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Dexus reports growth in earnings and distributions for FY16

Glenn Freeman  |  17 Aug 2016Text size  Decrease  Increase  |  

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Dexus Property Group (ASX: DXS) on Wednesday delivered a solid annual result, reporting underlying funds from operations (FFO) of $547.5 million for fiscal 2016, up 9 per cent on fiscal 2015.

The Australian REIT reported more modest gains on the income front, announcing a distribution of 43.5 cents a share, up 6 per cent on fiscal 2015.

Dexus holds a large office portfolio and a smaller industrial portfolio. Its high-grade office portfolio accounts for around 80 per cent of total assets--overweight Sydney--with industrial properties comprising the additional 20 per cent.

The fiscal 2016 distribution was within Dexus' 2015 guidance of between 5 per cent and 6 per cent, and higher than Morningstar's forecast of 5.5 per cent distribution growth.

Its overall portfolio FFO of $673.3 million was up 1 per cent and 7 per cent for office and industrial, respectively, for fiscal 2016, also meeting the group's fiscal 2015 guidance.

Office property generated $567.2 million in FFO for fiscal 2016, up 6.4 per cent on a year earlier. However, the group's industrial portfolio slipped by 5.5 per cent, with FFO falling to $106.1 million from $112.3 million in fiscal 2015.

This decline is attributed to a number of large-scale departures, including vacancies in the Melbourne sites of Knoxfield and Dandenong, and Matraville in Sydney. The sale of industrial properties in Mascot and Rosebery early in fiscal 2016 also contributed.

"Industrial occupancy was impacted over the year by some large tenant movements, longer downtime and reduced leasing activity, particularly in Melbourne's south east," said Kevin George, Dexus executive general manager, office and industrial.

The industrial property retention rate fell to 32 per cent over the year, down from 53 per cent in fiscal 2015, with a number of large tenants taking up competitive external rental deals which Dexus chose not to match.

However, George reiterated the continued strength of its Sydney industrial portfolio, which saw occupancy increase 95.9 per cent, with increased uptake from sectors such as automotive parts, dairy, health and pharmaceuticals.

In fiscal 2017, Dexus management has said it will focus on actively managing the industrial portfolio, to return like-for-like income growth to more normalised levels of around 3-4 per cent, from the disappointing 7 per cent decrease of fiscal 2016.

It is targeting distribution growth of between 2.5 per cent and 3.5 per cent, and 3 per cent to 3.5 per cent growth in underlying FFO for fiscal 2017.

The group has a $4.7 billion pipeline of projects, after completing $720 million worth of projects on its balance sheet in fiscal 2016. Key office developments in Sydney, Brisbane and Perth were all completed during the year.

Fiscal 2017 will see the start of construction on a number of projects, including an office development at 100 Mount Street North Sydney; pre-commitments for office and industrial developments; and master planning for Waterfront Place in Brisbane and another Sydney CBD development.

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Glenn Freeman is Morningstar's senior editor.

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