Aussie REITs hit hard during earnings reporting season

Oksana Patron

21 August 2023

A combination of interest rates hikes and falling valuations of real estate portfolios, with office assets in particular, have seen a number of top ASX-listed landlords and real estate investment trusts (REITs) struggling during this earnings reporting season.

One of the largest Australian office landlords, Dexus announced earlier this week a $753 million statutory loss against $1.6 billion net profit after tax (NPAT) in the prior year, which was driven by $1.2 billion in writedowns and capitalisation rates softening across the portfolio.

This was followed by the announcement from Centuria Office REIT, which also published its financial results (FY23) this week and posted a $91.9 million statutory loss compared to $115 million of statutory profit  for FY22.

Centuria Office REIT’s also reported approximately a $102 million decline for its like-for-like portfolio revaluations at the end of June.

Another ASX-listed REIT, Growthpoint Properties, which is invested mostly in industrial and office assets across the country, has been hit by $245.6 million statutory net loss after tax for 12 months ended June, 2023, which stood in the stark contrast to its $459.2 million net profit after tax in FY22.

At the same time, its portfolio valuation declined 6.5%  and was valued at $4.8 billion at the end of June, 20232 (from $5.1 billion a year before).

Its office portfolio remained 90% occupied and was down mainly due to the vacancy in the Sydney Olympic Park, NSW, which was a result of an early lease surrender.

Growthpoint’s managing director, Timothy Collyer, said in the announcement to the ASX that he was “pleased with the performance of the business” given a challenging market environment but he warned that the current period of higher interest rates was likely to persist in FY24.

“The rate of inflation has been declining the December 2022 quarter, whilst interest rate futures indicate that the official cash rate is near the peak, however A-REIT prices remain at a discount to NTA,” he said.

“Commercial real estate transaction activity remains low relative to longer term historical averages, although volumes are anticipated to increase as development pipelines and redemption requests require funding.”

As far as the retail real estate was concerned, ASX-listed shopping centres REIT, Vicinity Centres, has reported a significantly lower net profit after tax of $271.5 million compared to $1.2 billion a year before.

The firm said its financial result for FY23 reflected non-cash reduction in asset valuations.

“Statutory NPAT principally comprised $684.8 million of FFO, offset by a non-cash net property valuation loss of $338.4 million and other statutory and non-cash items,” Vicinity Centres said in the press release to the ASX.

Vicinity’s portfolio recorded a 1.6% or $229.1 million decline in total asset valuation for the six months to 30 June, 2023.

“The valuation result reflects a 16 basis points softening of the portfolio’s weighted average capitalisation rate, partially offset by robust income growth,” it said.

Vicinity said that total retail sales in 2H Fy23 were up 8% year-on-year with mi-to-high single digit growth rates delivered across mini majors, supermarkets, discount department stores and departments stores, and 10% specialty growth.

The retail sector remained resilient in FY23, but the rate of sales growth moderated in late 4Q FY23.