A Peek into The Recent Results of Property Stocks - LEP, GPT, DXS

  • Feb 12, 2020 AEDT
  • Team Kalkine
A Peek into The Recent Results of Property Stocks - LEP, GPT, DXS

Real estate sector constitutes an important component of the Australian economy. A report from RBA says that the housing market has a widespread impact on the Australian economy and is a popular topic of discussion amongst individuals, on television and in newspapers.

The housing construction cycle in Australia declined by the end of 2018 and the decline in the housing sector was not because of rising interest rates, rather it was because of supply and demand. The construction cycle started after a spontaneous increase in population in the mid-2000s. The demand for construction was more than the supply.

Another important factor supporting the slow reaction to the supply was the historically high share of high & medium density housing.

When we talk about the housing prices in Australia, approximately 70 percent of the housing sales are from the present housing stock.

For the residential construction sector, the year 2020 is expected to be a lacklustre year. However, demand continues to rise due to population growth. There are pockets of oversupply in certain sections of Sydney as the vacancy rate is elevated and they are not spread out. In places like Melbourne and Sydney, excluding Perth or Darwin, prices have turned in, which is expected to bring back the investors into the market.

The monetary policy is focussed on cumulative outcomes for inflation & joblessness. On that front, joblessness in Australia by the end of 2019 was a slightly more than what it was during beginning of 2019 as well as there was no upward pressure on incomes. This contributed to the prolonged run of inflation results lower than the medium-term target range, which forced RBA to ease monetary policy.

As per an article released by ABS on 11 February 2019, the value of new loan commitments for housing increased by 4.4percent in Dec 2019. Robust increase in the value of fresh loan commitments for housing during the 2H 2019 has resulted in series rise at 20.7 percent from the low levels in May 2019. The value of new loan commitments for investor housing was rising over the past 6 months; however, it was lower than the highest level during March 2017.

In December 2019, the no. of loan commitments to owner occupier first home buyers went up by 6.2 percent after first home buyer action was quieter over the previous 3 months.

In this article, we would look at three real estate stocks listed on ASX and glance through their recent result announcements.

ALE Property Group (ASX: LEP)

ALE Property Group (ASX: LEP), the owner of the largest portfolio of freehold pub properties in Australia, announced an increase in the distributable profit at 11.5percent to $15.6 mn after the declaration of 1H FY2020 results for the period ended 31 December 2019, when compared to the previous corresponding period.

  • Net profit after tax for the period was $20.5 mn. It was the outcome of a rise in property values & derivative liabilities.
  • Directors’ valuation of eighty-six properties went up by 0.8 percent to $1,172.1 mn.
  • Average adopted property yield stayed unaffected at 5.09 percent & passing net rents soared by 0.8percent.
  • Independent valuers’ assessment of rentals, capitalisation rates, & values for the quality leased properties as well as pub remained mostly same.
  • LEP’s financial status remained solid during the period.

FY2020 Outlook:

LEP expects FY2020 distributable profit to be swayed by various factors like:

  • Final result of the 2018 rent reviews; The company is confident that the results would be positive.
  • Materially lesser rent assessment costs than the $3.1 mn experienced in FY2019.
  • Effect of refinancing of the $225 mn debt set to mature in August 2020. The company has reached its advanced stages of planning for refinancing and is hopeful that the all up interest rate on the new debt facility will be lesser than the 5percent rate on the current facility.

GPT Group (ASX: GPT)

GPT Group (ASX: GPT) is one of the largest diversified property groups in Australia and ranks amongst the top 50 ASX listed companies by market cap. The company handles a $25.3 billion portfolio of retail, office & logistics property assets throughout Australia.

On 10 February 2020, GPT Group released its annual results for FY2019 ended 31 December 2019.

FY 2019 Highlights:

  • Delivered a net profit after tax of $880 million, a drop of 39.4percent as compared to the previous corresponding period (pcp) as a result of lower valuation gains.
  • Reported a growth of 6.8percent in funds from operation at $613.7 million.
  • Raised $867 million via a Placement & SPP.
  • Distribution per share rose by 4 percent on pcp.
  • Secured a 33.4-hectare logistics development site for $100 million at Kemps Creek, Sydney.
  • Further secured 32.8-hectare logistics development site for $34 mn at Truganina, Melbourne.
  • GPT maintained its leadership position in the real estate industry for providing sustainable business outcomes. It is positioned in the 3rd place in the Dow Jones Sustainability Index & continues to be known as a GRESB Green Star company.

The company also updated on its Strategic Focus. Below are the salient points:

  • Growing its Office & Logistics portfolio.
  • High weighting to NSW and VIC markets.
  • Increase in the development pipeline to an expected end value of ~ $5 bn.
  • Total AUM of $25.3 bn.

Outlook:

The Group continues to be positioned well to deliver FFO & distribution growth in 2020. The office and Logistics portfolios of the company have high occupancy and remains to benefit from strong tenant demand. The company also expects growth in 2020 from its recent completion of logistics acquisitions & development.

In FY2020, GPT expects a growth of 3.5percent in FFO per security as well as 3.5 percent growth in Distribution per security.

Dexus (ASX: DXS)

Dexus (ASX: DXS) is one of the top real estate groups in Australia that manages a superior Australian property portfolio worth $33.8 bn.

On 6 February 2020, Dexus released its 1H FY2020 results for the period ended 31 Dec 2019.

A Glance at the Financial Highlights.

  • Net profit after tax of $994.2 mn, up 36.9percent mainly because of net reassessment gains of investment properties being more than those recognised in the prior corresponding period
  • Underlying Funds from Operations (FFO) per share went up by 1.9percent to 31.9 cents when compared to the prior corresponding period.
  • Distribution per security remains consistent with 1H FY2019. It was 27 cents during the period.
  • NTA per security rose by 5.9percent to $11.10.
  • Successfully concluded the issue of $200 mn of Medium-Term Notes with a 10-year tenor. After 31 December 2019, concluded another $500 mn issue of Medium-Term Notes with a 12-year tenor at an eye-catching all-inclusive rate.

Operational Highlights:

  • Dexus was able to maintain a high occupancy of 97.4percent for Dexus office & 96percent for Dexus industrial portfolios.
  • Completed the progress of 240 St Georges Terrace in Perth & advanced the $11.2bn development pipeline of the group.
  • Dexus Wholesale Property Fund (DWPF) raised ~ $180 mn of new equity & continued to surpass its benchmark across all time frames.
  • Exercised the 2nd tranche rights for GIC to secure further 24 percent interest in the Dexus Australian Logistics Trust core portfolio.
  • Achieved $27.8 mn of trading profits, propelled by the sale of the first tranche of 201 Elizabeth Street in Sydney.
  • The company was recognised as the Global Industry Leader for the Real Estate.

Guidance:

Dexus has upgraded its market guidance for distribution per share from ~ 5percent to ~5.5percent for the 12 months ended 30 June 2020.


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