Brickworks [ASX:BKW] Launches $416 Million Manufacturing Trust

Brickworks [ASX:BKW] Launches $416 Million Manufacturing Trust

Brickworks [ASX:BKW] announced this morning that it has launched a new manufacturing property trust valued at $416 million.

BKW shares were up 2.5% in late afternoon trade on Friday.

The dividend stock has had a tough year, down 15% year-to-date.

ASX:BKW stock shart


Brickworks launches new property trust

Brickworks has released an ASX update pertaining to the launch of a new Manufacturing Trust valued at $416 million, a new joint-venture with the Goodman Group.

The companies have agreed to operate a portfolio of 15 manufacturing plants made up of Brickworks’ Australian Building Products businesses across 496 hectares of land, which combined reach 100% interest gross asset value of $416 million.

Each tenant has a lease ranging from 5–20 years, with the option to extend their leases.

Brickworks’ $416 million Trust represents a premium of $280 million in current book value, which the company says will boost net profit on sale equivalents.

BKW has said it will hold 50.1% of the newly opened trust, Goodman the remaining 49.9%.

An estimate of $90 million up-front pre-tax profit should be realised in H2 2022, the remainder to mature over the life of the lease term, in keeping with AASB standards.

Brickworks said the sale of the properties will deliver gross cash proceeds of $207 million — 49.9% in total asset value.

BKW expects to generate round $193 million after taxes and various costs, which the company intends to use to pay off debts.

Brickworks’ Managing Director Mr Lindsay Partridge said:

The partial sale and lease back of these properties will deliver significant cash proceeds, allowing Brickworks to realise value for shareholders and capitalise on the strong growth in industrial land values over the past few 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.

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. 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.’

BKW share price outlook

BKW described ‘strong progress on a number of major developments within the Industrial JV Trust’ for the second half.

BKW management continued:

Along with its interest in the Industrial JV Trust and the Brickworks Manufacturing Trust, Brickworks retains around 5,300 hectares of 100%-owned operational and development land across Australia and North America sites which have a combined current value of $0.8 billion and a “rezoned” value of $1.3 billion.’

Brickworks hopes to report Property EBIT of more than $620 million for its property earnings in FY22.

EBIT from Building Products operations in both Australia and North America are expected to be 20% higher than FY21’s $253 million.

BKW’s Partridge said:

Turning to North America, we expect EBIT in financial year 2022 to be more than double the prior year, including the impact of a number of quarry sites sold during the second half.

However, conditions still remain challenging in North America, with an acute labour shortage and inflationary pressures pushing up production costs. Like in Australia, we have longterm fixed price gas contracts across the majority of our plants.’

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Kiryll Prakapenka,

For The Daily Reckoning Australia