Ann: FY23 Results presentation, page-19

The Dexus Convenience Retail REIT (ASX: DXC) holds a portfolio of service stations around Australia. The tenant quality is excellent with the major tenants being Chevron and 7-Eleven. The weighted average lease expiry is solid at 9.7 years, and it is appropriately geared at 32% (more on this later).

Dexus Convenience Retail REIT

DXC Share Price Dec 2021 - October 2023 (Source: Dexus.com)

As of 30 June 2023, the NTA of DXC was $3.75 based on current property valuations, with a portfolio cap rate of 6.10%. As of 29 September 2023, the trading price was $2.34, a 38% discount to the 30 June NTA. Adjusting for gearing and other balance sheet assets and liabilities, the discount to NTA of 38% translates to an implied discount to the property values of 25%. Therefore for the NTA to fall to the share price of $2.34, all other things being equal, the 6.1% portfolio cap rate at 30 June 2023 must rise to an 8.2% cap rate.

In our opinion, this is attractively priced real estate. Could it get cheaper? Of course. When markets become irrational and unanchored (on the way up and on the way down) there is no limit to how cheap or expensive prices can get. However, we do believe the market reaction is overdone for these assets. Based on the distribution guidance for 2024, the distribution yield at the share price is 8.8%.