Dexus not immune to the coronavirus crisis

The company has also secured additional bank debt facilities totalling $550 million for extra flexibility and put a freeze on new hires and non-essential spend on consultants, it said in a quarterly update on Tuesday.

“The COVID-19 pandemic has had a profound impact on the economy and the real estate sector, and we acknowledge that no business, including Dexus, will be immune from the impacts of this crisis,” Mr Steinberg said.

The measures would also include redundancies, with a number of roles affected by the pandemic, largely as a result of Dexus losing the management rights to NSW’s Treasury Corporation $2.2 billion property portfolio, he said.

Dexus shares rose 28c, or 3.2 per cent, to $9.04.

Tuesday’s update follows the withdrawal of the group’s guidance for distribution growth for the year, which had been upgraded prior to COVID-19 taking hold in Australia with the greater rental growth, higher occupancy and less capital expenditure that had been anticipated.

Instead, the group, which owns and manages a portfolio of office buildings, industrial facilities, retail properties and healthcare property worth close to $34 billion in total, is now working through requests for rent relief from many of its tenants.

Pipeline intact

New government guidelines introduced through the commercial Code of Conduct requires landlords to negotiate rent relief in good faith with small- and medium-enterprise customers (with turnover of less than $50 million) that are experiencing financial hardship as a result of the pandemic.

Dexus said SMEs comprised about 8 per cent of the group’s property portfolio by income and it was working through to establish whether they qualified for rent relief.

Office leasing inquiries had fallen, inspection rates had slowed and lead indicators pointed to “a period of uncertainty in the office markets across Australia, with demand across the major CBD markets likely to be patchy in the short term”, the company said.

However, Mr Steinberg said the group had entered the crisis in “a robust position” given its high portfolio occupancy of 97.2 per cent, limited new supply in key CBD office markets and a strong balance sheet with look-through gearing at 25.4 per cent, below the target of 30 to 40 per cent.

“The eventual recovery will be helped by sizeable government fiscal stimulus, a lower-for-longer interest rate environment, and the ongoing infrastructure pipeline under way in key capital cities,” Mr Steinberg said.

Dexus’ $11.2 billion-pipeline had not been materially affected at this stage but there had been issues with heads of agreement not converting to binding leases or tenants seeking to delay lease start dates, he said.

Dexus is nevertheless forging ahead with plans, in partnership with Frasers Property, to build a twin tower development near Sydney’s Central Station, which is through to the third and final stage of the NSW government’s unsolicited proposal process.

Dexus said a number of opportunities could emerge from the COVID-19 pandemic, including a wider adoption of flexible working arrangements.

Mitigating that risk is the fact “knowledge jobs” are forecast to increase significantly over the next two decades, placing a high value on collaboration, which in turn points to the importance of working from an office.