Valuations boost nudges Dexus Industria to record profit

Not even Dexus Industria’s (ASX: DXI) strong set of full year FY22 results could do much to ignite market interest this morning, with the REIT’s share price up mere 0.35% on revelations of a record 42% profit boost to $169.4m.

Driven by contributions from acquisitions and 5.1% like-for-like growth across industrial assets, funds from operations (FFO) increased 29.9% to $53.6m at the top of the guidance range, with FFO per security of 18.5c at the top end of the guidance range.

Overall, the entire portfolio recorded like-for-like growth of 3.1%.

Rental uplift & acquisitions

Due to contracted rental uplifts and new acquisitions contributing to the growth, property FFO increased 33.4% or $18.4m.

The group also confirmed its distribution of 17.3 cents per security, which based on the current share price of $2.87, means a yields of 6%.

Despite an uncertain macro environment, management guide to FY23 FFO of 16.7c – 17.5c per security and distributions at 16.4c per security, based on current interest rate expectations and barring unforeseen circumstances.

Highlights of today’s result include:

• Record leasing activity, with 70,600 square metres completed, as well as 20,000 square metres of development leasing

• 40 cent (12.5%) uplift in Net Tangible Assets (NTA) per security to $3.60

• 1.9m securities repurchased at a 12% discount to NTA per security

Valuation gains

Much of the strong result is being attributed to higher revenue and valuation gains on investment properties.

Largely driven by industrial assets in Victoria and NSW increasing by 16.6% and 15.2% on average respectively, the uplift above prior book values was 10.2% on a like-for-like basis.

$100.3m of valuation gains were the primary driver of an uplift in NTA.

Acquisitions

During the period, the portfolio grew from 39 properties valued at $1.1bn to 94 properties valued at $1.7bn.

Portfolio quality was enhanced through $622m (57 assets) of acquisitions with future potential development of a further 450,000 square metres and $35m of disposals.

Assets were acquired at an average yield of 5.1% and a weighted average lease expiry of 7.4 years.

Management notes that acquisitions during the period, including a 33.3% stake in Jandakot Airport industrial precinct – which has 53 assets with an average age of 6 years, and 80 hectares of development land –improved the portfolio quality and enhanced the medium-term growth profile.

Strategy

Management advised investors that the REIT is well positioned towards the industrial and logistics sectors, which continues to strengthen with vacancy less than 1% across the major markets driving high rental growth.

This [sector] is expected to provide opportunities to add value through existing assets and new development throughout our portfolio over the coming years.

“These activities, combined with the active management of our balance sheet, will continue to underpin long-term value creation for our investors,” management noted.

Outlook

By continuing to leverage Dexus’s integrated real estate platform the REIT aims to be the first choice for investors seeking superior risk-adjusted returns from listed industrial real estate exposure in Australia.

Supported by Australian retail online penetration increasing; just-in-time inventory management moving to just-in-case; and an uplift in manufacturing activity, management noted that tenant demand remains strong across the industrial market.

“DXI’s portfolio is well positioned to continue to benefit from these strong structural trends, while also providing a reliable income stream underpinned by a 5.6 year weighted average lease expiry,” management noted.

Post acquisitions during the year, the total development pipeline was $378m, of which $128m is committed with $82m spend remaining.

Dexus Industria's share price over 12 months.