This article is from the Australian Property Journal archive
Australia’s largest owner of office towers, Dexus, said Australia’s real asset markets are reaching a turning point and long-term trends and strong population growth will support its high-quality assets.
Dexus posted a $10.3 million interim statutory profit after tax, compared to a $597.2 million loss in the prior corresponding period (pcp) as a result of stabilising capitalisation rates driving lower valuation losses.
The office market has been battered in recent years by the working from home phenomenon and higher interest rates, and hefty downwards revaluations have shaken down throughout the sector. Office tower revaluations drove Dexus to a massive $1.58 billion statutory loss for FY24, and as it seeks to diversify its portfolio has earmarked $2 billion of divestments across FY25 to FY27. Among the $515 million of early sales was the $229.3 million sale of the Pyrmont headquarters of Domain in November, marking a 35% discount to peak valuation.
It took a further 3.2% or $297 million haircut on its office values the six months to the end of December.
At 93.5%, Dexus’ portfolio occupancy remains well above market average, albeit reducing over six months largely as a result of the Victorian government departing 80 Collins Street in Melbourne.
It reported 48,500 sqm of leases for the half, weighted towards smaller deals in the Sydney CBD. Incentives on deals in Brisbane and Sydney CBD premium assets reduced, and Dexus’ average incentives fell as a result to 26.4%. Effective like-for-like income improved by 1.6%, with fixed rent increases partially offset by amortisation impacts and downtime on vacancies. On a face basis, like-for-like growth was 2.1%.
“We are seeing a positive shift in tenant confidence for high quality product, for example in our leasing experience at managed property 33 Alfred Street in Sydney (50% owned by Dexus Wholesale Property Fund), where the vast majority of the tenants are expanding their footprint,” Dexus said.
Ross Du Vernet, Dexus group CEO and managing director said, “The high quality assets we own, manage and develop, the capabilities we build, and the relationships we forge with clients and customers continue to position us to deliver superior risk-adjusted returns for Dexus security holders and our capital partners over the long term.
“Markets move in cycles and we are now reaching a turning point for real asset markets. Longer-term trends remain sound with demand underpinned by strong population growth.”
First half adjusted funds from operations was $251.8 million, 23.4c per security, in line with expectations. Distributions was $204.4 million, or 19.0c per security.
Dexus reaffirmed its full-year adjusted funds from operations of circa 44.5c to 45.5c, down from 48.0c in the pcp, and distributions of circa 37.0c.
Across its industrial portfolio, leasing volumes were more than double than that of the pcp, while effective like-for-like income and occupancy both dipped due to vacancies at select assets. Releasing spreads were 38%.
The platform’s real estate development pipeline now stands at a cost of $15.6 billion, of which $7.6 billion sits within the Dexus portfolio and $8.0 billion within third party funds.
Dexus has circa $1 billion remaining committed spend on its pipeline until the end of FY26. It said its “city-shaping office developments have been materially de-risked via fixed price contracts and 71% of weighted average leasing pre-commitments. Among them are Atlassian’s future headquarters in the NSW state government-led Tech Central precinct. on the edge of the Sydney CBD, and the $2.5 billion Waterfront Brisbane project, which is seeing delivery of two new office buildings of 55 and 42 storeys, a refreshed Naldham House, riverfront dining and retail, a new wider riverwalk and improved links between the river and the city streets.
