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DEXUS doesn’t need CPA to keep pulling profit

DEXUS Property Group (ASX: DXS) released its portfolio update for its latest quarter, and the company is continuing to push through on its financial and fundamental goals. “Over the quarter we maintained our proactive leasing approach and focus on delivering quality customer service,” said CEO Darren Steinberg in a statement today. “This, combined with the adoption of best practice systems, has produced solid results in a challenging leasing market, with activity centred on properties located in Melbourne, Sydney and Brisbane.”

The news everyone wants to know, however, is whether DEXUS will be successful in its takeover bid for real estate investment trust (REIT) Commonwealth Property Office Fund (ASX: CPA). DEXUS already owns a 15% stake in the company, and it hopes to team up with the Canada Pension Plan Investment Board to snag the entirety of the company’s $3.7 billion “prime grade” Australian office portfolio. While its first bid was rejected and there’s no update in DEXUS’ latest report, Steinberg noted told investors that “[w]e acquired our initial interest in CPA at an attractive price and remain patient and disciplined.”

On all other indicators, DEXUS took a slight dip from last quarter’s stats. Occupancy by income eased down 0.1 percentage points to 94.8%, while occupancy by area took a larger 1.2 point hit to 94.5%. Average year-to-date retention rates fell 2 points to 69%, while the weighted average lease expiry (WALE) by income dipped just over a month to 4.7 years.

Foolish takeaway

While these numbers are all negative, the dips are minimal. Also, most of the declines come from DEXUS’ industrial portfolio, equivalent to just $1.6 billion of its $7.3 billion in assets and a smaller focus for the company’s future.

Office occupancy continues to increase, and retention rates pulled up a significant eight percentage points to clock in at 80% year-to-date. With big leases like IBM and Wesfarmers’s (ASX: WES) Lumley General Insurance extended through 2020, DEXUS has secured its spot as preferred property manager as corporations decide where to head following the Global Financial Crisis asset shakedown. With $75 million in buybacks in the last quarter, another potential $170 million to come, and a lower cost of debt to boot, DEXUS seems to be taking good care of its financial obligations.

Looking ahead, the company reaffirmed its 2014 guidance of $0.0815 per share, accompanied by an annual distribution of $0.0612 per share, despite recent reports that vacancies in Australia’s CBD towers are at 11.3%, the highest level since 1999. Regardless of the ultimate outcome of the CPA acquisition, it seems DEXUS is on the right track to continue to pull profit.

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Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.

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