Australia’s Dexus, one of the country’s largest office landlords, has reported its first net loss since 2009 due to a decline in property values. The real estate sector has been hit hard as higher interest rates and changing tenant preferences impact building values and increase debt servicing costs. Dexus recorded a net loss of A$752.7 million for the year ending June 30, compared to a profit of A$1.62 billion the previous year. The loss was driven by a A$1.18 billion valuation downgrade in its A$17.4 billion property portfolio, particularly in the office sector, where values fell by 8.8%.
Despite the challenging economic environment, Dexus managed to maintain a high occupancy rate of 95.9% across its portfolio of 62 office properties. The company has been diversifying its capital sources and expanding its funds management business to navigate the uncertain market conditions. It raised A$1.6 billion in third-party equity commitments and successfully launched an oversubscribed new airport investment vehicle. Dexus also secured A$2.6 billion in new financing, including a A$500 million exchangeable note issue. Its pro-forma gearing stood at 27.9%, below its target range of 30% to 40%.
While operating in an uncertain economic environment remains challenging, we have taken steps to position ourselves for growth, said Dexus CEO Darren Steinberg. The company expects a slightly lower adjusted funds from operations (AFFO) in fiscal 2024, primarily driven by a decline in trading profits.
Analysts from Citi noted that Dexus has outperformed the market due to its high-quality portfolio but cautioned that investors may remain cautious about global office fundamentals. The property industry as a whole continues to grapple with the impact of remote working and e-commerce on demand for commercial spaces.
Dexus’ net loss highlights the ongoing struggles faced by the real estate sector in Australia and globally. As property values plummet and interest rates rise, companies in the industry are forced to adapt and find ways to mitigate losses. Dexus’ efforts to diversify its capital sources and focus on growing its funds management business demonstrate a proactive approach to navigating these challenging times. However, uncertainties persist, and it remains to be seen how the real estate sector will recover and stabilize in the coming years.
