Write-Downs Drive Dexus Profits 147pc Lower

Real asset group Dexus has posted a weighty 147 per cent drop in profit for the 2023 financial year.

The statutory net loss after tax of $752.7 million compares to a statutory net profit after tax of $1.615 billion in the 2022 financial year.

This was primarily driven by $1.183 billion of fair valuation losses on investment property on the back of capitalisation rates softening across the portfolio, compared to $926 million of fair valuation gains recognised in the prior year, Dexus said. 

The portfolio valuations resulted in a total $1.183 billion or around 6.9 per cent decrease on prior book values for the 12 months to June 30, 2023.

These revaluation losses primarily drove the $1.40 or 11.4 per cent decrease in net tangible asset (NTA) backing per security during the year to $10.88 at June 30, 2023.

The AMP Capital platform acquisition impacted NTA per security by 26 cents as a result of transaction costs incurred and management rights and goodwill which are classified as intangible assets.

Dexus chief executive Darren Steinberg said that this year Dexus added about $18 billion to funds under management after the AMP transaction, (including $10.9 billion of infrastructure).

“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.

“We have announced $1.8 billion of balance sheet divestments since the 2022 result, maintaining a strong balance sheet and enabling us to recycle capital into higher returning opportunities.”

Operationally, Underlying Funds from Operations (excluding trading profits) of $688.3 million was 6.3 per cent below the prior year. An Adjusted Funds from Operations (AFFO) of $555.0 million was 3.0 per cent below the prior year, driven predominantly by higher net finance costs.

The impact of higher interest rates was partly offset by higher trading profits, growth in management operations FFO (assisted by contribution from development milestones being achieved) and industrial development completions.

▲ Dexus’ 1 Eagle Street in Brisbane.

“Despite the significant impact of the increase in floating rates this year, we achieved a distribution at the top end of our guidance range, with growth in our management operations, trading profits and industrial portfolio income,” Dexus chief financial officer Keir Barnes said.

“Our distributions continue to be paid out in line with free cash flow for which AFFO is a proxy, in accordance with our distribution policy.”

Rent collections for the Dexus office and industrial portfolio remained strong at 99.6 per cent in 2023, and at 96.8 per cent for the month of July, 2023.

Dexus achieved a return on capital employed for 2023 of 8.0 per cent driven largely by AFFO and revaluation gains from completed industrial developments at Jandakot, WA and Ravenhall, Victoria.

Dexus maintained a strong and conservative balance sheet with pro forma gearing (look-through) of 27.9 per cent remaining below the target range of 30 per cent to 40 per cent, and $2.5 billion of cash and undrawn debt facilities.

Dexus has a weighted average debt maturity of 5.1 years, manageable debt expiries over the next 12 months and remains within all its debt covenant limits, retaining its credit ratings of A-/A3 from S&P and Moody’s respectively.

On average 86 per cent of Dexus’s debt was hedged throughout 2023. Dexus’s weighted average hedge maturity is 4.8 years.