Dexus Convenience Retail REIT (ASX: DXC) records $82.6M profit in FY22 results

• Funds from operations recorded at $31.5 million, up 21.5%
• Distribution per security 23.1 cents, representing an FFO payout ratio of 100%
• Net tangible asset of $4.03, up 9.6%

Dexus Convenience Retail REIT (ASX: DXC) announced its full-year results for FY22 this morning. The company recorded a statutory net profit of $82.6 million, 11.9 per cent up from last year. The company said the result was driven by higher rental income from acquisitions and fair value gains on interest rate derivatives.

Across the financial year, DXC strengthened its capital position by extending weighted average debt facility maturity to 4.2 years with 58 per cent of debt hedged across FY22.

“We delivered a solid financial result for the year in line with our upgraded guidance, demonstrating the resilience of the portfolio which provides income certainty backed by some of the highest-quality tenant covenants in the market,” said DXC fund manager Jason Weate.

“We promptly responded to changes in the economic environment by launching an on-market securities buyback program, pursuing asset sales and strengthening our capital position to support Security holder value over the long term,”

Source: Dexus Convenience Retail REIT.

DXC made 15 acquisitions during FY22, totalling $168 million, with a long weighted average lease expiry (WALE) of 10.3 years and average annual rent reviews of 3.3 per cent. Dexus Convenience Retail REIT also divested four properties totalling $13 million, reflecting an average premium to book of 3.8%.

Net tangible asset (NTA) for DXC was $4.03, up 9.6%, DXC said it was primarily driven by $30.8 million of property valuation gains with rental growth accounting for 47% of valuation gains.

“An increased focus on asset sales going forward will allow us to further enhance the quality of the portfolio and strengthen the balance sheet, while also providing optionality for capital redeployment, including potential further buyback of securities on-market following the 1.4 million securities already purchased at an average discount of 15% to NTA per security,” said Mr Weate.

81 of DXC’s investment properties were independently valued in the 12 months to 30 June 2022, with the remainder subject to internal valuations.

Property portfolio valuation gains and fair value gains on interest rate derivatives contributed to the 36 cents, or 9.6%, increase in NTA per security to $4.03 as at 30 June 2022.

The company’s 112 asset portfolio was valued at $850 million, and is 83% weighted, by value, to metropolitan and highway assets; the remainder are regional properties.

The portfolio WACR is 5.74%, tightening 28 basis points over the past 12 months. During the year, the valuations of metropolitan assets increased 4.6% on prior book values, while highway assets remained flat and regional assets increased 4.8%.

The portfolio generates strong organic rental growth with average rent reviews of 3.1% per annum. 77% of rental income is subject to fixed increases, while 23% is linked to CPI escalations with half of these subject to caps of 3 – 4%.

The portfolio remains 99.7% occupied by income and is underpinned by reliable and experienced national and global tenants, with 89% of rental income derived from major tenants.

DXC raised a total of $56.3 million of new equity during the year, comprising $45.0 million via an institutional placement in August 2021, $10.5 million via a Securities Purchase Plan in September 2021 and $800,000 via the Distribution Reinvestment Plan (DRP).

The DRP is not currently in operation. The proceeds have assisted in funding acquisitions and have ensured that gearing remains within the 25 – 40% target range at 34.7%.

DXC’s weighted average debt facility maturity was 4.2 years and its weighted average cost of debt remained at 2.6% with 58% of DXC’s debt hedged across FY22 and a weighted average hedge maturity of 3.8 years.