The Brickworks Limited (ASX: BKW) share price is up after the company announced a very pleasing update about its property divisions.
Brickworks is well known as Australia’s largest biggest brickmaker. But it also has numerous property assets, including an industrial property joint venture with Goodman Group (ASX: GMG).
Another property sale
Brickworks has completed the sale of the Oakdale East stage 2 into the industrial JV trust.
The sale proceeds were $301 million for the 75-hectare site in Western Sydney, with an estimated 50 hectares of net development area. It currently has a brick plant and associated quarry, operated by Austral Bricks. The brick making operations will be consolidated at the nearby Horsley Park site.
This sale will make a profit of around $260 million, taking into account the book value, rehabilitation provisions and transaction costs.
This stage of the estate will provide an additional development pipeline of “around five years” and is “expected to deliver almost $1 billion in gross asset value” to the trust.
Rental growth and revaluation profit
An independent revaluation process saw a profit, to be recorded in the first half of FY23, of around $112 million for Brickworks.
It’s seeing “significant rental growth” across new developments and lease renewals. There was an increase in the assessed average market rental of 19%, for the leased assets within the trust.
The rental growth has more than offset the reduction of the asset value (as measured by the capitalisation rate). Management said this showed the resilience of prime industrial property through the interest rate cycle.
Facilities completed
Brickworks revealed that facilities for Xylem, Telstra Group Ltd (ASX: TLS) and Woolworths Group Ltd (ASX: WOW) have recently been completed. Additional facilities for Coles Group Ltd (ASX: COL) and Australia Post are expected to reach practical completion by the end of the first half of FY23.
This will deliver a development profit of around $43 million.
Growth of asset value
As a result of the sale, completed developments and revaluations, Brickworks’ share of net tangible assets within the industrial JV trust is expected to rise to more than $2 billion at the end of the first half of FY23.
It also has a 50.1% interest in the Brickworks Manufacturing Trust, which owns 15 manufacturing properties, tenanted by Brickworks businesses.
Outside of the trusts, it also has 100% ownership of over 5,000 hectares of land across Australia and North America.
Final thoughts on the Brickworks share price
I think this was an excellent update from Brickworks and highlights how much underlying value there is in the property assets within the business. In my opinion, it’s one of the great ASX dividend shares. I think the property trusts can improve the underlying value of the business over the rest of this decade.
