Company Reports

Narrow-moat Dexus' fiscal 2024 adjusted funds from operations excluding trading profits was broadly in line with last year at AUD 506 million. Total distributions per security of AUD 0.48 was consistent with guidance and our forecast, down 7% year on year. FFO from office and industrial properties dropped 7% and 14%, respectively. The declines were mostly offset by higher FFO from co-investments in pooled funds and funds management operations, both driven by the AMP Capital platform acquisition. Driven by higher debt costs, management guides to AFFO of AUD 0.445-AUD 0.455, down 6% on fiscal 2024. Fiscal 2024 distribution guidance is AUD 0.37, 23% lower than fiscal 2024 and representing a payout ratio of roughly 82% of AFFO, in line with the new target payout ratio of 80%-100% compared with 100% previously. Guidance is lower than we expected, and along with the lower payout ratio is probably why shares fell 9% on Aug. 20.

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.

We transition to a new analyst and maintain our AUD 10.80 fair value estimate for narrow-moat Dexus. Dexus’ securities trade at around a 35% discount to fair value, likely due to concerns over office market headwinds. Office accounted for around 60% of the group’s fiscal 2024 first half funds from operations, or FFO, and Dexus is experiencing a cyclical downturn, with tenant incentives weighing on office rental income. With its office portfolio over-rented – for example, its Sydney office tenants pay about 10% above current effective market rents – it faces a decline in rents as leases expire.

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.

Narrow-moat Dexus announced a solid third-quarter update, with high occupancies across its office and industrial assets. Tenant leasing incentives improved, decreasing 0.4% and 0.8% to 29% and 17.8%, respectively. Dexus’s office portfolio occupancy dipped 10 basis points to 94.4% but remains comfortably above market occupancy of 86.5%. Dexus' high concentration toward premium central business district office spaces has withstood broader occupancy challenges felt by the office market. Aligned with our unchanged full-year estimates, management reiterated an AUD 0.48 distribution and adjusted funds from operations to mirror fiscal 2023 results: around AUD 550 million. We maintain our fair value estimate of AUD 10.80. At current prices, Dexus screens as undervalued.

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.

Dexus’ first-half result revealed adjusted funds from operations of AUD 0.27 per security and distributions of AUD 0.27. That’s on track with our unchanged full-year estimates, and management guidance for full-year distributions of AUD 0.48 and AFFO “broadly in line with” fiscal 2023, excluding trading profits. We maintain our AUD 10.80 fair value estimate and Dexus securities screen as undervalued.

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.

The federal government’s migration review was released on Dec. 11 and it suggests high population growth remains the status quo. The review tinkers with various visa rules, but contains no major reduction in migrant numbers, suggesting high migration will persist, relative to precoronavirus levels and versus other developed countries.

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.

Office conditions will likely remain tough for several years given the weight of arriving supply, and mediocre demand, but narrow-moat Dexus securities price in more than enough bad news to look undervalued. Dexus pays a fiscal 2024 yield of roughly 7% against a 10-year bond yield of roughly 4.5%, which looks attractive while investors wait for recovery.

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.

Dexus’ fiscal 2023 result was broadly in line with our expectations. Funds from operations, or FFO, was AUD 64.0 cents per share, and distributions were 51.6 cents, at the upper end of guidance and marginally above our estimates. Our distribution estimate for fiscal 2024 is 48.0 cents per share, in line with guidance, driven by lower trading profits. Excluding trading profits, management expects adjusted funds from operations, or AFFO, to be roughly in line with fiscal 2023.

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.

Narrow-moat Dexus has increased its fiscal 2021 distribution growth guidance to 3%, up from flat. We raise our forecast accordingly, which implies distributions totalling AUD 51.8 cents for the 2021 fiscal year. We make no change to our earnings estimates--we already assumed growth of 3% in funds from operations, or FFO, with the new distribution growth estimate in line with that. We slightly increase our distribution estimates for the years from fiscal 2022 through to 2025, and decrease our estimates from 2026 to 2030. We still assume Dexus’ earnings recovery is hampered somewhat by rival office supply arriving, but we assume Dexus maintains a slightly higher FFO payout ratio in the near term, balanced by a slightly lower payout ratio further out. Our estimates for the overall amount distributed over the next decade remains near identical to previous, and our earnings estimates are unchanged.

We see risks to Australian office demand as widely overestimated, despite our expectation that work-from-home will endure post-pandemic. Several REITs remain modestly undervalued, particularly those focused on prime grade offices, with long leases, and solid balance sheets. We raise our fair value estimates for three particularly high-quality office-heavy REITs: Dexus, GPT, and Mirvac.

We make no change to our AUD 9.70 fair value estimate for narrow-moat Dexus following the December-half result from Australia’s office giant.

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.

We increase our fair value estimate for narrow-moat Dexus by 4% to AUD 9.70. Nearly 25 cents of the increase is due to the remarkable resilience demonstrated in Dexus’ industrial property portfolio. About 10 cents of the increase is driven by lower debt costs that are locked in. The balance is due to Dexus buying back a small number of securities at prices below our fair value estimate.

Dexus is a diversified Australian REIT that generates income from: charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.