Brickworks says industrial property boom to ride on as it strikes $301m sale

Brickworks boss Lindsay Partridge has shrugged off concerns that industrial property values will blow out as global interest rates rise, citing strong demand for warehouse space.

21/09/2017: Brickworks CEO Lindsay Partridge at their annual results meeting in Sydney on Thursday. Hollie Adams/The Australian

The veteran boss of Brickworks has shrugged off concerns that industrial property values will blow out as global interest rates rise, citing the strong demand from a range of companies for warehouse space even as the economy slows.

Brickworks managing director Lindsay Partridge says that top companies are lining up to join Amazon at the landmark Oakdale West estate on Sydney’s outskirts, as he unveiled the latest land sale into the company’s joint venture with industrial developer the Goodman Group.

The pair have a multibillion-dollar development trust and Mr Partridge is bullish about the prospects of turning more unused land parcels into modern facilities that attract top companies and win a value premium. While there have been fewer big ticket industrial sales, Mr Partridge said that due to strong customer demand, the company was getting “significant” rental growth for both new developments and lease renewals, and rejected forecasts that higher interest rates would crunch the sector.

“Contrary to market speculation, in terms of portfolio valuation we have seen the positive impact of rental growth outstrip the effect of capitalisation rate expansion. This again demonstrates the quality of our assets and the resilience of prime industrial property through the interest rate cycle,” Mr Partridge said

Brickworks on Thursday sold a slice of the massive Oakdale East estate in Sydney into a joint venture with Goodman for $301m. The company’s redevelopment of its land bank is providing a longer-term value boost and spinning off regular profits.

Brickworks sold Oakdale East Stage 2 into its Industrial JV Trust with Goodman, and the disposal, along with revaluation, development profits and net rental income from the company’s property trusts, is expected to result in record property earnings of $430m-$450m in this half.

Brickworks says the sale itself will also deliver a profit of around $260m, after taking into account the book value, rehabilitation provisions and transaction costs.

The venture completed five facilities at the Oakdale West industrial estate in Kemps Creek in this half.

The 75ha site in western Sydney has an estimated 50ha of net development area and comprises a brick plant and associated quarry operated by Austral Bricks. The brick making will be consolidated at a nearby Horsley Park site, once a new plant is finished. Under the Goodman partnership the industrial property company will provide funding, equal to the sale value of the site, for infrastructure and construction costs.

“With the Oakdale East Stage 1 site fully built out in fiscal 2022, the sale of the adjacent and much larger Stage 2 site will significantly increase the scale of the estate,” Mr Partridge said. “This next stage of the estate will provide an additional development pipeline of around five years and once completed, is expected to deliver almost $1 billion in gross asset value to the trust.”

The Industrial JV Trust has also completed an independent revaluation process, resulting in a profit of about $112m for Brickworks.

The venture completed five facilities at Oakdale West in this half with big companies including Xylem, Telstra and Woolworths moving in, and more facilities for Coles and Australia Post being finished off. Mr Partridge said the new arrivals would join Amazon at the Oakdale West Estate. He predicted that more blue-chip customers would shift into the estate as companies commit to long leases as they pour money into their supply chains.

“We continue to experience strong demand for the remaining land at this estate, with around 69,00sq m of development area to commence construction in the coming months. This includes two facilities totalling 42,000sq m under heads of agreement, and several smaller infill developments,” he said.

The sale means that Brickworks’ net assets in the property trust will top $2.2bn by the end of this half and the company also holds a 50.1 per cent interest in the smaller Brickworks Manufacturing Trust.

“Across the two trusts, we will hold more than $2.2bn in net property assets by the end of the first half, up by more than $450m over the period. This includes a development pipeline that will extend for at least five years, providing strong growth in rental income and leased asset value over that period,” Mr Partridge said.

He flagged further growth in property. Outside of the trust, Brickworks has more than 5000 hectares of land across both Australia and North America. This includes at least three additional properties to go into the trusts once development approvals are won.

“We expect that these additional properties will continue to support the longer-term growth of our property trusts,” Mr Partridge said.