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Dexus swings to first loss in 14 years as higher rates crunch property values

Published 08/15/2023, 09:06 PM
Updated 08/16/2023, 01:12 AM
© Reuters. FILE PHOTO: Sydney office buildings and commercial real estate appear behind Sydney waterfront properties in the suburb of Birchgrove, Australia, November 3, 2016. Picture taken November 3, 2016.  REUTERS/Jason Reed/File Photo
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By Lewis Jackson and Nausheen Thusoo

SYDNEY (Reuters) -Australia's Dexus (ASX:DXS) swung to its first net loss since 2009 as higher interest rates wiped nearly A$1.2 billion ($773 million) off the value of its property portfolio, but said it would not be a forced seller of real estate.

The property industry globally, and office building owners in particular, are struggling as home working and e-commerce lead tenants to reconsider floor space just as higher interest rates reduce building values and raise debt servicing costs.

Rising rates wiped A$1.18 billion off Dexus' A$17.4 billion property portfolio and drove one of Australia's largest office landlords to a net loss of A$752.7 million for the year ended June 30, down from a A$1.62 billion profit a year earlier.

Shares fell as much as 4.5% on Wednesday before rallying slightly to be down 3.6% an hour before the close.

Dexus sold a downtown Sydney office building in June for A$393.1 million, a 17.2% discount to valuation, one of the few high-profile recent sales in a market frozen by a standoff between sellers and buyers.

Dexus Chief Executive Darren Steinberg said forced sales were off the cards because the developer had raised enough financing from banks and a recent note issue to fund its pipeline and would only sell assets to recycle cash into higher-yielding projects.

"This market has proven to be a lot more liquid than other markets around the globe because Australia is still screening really attractively," he told Reuters.

The company signed a conditional deal to sell a second Sydney office building at 1 Margaret Street for A$293.6 million last month, according to its annual report, a 16% discount to its Dec. 31 book value.

"We don't have to sell another asset to meet any of our requirements, development or otherwise," Steinberg told analysts on an earnings call.

The company is well-supported by its banks, he later told Reuters.

Occupancy across Dexus' portfolio of 62 office properties was 95.9%, the company reported. Roughly a third of tenancy renewals last financial year added floor space, versus 9% of those contracting.

Dexus reported adjusted funds from operations (AFFO), which excludes valuation changes and one-off charges, of A$555 million, down 3% from a year earlier.

© Reuters. FILE PHOTO: Sydney office buildings and commercial real estate appear behind Sydney waterfront properties in the suburb of Birchgrove, Australia, November 3, 2016. Picture taken November 3, 2016.  REUTERS/Jason Reed/File Photo

"Dexus has operationally outperformed the market from their higher quality portfolio, however investors will remain cautious of global office fundamentals," Citi analysts said in a note.

($1 = 1.5521 Australian dollars)

 

 

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