The DEXUS Property Group (ASX: DXS) share price is up 2.5% today after the company announced its portfolio update for 30 September 2019.
About Dexus
Dexus is one of Australia’s largest real estate groups, investing solely in Australia with a focus on office and industrial properties. The company directly owns $15.6 billion of office and industrial properties and manages a further $16.2 billion of office, retail, industrial and healthcare properties for third party clients.
September Quarter Portfolio Update
To begin the announcement, Dexus CEO Darren Steinberg said:
“The office market cycle is certainly not over, with our office portfolio effectively full and the Sydney and Melbourne office market vacancy rates at very low levels.”
Adding, “In this environment we remain confident of being able to continue to drive rental growth in our quality office properties in these markets, particularly in those leases coming up for expiry over the next few years.”
That should give comfort to shareholders given the recent residential property market downturn.
Highlights announced include:
- Office portfolio occupancy remains high at 98.1%
- Industrial portfolio occupancy increased slightly to 97.4%
- Sale of the North Shore Health Hub
- Portfolio Weighted Average Lease Expiry (WALE) of 4.5 years
FY20 Outlook And Guidance
Mr Steinberg then provided some commentary regarding FY20:
“We’ve seen a significant increase in interest from offshore investors seeking to invest into quality direct office property in our funds management business. This increased interest is partly a function of the relative pricing and rent growth for Australian office comparing favourably to global cities.”
“When you combine this trend with the actual transactional evidence that has flowed through in both Sydney and Melbourne over the past few months, along with the spread to bonds which has increased further, we are confident that we will see further cap rate compression.”
“Our weighted average office portfolio cap rate was 5.15% at 30 June 2019. We expect circa 25 basis points of cap rate compression to flow through for quality office properties, and at least 25 basis points of cap rate compression for quality industrial properties over the next 12 months.”
“Importantly, our high-quality property portfolio with a diversified lease expiry profile and fixed rental increments of 3.5-4.0%, projects in our development and concept pipeline, and our strong balance sheet all place us in a strong position to continue to deliver for investors in a period of continued economic and geopolitical uncertainty.”
Mr Steinberg reiterated the company’s market guidance for the 12 months ending 30 June 2020, which is to deliver distribution per security growth of circa 5%, with the distribution payout ratio remaining in line with free cash flow.
Are Dexus Shares A BUY?
With a forecast distribution yield of 3.6%, which may have a small amount of franking attached, it certainly beats cash in the bank. However, that’s if the Dexus share price behaves and doesn’t go backwards.
I have lingering concerns with the general property market, despite the recent interest rate cuts. So, I’m more interested in businesses that aren’t tied to property and have stronger growth prospects, like the ASX shares in the free report below.
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At the time of writing, David does not have a financial interest in any of the companies mentioned.
