Believe it or not there’s growing optimism that the stricken real estate investment trust sector might be on the way back as the reporting season slowly reveals a flood of red ink.
The results yesterday from Dexus, Commonwealth Office and Commonwealth Retail Trust, all contained a common thread.
Big losses from asset write-downs (the so-called non cash losses) and operating or underlying profits.
But securityholders in the three trusts also face lower distributions in coming years as the groups move to paying distributions and operating costs from available income, and not from borrowed funds.
In all, the trio had total net losses of more than $2.3 billion for the 2009 financial year.
Dexus Property Group (DXS) posted a $1.46 billion full year loss yesterday as its portfolio value plunged, and says it expects conditions to remain challenging in the coming year.
The loss follows a net profit of $438 million in the prior financial year.
Dexus, which specialises in the office, industrial and retail sectors, said it had revalued the entire property portfolio as at June 30, resulting in devaluations totalling $1.6 billion.
"Adverse market conditions were reflected in a softening of capitalisation rates and weaker underlying property fundamentals, causing a decline in property valuations worldwide," Dexus said.
"Adverse market conditions were reflected in a softening of capitalisation rates and weaker underlying property fundamentals, causing a decline in property valuations world-wide.
"DEXUS revalued the entire property portfolio at 30 June 2009, resulting in devaluations totalling $1.6 billion.
"The property devaluations, together with unrealised mark to market derivative losses of $244 million and a $130 million deferred tax benefit primarily arising from US property devaluations, contributed to a net loss attributable to security holders of $1.46 billion.
"As at 30 June total assets stood at $8.4 billion of which 92%, or $7.7 billion, are investment properties."
For 2009/10, Dexus said it expected to deliver earnings (FFO – funds from operations per security) of 7.3 cents per security and distributions of 70 of FFO, about 5.1 cents per security in the year ending June 30, 2010. In 2009, FFO per security was 10.43 cents.
(That’s the novel idea that all trusts in the sector, as well as in infrastructure, have adopted: paying distributions from actual earnings, rather than boosting them by borrowing to pay a higher figure to securityholders and gearing up the balance sheet even more. That came a cropper in the crunch and was a major factor behind the write-downs and capital raisings.)
Dexus units fell 5.5 cents or 7.1% to 71.5 cents yesterday.
CFS Retail (CFX), which owns the upmarket Chatswood Chase shopping centre in Sydney and Chadstone in Melbourne, said the Trust’s result for the 12 months to 30 June 2009 was a net loss of $366.9 million, compared to a net profit of $669.1 million for the previous year.
This included a net revaluation loss on investment properties and associates of $548.6 million (compared to a $416.2 million gain for the previous year) and a net loss on the fair value of derivatives of $84.8 million (compared to a $21.7 million gain for the previous year).
"Distributable income was $297.8 million, up 14.1% compared to $261.1 million for the previous year.
"Distributable income is calculated by adjusting the net loss of $366.9 million, for unrealised valuation losses and other items of $664.7 million.
"Underlying the result was a 6.6% increase in net property income to $423.0 million. On a like-for-like basis, net property income increased by 4.7%," the trust said in its statement.
The trust’s chief executive Michael Gorman said he was looking at acquisitions, at the right price, but added that while the strong financial position gives the trust a solid footing, "we remain focused on prudently managing the balance sheet for the Trust’s capital commitments and maintaining its flexibility for acquisition opportunities that may arise".
The Trust will pay an annual distribution of 12.50 cents per unit, which is a 4.2% increase on the 12.00 cents per unit paid in the previous year.
The units eased 2% yesterday, or 3.5c to $1.735, then rose to finish steady at $1.77.
Being a retail-based trust, it has benefited from the stimulus spending from the federal government and the sharp cuts in official interest rates.
That makes it another corporate beneficiary of the active policy moves by the government and Reserve Bank.
Commonwealth Property Office fund (CPA) also reported a net loss of $543.7 million for the year to June compared to a net profit of $375.0 million for the previous year.
This included a net revaluation reduction on investment properties, property, plant and equipment and associates of $597.3 million (compared to a $211.0 million gain for the previous year) and a net loss on the fair value of derivatives of $68.5 million (compared to an $18.0 million gain for the previous year).
The fund’s chief executive Charles Moore said, after a very tough year, the fu
