as at 30 June 2016
Lease term remaining (years)
0.7 – 11.3
Leasing arrangements
The Trust has entered into commercial property leases on its
investment portfolio with the majority of its properties being leased to
Bunnings Group Limited.
Bunnings Warehouse leases generally commit the tenant to an initial
term of 10, 12 or 15 years, followed by a number of optional terms
of five or six years each exercisable by the tenant. Leases to non-
Bunnings tenants generally commit the tenant to an initial term of
between five and 10 years, followed by one or a number of optional
terms of five years each exercisable by the tenant.
At 30 June 2016, the minimum lease expiry (being the duration until
which the tenants’ committed terms expire) for the Trust’s investment
properties is 0.7 years (2015: 0.5 years) and the maximum lease
expiry is 11.3 years (2015: 12.0 years), with a weighted average lease
expiry for the portfolio of 5.9 years (2015: 6.6 years).
There are no lease commitments receivable as at the reporting date
and there were no contingent rentals recognised as revenues in the
financial year.
Future minimum non-cancellable rental revenues are:
June 2016
$000
June 2015
$000
Not later than one year
148,505
145,133
Later than one year not later than
five years
475,849
502,694
Later than five years
263,442
320,392
887,796
968,219
Recognition and measurement
Leases are classified at their inception as either operating or finance
leases based on the economic substance of the agreements so as to
reflect the risks and benefits incidental to ownership.
Key judgement
The Trust has determined that it retains all the significant risks and
rewards of ownership of these properties and has thus classified
the leases as operating leases.
The rental revenues of operating leases are included in the
determination of the net profit in accordance with the revenue
recognition policy at Note 1.
Leasing fees incurred in relation to the ongoing renewal of major
tenancies are deferred and amortised over the lease period to which
they relate.
Lease incentives, which may take the form of up-front payments,
contributions to certain lessees’ costs, relocation costs and fit-outs and
improvements, are recognised on a straight line basis over the lease
term as a reduction of rental income.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2016
BWP Trust Annual Report 2016
36
Financial Report