It will be interesting to see what Dexus does with this fund. I'm comfortable with the valuation of the office assets (cap rate of around 6.5%) which are probably around 35% of the portfolio. Recent market action indicates to me that the industrial component of the portfolio has a decent way to run in terms of cap rates.
If the decision was made to divest the office assets I think I could justify a drop in the discount rate used in my previous valuation due to the fund having both lower gearing and/or sole exposure to industrial assets.
Even if I plug 8% into the below assumptions I still only get a val of around $3.36. Not enough margin of safety for me to add to my position at this stage.
Todays update is positive and exceeds my previous thesis in terms on NTA growth. Still confident my DCF is pretty accurate so will stick with that.
Discount rate: 8.5% (1% higher than CIP)
Starting Distribution= $0.175
Growth rate: 5% for 10 years (justified by improving vacancy, average rent reviews of 3% and a current payout ratio of 86%).
Terminal growth rate = 2% (CPI proxy) giving value at year 10 of $4.45 including that years distribution)
NPV = $3.21