This article is from the Australian Property Journal archive
DEXUS’ bottom line has been whacked by a $1.184 billion devaluation of its portfolio, with the major office tower landlord swinging to a full-year loss of $752.7 million.
Asset value losses have been seen across the commercial real estate sector in the middle part of 2023 as rising interest rates affected yields and the office sector was impacted by structural headwinds such as working from home, causing uncertainty over workplace real estate requirements.
Dexus’ FY23 property fair valuation losses – equal to 6.9% of the portfolio value, which also includes industrial and healthcare assets – followed $926.0 million of gains in FY22, which helped drive a $1.61 billion profit.
“We anticipate that FY24 will remain a challenging period as capital flows and market sentiment continue to be impacted by inflation, higher interest rates and geopolitical risks,” said Dexus CEO Darren Steinberg.
“This environment is expected to put further pressure on the valuations of real assets.”
Dexus has confirmed that its 44 Market Street tower in the Sydney CBD had sold at a 17.2% discount to book value, and it is also reportedly selling 1 Margaret Street at a 21% discount to the book value.
“Operating in an uncertain economic environment remains challenging. In this environment we have continued to diversify our capital sources, and grow and diversify our funds management business, while we re-weight the Dexus portfolio,” Steinberg said.
Dexus delivered in $1.8 billion in asset sales from the balance sheet portfolio over FY23.
Distributions of 51.6c per security was in FY23, down 3% year-on-year, and Dexus expects distributions of 48.0c in FY24, predominantly driven by lower trading profits.
Adjusted funds from operations in FY23 was $555.0 million, also down 3%, and is expected to be steady in FY24.
The first stage completion of its acquisition of the bulk of AMP Capital’s real assets in March enabled the first set of integration milestones to be achieved, with 430 employees, as well as assets and a number of systems being successfully integrated onto the Dexus platform.
Office occupancy inches upwards
Dexus manages a $24.3 billion group office portfolio, $12.3 billion of which sits in the Dexus portfolio. Occupancy lifted over the year to 95.9% and weighted average lease expiry from 4.7 to 4.8 years. Incentives lifted to 30.0% due to the higher proportion of deals struck in the Brisbane market, and the average capitalisation rate increased from 4.75% to 5.21%.
Major leases were secured in Sydney at 1 Farrer Place, 25 Martin Place, 1 Bligh Street and Australia Square, while a key deals was signed at Rialto Towers and 80 Collins Street in Melbourne. Nearly 26,000 sqm of leases were secured at 480 Queen Street in Brisbane, including the renewal of BHP.
Office portfolio like-for-like income growth was 5.6%, up from 2.7% a year earlier, predominantly reflecting improved income-producing occupancy in Melbourne.
Occupancy across its industrial portfolio – $12.1 billion managed and $4.1 billion of which sits in the Dexus portfolio – lifted from 98.1% to 99.4% after more than 272,000 sqm was leased and the $306.2 million sale of Axxess Corporate Park.
Dexus’s group real estate development pipeline stands at $17.4 billion, $8.6 billion of which is within the Dexus portfolio and $8.8 billion within third party funds. It removed $1 billion in concept projects during the year “that are no longer being pursued in the current market:.
Construction has commenced on tech giant Atlassian’s future headquarters in Sydney’s Tech Central precinct and stage one of Waterfront Brisbane.
Pro forma gearing was 27.9% remaining below the target range of 30 to 40%, with $2.5 billion of cash and undrawn debt facilities. Dexus has a weighted average debt maturity of 5.1 years.
Saranga Ranasinghe, vice president, Moody’s Investors Service said Dexus’ earnings for the fiscal are credit positive.
“The results highlight the resilience of Dexus’ good-quality portfolio of assets across office and industrial, despite a challenging environment.
“Dexus has increased its office occupancy levels to 95.9%, well above the market average, with the portfolio benefiting from a flight to quality. Despite office leasing incentives in all capital markets remaining elevated, Dexus recorded a 5.6% increase in effective like-for-like income in its office portfolio.”
