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DGAP-Adhoc: Dexus Finance Pty Limited: 2019 -2-

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DJ DGAP-Adhoc: Dexus Finance Pty Limited: 2019 Annual results - Securing opportunities. Adding value.



DGAP-Ad-hoc: Dexus Finance Pty Limited / Key word(s): Annual Results
Dexus Finance Pty Limited: 2019 Annual results - Securing opportunities.
Adding value.

14-Aug-2019 / 09:12 CET/CEST
Disclosure of an inside information acc. to Article 17 MAR of the Regulation
(EU) No 596/2014, transmitted by DGAP - a service of EQS Group AG.
The issuer is solely responsible for the content of this announcement.

*Dexus (ASX:DXS) *

*ASX release*

*14 August 2019*

*2019 Annual results - Securing opportunities. Adding value *

Dexus today announced that it had achieved 5.5% Adjusted Funds From
Operations[1] (AFFO) per security growth and 5.0% distribution per security
growth for FY19, and confirmed its guidance of circa 5% distribution per
security growth for FY20.

Dexus Chief Executive Officer, Darren Steinberg said: "We entered the year
with a clear strategy and readiness to respond to both market opportunities
and challenges. Our focus on maintaining a leading position in the
Australian property market has been achieved through the performance of our
property portfolio, selective acquisitions with future value-add, growth in
our funds management business and the delivery of trading profits, all
contributing to our strong financial result.

"We have performed well across all areas of the business, meeting our
distribution guidance while remaining focused on creating sustained value.

"In a year of significant transaction activity, we secured $3.1 billion of
quality acquisition opportunities, increasing our office exposure in core
markets and enhancing our embedded pipeline of office development projects
in both the Melbourne and Sydney CBDs. This was achieved while maintaining
our strong and conservative balance sheet.

"Our office portfolio continued to outperform the MSCI office benchmark[2]
over three and five years through driving higher rents and lower incentives.
Our $16.2 billion funds management business grew through the introduction of
new third party capital partners, and importantly, all funds achieved strong
performance.

"The strength of our results is testament to our workforce, and our people
continued to demonstrate high levels of engagement reflected through the
employee Net Promoter Score of +40."

*FINANCIAL HIGHLIGHTS*

? AFFO per security of 50.3 cents, up 5.5% on FY18

? Distribution per security of 50.2 cents, up 5.0% on FY18

? Net profit after tax of $1.28 billion, down 25.9% primarily due to net
revaluation gains of investment properties being lower than those
recognised in FY18

? Return on Contributed Equity[3] (ROCE) of 10.1%

? Gearing (look-through)[4] of 24.0%

*OPERATIONAL HIGHLIGHTS*
_Property portfolio_

? Leased a total of 567,039 square metres across the total Dexus
portfolio, maintaining high portfolio occupancy[5] of 98.0% for Dexus
office and 97.0% for Dexus industrial portfolios

? Dexus office portfolio continued to outperform the MSCI office
benchmark2 over three and five years, with Dexus industrial outperforming
the MSCI industrial benchmark[6] over one and three years

? Achieved strong leasing outcomes at key developments located in North
Sydney and Perth

? Enhanced the group's circa $9.3 billion development and concept pipeline

_Funds Management_

? Established the circa $2 billion[7] Dexus Australian Logistics Trust
(DALT) and attracted new investors across three other managed funds

? Achieved strong performance across all funds with Dexus Wholesale
Property Fund (DWPF) continuing its outperformance over one, three, five,
seven and ten years

_Trading_

? Delivered $34.7 million of trading profits (post-tax) in FY19

? Significantly de-risked trading profits for FY20 and FY21

_People, customers, communities and the environment_

? Achieved a strong employee Net Promoter Score of +40 and customer Net
Promoter Score of +46

? Achieved a strong score of 98% on independent external safety audits of
Dexus's corporate and management workplaces across Australia

? Achieved our 2020 target to reduce like-for-like energy use and
emissions by 10% (FY15 base year)

? Progressed our goal to achieve net zero carbon emissions by 2030,
securing one of Australia's first supply-linked renewable Energy Supply
Agreements

*Financial results*

Dexus's net profit after tax was $1.28 billion, down 25.9% on the prior
year. The key driver of this movement was $773.1 million net revaluation
gains, which were $428.7 million lower than FY18. These revaluation gains,
alongside an institutional placement and Security Purchase Plan (SPP), also
drove the
84 cent increase in net tangible assets (NTA) per security to $10.48.

Operationally, Funds From Operations (FFO) increased $28.2 million or 4.3%
to $681.5 million. The underlying business, excluding trading profits,
delivered FFO per security of 62.9 cents, growing by 3.8% on the prior year.
AFFO per security of 50.3 cents grew 5.5%.

Distributions per security were 50.2 cents, up 5.0% on the prior year, with
the distribution payout remaining in line with free cash flow in accordance
with Dexus's distribution policy.

Dexus achieved a ROCE for FY19 of 10.1% driven largely by the strong AFFO
result as well as revaluation gains from the recently completed development
at 100 Mount Street in North Sydney.

Dexus continued to maintain a strong and conservative balance sheet with
gearing (look-through) at 24.0% at 30 June 2019, well below Dexus's target
range of 30-40%. In May 2019, an equity raising comprising a $900 million
institutional placement and a $63.9 million SPP, which was increased from
its original $50 million cap, was used to partially fund Dexus's 75%
interest in 80 Collins Street, Melbourne.

Total debt duration remained high at 6.7 years and Dexus further diversified
its funding sources through the issue of $425 million of Exchangeable Notes
to fund the acquisition of a further 25% interest in the MLC Centre, Sydney.

*Securing opportunities. Adding value*

Darren Steinberg said, "A consequence of our scale means that we are
continually reviewing acquisition opportunities and seeking properties where
we can add value."

This approach resulted in the group securing $3.1 billion of opportunities
this year directly for Dexus and in conjunction with our third party capital
partners while increasing Dexus's exposure in a tightly held precinct of the
Melbourne CBD. These included:

? a future development site at 60 and 52 Collins Street, Melbourne (100%
Dexus) to create the latest generation of prime office space in the 'Paris
end' of the Melbourne CBD

? a large-scale mixed-use development at 80 Collins Street, Melbourne (75%
Dexus, 25% DWPF), further expanding Dexus's presence in the 'Paris end' of
the Melbourne CBD

? the remaining 50% interest in MLC Centre, Sydney (25% Dexus, 25% DWPF),
enabling commencement of the project to transform the precinct into a true
mixed-use destination, which involved securing a long-term lease with the
NSW Government to enable the reactivation of the Theatre Royal

? three properties located adjacent to 56 Pitt Street, Sydney (50% Dexus,
50% Dexus Office Partner), two of which have exchanged to be acquired on
delayed settlement terms post 30 June 2019, providing a compelling
opportunity to consolidate the site to create a potential super site (Pitt
and Bridge precinct) and deliver a significant office development located
in the financial core of the Sydney CBD for a future supply cycle

*Property portfolio *

_Dexus Office Portfolio_

*Key metrics* *30 June 2019* *30 June 2018*
Occupancy by income 98.0% 96.0%
Weighted average lease expiry (by 4.4 years 4.6 years
income)
Average incentives[8] 13.4% 13.9%
Weighted average cap rate 5.15% 5.37%

_Dexus Industrial Portfolio _

*Key metrics* *30 June 2019* *30 June 2018*
Occupancy by income 97.0% 98.3%
Weighted average lease expiry (by 4.7 years 4.8 years
income)
Average incentives 11.7% 12.6%
Weighted average cap rate 5.92% 6.40%

During the year, Dexus leased 189,459 square metres of office space across
267 transactions and
52,815 square metres of space across office developments, locking in future
income streams.

Executive General Manager, Office, Kevin George, said: "It has been an
excellent year in which we converted robust enquiry to significant leasing
success, including at our key office developments, 100 Mount Street in North
Sydney and 240 St Georges Terrace in Perth. 100 Mount Street is now 96%
committed after completing in May this year, while 240 St Georges Terrace is
now 93% committed."

The Dexus office portfolio delivered 3.4% like-for-like income growth which
was affected by vacancy at Sydney Olympic Park as well as a tenant dispute
in Queensland, with the timing for receipt of proceeds uncertain. The
Queensland space has already been leased to a new customer who is now in
occupation.

The Dexus office portfolio achieved a 10.6% total return for the year which
was driven by valuation uplifts and leasing. Occupancy increased to 98.0% at
30 June 2019 (FY18: 96.0%) driven by leasing in Dexus's largest core market,
Sydney, as well as Brisbane.

During the year, Dexus leased 324,765 square metres of industrial space
across 87 transactions with Dexus's industrial portfolio occupancy remaining
high at 97.0% and the portfolio delivering like-for-like income growth of
8.0%[9], an elevated result due to one-off income achieved above forecast.

_Customer_

Kevin George said: "Our customers are at the heart of what we do. We spend
time understanding their needs and delivering solutions to help them thrive
in their workspace.


(MORE TO FOLLOW) Dow Jones Newswires

August 14, 2019 03:12 ET ( 07:12 GMT)


"Our team continued to drive great customer experience outcomes during the
year as evidenced by our strong customer Net Promoter Score of +46 (out of a
possible range of -100 to +100) and customer satisfaction score of 8.6 out
of 10 in our latest customer survey. These scores have improved, and survey
participation increased, on the back of the strength of our customer
relationships."

_Development_

Chief Investment Officer, Ross Du Vernet said: "Our circa $9.3 billion group
development and concept pipeline provides us with the opportunity to enhance
future returns on balance sheet and within our funds. Development is an
efficient use of our capital at this time in the cycle when access to
quality properties on-market is competitively bid. Our $7.1 billion group
development pipeline comprises committed and uncommitted projects and our
circa $2.2 billion pipeline of potential concept development projects
provides us with embedded future growth.

"Our newly completed office development at 100 Mount Street in North Sydney,
owned by Dexus and DWPF, provides a showcase for smart building technology
and sets a new benchmark for office in the North Sydney CBD. This project
has also delivered an exceptional IRR of 39.6%. The development of our
premium industrial estate at Quarry, Greystanes was also completed,
delivering a key economic hub to Western Sydney."

_Transactions _

Dexus announced or completed $3.9 billion of transactions for the group
which included $0.8 billion of divestments. Key acquisitions included the
large-scale mixed-use development at 80 Collins Street, Melbourne for $1.476
billion[10] and the remaining 50% interest in MLC Centre, Sydney for $800
million[11] enabling the commencement of the precinct project to transform
the site into a true mixed-use destination.

*Funds Management*

Executive General Manager, Funds Management, Deborah Coakley said: "Our
funds management business grew by 16% to $16.2 billion and we now manage 129
properties on behalf of 79 third party capital partners.

"During the year, we welcomed GIC as a foundation investor in the newly
created Dexus Australian Logistics Trust, a circa $2 billion portfolio
seeded with assets from Dexus's existing industrial portfolio. We also
welcomed M&G Real Estate as a new investor in the Dexus Industrial
Partnership and Employees Provident Fund (EPF) Malaysia as a new investor in
the Healthcare Wholesale Property Fund (HWPF). DWPF attracted 9 new
investors during the year, including six investors who joined through a $340
million equity raising.

"All funds delivered strong performance, with DWPF achieving a one-year
total return of 10.24%, outperforming its benchmark over one, three, five,
seven and ten years. The Dexus Office Partnership has achieved an annualised
unlevered total property return of 14.3% since inception."

Post 30 June 2019, Dexus reached agreement to restructure the investment
management joint venture with Commercial & General for HWPF, resulting in a
streamlined governance structure and Dexus continuing as the sole investment
manager of the Fund. Dexus has also agreed to purchase Commercial &
General's units in HWPF.

*Trading*

Dexus delivered $34.7 million of trading profits net of tax from the sale of
32 Flinders Street, Melbourne.

Dexus progressed the sale of the North Shore Health Hub, St Leonards[12],
and post 30 June 2019 exchanged contracts to sell a 25% interest in 201
Elizabeth Street, Sydney, while entering into a put and call option to sell
the remaining 25% interest in late 2020. The sale of 201 Elizabeth Street is
expected to contribute circa $34 million in trading profits pre-tax in FY20
and a further circa $34 million in FY21 in the event either option is
exercised. Dexus is targeting $35-40 million of trading profits13 net of tax
in FY20.

A total of five projects[13] diversified across sectors and trading
strategies have been earmarked to deliver trading profits of $210-300
million pre-tax in future years.

*Value created for our people, communities and the environment*

Darren Steinberg said: "We have a highly engaged workforce which is focussed
on delivering outcomes for our customers, third party capital partners and
Security holders."

Dexus maintained its steadfast focus on safety during the year, achieving a
strong score of 98% on independent external safety audits of Dexus's
corporate and management workplaces across Australia.

Dexus is committed to contributing to society by creating quality jobs with
the right conditions. Recognising the global challenge of addressing modern
slavery and with the new Modern Slavery Act coming into effect in Australia
on 1 January 2019, Dexus signed up to the UN Global Compact, signalling its
continued commitment to corporate sustainability principles. Dexus also
updated its Human Rights Policy and formed an internal Modern Slavery
Working Group involving broad operational functions collaborating with
service providers to understand how Dexus can support and contribute to
upholding human rights across its supply chain.

This year Dexus progressed its long-term goal to achieve net zero carbon
emissions by 2030 through improving energy efficiency and increasing the
adoption of renewable energy sources. Importantly, Dexus obtained external
certification via the Science Based Target Initiative (SBTi) that its 2030
target aligns with the global ambitions of the Paris Agreement.

Dexus progressed its 2020 NABERS targets and secured one of Australia's
first supply-linked renewable Energy Supply Agreements through which 50% of
base building power, across 40 NSW properties, will be sourced from wind and
solar projects from 1 January 2020.

*Outlook and guidance*

Darren Steinberg said: "Dexus is on track and achieving results, with
embedded value and exciting opportunities across the portfolio.

"Importantly, we are well positioned for continued success despite increased
economic uncertainty. We have high portfolio occupancy with fixed rental
increases, limited supply in our core markets and the Australian office
yield spread to bonds remains attractive from a global perspective.

"Our circa $9.3 billion group development and concept pipeline is a source
of embedded long-term value, and the diversification of our funds management
business sets us up for further expansion as domestic and global pension
fund flows continue to grow."

Dexus's market guidance[14] for the 12 months ending 30 June 2020 is to
deliver distribution per security growth of circa 5%.

*2019 Annual Reporting Suite *

This _ASX announcement_ should be read in conjunction with the _2019 Annual
Results presentation_, _2019 Annual Report, 2019 Financial Accounts, 2019
Sustainability Performance Pack_ and _2019 Property Synopsis_, released to
the Australian Securities Exchange today and available at
www.dexus.com/investor-centre [1]

*Investor conference call and webcast*

Dexus held an investor conference call at 9:30 am (AEDT) today, 14 August
2019, which will be webcast via the Dexus website
(www.dexus.com/investor-centre [1]) and is available for download.

[1] AFFO in accordance with guidelines provided by the Property Council of
Australia (PCA): comprises net profit/loss after tax attributable to stapled
security holders calculated in accordance with Australian Accounting
Standards and adjusted for: property revaluations, impairments, derivative
and FX mark-to-market impacts, fair value movements of interest bearing
liabilities, amortisation of tenant incentives, gain/loss on sale of certain
assets, straight line rent adjustments, deferred tax expense/benefit,
transaction costs, rental guarantees and coupon income, less maintenance
capital expenditure and lease incentives.

[2] Period to 31 March 2019 which reflects the latest available MSCI
Australian Quarterly Digest for Office Property benchmark (formerly IPD)
data.

[3] Return on Contributed Equity (ROCE) is calculated as AFFO plus the net
tangible asset impact from completed developments divided by the average
contributed equity during the period.

[4] Adjusted for cash and debt in equity accounted investments.

[5] By income.

[6] Period to 31 March 2019 which reflects the latest available MSCI
Australian Quarterly Digest for Industrial Property benchmark (formerly IPD)
data.

[7] Seeded with assets from Dexus's existing industrial portfolio comprising
$1.4 billion of core logistics properties and a $138 million development
landbank (circa $0.5 billion on completion).

[8] Excluding development leasing of 52,815 square metres.

[9] Excluding one-off income across the portfolio, like-for-like income
growth is +2.5%.

[10] The Total Acquisition Cost reflects the gross price for the acquisition
of 100% of 80 Collins Street, Melbourne excluding transaction costs and
subject to customary adjustments. The Total Acquisition Cost comprises i)
payments for the 80 Collins precinct on an "as-is" basis of $1.082 billion,
ii) payments for remaining costs to complete of $290 million, and iii)
payments for assumed outstanding incentives and North Tower capital
expenditure liabilities of $104 million. Dexus will fund 75% of the Total
Acquisition Cost with DWPF funding the remaining 25%.

[11] Dexus and DWPF each acquired an additional 25% interest.

[12] Sale of the North Shore Health Hub is subject to Responsible Entity and
Advisory Committee approvals and securing debt financing.

[13] Including contribution from 201 Elizabeth Street, Sydney and North
Shore Health Hub, 12 Frederick Street, St Leonards - Stage 1.

[14] Barring unforeseen circumstances, guidance is supported by the
following assumptions: Impacts of announced divestments and acquisitions;
FFO per security growth of circa 3%, underlying FFO per security growth of
circa 3%, underpinned by Dexus office portfolio like-for-like income growth
of 4.5-5.5%, Dexus industrial portfolio like-for-like income growth
(excluding one-offs) of 3-4%, management operations FFO of $55-60 million,

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