• FFO (Funds From Operations): Achieved at the top end of guidance range, $0.208 to $0.211 per security.
• Distribution: Delivered at the upper end of guidance range, $0.208 to $0.211 per security.
• Gearing: Maintained around the midpoint of target range, 25% to 40%.
• NTA (Net Tangible Assets) per Security: Decreased 5.1% to $3.56.
• Property Valuations: Decreased 3.1% over the 12-month period.
• Average Cap Rate: Expanded to 6.4%.
• Debt Facilities: Extended $130 million at sharper pricing.
• FY25 Guidance: FFO and distributions per security expected to be $0.206.

• Warning! GuruFocus has detected 10 Warning Signs with ASX:DXC.

Release Date: August 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Dexus Convenience Retail REIT (ASX:DXC) delivered FFO and distribution at the upper end of their guidance range, showcasing resilient income backed by high-quality tenant covenants.
• The company executed $23 million in divestments to support the fund's capital position, maintaining gearing around the midpoint of their target range.
• Post-balance date, contracts were exchanged to sell two assets at a premium to book values, reducing pro forma gearing by an additional 50 basis points.
• 89% of the portfolio is zoned for high-value uses, providing flexibility for future redevelopment opportunities.
• The company maintains a carbon-neutral position across its controlled assets and actively engages with tenants on ESG initiatives, including solar and electric vehicle charging projects.

Negative Points

• NTA per security decreased by 5.1% to $3.56, primarily due to asset valuation declines.
• The Glass House Mountains project is delayed by six months, although it has no financial impact, it affects the timeline for potential returns.
• Property valuations decreased by 3.1% over the 12-month period, reflecting challenges in the current market environment.
• The company faces continued increases in interest expenses, impacting overall financial performance.
• FY25 guidance indicates a decrease in FFO and distributions per security due to dilution from asset sales.

Q & A Highlights

Q: Can you walk us through your guidance for the year ahead and its components? A: The guidance for FY25 considers like-for-like income growth offset by increased interest expenses, resulting in flat growth. The decline is mainly due to the full-period impact of asset sales in FY24 and an additional $40 million of sales under negotiation. - Jason Weate, Fund Manager

Q: What are your assumptions regarding the cost of debt for FY25? A: The floating rate is assumed to be in the mid-4s, considering the market curve and recent guidance, despite some market volatility. - Jason Weate, Fund Manager

Q: Can you provide more details on the $40 million asset sale, including pricing? A: The portfolio is skewed towards regional locations in Queensland. The overall discount to December '23 book values is about 2.8%, and under 2% when considering June valuations. This reflects the cost of liquidity in the current environment. - Jason Weate, Fund Manager

Q: Are there any other asset sales planned? A: The current asset sales will position us well for near-term capital deployment opportunities. Any additional sales would be to fund further opportunities, maintaining gearing around the midpoint of our 25%-40% target range. - Jason Weate, Fund Manager

Q: What caused the delay in the Glass House Mountains project, and what is the financial impact? A: The delay is due to redesigning the Viva OTR layout and adding EV charging, requiring council approvals. There is no financial impact on FFO or development profit, and it enhances tenant longevity. - Jason Weate, Fund Manager

Q: How do you view the broader direct market, and how does it affect your portfolio valuations? A: Transaction volumes are on track to exceed last year's levels. Positive cap rate spreads, improving interest rate outlook, and tenant reinvestment support our market position. Our portfolio's average cap rate of 6.4% is undemanding, and we expect valuations to remain stable. - Jason Weate, Fund Manager

Q: Are you considering diversifying income sources away from fuel? A: We focus on income resilience and growth, strong tenant credit, and long-term growth prospects. We will continue to explore fuel and convenience with QSR, essential services-based retail, and potentially health and medical sectors. - Jason Weate, Fund Manager

Q: What are the construction costs for the Glass House Mountains project, and how is the $20 million being spent? A: The majority of the $20 million is for construction costs, including site leveling and a new service center offering with additional QSRs. A development management fee is also included. - Jason Weate, Fund Manager

For the complete transcript of the earnings call, please refer to the full earnings call transcript.