Dexus diversified portfolio proves COVID-19 lockdown resilient

Office and industrial property behemoth Dexus is confident workers will return to their desks when lockdowns are a thing of the past but any leasing tensions in the sector will be offset by growth in its diversified $25 billion funds management platform.

Dexus chief executive Darren Steinberg, who presides over the country’s biggest office portfolio, said culture, collaboration and innovation can only be found in an office environment and if “you’re a young grad wanting to be the next chief executive in 10 years time, your networks are not growing”.

“You’re not learning off people. And there’s a lot of frustration in regard to building up that culture in the office community,” Mr Steinberg said.

A render of the 40-level Atlassian tower near Central Station in Sydney.Credit:

Backing that belief that the office will again thrive, is the group’s near $15 billion development platform which includes the $1.4 billion headquarters for the tech giant Atlassian in Sydney’s Central city district will also underpin the group’s forecast 2 per cent rise in earnings for the 2022 financial year.

During the year, development projects at 180 Flinders Street and the 80 Collins Street’s hotel component in Melbourne were completed, as well as 47 Momentum Way in Ravenhall, 9 Custom Place in Truganina and the North Shore Health Hub in St Leonards, Sydney.

For the pandemic-hit 2021 year, the $11.5 billion ASX-listed Dexus reported a 17 per cent rise in net profit to $1.3 billion, boosted by not just the booming demand for industrial property but also the growth in its funds management platform through a series of takeovers and mergers.

During the year it merged with the management of the $5.6 billion AMP Capital Diversified Property Fund (ADPF) with Dexus Wholesale Property Fund (DWPF) and entered into a proposal to acquire APN Property Group (APN).

Dexus funds from operations â€" a performance metric used by the industry to exclude lumpy gains or losses from property valuations â€" that analysts use as the benchmark, was $666.6 million, 4.1 per cent lower than the prior year due to asset sales and the continued impacts of COVID-19.

Mr Steinberg called the past year challenging, but said while the current lockdowns have injected an element of uncertainty into the outlook for FY22, there are reasons to be positive about the prospects for real estate.

“We have built a fully integrated real estate platform and are focused on better leveraging our cross-sector asset management and development expertise to drive more capital efficient returns for investors, while remaining true to our identity as a long-term investor in high-quality Australian real estate,” Mr Steinberg said.

Despite the uncertainty caused by the pandemic Dexus leased 195,000 square metres of office space, which was up from 88,004 sq m in the prior corresponding period.

The group’s rent collections for the office and industrial portfolio were also strong at 98.1 per cent for the year, and at 97.6 per cent for the month of July 2021. But this has come at the expense of lower effective rents with higher incentives.

Saranga Ranasinghe, vice president, Moody’s Investors Service, said Dexus’ earnings were in line with her expectations and highlight the strength of Dexus’ portfolio of assets across office and industrial during a difficult year for office assets.

“The current restrictions have interrupted the recovery of the office market, and we expect the office segment to remain challenged as tenants re-evaluate space needs. Still, Dexus’ office asset values increased by around 1.4 per cent as investor demand for office assets in Australia remains strong,” Ms Ranasinghe said.

During the year Dexus took the opportunity to selectively recycle assets and make investments to support growth which involved $6.4 billion of healthcare, industrial and office transactions across the group

The distribution for the six months ended June 30, of 23¢ per security will be paid to Dexus on Monday, August 30, 2021.

Carolyn Cummins is Commercial Property Editor for The Sydney Morning Herald.

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