Dexus calls for state borders to stay open as business returns

The office landlord says workers are returning and corporate Australia has recognised that getting staff back is critical to their businesses

Darren Steinberg, CEO of Dexus, at the group’s Sydney offices. Picture: Britta Campion / The Australian

The country’s largest listed office owner Dexus has called on governments to keep state borders open to help business bounce back from the coronavirus crisis and says that corporate Australia returning to offices.

Delivering a healthy half-year result, the company acknowledged that the companies had changed the way they were working but insisted that they still needed offices.

Dexus chief executive Darren Steinberg renewed calls to keep internal borders open to enable commerce to get fully underway this year.

“It is critical now that state governments come together and do their absolute best to keep borders open,” he said. “It is now imperative that Australia keeps internal borders open so business can plan with some certainty.”

Mr Steinberg said consistent rules and regulations were required to ensure the domestic economy “returns to sustainable levels of growth”, and minimising border restrictions would assist in the recovery from the COVID-19 crisis.

The property trust reported strong leasing activity, relatively high rent collections and grew its funds management, industrial and health businesses in the half.

Dexus had a $442.9m first half profit, down 55.5 per cent mainly due to net revaluation gains being lower than in the first half of last year.

It said that despite the COVID-19 pandemic clouding the outlook the office market would hold up as business and consumer confidence return.

Dexus expects its full-year distribution per security to hold in line with last year’s 50.3c, although this is subject to no reinstatement of any major lockdowns or unforeseen circumstances.

The trust reported Adjusted Funds from Operations and a distribution of 28.8c per security, up 7.1 per cent and 6.7 per cent respectively on the first half last year, primarily driven by trading profits.

Mr Steinberg said major companies were boosting flexibility for staff but were telling the landlord that offices remained fundamental and a number had struck long-term leases.

“Organisations are coming to that conclusion themselves,” he said, as companies shifted from maintaining productivity during the crisis to getting back to “business as usual”.

Office users are changing layouts but still must accommodate staff peaks during midweek which he said meant they would not cut back space.

But he acknowledged a tough outlook with sublease space and incentives on the rise, saying the country had gone into a “COVID-19-led recession”.

Dexus said that rents that tenants are paying have held up pretty well and could even grow in some markets but acknowledged pressure to lift incentives from some recession-hit companies.

The office landlord said that occupancy numbers were tracking in the right direction but stuck to a forecast given last year of effective rent declines of 20 per cent, with largest declines in Sydney and Melbourne.

Dexus also faces the challenge of finding major tenants for its $11.4bn development pipeline. Dexus is hoping to come through by focusing on high quality buildings and developing “next generation” towers that sport high environmental ratings.

The company is making a larger push into funds, where launched an opportunistic fund and is making a play for a $4bn AMP Capital-run vehicle.

Mr Steinberg said that demand for high quality real estate had emerged during the crisis and Dexus was very confident that values were going to hold up.

Dexus is awaiting Foreign Investment Review Board approval of its sale of a half stake in Grosvenor Place in Sydney to Chinese sovereign wealth fund CIC and expects to receive it by April, although it acknowledged extended assessment times.

The company flagged it will take a more active approach to its buyback and could also put capital into funds management and health property.

Jefferies analysts said the result was ahead of consensus, helped by better than expected trading profits, with Funds From Operations at $375.6m. They said office income was down only 2.9 per cent with strong rent collection and leasing activity, with the impact of COVID-19 relief reduced by 40 per cent.

Jarden analysts said the result was encouraging from a fundamentals perspective and said the market was pricing material downside for the office portfolio once the value of the platform and tailwinds across industrial and healthcare property sectors were taken into account.

Dexus shares closed down 31c, or 3.6 per cent, at $8.42 each.