This article is from the Australian Property Journal archive
SERVICE station owner, the Dexus Convenience Retail REIT (ASX:DXC) posted a 92.2% decline statutory net profit, bringing in just $3.1 million for HY23.
The $36.9 million drop from the previous year’s $39.9 million profit was attributed to the REIT’s $14.9 million in valuation declines for its investment properties, where HY22 saw valuation gains of $18.5 million.
The REIT announced a small increase to FFO, up $0.3 million or 2.0% to $15.6 million, attributed to property portfolio like-for-like net operating income growth of 2.4% and full period contributions from acquisitions.
On a per security basis, FFO decreased 0.8% to 11.3 cents, attributed to higher average securities on issue following $56.3 million of equity raised in HY22.
DXC’s NTA per security also decreased over the period, down nine cents or 2.1% to $3.94 as at 31 December 2022.
Over the six months to 31 December 2022, 25 of DXC’s investment properties were independently valued, with the remainder subject to internal valuations, with the net devaluation representing a 1.8% decrease on prior book values.
While valuations of metropolitan assets decline 1.7% on prior book values, highway assets fell 0.4% and regional assets decreased 3.8%.
As at 31 December 2022, DXC’s property portfolio includes 109 assets valued at $822 million, 84% weighted (by value) to metropolitan and highway assets and regional properties making up the remainder.
The portfolio is 99.4% occupied, with a weighted average capitalisation rate at 5.90%, up 16 basis points over the period, a weighted average lease expiry of 10.2 years and with 89% of rental income coming from 10 major tenants.
With average rent reviews of approximately 3.1% per annum and 76% of rental income subject to fixed increases, while 24% is linked to CPI with half of these subject to caps of 3 – 4%.
“Today’s results demonstrate the capability of our portfolio to provide investors with a defensive portfolio income stream, further supported by our disciplined approach to capital allocation,” said Jason Weate, fund manager at DXC.
DXC carried out six divestments for a total consideration of $25.4 million, for an average discount to book value of 1.3%.
“We divested six assets at an overall discount to book value of 1.3% amidst complex market conditions with transaction volumes approximately 50% lower than the prior year due to cautious buyer sentiment in response to increases in cost of capital. $10.1 million of proceeds from these sales are expected to be received in the coming months, which will further enhance balance sheet strength through reducing gearing and increasing hedging levels,” added Weate.
“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.”
Gearing was within the target range of 25 – 40% at 34.1%, with the weighted average cost of debt up 70 basis points to 3.4% compared to HY22.
With 63% of debt hedged during the period, with a weighted average hedge maturity of 3.7 years as at 31 December 2022 and a weighted average debt maturity of 4.3 years.
“Our portfolio continues to deliver solid top line growth, which provides income certainty backed by high-quality tenant covenants,” said Weate.
DXC has narrowed its FY23 guidance range to FFO and distributions between 21.4 – 21.8 cents per security.
“While the macroeconomic environment remains uncertain, and higher net finance costs will continue to impact our results into the second half, we have narrowed our FY23 guidance range due to increased visibility into floating rates and remain well positioned for the long term,” concluded Weate.
