Dexus profit down 97.1%
One of the biggest Australian ASX-listed office landlords, Dexus has reported a 97.1% drop in its statutory net profit after tax to $23.1 million for the second half of 2022 due lower valuations.
In the announcement made to the Australian Securities Exchange (ASX), the firm said the reduction in profit was driven by “net property devaluations compared with valuation uplifts in the previous corresponding period”.
Dexus, which manages $23.5 billion office and $11.6 billion industrial portfolio, reported that according to external independent valuations there was a $242.2 million decrease on prior book values while positive rent growth helped partially offset the impact of capitalisation rates expanding by 16 basis points on average across the portfolio.
The weighted average capitalisation rate of the Dexus office portfolio softened 14 basis points from 4.75% at the end of June to 4.89% at the end of December 2022. At the same time, the industrial portfolio softened 17 basis points from 4.29% in June to 4.46% at the end of the second half of 2022.
During the second half of the year Dexus announced $773 million of divestments with no new acquisitions to de-risk its FY23 trading profit target, which included the sale of the A-grade office building in Sydney and a 50% interest also in an A-grade office building in Paramatta for a combined sale price of $462.3 million.
At the same time, the group said that its office portfolio occupancy remained above 95% and it expected incentives to remain elevated through FY23, as the existing supply pipeline completes.
Commenting on the group’s industrial portfolio, executive general manager, industrial, retail and health care, Stewart Hutcheon, said industrial demand remained supported by a broad base of sectors including medical, supermarkets, transport and e-commerce.
“Thanks to strong market rent growth our portfolio is 9.3% under-rented and is expected to benefit from continued market rent growth. There is the opportunity to grow income by resetting the rents on vacancy and upcoming lease expiries across approximately 20% of the portfolio by FY24.”
The group also reported that its underlying funds from operations (excluding trading profits) of $340.4 million was 9.3% lower than the previous corresponding period, driven by higher interest net interest costs, the impact of divestments and non-recurring income from development impacted properties in the prior half, partly offset by growth in management operations funds from operations (FFO).
Dexus also announced distributions of 28.0 cents per security which were in line with the previous corresponding period and has updated its guidance to deliver of 5.10 – 51.5 cents per security for the 12 months ended 30 June, 2023 “barring unforeseen circumstances”.
Speaking of the outlook, chief executive, Darren Steinberg, said he believed the macroeconomic environment to remain challenging with rising interest rates, ongoing supply chain disruptions, a global energy crisis and geopolitical risks and higher interest rate would continue to impact Dexus results in FY23.
And yet, valuations for unlisted assets held by those top ‘performing’ industry funds remain on their never ending upward trajectory.