Dexus Convenience Retail REIT Posts $14.7M Profit Amid Strategic Growth Moves

Strong Financial Recovery

Dexus Convenience Retail REIT (ASX: DXC) reported a significant turnaround in its financial performance for the half-year ended 31 December 2024, posting a net profit after tax of $14.7 million compared to a loss of $1.7 million in the previous corresponding period. This recovery was largely driven by positive property valuation gains, which contrasted with valuation losses recorded in the prior period.

Despite this profit surge, Funds from Operations (FFO), a key measure of underlying operational performance, edged down slightly by 1.0% to $14.3 million, or 10.4 cents per security. The modest decline reflects the impact of higher interest rates on finance costs, a challenge common across the real estate sector in the current economic environment.

Portfolio Resilience and Income Security

The REIT’s portfolio remains a cornerstone of its defensive income strategy, with occupancy holding steady at an impressive 99.4%. The weighted average lease expiry of 8.2 years and a tenant base dominated by major national and international convenience retailers underpin strong income visibility. Notably, 95% of rental income is derived from these high-quality tenants, providing a stable revenue stream despite broader market uncertainties.

DXC’s portfolio, valued at approximately $709 million, is heavily weighted towards metropolitan and highway service stations (86% by value), assets that benefit from consistent traffic flows and consumer demand for convenience retail. The portfolio’s weighted average capitalisation rate stands at 6.41%, reflecting a balance between yield and asset quality.

Strategic Redevelopment and Capital Management

Looking ahead, DXC is actively pursuing growth through redevelopment initiatives, most notably the $24 million project at the Northbound site of Glass House Mountains. This redevelopment, commenced in February 2025, is fully pre-leased to tenants including Viva Energy, McDonald's, Guzman y Gomez, and KFC, with an average lease term of 18 years. The project is expected to deliver a yield on cost of approximately 5.8%, enhancing the portfolio’s quality and income potential.

On the capital management front, DXC has prudently reduced gearing to 28.7%, comfortably within its target range of 25-40%. The REIT also strengthened its balance sheet by divesting $38.8 million of regional assets, which reduced exposure to less strategic locations and improved hedging levels. The average debt maturity remains long at 3.9 years, with no expiries until FY27, providing financial stability amid interest rate volatility.

Sustainability and Market Outlook

DXC continues to embed sustainability into its operations and developments, sourcing 100% renewable electricity for assets under operational control and maintaining carbon neutrality for Scope 1, 2, and some Scope 3 emissions. The Glass House Mountains redevelopment incorporates multiple green initiatives, including electric vehicle charging stations and rooftop solar.

Market conditions have improved with fuel and convenience transaction volumes recovering to historic levels, supporting positive asset revaluations and underpinning net tangible asset (NTA) stability. Despite this, DXC’s securities trade at a roughly 20% discount to NTA, reflecting ongoing market caution amid macroeconomic uncertainties.

Outlook and Guidance

DXC reiterates its FY25 guidance for FFO and distributions of 20.6 cents per security, translating to an attractive distribution yield of 7.3%. The REIT’s focus remains on enhancing portfolio quality, preserving balance sheet flexibility, and leveraging Dexus’s integrated real asset capabilities to pursue value-accretive opportunities.