The DEXUS Property Group (ASX:DXS) share price is up 0.4% to $9.38 today, after a strong set of half-year results that saw strong underlying growth in Funds From Operations (FFO) despite a cut to dividend distributions. Here's what you need to know:
- Revenue fell 27% to $384 million
- Net Profit After Tax fell 10% to $716 million
- Funds From Operations (FFO) fell 8.6% to $296 million
- Underlying Funds From Operations (excludes trading profits) rose 10% to $288 million
- Dividends per security fell 5.8% to 21.71 cents
- Net Tangible Assets of $8.05 per share
- Gearing declined to 26.5%
- Outlook for 4% growth in underlying FFO
So What?
While trading profits are lumpy by nature and counted against investors in this half, DEXUS' more reliable property management business performed strongly, with income up and the management expense ratio falling measurably.
The metrics of the office and industrial property businesses remain strong, with occupancy of 96.3% and 94.9% respectively. Weighted Average Lease Expiry (WALE) by income also remained strong at 4.7 years for both portfolios, with tenant retention rates improving on the previous year. Readers will note that markedly higher incentives were required to get industrial customers to sign on, which could indicate tough competition and/or oversupply.
Now What?
One thing to take away is that, while DEXUS' dividends are much more attractive than savings accounts, the company's payout ratio is also looking pretty stretched, at 98% of Adjusted FFO, which includes amortisation and other expenses. This means that there's little scope for dividends to be lifted, and they are likely to grow at a similar pace to underlying FFO – around 3% to 4% per annum. The trading business provides some upside and DEXUS has a track record of success here, but it is lumpy and dependent on the wider property market.
Priced at 1.15x the value of its Net Tangible Assets, DEXUS is not expensive, especially compared to something like Scentre Group Limited (ASX: SCG) or Westfield Corp (ASX: WFD). DEXUS appears reasonable value, but it would be tough to suggest that it is a better buy than other renowned blue chips like Wesfarmers Ltd (ASX: WES) or the like. I think readers can find better ideas elsewhere in the market right now.
