Slowing Valuation Gains at Dexus
Dexus's recent round of re-valuations have shown that the previous gains in the office & industrial markets are harder to come by with valuations increasing just 1.6% for the 6 months to June, compared to a 3.1% increase for the previous 6 month period.
Dexus externally revalued 109 of its 114 assets, comprising 45 office properties and 64 industrial properties resulting in a total estimated uplift of $250 million. As a result of these valuations Dexus’s net tangible asset backing (NTA) per security is expected to increase 23 cents.
Darren Steinberg, CEO of Dexus said: “Investment demand for quality office and industrial properties combined with a lower for longer interest rate environment continues to flow through to the capital values of our properties. Pleasingly we have seen two-thirds of the office portfolio uplift driven by rental growth, with strong market fundamentals in Sydney and Melbourne being reflected in our valuations.”
The weighted average capitalisation rate across the total portfolio tightened 10 basis points over the past six months to 5.26%. The weighted average capitalisation rate of the office portfolio tightened 7 basis points from 5.22% at 31 December 2018 to 5.15% at 30 June 2019 and the industrial portfolio weighted average capitalisation rate tightened 22 basis points from 6.14% to 5.92%.
The key contributors to the valuation uplift were the Sydney and Melbourne office portfolios, where market rents continue to grow, and capitalisation rates have compressed further, albeit to a lesser extent than previous periods.
100 Mount Street, North Sydney increased by $37.8 million following practical completion of the development, continued leasing success and a 12.5 basis point tightening in the property’s capitalisation rate to 4.88%.
1 Farrer Place, Sydney increased by $37.7 million driven by increased market rents and an 8 basis point capitalisation rate tightening.
At 385 Bourke Street, Melbourne the valuation increased by $24.5 million as a result of increased market rents and a 25 basis point capitalisation rate tightening.
In Brisbane, 123 Albert Street has reduced in value by $48 million due to the valuation now reflecting re-leasing and downtime allowances and the capitalisation rate expanding by 12.5 basis points.
In Perth, 240 St Georges Terrace is now 92% leased which contributed to a 50 basis point tightening of the capitalisation rate to 6.25% and an uplift of $18.1 million.
Valuation increases across the industrial portfolio were driven by continued capitalisation rate compression at properties across key Eastern seaboard markets.
Darren Steinberg said: “Going forward, we expect that transactional evidence and further rental growth will continue to drive values.”