Dexus: Result 2017
Recommendation
Australia's largest office tower landlord has reported a solid result with few surprises, underpinned by a buoyant CBD office market in Sydney and Melbourne. As we noted earlier this year in our Listed Property round-up, the Sydney and Melbourne office markets have benefited from the conversion of office towers into apartment buildings. Additionally, in Sydney we have seen office towers being compulsorily purchased by the government for new rail infrastructure, which further reduces the supply of office space.
Year to June | 2017 | 2016 | /(–) (%) |
---|---|---|---|
Distrib. Profit ($m)* | 570.5 | 547.5 | 4 |
Distrib. per share (c) | 45.5 | 43.5 | 5 |
Gearing (%)** | 26.7 | 30.7 | (13) |
NTA per share ($) | 8.45 | 7.53 | 12 |
* excludes trading profits | |||
** Gearing defined as net debt/(total tangible assets -cash) and includes MLC Centre |
Dexus reported underlying profit growth of 4% to $570m. There was a further $47m of trading profits from selling industrial property to residential developers, but we strip these out as they obscure how Dexus's core business is performing.
Clearly, though, it is performing well, with office occupancy of 97.2% the highest it has been since 2011 and industrial occupancy of 96.5%, its highest since 2010.
Gearing fell to 26.7% during the year, despite the acquisition of a share in Sydney's MLC Centre, primarily funded by an equity issue in June conducted at a much higher level than today's share price.
Looking ahead, management expects strong office markets in Sydney and Melbourne and improving dynamics in Brisbane and Perth. Accordingly, it has provided guidance for distribution growth of 4–4.5% over the next year. HOLD.