One of Australian largest landlords, Dexus, is managing the impacts of COVID on its business but is yet to quantify the expected cuts in income or valuation that will emerge.
Dexus is predominantly an Office and Industrial sector specialist and has avoided the pain felt by other Landlords with a Shopping Centre portfolio. Dexus do manage approx $5bn of retail assets, however these reside in wholesale funds. The Groups Office portfolio is focused on the CBD areas of Sydney, Melbourne, Brisbane and Perth and its Industrial portfolio is predominantly in east coast metropolitan areas.
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. Dexus expect that approximately 8% of its tenant base are small – medium enterprises, many of whom may qualify for rental assistance.
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."
“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."
In response to the current environment brought on by COVID-19, Dexus has implemented a broad range of cost reduction measures including pay cuts to executive and senior roles and has made some redundancies following the loss of the $2.2bn NSW State Treasury Corporation mandate. Dexus has also implemented annual leave initiatives, a freeze on recruitment and non-essential consultancy spend and temporary reductions in remuneration.
Dexus advised that office leasing enquiry levels have fallen and inspection rates have slowed as a result of COVID19 and that 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. Dexus are hoping their portfolio is more resilient that others with high quality and well leased assets expected to hold their value better than lower quality assets due to their appeal to occupants and purchasers and their relative scarcity.
Dexus advise that 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. Food, pharmaceuticals and online goods businesses are particularly active. Within Sydney and Melbourne, Dexus are seeing strong demand from the healthcare and construction plant and equipment sectors are expect the Industrial sector to be relatively resilient given the low market vacancy and the low risk of over-supply. Dexus expect the long-term growth drivers for the Australian industrial market remain intact with continued expansion in ecommerce and infrastructure investment.
The group had been playing up the higher than average lease expiry profile in 2021 & 2022 in both its Office & Industrial portfolio (equal to 25% income) as an opportunity to grow income, however these expires will now represent a key risk to future income and values depending on how the economy emerges from COVID.
Dexus' growing development pipeline has not been materially impacted by COVID19, with construction projects on track. The Group has however felt impacts from heads of agreement not converting to binding leases or customers seeking to delay lease start dates.
Dexus continue to support its growing Funds Management Business and recently reported 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. Dexus also 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.
,
Related Articles
