We saw in the US last night how correlated to bond yields property stocks can be with the sector falling -2.1% as the US 10-years popped back above 4% following the rumours out of Japan and strong US growth numbers. However, if we are correct bond yields will head lower over the next 6-12 months where moves such as last night should become countertrend blips as opposed to the norm. Australia’s largest listed Office landlord DXS is experiencing a tough economic backdrop which has been reflected by its share price over recent quarters i.e. recent office transactions point to a lack of conviction although Sydney leasing is more robust than Melbourne and with vacancies being centred in Barangaroo, Darling Park and Grosvenor assets, we should see Dexus outperform the overall market. Importantly there is minimal new supply over FY25-27 supporting the Sydney market.
As we know when things look and sound bad opportunities often present themselves and the combination of “Work from home” (WFH) and recession fears certainly are weighing on the likes of DXS, with shares trading at a ~30% discount to NTA.
- We like the risk/reward of DXS on dips towards $8 supported by a forecast 6% yield over the next 12 months.
NB MM holds DXS in our Active Income Portfolio.
