Office space demand drives Dexus Property Group results

Demand for high quality office space and improvements in occupancy levels helped Dexus Property Group lift its Funds from Operations and distributions in the 2015 financial year. 

The group, which has Australia’s largest prime office portfolio and a $9.6 billion funds management business, reported FFO increased to $544.5 million from $446.6 million a year earlier. This represented a per security increase of 9.3% to 59.5 cents. 

Distribution per security also increased 9.3% to 41.04 cents, in line with the group’s upgraded guidance provided in February. 

Chief executive Darren Steinberg said the business was in “great shape”. 

“Income from our property portfolio is underpinned by high occupancy and fixed rental increases and we expect to see strong valuation uplift across our portfolio with tightening of a further 25 to 50 basis points of [capitalisation] rates over the next 12 months as a result of recent transactional activity,” Steinberg said.

Occupancy rates across the portfolio rose to 95.3% and leasing incentives fell. 

Dexus reported stabilising markets in Sydney, where half of the office buildings it owns are located, and in Melbourne. However, vacancy rates remained well above historical averages in Brisbane and Perth. 

Despite the high vacancy rates, the group was attracted to the long-term growth prospects of Brisbane and Queensland more broadly. 

Executive general manager Ross Du Vernet said the group was excited about its acquisition of Waterfront Place in Brisbane, which it bought for $635 million, representing a 6.9% capitalisation rate. The sale settles in October 2015. 

“Brisbane office represents good relative value when we compare it to office markets nationally. Foreign capital is less active and we do think the 100 basis point discount applied to prime average capitalisation rates does overstate the risk in that market,” Du Vernet said.

Dexus issued guidance for FFO per security growth of 5.5 to 6% for the 2016 financial year with FFO from the underlying business expected to grow by 3 to 3.5%. 

It forecast distribution per security growth of 5.5 to 6%.