Dexus FY Net Loss A$752.7 Million

By David Winning

SYDNEY–Dexus said a decline in the value of its property portfolio had driven it to an annual loss, and signaled a weaker fiscal 2024 distribution as the economy adjusts to the rapid escalation in interest rates.
Dexus reported a net loss of A$752.7 million in the 12 months through June, compared to a A$1.62 billion profit a year earlier. Funds from operations fell by 2.5% to A$738.5 million.

A weak statutory result was expected by investors after the company said in June that an external review had signaled that its office and industrial properties were worth around A$1.0 billion less than six months earlier.
Offices accounted for most of the decline in value of its portfolio, as ongoing shifts in demand for space as work-from-home habits become more entrenched combined with weaker signals for asset values from transactions.
Commercial real estate is typically valued based on its capitalization rate, or the annual net income produced by a property divided by the purchase price. Like bond yields, rising cap rates indicate falling values, and vice versa. Dexus said the weighted average cap rate across its total portfolio expanded by 32 basis points to 5.12% between January and June.
Dexus forecast a distribution per security in the 12 months through June, 2024, of 48.0 cents. That is lower than the payout of 51.6 cents that the company had already announced for the year just ended, and is largely driven by expectations of lower trading profits.
“Higher interest rates will continue to impact our result in FY 2024, along with the impact of cycling a relatively strong year of trading profits in FY 2023,” Chief Executive Darren Steinberg said.
When trading profits are excluded, Dexus expects adjusted funds from operations to be broadly in line with FY 2023.
Dexus said its pro-forma gearing–a measure of debt relative to equity–was 27.9% at the end of June. It said 86% of debt was hedged across fiscal 2023 with an average maturity of 4.8 years.
“We anticipate that FY 2024 will remain a challenging period as capital flows and market sentiment continue to be impacted by inflation, higher interest rates and geopolitical risks,” Steinberg said. “This environment is expected to put further pressure on the valuations of real assets.”
Dexus’s office occupancy has been largely stable above 95% despite headwinds arising from shifts in tenant behavior that began during the Covid-19 pandemic. Management has previously said that prime office space in city-center locations offers more protection than space of a lower quality in outer suburbs, and long-term customers reducing their footprint has allowed new tenants to come in.
“Incentives increased slightly to 30.0% largely due to a higher proportion of leasing done in Brisbane, a higher incentive market, partially offset by a higher proportion of effective deals,” said Andy Collins, executive general manager, office. “In the Sydney CBD, while vacancy is higher in the Barangaroo and Western corridor markets than the core CBD, market incentives are expected to remain elevated in the near term.”
Dexus said its funds under management totalled A$61 billion, supported by the recent acquisition of the Collimate Capital real estate and domestic infrastructure business from AMP. The deal for Collimate was restructured to complete in two phases, with the first stage completing in the March quarter.
Write to David Winning at [email protected]