Shares in building products manufacturer Brickworks Ltd (ASX: BKW) are trading 3.4% higher on the day at $24.66 apiece.
The Brickworks share price is catching bids as investors respond positively to a company announcement regarding its property.
Brickworks expects record property earnings in 1H 2022 and has purchased 121 hectares of land at Bringelly, in southwest Sydney, according to the announcement.
Here are the details.
Record property earnings expected next year
Brickworks advised it expects to report record property earnings in the first half of financial year 2022, with property earnings before interest and tax (EBIT) in the range $290-$310 million. That's a substantial gain of 15%-22.5% on its FY21 EBIT.
The company also announced that it has executed an unconditional contract for the purchase of 121 hectares of land in southwest Sydney.
It says the land will be used as a clay resource to support the Austral Bricks operations in Sydney, replacing the existing clay resource at Oakdale East as a result.
The purchase ensures that brick operations are not adversely impacted by the release of land for property development, the company says.
Brickworks has seen "strong demand and sustained growth" in the value of its property trust over a number of years. The company says the COVID-19 pandemic has only fuelled this growth by accelerating industry trends towards online shopping.
This has seen the company benefitting from "the increasing importance of well-located distribution hubs and sophisticated supply chain solutions".
To this end, the construction of the state-of-the-art Amazon facility at Oakdale West is due to reach practical completion at the end of December.
This completion, together with other facilities at Oakdale South, will result in "significant development profits, also included in the record first-half earnings", according to the company's release.
After a recent independent revaluation, the company realised an average capitalisation rate compression of 50 basis points to 3.6% across leased assets within the property trust.
Management commentary
Speaking on the update, Brickworks Managing Director Lindsay Partridge said:
Given the strong industrial property demand and increasing value of our land at Oakdale, our Austral Bricks plants in western Sydney are currently undergoing a major renewal and rationalisation program. This is highlighted by our new face brick plant at Horsley Park, currently under construction. The completion of this plant in around 12 months' time, will allow brick operations to be consolidated at the Horsley Park Plant 1 and 2 site, and the remaining 75 hectares of land to be released at Oakdale East, where Plant 3 is located.
Partridge continued:
From a longer-term perspective, the acquisition replenishes our land bank, and given its strategic location in close proximity to the western Sydney International Airport, has future development potential once operational needs are exhausted. Brickworks has a long-standing and successful business model that supports the purchase of land assets on the suburban fringe, used for many decades in our brick making operations. History shows, that as urban development expands, this land has the potential to increase in value through rezoning, thus facilitating transfer to the Property division for development.
Brickworks share price summary
In the last 12 months, the Brickworks share price has gained more than 30% after rallying 28% this year to date.
It has gained almost 6% in the last month of trading and is up around 7% in the last week.
Each of these returns has outpaced the benchmark S&P/ASX 200 Index (ASXL XJO)'s return of around 11.5% in the last year.
