Dexus profit soars despite lagging return to the office

Australian property investor Dexus (ASX: DXS) has seen its profits rise 82 per cent to $803.2 million in the 1H22 period, driven by the net revaluation gains of investment properties.

The company, which counts 189 office, industrial and healthcare properties in its portfolio, did see revenue slip however, down 17.8 per cent in the period to $514.9 million.

CEO Darren Steinberg said the results were achieved despite the impact of COVID-19 on the sector’s confidence, creating challenges in supply chains and delaying the new year return to the office.

“Despite impacts from the pandemic, it has been an active start to the year with growth in our funds management business, continued leasing activity, as well as new acquisitions and selective asset sales,” Steinberg said.

“This momentum demonstrates our continued focus on leveraging our platform capabilities to drive performance across our portfolio and in our third party funds.”

The $361.9 million increase in net profit after tax was primarily driven by net revaluation gains of investment properties of $486.2 million - $341.5 million higher than the previous corresponding period.

Most of the valuation uplift was seen across Dexus’ industrial portfolio which increased by 8.9 per cent, with the office portfolio growing by 1.1 per cent on prior book values.

Rent collections were strong at 97.9 per cent, and Dexus maintained a strong balance sheet with $1.6 billion of cash and undrawn debt facilities.

“The first half underlying financial result was characterised by strong growth in funds management income driven by the addition of assets to the platform as a result of the merger of AMP Capital Diversified Property Fund (ADPF) with DWPF, the acquisition of APN Property Group and other successful initiatives that are expected to continue to drive growth,” Dexus chief financial officer Keir Barnes said.

“Despite the extension of the legislation and regulations for the National Commercial Code of Conduct in some States and the continued economic impacts of the pandemic, we are confident of being able to deliver our FY22 guidance with distributions continuing to be paid out in line with free cash flow.”

According to Steinberg, Dexus has seen strong momentum across the portfolio in the first half of FY22 despite the uncertainty caused by the Omicron variant, and he is confident the company can continue to execute on its objectives.

“Our business is supported by a fully integrated platform that comprises a high-quality investment portfolio with upside from a profitable funds management business and significant development pipeline,” Steinberg said.

“Our funds management business enables capital efficient investment alongside third party clients, with the platform growing by an average 21 per cent per annum over the past five years and our $17.8 billion development pipeline enhances portfolio quality, while providing inventory to grow our third-party relationships.”