The Brickworks Limited (ASX: BKW) share price is rising after launching its new manufacturing trust and providing earnings guidance.
While Brickworks has building product operations, it also has a lot of exposure to property.
New manufacturing trust
Brickworks announced its new joint venture with Goodman Group (ASX: GMG), a manufacturing property trust which will initially house a portfolio of 15 manufacturing plants, tenanted by Brickworks’ Australian building products businesses.
Brickworks will retain 50.1% of the new trust, with the rest being sold to Goodman. These sites comprise 496 hectares of land area and have a gross asset value of $416 million.
Some of the tenants include Austral Bricks, Bristle Roofing, Austral Masonry and Austral Precast with long duration leases of between five years to 20 years, with options to extend, The weighted average lease expiry (WALE) will initially be 16 years.
The $416 million price tag represents a premium of $280 million to the current book value. The transaction triggers a net profit on sale, with around $90 million of the pre-tax profit recorded upfront and the rest over the life of the property lease term. This could prove to be a useful boost for the Brickworks share price.
Brickworks will receive cash proceeds of $207 million. After tax, duty and transaction costs, net proceeds of around $193 million are anticipated. This will be used to pay down debt.
Several of these sold properties have the potential for additional development and greater utilisation.
Record property earnings
Brickworks expects to report property EBIT (EBIT explained) to be more than $620 million, up from $253 million in FY21.
It has made “strong progress” on a number of major developments. New facilities for Coles Group Ltd (ASX: COL), Woolworths Group Ltd (ASX: WOW), Australia Post and Telstra Corporation Ltd (ASX: TLS) are all approaching practical completion.
Brickworks’ 50% share of net tangible assets within the industrial trust is expected to rise to around $1.5 billion for FY22, up from $1.3 billion at 31 January 2022.
It noted that Brickworks also retains around 5,300 hectares of 100%-owned operational and development land across Australia and North America. Four significant land holdings could be suitable for sale over the coming years – the current value is $0.8 billion, compared to a ‘rezoned’ value of $1.3 billion.
In North America, the land surrounding its brick plant in Pennsylvania has rezoning and development potential, so it’s exploring options for the site with Goodman.
Higher building product earnings
Brickworks also expects EBIT from its building product operations in both Australia and North America to be higher in FY22 compared to FY21. Australian EBIT is expected to be more than 20% higher. North American EBIT is expected to double.
Summary thoughts on the Brickworks share price
For me, Brickworks’ various property holdings are a big reason why I’m optimistic about the longer-term future on the business. I think it’d be a good long-term buy at this level.
I think the company has lots of rental profit growth potential over time, so I think this can fund higher dividends, making it one of the leading ASX dividend shares.
