Brickworks cashes in on industrial property boom with $416m Goodman JV

Brickworks (ASX: BKW) is cashing in on the industrial property boom through a new joint venture with property manager Goodman Group (ASX: GMG) that has bundled 15 of the building product giant’s manufacturing plans into a new investment vehicle.

The launch of the $416 million Brickworks Manufacturing Trust will reap a net $193 million windfall for Brickworks from the sale which will deliver the group record earnings for its property division in FY22. The properties, located across all six Australian states, have been sold at a $280 million premium to book value.

The company will hold a majority 50.1 per cent interest in the Brickworks Manufacturing Trust while Goodman holds the balance.

Managing director Lindsay Partridge says the sale of the manufacturing facilities capitalises on the surge in industrial land values in recent years.

“Importantly, the lease terms have been structured to ensure minimal impact to the operational flexibility of our Building Products businesses, which will continue to operate on these sites,” he says.

“The creation of this new property trust to house our manufacturing plants is the next step in our property strategy. Goodman are the undisputed market leaders in industrial property and have been instrumental in driving the growth of our existing Industrial JV Trust.”

Brickworks and Goodman already have an extended property partnership through their Industrial JV Trust which has grown assets in Australia and North America to $1.5 billion over the past decade.

“Together, we plan to actively manage the new Brickworks Manufacturing Trust, in which there are several properties that have the potential for additional development and greater utilisation,” says Partridge.

The 15 manufacturing sites initially included in the new trust comprise a total of 496 hectares of land, while Partridge says the group is looking at potentially including another four ‘significant’ Brickworks properties in either of the joint-venture trusts in future. The sites have a combined value of about $800 million, and potentially a rezoned value of $1.3 billion.

The latest property trust represents a fraction of Brickworks’ global property holdings outside of the trusts as the company currently has its foot on more than 5,300 hectares of land comprising manufacturing and development sites in Australia and North America.

The new Brickworks Manufacturing Trust will comprise properties fully tenanted by Brickworks subsidiaries, including Austral Bricks, Bristile Roofing, Austral Masonry and Austral Precast. The $416 million trust will deliver an initial net rent of $17.75 million a year, for a yield of 4.2 per cent, with annual increases of 2.5 per cent for most properties. The weighted average lease expiry (WALE) will initially be 16 years.

Brickworks is expecting record EBIT of $620 million for its property division in FY22, up from $253 million last year.

Robust conditions in the construction sectors in Australia and North America are also expected to drive EBIT 20 per cent higher for its Building Products operations. This is exclusive of the gains from the property division.

“Demand has been well supported by the large backlog of construction activity in the pipeline,” says Partridge.

“Fortunately, we have not been significantly impacted by the extreme gas and electricity prices, with a fixed-price wholesale gas contract in place with Santos on the East Coast, until December 2024.”

The Brickworks boss has revealed construction of a new brick plant at Horsley Park in Western Sydney has been delayed by six months due to multiple flooding events, shipping delays, a lack of critical parts and significant cost increases of steel and other materials.

The group will report its full-year FY22 results on 22 September, 2022.