DGAP-Ad-hoc: Dexus Finance Pty Limited / Key word(s): Quarter Results
Dexus Finance Pty Limited: COVID-19 and March 2020 quarter portfolio update
05-May-2020 / 03:29 CET/CEST
Disclosure of an inside information acc. to Article 17 MAR of the Regulation
(EU) No 596/2014, transmitted by DGAP - a service of EQS Group AG.
The issuer is solely responsible for the content of this announcement.
*Dexus (ASX: DXS)*
*ASX release*
*5 May 2020 *
*COVID-19 and March 2020 quarter portfolio update*
Dexus today provides the following update on its COVID-19 response and
announces its property portfolio update for the quarter ended 31 March 2020.
Darren Steinberg, Dexus Chief Executive Officer said: "The COVID-19 pandemic
has had a profound impact on the economy and the real estate sector, and we
acknowledge that no business, including Dexus, will be immune from the
impacts of this crisis.
"Fortunately, as at 31 March 2020 our property portfolio is in strong shape
and we've entered this crisis in a robust position with high portfolio
occupancy, limited new supply in our key CBD office markets and a strong
balance sheet.
"We know this is a challenging time for many of our valued customers
(tenants) and appreciate we are in this together. We are committed to
helping our customers and consistent with the government's Code of Conduct,
our focus is on prioritising assistance to support the viability of our
small business customers.
"In response to the current environment brought on by COVID-19, we have
implemented a broad range of cost reduction measures that are prudent for
our business.
"Unfortunately, a number of roles will be impacted, largely as a result of
the loss of the Australian Mandate portfolio managed on behalf of the NSW
State Treasury Corporation, which will result in some redundancies."
Dexus has also implemented annual leave initiatives, a freeze on recruitment
and non-essential consultancy spend and temporary reductions in
remuneration.
The temporary reductions in remuneration affect director and executive level
roles and have been approved by the Board for an initial three month period
effective 1 April 2020 which will be reviewed at the end of June 2020. These
include a:
- 15% reduction in base fees for Non-Executive Directors
- 15% reduction in base salary for the CEO
- 10% reduction in base salary across all other executive level roles
On 26 March 2020, Dexus withdrew its FY20 full year guidance for
distribution per security growth and the detailed assumptions associated
with this guidance. At this time, Dexus continues to assess the impact of
COVID-19 on its operating environment including the assistance that it may
need to provide to its tenant base to ensure the portfolio is well placed to
perform when this event passes.
*March 2020 quarter highlights*
- Leased 33,284 square metres[1] of office space across 62 transactions in
the core portfolio and at development projects underway or completed, with
office portfolio occupancy remaining high at 97.2%
- Leased 21,094 square metres1 of industrial space across 22 transactions,
with industrial portfolio occupancy remaining strong at 96.0%
- Post 31 March 2020, Dexus announced the settlement of GIC's additional
24% investment of $366.1 million in the Dexus Australian Logistics Trust
in addition to the establishment of a new Joint Venture with GIC that had
exchanged contracts to acquire a 50% interest in Rialto Towers, 525
Collins Street, Melbourne for $644 million[2]
- At 30 April 2020, Dexus had a debt duration of 7.1 years, $1.7 billion
of cash and committed undrawn bank facilities available and circa $400
million of debt maturing in late FY21. Dexus's proforma gearing[3]
(look-through) is 25.4% which is below its 30-40% target range
- Post 31 March 2020, Central Place Sydney, a major commercial development
underpinning the delivery of the Sydney Innovation and Technology
Precinct, progressed to Stage 3 under the NSW Government's Unsolicited
Proposal process
- Dexus was named on the CDP Climate A List for 2019, solidifying its
position as one of Australia's leading sustainable investments of choice
for real estate and was also recognised by the Workplace Gender Equality
Agency being awarded an Employer of Choice for Gender Equality (EOCGE)
citation for 2019-20
*Dexus office portfolio*
*Key metrics* *31 March 2020* *31 December 2019*
Occupancy by income 97.2% 97.4%
Occupancy by area 97.3% 97.4%
WALE by income 4.4 years 4.5 years
Average incentives[4] 16.9% 16.2%
In April 2020, the Australian Government introduced a commercial Code of
Conduct[5] and set of principles which applies to commercial tenancies
(including retail, office and industrial) for small and medium enterprise
customers (SMEs) with turnover of less than $50 million experiencing
financial stress or hardship as a result of the COVID-19 pandemic.
Dexus is currently working with its customers to respond to the immediate
and longer-term consequences of the COVID-19 crisis. While there is no one
size fits all approach, Dexus's immediate priority is to support SMEs,
including the city retailers that support the office community, who have
been significantly impacted by the coronavirus pandemic, and is progressing
discussions with these customers on various forms of rental relief. From
those customers who have requested rental relief, Dexus estimates SMEs
(office, retailers and industrial) with turnover of less than $50 million to
comprise approximately 8% of total property portfolio income and is working
through if they qualify for relief. Dexus also acknowledges the significant
business interruptions and impacts to its larger customers and thanks them
for supporting the approach to prioritise assistance to small businesses.
In the current environment, office leasing enquiry levels have fallen and
inspection rates have slowed. Lead indicators point to a period of
uncertainty in the office markets across Australia, with demand across the
major CBD markets likely to be patchy in the short term. In times of
uncertainty, high quality and well leased assets can be expected to hold
their value better than lower quality assets due to their appeal to
occupants and purchasers and their relative scarcity.
Over the quarter to 31 March 2020, a total of 33,284 square metres1 of
office space was leased across 62 transactions in the core portfolio and at
development projects underway or completed. Notable activity during the
quarter included:
? Signing Heads of Agreement for a new customer at 180 Lonsdale Street,
Melbourne across 3,574 square metres
? State of NSW has exercised the option to extend their lease across 2,952
square metres at 130 George Street, Parramatta
? Renewing customers at King Square, Perth and Waterfront Place, Brisbane
across 3,657 square metres and 3,736 square metres respectively
*Dexus industrial portfolio*
*Key metrics* *31 March 2020* *31 December 2019*
Occupancy by income 96.0% 96.0%
Occupancy by area 95.5% 95.7%
WALE by income 4.4 years 4.6 years
Average incentives 13.0% 13.3%
In the current environment, industrial leasing enquiry levels have slowed,
with a divergence in demand depending on the extent to which individual
companies' product lines fall into non-discretionary and discretionary
categories. Some categories remain relatively active such as food,
pharmaceuticals and online goods. Enquiry has been positive for supermarket
overflow space across the eastern seaboard. Within Sydney and Melbourne, we
are seeing strong demand from the healthcare and construction plant and
equipment sectors.
Industrial property markets are expected to be relatively resilient given
market vacancy is relatively low and the risk of over-supply will be
mitigated by the responsiveness of supply to the adjusting levels of demand.
The long-term growth drivers for the Australian industrial market remain
intact with continued expansion in ecommerce and infrastructure investment.
Over the quarter to 31 March 2020, 21,094 square metres1 of industrial space
was leased across 22 transactions, with notable activity including:
? Securing new customer, Probiotic at 52 Holbeche Road, Arndell Park
across 9,795 square metres for a 10-year term, incurring minimal downtime
of only two months
? Renewing a customer across 4,356 square metres at 145-151 Arthur Street,
Flemington
? Securing leasing across 3,616 square metres at Axxess Corporate Park
through 12 transactions
? Renewing three customers and securing two new customers across a total
2,642 square metres at Lakes Business Park, Botany
*Development*
Dexus's group development and concept pipeline stands at a cost of circa
$11.2 billion post completions and additions. Committed project spend until
the end of 2022 is forecast at $289 million for Dexus.
As a consequence of the current environment, development projects have not
been materially impacted at this stage, with impacts primarily centred
around heads of agreement not converting to binding leases or customers
seeking to delay lease start dates.
During the quarter, Dexus progressed its office developments at 180 Flinders
Street and 80 Collins Street in Melbourne which are 76% and 98% committed
respectively. Dexus also completed The Annex at 12 Creek Street, Brisbane
(24% committed) providing 12 levels of boutique office space, and completed
the retail component of 175 Pitt Street, Sydney (80% committed). Development
approval was also received for 35,730 square metres of gross floor area at
60 Collins Street, Melbourne.
Dexus continued to progress the activation and conversion of the uncommitted
development pipeline including progressing Central Place Sydney to move to
Stage 3 under the NSW Government's Unsolicited Proposal process.
*Capital management*
From a balance sheet perspective, Dexus's proforma gearing3 (look-through)
is 25.4%. Debt is well diversified and comprises 38% from bank debt and 62%
from debt capital markets, with a debt duration of 7.1 years at 30 April
2020.
Over the past 12 months Dexus has accessed both equity and debt capital
markets to provide additional funding capacity and flexibility.
Post issuance of the $500 million of 12-year Medium Term Notes and since the
HY20 results, Dexus has secured additional bank debt facilities totalling
$550 million with a weighted average tenor of 5.0 years providing it with
further funding flexibility in the current environment. At 30 April 2020,
Dexus had $1.7 billion of cash and committed undrawn bank facilities
available and circa $400 million of debt maturing in late FY21.
Dexus remains within all of its debt covenant limits, including gearing and
interest cover, and is below its target gearing range of 30-40%.
Dexus continues to retain its strong credit ratings of A-/A3 from S&P and
Moody's respectively.
*Environmental, Social and Governance (ESG)*
Dexus's focus on ESG factors continues to contribute to long-term value, and
during the quarter Dexus was recognised by a number of external groups,
including:
? Dexus being named on the CDP Climate A List for 2019, solidifying its
position as one of Australia's leading sustainable investments of choice
for real estate. Dexus was one of six companies in Australia and one of
four Australian property companies to be included on the CDP Climate A
List for 2019
? Dexus being recognised by the Workplace Gender Equality Agency (WGEA)
for its active commitment to and progress towards gender equality across
its workplace - being awarded an Employer of Choice for Gender Equality
(EOCGE) citation for 2019-20
*Funds management*
During the quarter, Dexus confirmed that on 30 June 2020 it would cease
management of the Australian Mandate which comprises a $2.2 billion[6]
property portfolio.
On 1 April 2020 Dexus settled on the second tranche rights exercised for GIC
to acquire an additional 24% interest in the Dexus Australian Logistics
Trust core portfolio for $366.1 million.
In addition, on 6 April 2020, Dexus announced the establishment of a new
Joint Venture ("JV") with GIC that had exchanged contracts to acquire a 50%
interest in Rialto Towers, 525 Collins Street, Melbourne, for $644 million2.
The establishment of the JV and acquisition of Rialto Towers is consistent
with Dexus's strategic objective of being a wholesale partner of choice,
providing the group with a breadth of capital sources through economic
cycles. Dexus has invested in this opportunity to leverage the long-term
fundamentals of the Melbourne office market including the recent strong
population growth trend (circa 1.8% per annum) and have been able to access
this quality product off-market. The asset is multi-let to circa 80
customers and is an asset that will involve leveraging Dexus's leasing
capabilities and extensive customer relationships to drive asset
performance.
*Trading*
Dexus has received proceeds from the initial 25% interest sale of 201
Elizabeth Street, Sydney and has a put and call option to sell its remaining
25% interest in late 2020 for a total of $315 million. The sale has
contributed circa $34 million to pre-tax trading profits in FY20 and is
expected to contribute a further circa $34 million in pre-tax trading
profits in FY21 in the event either option is exercised.
The sale of the North Shore Health Hub on a fund-through basis to HWPF is
expected to generate trading profits across FY20 and FY21, with the amount
for each financial year dependent on the progress of the development and
leasing.
*Summary *
Darren Steinberg said: "Dexus is in a strong position. We have entered this
period of uncertainty owning and managing a quality property portfolio with
high occupancy and a strong balance sheet.
"There are a lot of moving parts both domestically and globally and it is
reassuring to see that Australia is well placed in managing the spread of
COVID-19 compared to the rest of the world. We are starting to see
restrictions being progressively eased by state governments across the
markets that we operate in.
"The eventual recovery will be helped by sizable government fiscal stimulus,
a lower for longer interest rate environment, and the ongoing infrastructure
pipeline underway in key capital cities."
_Authorised by Brett Cameron, General Counsel and Company Secretary of Dexus
Funds Management Limited_
*For further information please contact:*
*Investors * *Media*
Jessica Johns Louise Murray
Senior Manager, Investor Senior Manager, Corporate
Relations Communications
+61 2 9017 1368 +61 2 9017 1446
+61 427 706 994 +61 403 260 754
jessica.johns@dexus.com louise.murray@dexus.com
*Disclaimer*
This update was prepared against the backdrop of the unfolding disruption
caused by the outbreak of COVID-19 and the resultant deterioration in
business conditions. It is apparent that there are potential implications
from the outbreak for the global and domestic economy, volatility in equity
markets, liquidity in credit markets and impact on the appetite for and
pricing of real estate assets which are uncertain and unquantifiable at this
time. This update should be read and considered in light of that
uncertainty.
[1] Including Heads of Agreement.
[2] Reflecting the net acquisition price for the 50% interest in Rialto
Towers (of which GIC will hold a 90% share and Dexus a 10% share) and
excludes acquisition costs, incentives and other costs.
[3] Proforma 31 March 2020 look-through gearing including the settlement of
GIC's additional interest in the Dexus Australian Logistics Trust core
portfolio and acquisition of Rialto Towers (before transaction costs)
previously announced on 1 April 2020 and 6 April 2020, respectively.
[4] Excluding development leasing.
[5] The code of conduct is available at
https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-c
ode-ofconduct-sme-commercial-leasing-principles.pdf.
[6] Following the ASX release on 4 March 2020, Dexus has been informed that
the Investment Management of the Australian Mandate's 50% interest in
Westfield Knox will be transferred to the new manager.
Information and Explanation of the Issuer to this News:
*About Dexus*
Dexus is one of Australia's leading real estate groups, proudly managing a
high-quality Australian property portfolio valued at $33.8 billion. We
believe that the strength and quality of our relationships is central to our
success and are deeply committed to working with our customers to provide
spaces that engage and inspire. We invest only in Australia and directly own
$16.8 billion of properties, with a further $17.0 billion of properties
managed on behalf of third-party clients. The group's $11.2 billion
development pipeline provides the opportunity to grow both portfolios and
enhance future returns. With 1.8 million square metres of office workspace
across 55 properties, we are Australia's preferred office partner. Dexus is
a Top 50 entity by market capitalisation listed on the Australian Securities
Exchange (trading code: DXS) and is supported by 27,000 investors from 20
countries. With 35 years of expertise in property investment, development
and asset management, we have a proven track record in capital and risk
management, providing service excellence to tenants and delivering superior
risk-adjusted returns for investors. www.dexus.com [1]
*Download the Dexus IR app*
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Dexus Funds Management Ltd ABN 24 060 920 783, AFSL 238163, as Responsible
Entity for Dexus (ASX: DXS) Level 25, 264 George Street, Sydney NSW 2000
05-May-2020 CET/CEST The DGAP Distribution Services include Regulatory
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Archive at www.dgap.de
Language: English
Company: Dexus Finance Pty Limited
264 George Street
2193 Sydney
Australia
Phone: +61 2 9017 1100
Fax: +61 2 9017 1101
E-mail: ir@dexus.com
Internet: www.dexus.com
ISIN: XS1961891220
WKN: A2RZHG
Listed: Regulated Unofficial Market in Frankfurt
EQS News ID: 1035633
End of Announcement DGAP News Service
1035633 05-May-2020 CET/CEST
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May 04, 2020 21:29 ET (01:29 GMT)
