Property companies can sometimes be a little difficult to value, as there are a number of factors one must take into account when considering a purchase.
First off is its earnings – are they growing sustainably? But since property groups typically have slow earnings growth this isn't the whole story.
Second is the nature of its business – is it primarily a property manager like Cromwell Group (ASX: CMW), or more of a builder and seller like Stockland Corporation Ltd (ASX: SGP)? Or does it do a little bit of both like Abacus Property Group (ASX: ABP)?
Third, is its Net Tangible Assets to security value ratio – simply put, are the company's assets per security worth less or more than the share price?
DEXUS Property Group (ASX: DXS), the subject of today's article, has a net tangible asset value of $6.47 per share, while shares themselves change hands for ~$8 today.
Of course you also have to factor in the value of dividends to the equation, with each DEXUS share paying around 5% per year unfranked.
So, is DEXUS Property Group a good buy, or not?
Let's take a look at its latest half-year results, released to the market this morning:
- Revenue from ordinary activities up 35.8% to $419.6m
- Net profit attributable to security holders after tax down 7% to $257.8m
- Dividends per share up 6.8% to 19.68 cents per share
- 'Funds From Operations' (FFO)* up 25.4% to $206m
- Total assets up 25.7% to ~$10 billion, borrowings up 26.7% to ~$3 billion
- 1 for 6 consolidation of stapled securities completed on November 14
*Funds From Operations (FFO) is the Property Council of Australia definition of FFO, which directors feel to be a measure that adequately represents the 'underlying' performance of the group. Full explanation can be found in the DEXUS market release.
The primary driver of the decrease in Net Profit was value losses on derivatives and interest-bearing liabilities, which were substantially higher than in 2013 and offset partially by FFO increases and net revaluation gains on DEXUS properties.
To use management's preferred measure of success, FFO, DEXUS had an outstanding year which lead to substantially increased core earnings as well as strong dividend improvements and a share consolidation for investors.
Additionally, DEXUS announced a buyback for a further 5% of its issued shares. Although it is as yet unused, it remains available should share prices suffer a period of weakness, and should lead to stronger earnings for shareholders over time.
Market giant CSL Limited's (ASX: CSL) record of unbroken growth has proved that buybacks are a viable way of increasing earnings, with that company conducting 7 buybacks in the last 8 years.
So while DEXUS investors may be a little disappointed with the decline in profit, overall the company continues to look like a good long-term buy, with growing earnings and solid yields for dividend-seeking investors.
An even better purchase for the money is The Motley Fool's Top Dividend Stock for 2015, which boasts a fully-franked dividend yield and an impressive track record of growing earnings and shareholder payouts year on year.
