This article is from the Australian Property Journal archive
THE Dexus Convenience Retail REIT (DXC) swung to an interim profit as it managed to weather difficult conditions for the wider commercial property sector and record resilient valuation results across its $709 million portfolio of fuel and convenience assets.
DXC posted a $14.7 million net profit for the first half, after a $1.7 million loss in the prior corresponding period.
Funds from operations (FFO) was $14.3 million, or 10.4c per security, reflecting a slip of 1.0% on the prior corresponding period, which it said was primarily due to higher interest rates.
The portfolio delivered like-for-like net operating income growth of 2.8%, reflecting a blend of fixed and CPI-linked rental escalators.
“Today’s result demonstrates our ability to deliver on our investment proposition to generate secure and defensive income with embedded growth, supported by our disciplined approach to capital management,” said Jason Weate, DXC fund manager.
DXC had 38 of its 91 investment properties independently valued during the half, with the remainder subject to internal valuations. The valuations resulted in a net uplift of $3.2 million, or 0.5% increase on prior book values. Contracted rental growth offset the impact of a six-basis-point capitalisation rate expansion to 6.41%.
The portfolio has a weighted average lease expiry of 8.2 years and 88% of income expiring in FY30 or beyond.
During the half it strengthened its balance sheet with $38.8 million of divestments at an average 1.8% discount to book value. In isolation, the divestments provided a 3.6% gearing reduction and enhanced hedging levels.
“The divestments have also enhanced portfolio quality by reducing DXC’s exposure to regional and regional city assets,” it said. The portfolio is 86% weighted to metropolitan and highway assets.
“Metropolitan and highway assets benefit from higher traffic flow with greater flexibility to explore alternate land usage over time to support consumer trends toward greater convenience retail spend per visit.”
The portfolio is 89% zoned to commercial, industrial, residential or mixed use, and there is potential for circa 20 value-add opportunities over the long-term.
Portfolio occupancy was 99.4%, underpinned by national and global tenants, with 95% of rental income derived from major tenants.
In February, development commenced at the northbound site of the Glass House Mountains redevelopment. The $24 million redevelopment is expected to generate a yield on cost of circa 5.8% and deliver strong development returns for DXC. The site is 100% pre-leased to Viva Energy, McDonald’s, Guzman y Gomez and KFC on an 18-year average lease term, with 43% of income directly from quick service restaurant retailers.
DXC reiterated its FY25 guidance for funds from operations (FFO) and distributions of 20.6c per security, reflecting a distribution yield of 7.3%.
