What are MM’s updated thoughts on Dexus (DXS)?

Hi Darren,

Dexus is the countries largest office landlord, and clearly there are some uncertainties around what future demand looks like here given the move to more hybrid working environments. The questions being, will demand taper off more than the positive benefits of population growth and how this will impact the value of office assets? This is an unknown and speaking with many companies over the past 12 months and DXS themselves, there is still a lot of uncertainty about future plans for office space. Dexus however is cheap and that’s why we like it, the shares are trading at a ~30% discount to the value of their assets – the biggest discount since the GFC when they were carrying higher debt levels, so a lot of this is already priced in. Will that prove too aggressive or not aggressive enough? That uncertainty has kept us on the sidelines for now.

At this stage, we’re too uncertain to buy the stock, it still is in an entrenched downside, and as we often say, surprises generally happen in the direction of the trend which was the case last week with the announcements you highlighted. One metric we find useful for DXS is the level of incentives being offered to attract tenants. When incentives start to reduce (they are still going up sitting ~30%), then that’s an early sign that things are improving.

Sorry we are not more definitive here, it’s not our usual style. There will be a point where that changes, but we’re not there yet.

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Dexus Property Group (DXS)

LAST UPDATED 18/11/2022 15:45

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Dexus Property Group (DXS)

LAST UPDATED 18/11/2022 15:45