Valuation declines hits Dexus Retail REIT profit

Oksana Patron

7 February 2023

Dexus Convenience Retail REIT (DXC) has reported a 92.2% ($36.9 million) drop in its statutory net profit after tax to $3.1 million for the half year ended December, 2022, which was driven down by $14.9 million of valuation declines on investment properties, compared to valuation gains of $18.5 million in HY2022.

Jason Weate, the fund manager, said he expected that uncertain economic conditions combined with higher net finance costs would continue to impact the results into the second half.

In the announcement made to the Australian Securities Exchange (ASX), the fund also announced that it narrowed its FY23 guidance range “due to increased visibility into floating rates and remain well positioned for the long term”.

During the six months ended in December, Dexus Convenience Retail REIT divested six assets at an overall discount to book value of 1.3%  amid tougher market conditions which saw transaction volumes approximately 50% lower, compared to the year before, due to cautious buyer sentiment in response to increases in cost of capital.

The fund said it expected $10.1 million of proceeds from these sales to be received in the coming months and were expected to enhance balance sheet strength.

“The announced divestments have enhanced portfolio quality by reducing our exposure to older tank technology and regionally located assets, while also retaining a diverse tenant base and increasing our exposure to non-fuel tenants,” Weate added.

The fund had 25 investment properties independently valued in the six months to December, with the remainder being subject to internal valuations, which resulted in a net devaluation of $14.9 million, representing a 1.8% decrease on prior book values, it said.

At the end of 2022, DXC’s property portfolio included 109 assets valued at $822 million, with the majority (84%) being metropolitan and highway assets and regional properties comprising the remainder.

The fund also declared distributions of 10.6 cents per security, reflecting a funds from operations (FFO) payout ratio of 93.9%.