DGAP-Ad-hoc: Dexus Finance Pty Limited / Key word(s): Annual Results/Real
Estate
Dexus Finance Pty Limited: 2020 Annual Results Release - Positioning for the
recovery
19-Aug-2020 / 02:42 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*
*19 August 2020*
*2020 Annual results - Positioning for the recovery *
Dexus today announced that it had achieved Adjusted Funds From Operations
(AFFO)[1] and a distribution of 50.3 cents per security for FY20, while
advising its intention to deliver a distribution in line with free cash flow
in FY21.
*Highlights*
- *Net profit after tax* of $983.0 million, down 23.3% primarily due to
net revaluation gains of investment properties being lower than those
recognised in FY19
- *AFFO and Distribution *of 50.3 cents per security, in line with FY19
despite COVID-19 impacts
- *Rent collections* for the Dexus portfolio were strong at 98% for FY20
- *Return on Contributed Equity* (ROCE)[2] of 9.0%
- *Gearing* (look-through)[3] remains conservative at 24.3%
- $1.6 billion of *cash and undrawn debt facilities*
- *High occupancy*[4] of 96.5% for the Dexus office portfolio and 95.6%
for the Dexus industrial portfolio
- *Outperformance of both the Dexus office and industrial portfolios*
relative to their relevant MSCI/PCA benchmarks[5] over one, three and five
years to 31 March 2020
- *All funds performing *with Dexus Wholesale Property Fund (DWPF)
continuing to outperform its benchmark across all time periods and
Healthcare Wholesale Property Fund (HWPF) achieving a one-year return of
10.9%.
- *Increased group industrial exposure *to $5 billion[6] while expanding
the existing relationship with GIC through their acquisition of an
additional 24% interest in the Dexus Australian Logistics Trust (DALT) and
the establishment of a new Joint Venture (JV) to acquire a 50% interest in
Rialto Towers, 525 Collins Street, Melbourne
- Raised circa $955 million of *equity for new and existing unlisted
funds*
- *Completed $1.1 billion of developments* across the group including 240
St Georges Terrace, Perth, The Annex at 12 Creek Street, Brisbane and 80
Collins Street, Melbourne where significant leasing was achieved
- *Progressed planning for city-shaping projects* in the group's $10.6
billion development pipeline
- *Realised $35.3 million of trading profits* (net of tax) in FY20 while
contracting future trading profits to be realised across FY21 and FY22
- Further improved *employee Net Promoter Score* to +61 and *customer Net
Promoter Score* to +50
- *Achieved 2020 NABERS Energy and Water targets* of 1,000,000 square
metres rated a minimum 5 star and 4 star respectively
Dexus Chief Executive Officer, Darren Steinberg said: "Our ability to act
quickly and decisively on both opportunities and challenges has been a
contributing factor to our continued success. Our response to the
challenging operating environment caused by the onset of the COVID-19
pandemic, together with how we were placed going into the crisis, positions
us well for the recovery.
*Response to COVID-19 *
Darren Steinberg said: "In recent years we have actively undertaken
initiatives to improve asset quality and portfolio diversification, while
maintaining a strong balance sheet. Through transactions, developments and
favourable asset valuations we achieved growth in funds under management,
consistent with our focus on leadership in office and being a wholesale
partner of choice. We increased the group's exposure to the industrial and
healthcare property sectors alongside our third party capital partners,
further diversifying our position across these growing sectors. We have also
invested in property technology initiatives and enhanced our product
offering, working proactively with our customers to provide workspace
solutions that enable additional flexibility and a seamless experience.
"When the pandemic took hold in late March 2020, our number one priority was
to ensure the health, safety and wellbeing of the people in our buildings.
With government restrictions implemented across our key markets, we kept our
buildings operational to enable business continuity for the essential
services of our customers. We actively supported the viability of our small
business customers most affected by the crisis through the provision of rent
relief, consistent with the Code of Conduct. These actions have impacted our
financial result for the year which, until the last quarter, was tracking
ahead of expectations. In response to the uncertain environment, we
implemented cost reduction initiatives and secured additional debt
facilities. We also withdrew our FY20 guidance until there was further
certainty on cash flow, and in early June 2020 announced revised guidance
for a distribution consistent with FY19, which we have delivered on."
While these challenges adversely impacted the financial result and the Dexus
security price, Dexus progressed its strategic objectives and delivered
solid operational achievements for the year.
*Financial result*
Dexus's net profit after tax was $983.0 million, down 23.3% on the prior
year. This movement was primarily driven by net revaluation gains of
investment properties of $612.4 million, which were $160.7 million lower
than FY19. These revaluation gains primarily drove the 38 cent or 3.6%
increase in net tangible asset (NTA) backing per security to $10.86 at 30
June 2020.
Underlying Funds from Operations (FFO) per security of 63.5 cents, which
excludes trading profits, grew by 1.0% despite the impact of rent relief
provided, highlighting the contribution from the funds management business
and non-recurring cost reduction measures.
AFFO and distribution per security of 50.3 cents, was consistent with the
prior year and in line with revised guidance provided on 1 June 2020, with
the distribution payout ratio remaining in line with free cash flow in
accordance with Dexus's distribution policy. The distribution for the six
months ended 30 June 2020 of 23.3 cents per security will be paid to Dexus
Security holders on Friday, 28 August 2020.
Rent collections for the Dexus portfolio were strong at 98% in FY20, with
92% collected in the fourth quarter of FY20.
Dexus achieved a ROCE2 for FY20 of 9.0% driven largely by AFFO and
revaluation gains from completed developments at 240 St Georges Terrace,
Perth and the city retail component of 175 Pitt Street, Sydney.
Dexus continued to maintain a strong and conservative balance sheet with
gearing (look-through)3 at 24.3%, well below the target range of 30-40%, and
$1.6 billion of cash and undrawn debt facilities.
Chief Financial Officer, Alison Harrop said: "We have remained focused on
preserving capital while selectively investing in assets with solid
fundamentals and divesting non-core or lower returning assets. We enhanced
our financial position by sourcing $1.85 billion of debt, including the
issue of $700 million of 10 and 12-year Medium-Term Notes, which increased
our debt duration to 6.9 years and further diversified our funding sources.
In this uncertain environment, we remain focused on maintaining the strength
of our balance sheet."
Dexus has manageable debt expiries in late FY21 and limited development
commitments of circa
$180 million remaining to spend until the end of FY22. Dexus remains within
all of its debt covenant limits and continues to retain its credit ratings
of A-/A3 from S&P and Moody's respectively.
*Property portfolio *
_Dexus Office Portfolio_
*Key metrics* *30 June 2020* *30 June 2019*
Occupancy by income 96.5% 98.0%
Weighted average lease expiry (by 4.2 years 4.4 years
income)
Average incentives7 17.1% 13.4%
Weighted average cap rate 4.97% 5.15%
During the year, Dexus leased 88,467 square metres8 of office space across
207 transactions as well as 26,403 square metres of space across office
developments, locking in future income streams.
Executive General Manager, Office, Kevin George said: "Our office portfolio
was performing well leading into the crisis with high occupancy and
significant leasing success, including our leasing focus at 80 Collins
Street which achieved record rents and set new benchmarks for the Melbourne
CBD."
In the current environment, office leasing enquiry levels have fallen, and
inspection rates have slowed however occupancy has remained high at 96.5%.
Lead indicators point to a period of uncertainty in the Australian office
market, 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 both occupants and purchasers as well as their relative
scarcity. At 30 June 2020, Prime grade9 buildings comprised 94% of Dexus's
office portfolio.
Office portfolio like-for-like income growth10 was +2.4% (FY19: +3.4%),
impacted by rent relief measures and a provision for expected credit losses.
The Dexus office portfolio outperformed its benchmark over the one, three
and five-year time periods to 31 March 2020.
As Australia's largest owner and manager of office buildings, Dexus has
taken a leadership role in the operational aspects of assisting Australian
businesses to return back to their offices in a safe manner and consistent
with government guidelines. This has involved working with the authorities
on lift capacities and end-of-trip facilities, as well as regular customer
communications and surveys.
Kevin George said: "Developing meaningful partnerships with our customers,
local communities and suppliers has a valuable impact on the people in and
around our buildings. Our customers are at the heart of what we do, and we
invest time in understanding their needs and delivering solutions to help
them thrive in their workspaces. Our team is focused on enhancing our
customers' experience as shown through the annual customer survey which
returned a high customer Net Promoter Score of +50 (out of a possible range
of -100 to +100), an increase from +46 in FY19, reflecting the strength of
our relationships.
"We leveraged our workplace consulting business, Six Ideas by Dexus, to gain
insights into the future of workspace. The COVID-19 pandemic has accelerated
the flexible working trend as well as some of the long-term structural
trends, like technology, that have underpinned our workspace strategy. We
invest time in understanding our customers' needs to drive innovation,
collaboration and workplace culture. This has resulted in enhancements to
our customer offering over the years, from fitted suites to Dexus Place and
SuiteX."
_Dexus Industrial Portfolio_
*Key metrics* *30 June 2020* *30 June 2019*
Occupancy by income 95.6% 97.0%
Weighted average lease expiry (by 4.1 years 4.7 years
income)
Average incentives 13.4% 11.7%
Weighted average cap rate 5.66% 5.92%
Dexus manages a growing, high-quality $5 billion6 group industrial
portfolio, $2.2 billion of which sits in the Dexus portfolio. During the
year, Dexus leased 181,472 square metres8 of industrial space across 95
transactions, with the portfolio continuing to benefit from an uptick in
logistics and e-commerce demand with non-discretionary and online retail
sectors experiencing growth during the crisis.
Portfolio occupancy remains high at 95.6%, however was lower than FY19 at
97.0% primarily due to vacancy at Axxess Corporate Park. Industrial
portfolio like-for-like income growth11 was -2.1% (FY19: +2.5%) impacted by
expiries at Axxess Corporate Park in addition to rent relief measures and a
provision for expected credit losses. The Dexus industrial portfolio
outperformed its benchmark over the one, three and five-year time periods to
31 March 2020.
The weighted average capitalisation rate across the total property portfolio
tightened 21 basis points over the year to 5.05%. The weighted average
capitalisation rate of the Dexus office portfolio tightened 18 basis points
from 5.15% at 30 June 2019 to 4.97% at 30 June 2020 and for the Dexus
industrial portfolio tightened 26 basis points from 5.92% at 30 June 2019 to
5.66% at 30 June 2020.
*Funds Management*
Dexus manages $15.5 billion of funds on behalf of 77 third party clients.
The funds platform raised circa $955 million of equity for new and existing
funds, including DWPF which raised circa $240 million from existing
investors to fund its future development pipeline. DWPF continues to
outperform its benchmark over one, three, five, seven and ten years and HWPF
continued to deliver strong performance, achieving a one-year return of
10.9%. All partnerships have performed well, exceeding their return
objectives for the year.
Executive General Manager, Funds Management, Deborah Coakley said: "We
remain a real estate partner of choice across the Australian office,
industrial, retail and healthcare sectors and we continue to attract
significant interest from domestic and international capital partners
seeking to invest in Australian property. In the current environment we are
focused on delivering continued superior performance and navigating the
unanticipated market conditions for our third party capital partners, while
accelerating opportunities to expand our funds platform, including the
launch of an unlisted opportunity fund series in FY21."
During the year, GIC acquired an additional 24% interest in DALT, bringing
its total share of the partnership to 49%, and entered into a new commercial
JV with Dexus that acquired 50% of Rialto Towers in Melbourne. GIC holds a
90% share in the JV and Dexus holds the remaining 10%. Dexus is the
investment manager of the JV and property manager of the entire Rialto
Towers complex.
HWPF welcomed two new investors, completed the development of the new
Calvary Adelaide Hospital, and acquired the North Shore Health Hub, Stage 1
currently under development at 12 Frederick Street, St Leonards. Post 30
June 2020, HWPF acquired the College Junction building in Clayfield,
Brisbane, a modern healthcare facility that accommodates Qscan's head
office, radiology clinic and other healthcare tenants.
*Developments and transactions*
During the year, Dexus completed $1.1 billion of developments across the
group including its office development at 240 St Georges Terrace in Perth
(96% committed), The Annex at 12 Creek Street, Brisbane (24% committed) and
the office and retail component of 80 Collins Street (94% committed). In
addition, three city retail projects, four specialised industrial facilities
and HWPF's new Calvary Adelaide Hospital were also completed.
Dexus's group development pipeline now stands at a cost of $10.6 billion, of
which $5.4 billion sits within the Dexus portfolio and $5.2 billion within
third party funds. Dexus has only circa $180 million remaining to spend on
its committed development projects until the end of FY22.
Construction continues at the $84 million Richlands project in Queensland
and the $150 million South Granville project in NSW, both industrial
development projects held within DALT. Construction also progressed at three
other industrial properties, taking the total committed group industrial
pipeline to over 270,000 square metres.
Chief Investment Officer, Ross Du Vernet said: "We've made significant
progress across our city shaping developments at Central Place Sydney, 60
Collins Street in Melbourne and Waterfront Brisbane. In the current
uncertain environment, our risk is reduced by the fact that these assets are
currently income producing and the majority are owned in partnership with
our third party capital partners, allowing us to progress planning to
enhance the optionality of these developments."
Dexus had an active year of transactions, undertaking $1.2 billion of
acquisitions and $1.0 billion of divestments across the group, recycling
capital to strengthen Dexus's balance sheet and enhance flexibility. Dexus
divested two assets at pricing in line with their prior book value,
including Garema Court 140-180 City Walk, Canberra and 45 Clarence Street,
Sydney which is subject to FIRB approval. In addition, Dexus made a number
of smaller acquisitions and post 30 June 2020, settled on the divestment of
Finlay Crisp Centre in Canberra.
*Trading*
Dexus realised $35.3 million of trading profits (net of tax) driven by the
sale of the initial 25% of 201 Elizabeth Street in Sydney and progress at
the North Shore Health Hub in St Leonards, currently under construction and
sold to HWPF on a fund-through basis.
Post 30 June 2020, Dexus entered into agreements to sell a portfolio of six
trading assets to DALT across two tranches and exercised the option to sell
its remaining 25% interest in 201 Elizabeth Street. These transactions
(including the North Shore Health Hub) are expected to contribute circa $85
million to pre-tax trading profits across FY21 and FY22 (in the event the
options over the second tranche are exercised).
*Environmental, Social and Governance (ESG) update*
The impact of the Australian drought and bushfire crisis that dominated the
summer of 2019-20 increased investor focus on the resilience of Dexus's
properties to climate change. The launch of Dexus's _Towards Climate
Resilience_ report in June 2020 reinforces the group's approach to
addressing climate change and enhancing resilience.
This year Dexus progressed its net zero emissions by 2030 goal by improving
energy and water efficiency, delivering its 2020 NABERS Energy and Water
targets, and expanding the adoption of renewable energy sources, including
the rollout of solar projects across properties in Queensland and New South
Wales.
Dexus gained global recognition for its commitment to its net zero goal,
enhancing sustainability disclosure and its ongoing focus on portfolio
resilience, achieving industry leadership in the Dow Jones Sustainability
Indices (DJSI) and a position on the CDP Climate Change A List.
Dexus was again 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.
Dexus's highly engaged workforce is committed to delivering on its strategy,
reflected in the high employee Net Promoter Score of +61. Throughout the
COVID-19 pandemic Dexus employees have played an instrumental role in
ensuring the safety of customers, contractors and the community across the
group property portfolios. Dexus's ongoing focus on safety is measured by
independent external safety audits across its corporate and management
workspaces, and this year Dexus achieved an average score of 100%.
*Summary and outlook*
Darren Steinberg said: "Dexus is well positioned, with a track record of
delivering on strategy, a stable and experienced management team, a quality
property portfolio with a diversified customer base, and a strong balance
sheet.
"In recent years we have demonstrated our ability to capitalise on
opportunities while also preparing for periods of uncertainty. We have
improved our portfolio composition through the acquisition of quality
properties with solid fundamentals to drive long-term returns, while taking
advantage of the good years to recycle properties in non-core locations.
"Our substantial city-shaping development pipeline comprises projects that
will deliver long-term value beyond the recovery period, while our
diversified funds management business is performing and continues to attract
interest from new capital.
"Our team's knowledge, expertise and ability to innovate, combined with our
investments in technology and workspace consulting, will help us position
for the recovery.
"Office property is a long-term asset class and has shown its resilience to
perform through the cycle. However, with Australia in a recession, we are
preparing for subdued tenant demand and increased vacancy levels in our core
office markets. In this environment we remain focused on maintaining high
portfolio occupancy.
"We will also make decisions that set the group up to perform over the long
term. We will selectively recycle assets, which may result in short-term
earnings dilution but will enable us to reinvest into opportunities that we
believe will drive stronger investor returns over the next decade.
"Our immediate priorities are summarised across five key areas: assisting
Australian businesses in returning safely to their workplaces, optimising
our property portfolio composition, accelerating opportunities to expand our
funds management platform, continuing to work with our customers on the
future of workspace, and progressing the city-shaping development pipeline."
Dexus intends to deliver a distribution in line with free cash flow in FY21.
However, taking into account continued uncertainty, Dexus is not providing
distribution per security guidance for the 12 months ended 30 June 2021.
*FY20 Reporting Suite*
This _ASX announcement_ should be read in conjunction with the _2020 Annual
Results presentation_, _2020 Annual Report, 2020 Financial Statements, 2020
Final Distribution Details, 2020 Sustainability Report, 2020 Property
Synopsis and the_ _2020 Appendix 4G and Corporate Governance Statement
_released to the Australian Securities Exchange today and available on
www.dexus.com [1]
*Investor conference call*
Dexus will hold an investor conference call at 9.30am (AEST) today,
Wednesday 19 August 2020, which will be webcast via the Dexus website
(www.dexus.com) and available for download later today.
_Authorised by the Board 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
[1] AFFO in accordance with guidelines provided by the Property Council of
Australia (PCA): comprises net profit/loss after tax attributable to stapled
security holders calculated in accordance with Australian Accounting
Standards and adjusted for: property revaluations, impairments, derivative
and FX mark-to-market impacts, fair value movements of interest bearing
liabilities, amortisation of tenant incentives, gain/loss on sale of certain
assets, straight line rent adjustments, deferred tax expense/benefit,
certain transaction costs, one-off significant items, amortisation of
intangible assets, movements in right of use assets and lease liabilities,
rental guarantees and coupon income, less maintenance capital expenditure
and lease incentives.
[2] Return on Contributed Equity (ROCE) is calculated as AFFO plus the net
tangible asset impact from completed developments divided by the weighted
average contributed equity during the period.
[3] Adjusted for cash and for debt in equity accounted investments. Proforma
gearing includes proceeds and payments for transactions post 30 June 2020
that are expected to settle before 30 September 2020 including the
divestment of Finlay Crisp Centre, Canberra, 201 Elizabeth Street, Sydney
and 45 Clarence Street, Sydney (subject to FIRB approval), and the
acquisition of Edward Street, Brisbane (Hermes), payment of Dexus's share of
deferred settlement amounts for 80 Collins Street, Melbourne, the industrial
property acquisitions at 37-39 Wentworth Street, Greenacre and the Ford
Facility at Merrifield Business Park, Mickleham. All other transactions post
30 June 2020 are excluded. Look-through gearing at 30 June 2020 was 26.3%.
[4] By income.
[5] Period to 31 March 2020 which reflects the latest available MSCI
Australian Quarterly Digest for Office Property benchmark and Industrial
Property benchmark data.
[6] Including acquisitions post 30 June 2020 (on completion value).
7 Excluding development leasing.
8 Including heads of agreement.
9 Stabilised assets only. Excludes development-affected assets and land.
10 Excluding rent relief and a provision for expected credit losses,
effective like-for-like income growth was +4.7%.
11 Excluding one-off income in addition to rent relief and a provision for
expected credit losses, effective like-for-like income growth was +0.1%.
Information and Explanation of the Issuer to this News:
*About Dexus*
Dexus is one of Australia's leading real estate groups, managing a
high-quality Australian property portfolio valued at $32.0 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
$16.5 billion of properties, with a further $15.5 billion of properties
managed on behalf of third-party clients. The group's $10.6 billion
development pipeline provides the opportunity to grow both portfolios and
enhance future returns. With 1.8 million square metres of office workspace
across 51 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 29,000 investors from 21
countries. With over 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
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
19-Aug-2020 CET/CEST The DGAP Distribution Services include Regulatory
Announcements, Financial/Corporate News and Press Releases.
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: 1120345
End of Announcement DGAP News Service
1120345 19-Aug-2020 CET/CEST
1: https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=d7be6594d15654995d28e131ef12dd0c&application_id=1120345&site_id=vwd&application_name=news
(END) Dow Jones Newswires
August 18, 2020 20:42 ET (00:42 GMT)
© 2020 Dow Jones News
