Desane Group Holdings reported a sharp FY26 profit decline as lower property revaluation gains and higher finance costs overwhelmed largely stable rental income. The ASX-listed property group enters FY27 with more cash, conservative gearing and two developments that now need to convert asset value into earnings.
- FY26 NPAT fell to $21,000 from $3.32 million
- Cash rose to $9.3 million while borrowings reached $13.9 million
- 44-unit Penrith industrial project moves towards construction
- Petbarn redevelopment at 322 Norton Street targets delivery in Q4 2026
- Chairman John Sheehan retires after almost four decades on the board
Profit falls as valuation gains fade
Desane Group Holdings (ASX:DGH) finished FY26 with a statutory net profit after tax of just $21,000, down from $3.32 million a year earlier. The result was not driven by a collapse in the rent roll so much as by a much smaller contribution from property revaluations, higher finance costs and the accounting loss on the sale of 13 Sirius Road, Lane Cove.
Rental income slipped to $2.20 million from $2.26 million, while net property revaluation gains fell to $2.14 million from $6.19 million. Finance costs climbed to $967,000 from $682,000. Desane still reported earnings before interest and tax of $1.0 million, but the underlying numbers leave little room for the group’s development plans to arrive late or over budget.
Cash improved, but operating cash flow remained negative
The balance sheet provides the company with some breathing space. Cash and cash equivalents rose to $9.31 million at 30 June, from $4.63 million a year earlier, while total assets increased to $105.97 million. Net assets stood at $69.13 million and net tangible assets were $1.69 per share, compared with a closing share price of $0.75 at year-end.
That liquidity was helped by the $8.71 million sale of 13 Sirius Road, completed after more than two decades of ownership. Total borrowings increased to $13.90 million, however, and all interest-bearing debt was disclosed as floating-rate debt with an average rate of 6.32%. The group used $2.81 million in operating cash during the year, highlighting the difference between holding valuable property and generating cash from day-to-day operations.
Penrith project approaches construction decision
Desane’s most consequential development asset is 91 Thornton Drive, Penrith, where it plans to build 44 industrial units on a 1.17-hectare site. Development approval and a construction certificate were secured during FY26, while the remaining stormwater easement documentation was progressed after year-end.
The current construction budget is approximately $14.0 million, with a further $0.5 million allocated to pre-construction and approval costs. Management says its current feasibility indicates a positive development margin, but that remains an estimate rather than a contracted outcome. Construction commencement, funding and the eventual pace of sales will determine whether the long-held land asset begins producing realised value.
Petbarn redevelopment carries near-term execution risk
At 322 Norton Street, Leichhardt, demolition, enabling works and environmental remediation advanced during the year. The property has been reclassified from development inventory to investment property and is being delivered on a cold-shell basis for Petbarn under an initial 10-year lease with two five-year options. Delivery is targeted for the fourth quarter of calendar 2026.
The structure limits Desane’s exposure to the tenant’s specialised fit-out, but the company still has a contractual commitment of approximately $1.14 million for approved alterations and additions, expected to be completed by 31 December 2026. The asset was carried at $5.31 million at year-end, with the prospective income stream dependent on completing the works and bringing the tenancy into operation.
Chairman succession adds a governance milestone
Professor John Sheehan is stepping down as chairman after serving on Desane’s board since 1987 and as chairman since 1992. Peter Krejci, who joined the board in 2019, is succeeding him, while Melissa Ashcroft joined as an independent non-executive director in March 2026 with experience in property finance, private credit and construction funding.
Desane paid a special dividend of 2 cents per share during FY26, franked at 82%, despite the small statutory profit. The board says FY27 priorities include progressing Penrith, completing the Petbarn premises, improving occupancy and recurring rental income, and assessing acquisitions and capital management. The immediate test is whether those ambitions can be funded from a balance sheet that is liquid, but not generating positive operating cash flow.
Bottom Line?
Desane has bought time through the Lane Cove sale and a stronger cash position, but FY27 now hinges on executing Penrith and 322 Norton Street without allowing construction costs and floating-rate debt to erode the portfolio’s value.
Questions in the middle?
- When will construction formally begin at 91 Thornton Drive, and how will the approximately $14.5 million project cost be funded?
- Will the Petbarn premises be delivered on schedule and begin generating the expected long-dated rental income in FY27?
- Can Desane rebuild recurring earnings while operating cash flow remains negative and all reported debt carries floating interest rates?