Dexus

Thank you for standing by and welcome to the DEXIS HY26 results briefing. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ross DuVernay, Group CEO and Managing Director. Please go ahead.

Well, good morning, everyone, and thanks for joining us for our half-year 2026 results presentation. I'd like to begin today by acknowledging the traditional custodians of the lands and waterways upon which we operate and pay our respects to Elders past and present. Today you hear from Kiera on the financials, Andy on office, Chris on industrial and Michael on funds management. Concluding the presentation, I'll provide a summary and open up to any questions that you may have. Texas is a unique investment proposition in the Australasian real asset market. Today we manage $51 billion of assets across our platform, with third-party funds under management at 2.4 times our investment portfolio. We have scale and diversity across the real asset spectrum, $20 billion in office and around $10 billion in each industrial, retail and growth markets, which includes infrastructure, healthcare and alternatives. This scale is underpinned by our multi-disciplinary team with deep expertise across each sector. Importantly, we have access to diverse pools of equity capital, which positions us well to capitalise on opportunities through the cycle. Our strategy is unchanged and our vision to be globally recognised as Australasia's leading real asset manager continues to guide our decisions. The strategy targets large growing markets, leveraging our multi-sector strengths in transacting, managing and developing across each. Our high quality balance sheet portfolio, together with our large diversified funds management business, continues to differentiate us. Today, the investment portfolio is anchored by prime office exposure across Australia's major CBDs. Over time, the investment portfolio will continue to become more diversified. by investing alongside capital partners into a diverse range of opportunities. Our culture, the quality and scale of the portfolio and projects we have underway, coupled with our approach to people, enable us to attract, retain and develop leading talent to ultimately create value for customers, clients and you, our investors. Turning to our results. We delivered AFFO of $253 million and distributions per security of 19.3 cents. This was the second consecutive six-month period of positive property portfolio valuations, which supported the delivery of a statutory net profit and an increase in NTA to $8.95 per security. Our office leasing volumes were almost double that of levels achieved in the prior corresponding half. including further progress at Waterfront in Brisbane, which is now 71% pre-leased, and will deliver a premium product in the strong Brisbane office market. Our industrial portfolio, as we expected, delivered strong like-for-like growth and re-leasing spreads. We undertook $800 million of divestments for the balance sheet, including the recently agreed divestment of 100 Mount Street in North Sydney. If we turn to the fund's business, we continue to work through some fund-specific matters while positioning the business for long-term success. Our flagship funds continue to outperform, DWPF outperforming its benchmark across all time periods, while DWSF, the shopping centre fund, has outperformed since joining the platform. We raised over $950 million of equity, comprised $640 million of new equity commitments, and the facilitation of more than $280 million in secondary unit transactions. We established a new fund series, we closed DREC2 above its initial target, and we continued to rationalise sub-scale funds to simplify the platform. In August, I outlined our action items for FY26, aligned to our three strategic priority areas of transitioning the balance sheet maximising the contribution of the fund's business and unlocking our deep sector expertise. In addition to the progress I mentioned on the previous slide, key development milestones were achieved at Waterfront in Brisbane. The DEXAS office and the industrial portfolios delivered positive total returns over the 12-month period. And DEXAS has now secured $1.4 billion of divestments since 30 June 2024, progressing well towards our $2 billion target. We invested $170 million of seed capital into DCIP1, a new fund series, which we aim to reduce to $50 million during the year. We've reduced the real estate redemption queue by $1 billion, and post the APAC court date scheduled for April this year, we expect to make more progress on solving infrastructure redemptions. Overall, we've made solid progress and remain focused on the priorities that will position the business for long-term success. Our sustainability strategy focuses on three priority areas where we can make the greatest impact across climate action, customer prosperity and enhancing communities. Sustainability remains core to how we operate, and we continue to receive global recognition for our performance. Thank you, and I now pass you over to Kea.

Thanks, Ross, and good morning, everyone. Turning to the results in detail. In line with expectations, total AFFO was with a distribution of 19.3 cents per security, reflecting a payout ratio of 82%. Office FFO reduced primarily due to divestments and lower average occupancy, partly offset by contracted rent increases. Industrial portfolio income increased due to higher occupancy, development completions and contracted rent increases, partly offset by divestments. FFO from management operations decreased due to lower FUM as a result of divestments and slightly lower performance fees, with $19 million realised in the first half and $16 million secured for the second half. Finance costs were broadly flat, with a higher cost of debt offset by higher interest income. As expected, trading profits were higher with the sale of Brook Hollow, Chester Hill and continuing construction at Preston's, securing FY26 guidance. Maintenance and leasing CapEx is skewed to the first half of the year, mainly due to the impact of incentives on deals secured in prior periods, as well as the timing of maintenance CapEx. Looking ahead to FY27, performance fees and trading profits are expected to be materially lower than FY26. It has been positive to see the second six-month period of valuation growth across the office and industrial portfolios. Overall, for the six months to 31 December, the portfolio increased by 1%. Capitalisation rates have stabilised, with the valuation movement predominantly driven by rental growth. Our office portfolio, which is 77% weighted to core CBD markets, increased by 0.7 of a percent, and our industrial portfolio, which is 90% weighted to core industrial estates and distribution centres, increased by 1.6%. Pleasingly, these outcomes demonstrate the quality of the portfolio. Moving to capital management, our balance sheet remains solid. We've looked through gearing towards the lower end of the 30 to 40% target range, providing capacity to fund committed expenditure. During the half, we issued $500 million of subordinated notes at attractive rates and diversifying our funding sources. We have been active with refinancing, resulting in a weighted average debt maturity of 4.6 years, $2.5 billion of headroom and manageable near-term debt maturities. 95% of our debt was hedged during the half at an average rate of 2.9%, providing material interest rate protection. Looking forward, there's $1.2 billion of remaining spend on the Committed Development Pipeline over the next four years, with $360 million expected to be incurred in the second half of FY26. Thank you, and I'll now hand over to Andy.

Thanks, Keir, and good morning, everyone. I'll now take you through the performance of our office portfolio. We continue to own and manage the best office portfolio in Australia. Over the past five years we have enhanced the quality and resilience of our portfolio, and as a consequence we are well positioned to benefit from the market recovery that is now underway. Location remains a key differentiator, demonstrated by our portfolio occupancy of 92.2%, which remains well above the market average. Our average incentives of 29% are below market, reflecting the quality of our portfolio and, notably, leasing deals done in Perth, Brisbane and North Sydney where market incentives remain elevated. The effective like-for-like income decline of 2.3% primarily reflects downtime on select vacancies, including 80 Collins Street and 30 Hickson Road, and we expect this to improve into the full year. Our leasing activity was strong this half, with leasing volumes of over 95,000 square metres, almost double the volumes achieved in the prior corresponding period. The portfolio delivered a one-year total return of 5.7% at December, reflecting the improved market conditions. Looking at our expiry profile, we aim to have no more than 13% of the portfolio expire in any single year. FY27 expiries have improved to 12.3% following the recent divestment of 100 Mount Street, with key expiries remaining in Australia Square and 385 Bourke Street. We remain focused on addressing the more challenging vacancies of 80 Collins Street in Melbourne, which represents 2.2% of portfolio income, and 30 Hickson Road in Sydney's Western Corridor at 1.5% of income. While there is no conclusive answer regarding the potential impact of AI on office markets, we believe different parts of the workforce are likely to be affected unevenly. Our view is that high value professional work, the kind concentrated in premium CBD buildings, reflecting the majority of our portfolio, will be the most resilient to AI replacement risk and may even benefit and grow. We frequently monitor our customer base, which is well diversified with an average tenancy size of 1,000 square metres and our top 10 customers account for just 20% of our total property portfolio income. The staggered expiry profile, combined with our diversified tenant base, supports resilient income streams across the portfolio. Our development pipeline provides the opportunity to further enhance portfolio quality. Construction is progressing at Atlassian Central in Sydney with completion on schedule for late 2026. This development is 100% pre-leased on a 15-year lease with 4% per annum fixed increases in what is now an improving Sydney market. At Waterfront Brisbane, we have achieved an important development milestone with the river walk opening earlier this month and the vertical structure coming out of the ground. The Brisbane market continues to strengthen with a positive outlook over the medium term. Pleasingly, Waterfront is now 71% pre-leased with the recent leasing deal reflecting a 40% improvement in net effective rent compared to the previous Waterfront deal struck two years ago. In aggregate, 83% of the committed development book is pre-leased, with contracted 3.7% average fixed increases per annum, providing a secure income stream once complete. We have fixed price contracts in place with Tier 1 contractors with material collateral and security arrangements to protect against construction risk. A very high threshold applies to projects in our uncommitted development pipeline, and Central Place Sydney has moved out of our uncommitted pipeline as the scheme is reconsidered. Turning to the office outlook, the evidence continues to suggest that we have passed the bottom of the cycle and are now in the early stages of a recovery. Office demand continues to gain momentum, driven by employment growth, return to work mandates and centralisation trends. Net absorption has been positive across all four major CBDs, with the strongest absorption in premium grade assets, which is exactly where our portfolio is positioned. Sublease space has continued to reduce and is now close to average levels. Importantly, upcoming office supply is low relative to long-term averages. This provides scope for vacancy rates to fall and rents to grow. Within our own portfolio, we are seeing examples of 15% net effective rent growth on comparable lease deals struck 12 months apart. Looking at our rental growth expectations over the next three years, we expect strong growth across all major markets, with Brisbane, then Sydney Premium, leading the way, followed by solid growth in Sydney A Grade, Melbourne Premium and Perth. The Sydney CBD core is now 95% occupied, with Dexus at 98%. With the seven-year delay in new supply, there is meaningful upside to the Sydney premium forecast. Dexus is well positioned to capture this upswing, given our portfolio quality and location in core precincts of the major CBDs. Thank you. I'll now hand you over to Chris.

Thanks, Andy, and good morning, everyone. Our industrial portfolio has delivered a strong result, including a one-year total return of 8.8%. Occupancy by income increased to 97% following leasing success across Sydney, Melbourne and Perth, which also resulted in like-for-like income strengthening to 8.7%, as expected. Occupancy by area of 97.5% remains above the national average. We achieved strong releasing spreads of 33% across the stabilised portfolio. Average incentives increased to 21.5%, primarily driven by lease-up of key expiries in Melbourne's west and Sydney's outer west. The portfolio is 8.9% under-rented and 20% is set to access rental reversion upon expiry by FY27. On developments, we completed 102,000 square metres during the period, with construction continuing across a further 110,000 square metres. We leased 63,000 square metres across 10 development deals, and 68% of our committed development book is now pre-leased with contracted annual increases of around 3%. Moving to our expiry profile. We have leased 24% of the portfolio over the past 18 months, de-risking the expiry profile and capturing strong releasing spreads. We remain focused on leasing key vacancies at Metroville, which has now been repositioned along with Gilman. And we're in active discussions with potential tenants on both of these properties. The vacancies we have experienced over the past 18 months have been in older stock in New South Wales and Victoria, and pleasingly we have achieved strong releasing results. Looking forward, 80% of our FY27 expiries are represented by younger prime assets and provide the opportunity for positive reversion. Turning to the outlook. Supply under construction has moderated and remains at or below historic average take-up in all markets, while the picture for demand remains supported by strong Australian population growth, enhanced by e-commerce growth. Our portfolio, with its focus on core industrial estates in strategic locations, is well positioned to benefit from these trends. Thank you. I'll now hand over to Michael.

Thanks Chris and good morning everyone. Our funds business manages $36 billion in third party capital across a diverse range of real asset strategies for more than 150 institutional clients with retail and wholesale investors. We've maintained prudent capital structures across our pooled funds with average gearing remaining conservative at around 32%. We have both returned capital and raised equity in existing and new products, but the near-term revenue impact of providing liquidity is still working its way through. While there is more to do, we are positioning ourselves to capture the strong expected growth in pension capital over the medium term. Last year, we launched a new investment series focused on high-quality assets for long-term value creation. with the first fund in the series securing a 25% interest in Westfield Chermside. Offshore capital, particularly from Asia, is increasingly interested in Australian real estate, with the office sector also seeing renewed interest. In the six months to December, we reduced the real estate redemption queue by around $1 billion, and we continue to rationalise subscale funds. We expect to make further progress on infrastructure redemptions post the AIPAC court case scheduled for April 2026, with mediation to occur in March 26. We raised over $950 million in third-party equity, including facilitating more than $280 million in secondary unit transactions. DWPF continues to outperform its benchmark across all time periods, outperforming by circa 200 basis points for the 12 months to 31 December. This highlights the quality of the underlying portfolio and our active management approach. And the Shops Fund has also outperformed its benchmark since joining the DEXAS platform. And while the operating environment remains challenging with some continued pressure in the near term, we are steadily repositioning the business for long-term scalability and growth. Thank you and I now hand you back to Ross. Thanks Michael.

Underlying real estate markets continue to improve, supported by positive business confidence, constrained supply pipelines, stabilisation in asset prices and improvement in transaction volumes. Barring unforeseen circumstances, for the 12 months ending 30 June 2026, We reaffirm our expectations for AFFO of 44.5 to 45.5 cents per security and distributions of 37 cents per security. With valuations turning positive, transaction and fundraising markets recovering, our confidence in the long-term fundamentals of the business have strengthened. We are actively exploring opportunities to enhance returns and capital efficiency by increasing third-party capital participation in the $13 billion property portfolio. This would release capital in addition to the $2 billion divestment target. With a sustained disconnect between our equity market valuation and that of our underlying assets and businesses, we have activated an on-market securities buyback of up to 10% of DEXA's securities. We will execute the buyback at a pace consistent with maintaining balance sheet discipline as we progress asset sales and other initiatives to release capital. Thank you. That ends the formal part of today's presentation. I now take any questions that you may have.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then 2. If you're using a speakerphone, please pick up the handset to ask your question. We ask that questions be limited to two per person. The first question today comes from Adam West from JP Morgan. Please go ahead. Hi there.

I guess my first question today is just on the Atlassian development. I'm just wondering if you've progressed any plans for a partial sell-down, full sell-down of that asset?

Morning, Adam. Thanks for your question. This is certainly an asset that we have flagged that we'll be looking to introduce third-party capital into. I think we've been pretty consistent with the market. We think the best time for that is closer to practical completion. That is slated for the end of the year. We think it's a great investment product, 15-year lease, fixed 4% increases. And so, yeah, that's one of the assets that we will be bringing third-party capital in over the course of the year. It might not happen before practical completion, but it will be towards the end of the year.

Thanks for that. And I guess just my second question on the office portfolio. But in terms of the core Sydney CBD portfolio in particular, I'm just wondering if you could talk to how much under-renting would potentially be in that segment?

Andy, that's going on for you.

Yep, no problem. Hi, Adam. So look, releasing spreads were positive in all of the CBDs, including Sydney CBD. And so releasing spreads obviously impact the extent to which the portfolio is over- and under-rented. We're seeing a pattern of better effective releasing spreads driving or reducing the extent to which the portfolio is over-rented on an effective basis. And so the portfolio generally is around 7.5% over-rented on an effective basis. That's come in from 12.5% 12 months ago and it's about 4.5% under-rented on a face basis, which is pretty stable with 2 months ago. Great.

Thanks, Dad. The next question comes from Cody Shield from UBS. Please go ahead.

Good morning Ross, Kieran, team. Thanks for your time. Just firstly on the buyback, my understanding was that you'd need to do more than two bill of divestments to get the buyback away. Is that still the case or are you sticking with that two bill target?

I think we're very resolved around the $2 billion target and I think what we're flagging is we see real value in the security price where it's trading. We instituted a pretty disciplined capital allocation framework when I stepped into the chair. dare I say it, that has regard to the return on the investments we already have and also marginal uses of capital. So we are definitely resolved we're going to get through that $2 billion target. And as I have shared in my concluding remarks, we are actively looking at bringing third-party capital into the $13 billion investment portfolio. That has the potential to release a significant amount of capital. And certainly given where we're trading today, the buyback would be a really good use of that.

Okay, that's clear. And then just turning to the leasing at Waterfront, looks like a good outcome. Just wondering whether there's some flex in that 5% to 6% yield on cost that you're targeting?

I think there's... I think I've been pretty clear. I always kind of think we're going to be at the higher end of that range and there's always scope for us to outperform. We're really pleased. We have great belief in that product. I think that is validated and the strategy of the team to be kind of patient and wait for the market to come to us on the leasing there. So I think that's a tremendous validation of the product and the leasing strategy from Andy and the team. I would also kind of just flag that even at that yield on cost, we're going to be materially under-rented in that asset just given how much the market has moved. So I think there's going to be a great... ultimate return for our security holders and DWPF, which is our co-investor there. And yes, I would like to kind of see the team surprised on the upside. Okay, that's great. Thanks.

The next question comes from Simon Chan from Morgan Stanley. Please go ahead.

Good morning, everyone. My first question relates to the buyback. Guys, how much of the buyback do you think you'll actually do in the... second half of fiscal year 26 and if you are genuine about kicking off the buyback in the second half of fiscal year 26, I would have thought there's scope for you to change your earnings guidance for the year because you're buying back stock at essentially 10% earnings yield and your cost of debt is 5%.

So maybe I'll take the question in two parts. Are we serious about the buyback? The short answer is yes. I think it's not just a statement of intent, but we see real value in the company where it's trading. We have a very high quality portfolio, valuations have troughed. We see valuations moving north from here and I think the market is fixated on maybe EPS growth and some noise in the business, be that developments or litigation, those sorts of things. So we see good value at the current level. We need to make sure that as we're executing that buyback, We're doing it in a disciplined way that we have regard to the balance sheet strength, which is really important to us. But I think I am getting more confident around the transaction market. It is improving and... Certainly, I think bringing third-party capital into the platform and the confidence we have in doing that, there is scope for us to release a lot of capital. And as I said in previous responses, I think the buyback is a really good use of capital at current levels. So I can't predict where the stock price is going to be in three months' time, and we're not going to cook that into guidance, but certainly trading at current levels, if we can be more active on capital recycling, I think you're going to see us being very active.

Okay, fair enough. My second question, in slide 17, and I think Andy Colmers might have touched on this, that's that last bullet point, high threshold to commence new development projects. I think he referred to that after talking about scrapping Central Place. What's your new threshold now? Have you guys done the review and have settled on a high yield on costs hurdle before you kick anything off? Can you talk to that, please?

I would say, coming back to our capital allocation framework, this is something that is constantly assessed. And when we kind of look at alternative uses of capital, including things like a buyback, which we've announced today, there is a very high threshold for us to start new projects. So that's not to say that we're not going to do it, but where we do it, it needs to be capital efficient. We need positive economics from the management enterprise. And we need to believe that the underlying projects are going to deliver really good risk-adjusted returns. So that's how we're thinking about it.

I get that, Ross. But previously, Central Plays was guiding you to, I think, 5% to 6% yield on cost, and you've now scrapped it. So can I assume that 5% to 6% no longer costs mustard?

I think that's probably fair to say. 5% to 6% yield on cost, depending on where cap rates are, is a pretty skinny development margin. So that's not a good use of shareholder capital, and we won't be committing projects on that basis.

Thanks for clarifying.

The next question comes from Andrew Dodds from Jefferies. Please go ahead.

Good morning, guys. Thank you for taking my questions. In the remarks, you noted that $1 billion of real estate redemptions were satisfied in the period. I'd just be interested to hear where that redemption backlog is sitting today. I think it was around $3 billion back in the August results. Thank you.

Redemptions are around about $2 billion. We satisfied about $1.5 billion during the half-year period. And they're now around evenly spread between real estate and the infrastructure exposures. And infrastructure will obviously be dealt with in line with the APAC court case resolution. which isn't too far away. So our expectation is that the current redemptions will likely be dealt with within 12 months.

Alright, that's a good outcome, thank you. And then just secondly on trading profits, the expectation this year was for $40 million post-tax. It looks like you could have done that alone in the first half. So I guess just the expectations for the second half And also just in FY27, the slide on page 59 in the presentation sort of shows, you know, pretty minimal opportunities for trading profits. So, I mean, is it pretty safe to assume that there won't be any contribution in 27?

Look, I might take the comment on 27 and Keir can talk to 26. I think what we're providing is... some guidance that as we sit here today, the realisation of meaningful trading profits and they have been a meaningful contributor in 26, the likelihood of that recurring in 27 at this point in time seems lower probability and we're flagging that to the market. What I would say on trading profits is I am confident in the value creation that sits in projects that we currently have under our control and development in the trading book. I think it really is just a matter of timing and the decisions that we're going to make in terms of the realisation of those profits. So I think that's how I'm thinking about 27. But, Keir, do you want to comment on 26?

Sure. Thanks, Ross. So you are correct. The vast majority of trading profits have been realised in the first half. There'll be a very immaterial amount coming through in the second half. So I wouldn't factor too much into your forecast. We're still expecting circa $41 million for the full year.

That's clear. Thank you, guys.

The next question comes from Adam Calvetti from Bank of America. Please go ahead.

Hi, Tim. Hey, just on Atlassian, I mean, there's 610 mil to spend. It's well above the current run rate that you've been spending CapEx at. I mean, is there any financial implications if this was to be delayed?

Yeah, so Adam Hyatt Sandy. So under the contract, it's a fixed price contract. We have the protections in the event of a delay. So from that respect, it's typical for a development like that. Is there more to your question from a financing perspective?

No, just any financial implications for DEXIS and then whether it's with the actual tenant. If that was to be delayed, it sounds like it's not.

Yeah, that's correct.

Okay. And then just on office, I mean, of that $80,000 or $90,000 that you did over the half, I mean, how many tenants are expanding versus contracting in size?

Yeah, good question, Adam. So just like the breakdown of that leasing volume, about 20% is tenants upgrading. That's the first thing to note. About half of the tenants by area reflect renewals. That's the second thing to note. And in terms of growth, there are some great examples of tenants within the portfolio growing, going from one tenant. One example is in 25 Martin Place, a financial services tenant, going from one floor to two. And there are others with smaller tenants coming out of incubators, small suites, moving up the curve into larger suites. And so that's about 25%.

But just to clarify that, so 20% is upgrading, half are renewing, and 30% are contracting?

I didn't say contracting. Sorry, Adam. So you need to look at those proportions independently of one another. To answer your question directly, about 25% of tenants we dealt with grew. Okay, great. Okay. Thanks, guys.

The next question comes from Ben Brayshaw from Baron Joey. Please go ahead.

Good morning. Could you just talk about the rationale for the issuance of the subordinated notes during the period, the $500 million? And could you also clarify the margin achieved on that new debt, please?

Sure. Thanks for your question, Ben. So the issue of the subnotes, I'd say that was a very prudent and opportunistic capital management initiative. It provides us with enhanced financial flexibility to pursue investment initiatives, certainly those with pretty attractive risk-adjusted returns, whilst our planned capital recycling is ongoing. In terms of spreads, you'll have seen DCM spreads have narrowed and the sub-senior spread is now at historically tight margins. So the five and a quarter year notes were issued at $175 over a three month BBSW and the eight and a quarters were swapped back to floating and they reflected an initial margin of $185 over a three month BBSW.

And will you receive equity credit from your rating agencies for those notes?

That's right, we will. 50% equity credit.

Perfect. And just in relation to your comments, Ross, on becoming more capital efficient through your balance sheet portfolios, do you have a target interest in mind in Sephora's ownership that you would like to maintain across the assets that you're bringing capital partners for?

Look, it's going to be considered on a case-by-case basis. I think the reality is we have a really high-quality portfolio. There's lots of options for us. We have existing JVs, which are 50-50, which we can bring third-party capital into, and we have existing assets that we own and control that we can establish new strategies around. So I think it's going to kind of depend on what clients want, and ultimately we're going to run a bunch of options concurrently and choose those which are best for clients DEXA security holders, I wouldn't see a scenario where if these are high-quality assets, which they are, we want to have a meaningful aligned interest with our clients. So call it in the range of 10% to 20% would be kind of at the bottom end.

Okay, and would Waterfront Place and Atlassian potentially form part of those capital and partnering transactions?

I'm not going to be specific on assets, but I would say as a general principle, we are open to looking at every asset in the platform and we'll be, as I say, running options concurrently to assess what is the best outcome for DEXA security holders, having regard to, to be frank, what we sell, but also the redeployment and what's left afterwards.

Yeah, okay, terrific.

Thank you. The next question comes from Tom Bodor from Jarden. Please go ahead.

Good morning, Ross and Kieran team. I just was interested in the passing yield on the circa $800 million of divestments.

I don't know that we have that one to hand. We might come back to you on that.

Okay, thanks. But, I mean, if I take something like 100 Mount Street, is it fair to assume that it's relatively high passing yield?

So there's a reasonable passing yield. I would say that asset has got a reasonable amount of capex coming in the next few years. So we think divesting at these levels is an attractive decision at this point in time.

Okay, thanks. And then on the waterfront project, just would be interested, can you confirm that you've allocated 100% of the podium costs to the first tower, or have you prorated it based on the square metres of the towers above or some other formula?

So when we look at the total project costs that are quoted in the appendix, the cost of the podium is in the stage one cost. In terms of the yield on cost, we strip that out and we can go into a little bit more detail later today if you'd like around the methodology. But we take that out in terms of calculating the yield on cost for stage one, but it is included in the yield on cost that we quote for stage two.

Okay thanks and then I guess just following on from that in light of the positive momentum you've had on lacing there in that first tower, how do you think about the potential to get the second tower going in the next couple of years or is it really too early at this point to consider that?

Look, I think that's a quality problem to have given the opportunities that we have in the portfolio, but I refer to Andy's early comments as a high threshold to commence new development projects. We'll be somewhat guided on that project as well by our partner there, which is the Wholesale Fund DWPF. You know, I think as there is increasing flow and interest from capital, you know, that might be something that we assess over the next 12 months and there's certainly going to be some synergies in keeping continuity of contractor on site. So it's not really a decision for today. I'll just kind of make the point that for DXS, it's marginal capital, there's going to be a higher threshold. So that is going to be a gating issue for us.

Thank you. The next question comes from David Pobucky from Macquarie Group. Please go ahead.

Good morning, Ross, Kieran, team. Thanks for your time. Just to follow up on the buyback and how you're thinking about balancing the buyback, development and growth initiatives. I mean, DEX has reset its target payout ratio I think almost a couple of years ago now to obtain more capital for growth. So perhaps if you could talk a bit more about some of those growth initiatives you're working on please?

I would certainly like to be growing the business more and I think the market is increasingly conducive to it where we kind of see the cycle and we see flow of capital from clients. But the reality is, given where we're trading, is fixed security prices are a really compelling proposition. So, to be frank, new projects and opportunities are going to compete with that. So, so long as we're trading at these levels, that's a pretty high bar. I would like to think, and if I kind of take a step back, we have a significant balance sheet. And so the scope for us to undertake considerable capital recycling and releasing a lot of capital by bringing third parties into that investment portfolio actually, I think, gives us scope to do both. But obviously, we'll be assessing all those opportunities on a case-by-case basis at that point in time. So I can't predict where the share price is going to be. All I can say is, as I sit here today, it looks very attractive from a marginal use of capital.

Thanks, Ross. Just a second question on our first. You saw a modest improvement in incentives in the period Would you say FY26 is the peak year for incentives and what's the expectation around when that starts flowing through to earnings?

David, just in terms of market incentives, so we've seen vacancy peak in Sydney and in Brisbane and in Perth, vacancy is expected to peak in Melbourne shortly, next 12 months. And so that should flow through to market incentives and of course our incentives, we try to manage them lower than that market number.

I think if we're thinking about just the fewer dollar spend in terms of incentives, So I would expect this year CapEx will be sort of at probably a little bit below what it was in 25, but it is expected to be higher in 27 off the back of the strong leasing that the team has been doing.

Thank you. Thank you. The next question comes from Howard Penny from Citi. Please go ahead. Thanks very much.

I just wanted to ask about the

equity raising.

So you guys raised $640 million in third-party equity commitments and 280 million secondary unit transactions. Could you describe where the equity interest is coming from, domestic, international, and maybe just as far as possible give us some background as to where these equity inflows are coming from?

Sure, Howard. We've seen a wide variety of interest. We've got a diversified platform with different channels of capital, and it's safe to say there's a wide variety of interest that that attracts. So we've seen increasing interest from offshore investors, particularly in the pooled funds, and then from a domestic investor perspective, what they're increasingly looking to do is partner with us in some of our initiatives. So the DSIT trust which was launched is the first in a series and we've seen very, very pleasing demand from investors to essentially come into a club. That's been largely domestic, but I would say we've got a wide variety of interests from a wide variety of areas at the moment.

Thank you very much. And my second question is just on cost of debt and where you see that potentially peaking over the next two years and refinancing risk on that?

Thanks, Howard. I'll take that one. So the cost of debt you'll have seen has increased. It went from 4.2 up to 4.7 for this half. I expect for the full year, we'll be sitting at the high fours. Next year, sort of five-ish. So we are pretty close to market at this point. In terms of refinancing risk, very minimal expiries coming up. We have been very proactive with refinancing. We just did more than a billion dollars on average at about 15 basis points, tighter rates and an increase in tenor. So we will continue to take a proactive stance with our refinancings.

Thank you very much. Thank you. The next question comes from James Truce from CLSA. Please go ahead.

Yeah, hi, good morning Ross and team. I was hoping you could comment just on the bucket of performance fees that you might have. I noticed you have the second half secured. I was just trying to get a sense of what's left after that.

Is that, sorry, in relation to 26 or what's the longer term outlook for performance fees, just to clarify?

Yes, you've got the second half secured. I'm just wondering how you're looking for the 27th and 28th. Are there things that you're behind that can come through or is this sort of a strong year for performance for you?

so so the significant contributions in to be frank 25 and 26 was there was an infrastructure performance fee on a mandate that was crystallized on a sale and there was a significant outperformance in the industrial strategy of the adult portfolio which um was realized over a couple of periods so um i would say they were at the kind of the larger end of the scale like we are trying to introduce performance fees into new strategies and initiatives You know, they're not going to be straight line. They are going to be a little bit lumpy. And I think what we're kind of flagging is, as we look towards 27, that level of kind of contribution is unlikely at this point in time.

Yeah, OK, that's helpful. And I'm just interested in your slide 18, just looking at the net effective plan forecast. Have you incorporated any AI impacts into those forecasts? And how do you think about the sort of... uncertainty or dispersion that could create over the next three years.

Also, just generally in relation to dispersion, we've kind of been calling this for a while, we see increased dispersion in performance in assets across, I would say, both real estate and infrastructure, and to be frank, the better assets we think are going to do better and there will be assets that potentially get stranded or left behind. I think the good thing for us is whether it be in the balance sheet portfolio or our funds, we generally have those high quality assets in those premium locations. So I'd say at a group level we feel well positioned and these are difficult things to predict but Andy I know you've got some views on this.

Yes. Difficult to predict is right. So in terms of how AI lands, no one really knows right now, but what we're seeing in our portfolio through engagement with our customers is that it is resulting in some of our customers growing. And so I'll use an example where a law firm following implementation of an AI augmentation program actually leased more space because they could adjust their ratio of lawyers to non-lawyers, and so they needed more space. That's one anecdote. You can't apply that to the whole portfolio or to the market, but I think it's not as simple as drawing a straight line between AI implementation and like a blanket adjustment to office demand.

And I would say thematically, we do kind of see the nature of work that is more likely to be impacted by AI is typically going to be middle or back office functions. And that work is typically going to be in the suburban markets. And that is not a space that we are particularly exposed to. All right, thank you.

Thank you. The next question comes from Winky Tan from Morningstar. Please go ahead.

Hi, good morning Ross and team. My first question is in regards to that $1 billion redemptions. Just wondering if you are able to quantify how much of these are secondary transactions and how much of this money actually left the platform. Thank you.

So during the half about $1.5 billion was satisfied? Most of that was in DWPF. There was also a special redemption in the Shops Fund. And then, as we said, about $280 million of that was through secondary transactions, so obviously stayed on the platform. And the rest were units being redeemed, so those units disappear.

And with the money that has been redeemed, Could you also share whether it's sold to any external parties or is it within BEX's other platforms?

Essentially, the process is we free up cash to meet redemptions. So we'll sell assets or use debt. So by virtue of the fact that there's assets being sold, that would be off the platform. And to the extent it's debt, well, it's just an increase in debt in the fund.

Yeah, that's clear. And my second question is to Andy. Would you be able to share what the office leasing spreads were in the past six months? for the deals that you have achieved? Thank you.

Yeah, no problem. So, hi, Wiki. So, phase spreads were positive across all markets. For our portfolio, the phase spread was up 9%. The effective spread trajectory has come in from 16% or negative 16% to negative 10% to now negative 5%. So, just to clarify, the effective spread on the leasing that we've done in the first half is negative 5%, which is a material improvement. So in terms of the sub-markets, in Brisbane we achieved positive 10% effective spreads.

Yep, that's clear. Thanks, Andy.

Thank you. The next question is a follow-up from Adam Calvetti from Bank of America. Please go ahead.

Oh, hi, Ross. I just wanted to follow up on your comments you made to Simon earlier on the 5% to 6% yield on cost guide and essentially not cutting the mustard, I think, is the term. I mean, I'm looking at the uncommitted developments. We're still quoting 5% to 6% for Waterfront, 60 Collins and Piton Bridge. Does that need to get revised going forward?

Well, we're not committing those projects yet, so I kind of think that's a question for when we're committing those, so...

Is that not a target range? Why is that in there?

I think we'll assess those when we're kind of close to the start line. Things like Pitt and Bridge Street are still years away, and the reality is they are income-producing assets. So it's not a decision for today. I think what we're... You know, the yield on costs is... And we think about development margins. We have to have regard to where we think stabilised cap rates are. Again, that's an assessment that we kind of think we need to make at the time of starting those projects. So rest assured... If we're deploying capital into development projects, we're going to need to be compensated for the risk and it's going to meet our internal hurdles.

Yeah, okay. Okay, that's good. Thanks.

Thank you. At this time, we're showing no further questions. I'll hand the conference back to Ross for any closing remarks.

Thanks, everyone. Enjoy your day and we'll catch up with you over the next few weeks.