The DEXUS Property Group (ASX: DXS) share price has risen by 7% today after the company provided an update on its strategy to weather the storm over the next few months in the wake of the coronavirus pandemic.
Withdrawal of earnings guidance
On a positive note, Dexus reported that in the early part of the second half of FY 2020, the company has performed in line with expectations. This comes on the back of Dexus’ strong 1H FY2020 results. However, in light of the uncertainty regarding the unfolding coronavirus crisis, Dexus has decided to withdraw its FY 2020 earnings guidance.
Dexus is currently assessing what impact the coronavirus outbreak is likely to have on its operations. This includes evaluating if any assistance is needed to be provided to its tenant base to ensure the portfolio emerges in a relatively strong position when the crisis is over.
Dexus noted that it has adopted a number of strategies to minimise any disruption to its portfolio. The company has also adhered to all of the relevant government guidelines to help reduce the spread of the coronavirus within its property locations.
Strong financial position
Dexus emphasised that it is currently is in a relatively strong financial position, underpinned by a portfolio of high-quality property assets located in prime CBD locations.
It also has a diversified tenant base and a strong balance sheet with a look-through gearing ratio of 25.5%. This is below its current target gearing range of 30-40%. The property group also pointed out that it has strong diversification of debt, with 35% in bank loans and 65% spread across capital markets.
Dexus has a total of $1.3 billion of cash and committed undrawn bank facilities available that it could potentially draw on. Additionally, its debt financing requirements are currently limited with only around $400 million of debt maturing in late FY 2021.
I believe that Dexus appears to be still relatively well-positioned to grow earnings and distributions at a solid rate over the medium to long term once the coronavirus passes. However, how quickly its earnings get back to normal will depend on the length and depth of the crisis in the months ahead.
Already, many of Dexus’ office tenants are implementing a work from home policy, and many of its retail tenants in shopping centres are already being impacted.
If Australia goes down a similar path as New Zealand with a total lockdown for an extended period of time, this could place extreme pressure on more of Dexus’ tenants, especially its SME (small and medium enterprises) and retail tenants.
However, with a very solid balance sheet, Dexus appears better placed than most to ride out the turbulent times ahead.
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