Dexus

Thank you for standing by and welcome to the DEXIS FY26 results briefing. 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 1 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. We really appreciate you taking the time to join us this morning. I know it's a really busy day with other companies reporting and there's probably a few tired analysts given it's been a busy reporting week. Let's begin today by acknowledging the traditional custodians of the lands and waterways on which we operate and pay our respects to elders past and present. Today you hear from some of the management team who provide you with a full picture of the business and the operating environment. You hear from Keir, our CFO on the financials, Andy on office, Chris on industrial and Michael on funds management. At the conclusion I'll provide a summary and outlook and then we'll open up for some questions. We know DEXIS today, it's a good business. Now you may see DEXIS as an opportunity to buy high quality assets cheaply and in the short term we're looking to capitalise on that ourselves. But DEXIS has all the ingredients to be so much more than that, and unlocking that potential is what we're all about. We have a diverse platform with deep-sec expertise and the ability to create assets. We have long-term and deep relationships with private capital, and we have a balance sheet of serious scale with high-quality assets. Over the past few years, DEXIS has been making a deliberate transition. We've been reshaping our portfolio, improving its quality, becoming more capital efficient and building a more diversified business. All with a very clear ambition to create a more resilient business that can generate sustainable earnings growth over time. Today's results show that we've delivered on what we said we would in FY26 and we continue to make progress on our transition. But I also want to be clear about where we are today and open about the work we have to do. While we have a high-quality investment portfolio, we have further to go in transitioning the balance sheet to be more diversified and more capital efficient. That will improve our ability to generate attractive and sustainable returns for security holders through the cycling. We have a funds management business of scale and significant relationships with clients, but there's work to do to ensure the strategies and products continue to be relevant and deliverable for clients and for us. Specific issues have emerged in the infrastructure funds and mandates that transitioned to DEXAs from AMP, and we're addressing these directly. Our portfolio and deep relationships have created a privileged position when it comes to deal flow, but investing in this market has become more asset specific, and we need to be very selective about the opportunities we go after as we deploy capital alongside third party clients. This is all reflected in a security price that materially understates the value of the underlying investments and value in the platform. And the management team and I are acutely aware of this disconnect, and we are focused on improving it in a sustainable and enduring way. So the question I know you'll all be asking is, what are we doing about it? And the answer is, in short, a lot. As detailed on this slide, in FY26, we delivered solid outcomes in our core business. We delivered on divestment targets. We secured attractive capital growth opportunities. We substantially resolved redemptions across the core real estate platform. And we raised capital from clients twice as much as last year. We're driving hard on the performance of our own investment portfolio, improving occupancy, income and returns from the assets we already own. And we continue to focus on meeting the needs of our fund clients, delivering performance in those strategies and ensuring we bring new opportunities that create long-term value. It shows the resilience in our operating model, the ability to live at this performance while navigating the challenges in infrastructure. We're also putting down the foundations for longer-term growth, with initiatives like the Boral JV, a more than decade-long project which we expect will create the nation's largest logistics precinct. And we're being responsible in how we think about costs and overheads to run the business. And the team will share more on progress and highlights in a moment. Twelve months ago, we set out a series of priorities and action items that will move us towards our goal to reshape the business to deliver more sustainable earnings growth over the longer term. And as you can see on this slide, we've made decent progress. Atlassian Central topped out last month and is on track to complete this year. A rather major project, Waterfront, is experiencing further delays but remains favourably positioned in the country's strongest workplace market, and the commerce remains intact. We've had success attracting capital to products we've created that leverage our capabilities, with DREP2 exceeding its original target by nearly $300 million. The conversion of a Brisbane office to student accommodation asset in DREP that reached PC in June is a good example of what the platform can create. And people are such an important part of our platform. The execution of strategy, the creation of value, the management of risk, the connection with customers, clients, partners, all of this relies on people. We have a great team of passionate experts who thrive in creating and driving value from assets and we continue to invest in them, strengthening the leadership, the skills and the capabilities in the platform. We also continue to actively address fund specific issues. This includes responding directly to the APAC matter, continuing to support our fund investors and ensuring that we embed learnings into the wider business. I'd like to spend a moment on this before I hand over to Keir. This slide sets out the context, the actions we've taken and the next steps. And there's a few things I want to make sure are really clear. DEXIS primarily acts in the fiduciary capacity in these funds. We don't have a direct ownership or control of the underlying assets. Our job is to act in the best interest of investors, our clients, and that's what we're doing. In May, the New South Wales Supreme Court found against the DEXIS block in proceedings in relation to APAC. and the investors are appealing that decision with a court date scheduled in October. Managing this world for our clients is critical and we take it seriously. Pleasingly, our operating model, which is designed around the sectors, and this ensures that we have teams focused on delivering in each part of our business. This is evident in the positive outcomes this year we've achieved across the wider platform. I can understand some of the frustration from security holders regarding the uncertainty. Fund specific decisions will be made by RE boards and trustees, legal processes have a timeline of their own and some conclusions won't be possible until the appealed outcome is known. These are complex matters and it will take time to resolve and we will update you as security holders as decisions are reached. I now hand you over to Pia, sorry our CFO.

Thanks Ross and good morning everyone. Turning to the result in detail. In line with expectations, total AFFO was $484 million, with a distribution of 37 cents per security, reflecting a payout ratio of 82%. Office FFO reduced primarily due to divestments and lower average income-producing occupancy, while industrial FFO increased driven by development completions, higher average physical occupancy and strong releasing spreads. partly offset by divestments. Co-investments in pooled funds increased, driven by DEXIS's investments in DSIT1 and DWSF, as well as higher distributions received from some funds. As expected, FFO from management operations decreased due to lower thumb as a result of divestments, lower management fees and slightly lower performance fees. while active cost management reduced group corporate costs by 6%. Taken together, group corporate and management operation costs have now reduced by more than $30 million since FY24, with the impact of recent initiatives expected to benefit FY27. Finance costs increased due to a higher weighted average cost of debt, partly offset by the impact of divestments. As expected, trading profits were higher with the sale of Brook Hollow, Chester Hill and completion of construction at Preston's. And maintenance capex and leasing decreased for the office portfolio as a result of timing, partially offset by higher incentives across the industrial portfolio. The recovery in property valuations is increasingly being driven by fundamentals. with market rent growth the main contributor this year, partly offset by a marginal expansion in capitalisation rates. Overall, for the 12 months to 30 June, the portfolio increased by 1%. Our office portfolio, which is 95% prime grade and 78% weighted to core CBD markets, increased by 0.6%. and our industrial portfolio, which is 89% weighted to core industrial estates and distribution centres, increased by 2.3%. These outcomes demonstrate the quality of the portfolio and stabilising valuations despite the interest rate environment. Moving to capital management, our balance sheet remains solid, with look-through gearing of 33.4%, which is expected to reduce by around 1.5 percentage points following recently announced divestments, net of circa $490 million of committed development spend over the next 12 months. This provides support to recommence buyback activity. We have been active with refinancing, resulting in a weighted average debt maturity of 4.2 years, $2.5 billion of headroom and manageable near-term debt maturities. 91% of our debt was hedged during the year at an average hedge rate of 3%, providing material interest rate protection. Thank you, and I'll now hand over to Andy.

Thanks, Kia, and good morning, everyone. I'll take you through the office results. We own the best office portfolio in Australia, 95% prime grade and 78% in core CBDs, up from 88% and 61% seven years ago. Occupancy improved significantly this year from 92.3% a year ago to 95.7%, our strongest result since June 23, and remains well above market average. The improvement was driven by a combination of leasing success on vacant space and divestments secured post 30 June. Our leasing volumes of 172,000 square metres were 60% higher than the prior year, Incentives were 26.4%, held down by effective deals in Melbourne, and excluding those, incentives were 29.9%, still well below market. Effective like-for-like income grew 30 basis points, impacted by downtime on key vacancies at AB Collins and 30 Hickson Road, however improving since the half year as we had targeted. The portfolio delivered a one-year total return of 5.4%. We are working to address the capital intensity of office ownership, pushing for lower lease incentives, effective rent structures and investing in fit-outs that endure beyond a single lease term. These initiatives compound over time and will improve free cash flow. We aim to hold any single year of expiries below 13% of the portfolio. FY27 expiries stood at 12.1% at 30 June. Excluding those, excluding car parks and the leasing that we have secured since the year end, that reduces to 8.5%. The vacancy we're most focused on is 80 Collins Street in Melbourne, which represents 1.2% of portfolio income. There are also upcoming expiries of Australia Square and 25 Martin Place, where we will pursue leasing across a combination of suites and turnkey hall floors. We expect an improvement in life-for-life growth in FY27. Further out, FY30 and FY31 sit above the threshold today, driven by concentrations at 80 Collins Street and 240 St George's Cheris. Expiries we have a long runway to manage. Our portfolio is well diversified and is weighted to financial, insurance and legal services, high value professional work concentrated in premium CBD buildings. That is the work we think is most resilient to AI and in parts may benefit from it. Two city shaping developments that will further enhance the portfolio quality are underway. Atlassian Central is on schedule for practical completion in late 26, 100% pre-leased for 15 years with fixed 4% annual increases. As flagged at the half year, completion of Waterfront Brisbane has been delayed. The expected completion of late 2029 is based on the contractor's current program, with greater certainty expected once construction passes Level 5 later this financial year. Texas's share of total costs has increased, primarily due to interest costs and leasing incentives. While we have a fixed price construction contract and early delays are expected to be absorbed within the relevant contractual provisions, a delay of this length goes beyond that capacity, impacting our cost to complete. We remain confident in the asset, 71% pre-lease, Rents around 50% below market in the country's strongest office market. The project remains profitable, yield on cost remains materially in line, and known valuation impacts are reflected in carrying values and NTA. The office market has commenced a recovery cycle, supported by a very favourable supply backdrop. Completions across the major CBDs will remain well below long-run averages for an extended period, with development economics challenged by higher construction costs. Demand is harder to predict, but the supply outlook is clear and supportive of stronger rental growth. Performance remains hyper-local. As the chart shows, Sydney Core premium assets have materially outperformed the broader market, and are one of the few segments where net effective rents are above pre-pandemic levels. Texas is positioned exactly where the market is strongest. 95% prime grade, 78% in poor CBD precincts. Thank you and I'll now hand you over to Chris.

Thanks Andy and good morning everyone. We leased nearly half a million square metres this year across stabilised and development our second largest year on record. Our industrial portfolio has delivered a strong result, including a one-year total return of 7%. Occupancy by income reduced slightly to 94.6, impacted by expiries at select assets, with relatively high rents, partly offset by lease-up of other vacancies. Occupancy by area of 96.5 remains above the national average. We achieved strong releasing spreads of 24%. Average incentives increased to 21%. This is supply driven and location specific. Recent completions in select sub-markets have given tenants more choice. It's not a signal of broader demand softening. Underlying reversion is unchanged. the portfolio remains 8.1% under-rented, with 20% accessing reversion by FY28. We leased 128,000 square metres across 23 development deals, and 68% of the committed book is now pre-leased, with fixed annual increases of 3% to 3.5%. Every completion expands the quality end of the portfolio and captures tenants trading up. A portfolio built for the market we're now in. Returns driven by rental growth, reversion and development, not cap rate tailwinds. Moving to our expiry profile. We have leased 32% of the portfolio over the past 24 months, de-risking the expiry profile and capturing strong releasing spreads. We remain focused on leasing key vacancies at Matreville, Lakes Business Park and Greystones. and we're in active discussions with potential tenants on these properties. The vacancy we absorbed was older stock in New South Wales and Victoria, and we leased it well. The market is splitting. Quality, well-located assets stay in demand while secondary stock is discounted, and our portfolio sits on the right side of that line. 80% of FY27 expiries sit in younger prime assets, so it upsides exactly where the market is strongest. On development, we're actively growing and upgrading the portfolio over 208,000 m2 in play this year. 154,000 completed and a further 54,000 under construction. This is new, prime, high performing stock. Modern facilities meeting the specifications occupiers are demanding as they move out of older buildings into better, more efficient space. Supply is in check, around 60% less speculative supply over the next three years and the market has slowed building on spec. Developers now pre-commit before they start, so little new vacancy is being added. As existing vacancy is absorbed, the setup points one way. Tightening availability, returning rent growth and easing incentives. Data centres are accelerating and are now a structural tailwind. Close to 290 hectares taken up across Sydney and Melbourne. A new, higher and better use for power-served industrial land. That lifts land values and replacement costs. That supports the value of our existing modern stock. We're leaning to modern logistics in the best locations and stepping back from the secondary stock the market is discounting. Thank you. I'll now hand over to Michael.

Thanks, Chris, and good morning, everyone. Our fund's business manages $36 billion in third-party capital across a diverse range of real asset strategies, servicing 150 institutional investors along with direct and wholesale clients. The platform is diverse across channel, sector and risk profile, and it brings together products we have managed for a long time, like DWPS, strategies we have built organically, like DREP, large joint ventures and products that came to us through platform acquisitions like AMP and APN. Funds management is a competitive business and we are not here simply to promote products and collect fees. We invest alongside our clients, focusing on three things. Investments must generate attractive returns in areas we have a competitive advantage. Clients need to support the product. and the fee economics need to be fair, delivering a positive financial contribution. That is the lens we apply to both new and existing products. Indexis has been in business for 40 years and there will be a need to refresh and renew funds from time to time. For example, our healthcare fund has not achieved the scale or performance we had hoped for when it was launched almost 10 years ago. And as mentioned earlier, following the unfavourable APAC judgement, we formalised a review of the infrastructure products and strategies acquired as part of the AMP acquisition. That review builds on work already underway to resolve some fund specific issues. DEXAS holds a modest co-investment in these strategies, around $260 million, so the reviews are focused on ensuring these funds have contemporary strategies that align with client needs and our capability to deliver. Turning to our achievements for the year, we raised $2 billion in equity across the platform, including $260 million in the last two months of the year, while also providing liquidity to investors. DWPF's redemption queue, which stood at $1.7 billion at the start of the year, has been completely resolved post-year end. We have also maintained our focus on returns. DWSF was ranked first among all wholesale funds in the MSCI index over the one, two and three year periods. And DWPF continues to outperform its benchmark across all time periods, achieving a one year return of 9.3%. The performance of these funds highlights the quality of the underlying portfolios in our active management approach. And with structural fee pressures across the market, strong performance does support fee retention. Finally, we continued to deliver on our ESG ambitions across the platform. Three funds achieved five-star GRES ratings and we maintained net zero emissions across scope one and two for our managed portfolio. Thank you. I'll now hand you back to Ross.

Well, thanks, Michael. I know our clients have a lot of confidence in your focus on the fund strategies and how you're evolving the product set. Now, we've covered a lot today, and there's lots of moving parts, so let's turn to the priorities for the year ahead. Our commitment to transition the business remains the same, and the priorities to get us there have been refined. We've been deliberate about where and how we allocate capital. We remain invested, and importantly, where we don't. We are targeting to release more than $2 billion of capital over the next two years by introducing third-party capital into our core long-term holdings and continued pruning of the portfolio. Capital deployment will focus on opportunities that support us being more capital efficient, more diversified and ultimately generating more sustainable earnings growth. Examples of these type of opportunities include the Boral Joint Venture and a modest investment we've made in an Australian data centre operator, ADC. I expect that buyback will continue to feature as an attractive use of capital. We have deep belief in the value of the business and see this as a lever to generate value for security holders as we navigate our transition. With transaction markets improving and our investment target exceeded, we are now in a position to capitalise on the current disconnect. But to be clear, the buyback does not replace our long-term growth strategy. It is a near-term lever to create value for security holders. So in summary, it has been a year with both challenges and evidence of real progress. We are focused and clear-eyed about addressing the headwinds and have a solid plan and the team in place to execute. We have met commitments to security holders, but we know we have more work to do and FY27 will be a critical year for us. And while the core portfolio is expected to benefit from leasing momentum, earnings in FY27 will be lower. This is driven by minimal contribution from performance fees, trading profits, high financing costs and the practical completion of Alessian. We've also made some allowances for materially lower earnings contribution from the funds under review and consultation. As a result, and barring unforeseen circumstances, for the 12 months ended 30 June 2027, we expect AFFO of 37.5 to 39.5 cents for security and distributions in line with last year at 37 cents per security. As we think about the year ahead, every decision, every action is taken through a lens of creating sustained value for our security holders. Some of those actions will have an impact relatively quickly and others will take time, but they are all moving DEXAs towards being a more diversified, more capital-efficient business capable of delivering sustainable growth over time. And I have real conviction in that direction. We have high quality assets. We have valuable capabilities and relationships that have been built over many years. And I have enormous confidence in the team across Texas who are doing the hard work to make this transition happen. And while the year ahead will have some challenges, I'm genuinely optimistic about what we can achieve and I thank our security holders, our clients, our customers and our partners for their support and the DEXAS team for their dedication and focus. That ends the formal part of today's presentation. We'll now open up to any questions. Thank you.

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 questioner. The first question today comes from Adam West from JP Morgan. Please go ahead.

Hi, Ross and Tim. Thanks for taking my question. My first one today is just on the ongoing APAC matter, but I'm just wondering if you're able to quantify how we should be thinking about the scale of quantum if potentially if the shareholders were to take legal action against yourself and whether or not your provision that you've got in there for NTA covers just the current cost of the appeal or also if you were to lose that appeal and have to cover the cost of the other side.

Thanks for the question, Adam. I understand that there is going to be lots of questions around APAC, but obviously this is a live and complex bit of litigation, so there's not much I can add beyond what's in the materials and the prepared remarks. In the specific answer to your question around what is kind of cooked in NTA today, that essentially relates to legal costs both for our clients, but also legal costs for the other parties. to the judgement to date. It doesn't provision for any future claims. It does allow for some costs for us to get through the appeal on our side as well. So there is nothing in NTA today or provisions made in the accounts today for subsequent claims. I would make the observation that no claims have been made and to the extent that claims are made that will probably happen or if it happens it will take some time.

That's clear. I guess just on my second question, but just in terms of I guess the AI dynamic and just some of your conversations you might have been having with your tenants in terms of leasing, but how do you see the use of space changing in the future and do you think there's potentially a tailwind of people taking out more space for collaborative and breakout spaces?

I think it's a fascinating question. Andy's in there talking with customers every day, so I'd like to get him to share some views on that. But I think from my perspective, certainly what we're seeing in our business is AI is definitely making the most productive people more productive. And that means that we're going to see people investing, I think, in high-quality space. And the value and utility of those people actually becomes high moving forward. But Andy, what are you seeing when you're talking to your customers?

For the most part, our customers are, like us, investing in AI productivity tools and seeking to capture that performance gain. They are yet to see AI flow through to a reduction in headcounts. that type of efficiency. It's more about productivity for them. And I think, bear in mind, our average customer size is relatively small. It's 1,500 square metres for the balance sheet. So those types of small to medium-sized enterprises are more likely to be using AI to grow than to contract. In terms of how the space is used, I think whenever there's heightened uncertainty, tenants look for shorter lease terms and more flexibility. That's probably what we're seeing in Brits.

Perfect. Thanks for that.

Thank you. The next question comes from Andrew Dogs from Jefferies. Please go ahead.

Oh, hey, good morning, guys. Thanks for your time. Maybe just a follow-up on some of the APAC legal fees. I think back in the first half, you quantified that amount at $17 million. So I was just hoping, you know, where that number kind of sits today and I guess the outlook sort of going forward over the next 12 months of what this number could sort of potentially be.

Thanks for the question. So in terms of the costs both for the proceedings to date and as Ross mentioned in respect of our costs for the appeal, those costs that can be more reliably estimated total approximately $60 million and they've been expensed in the P&L and reflected in NTA. I don't think it's appropriate per Ross's comments to estimate what future costs will look like.

Okay, thank you. That's clear. And then maybe just one on the buyback, giving comments in the outlook statement. Ross is saying, is the intention to restart the buyback tomorrow now, once you're out of blackout? And I guess just how sustainable do you see this, just given where look through gearing is at 33% and close to a billion of capital commitments over the next two years?

Look, the buyback is something that I'm very passionate about, and that is why it's in the plan. But as you'll appreciate, we are balancing the short-term, and there is clearly kind of a short-term gain we have through the buyback. It's through ensuring that we don't kind of starve the business of capital for longer-term growth. And we need to do all of that while managing risk, and you rightfully identify the financial risk. I'm also thinking about the investment risk, so how we think about the investment portfolio. So in a nutshell, it's a balance. All these decisions are guided by Our capital allocation framework, which we kind of put in place in 2024. But certainly at current prices, I'm a buyer of the stock and you should expect us to be active in the coming weeks.

Okay. And just in terms of guidance and what guidance is factoring in, how much of the buyback are you assuming?

There's nothing material in guidance in terms of the buyback. It's not a material needle mover given where kind of cost of debt and the yield of the stock is. It will have benefits in future years as you kind of think about shrinking the capital base and then when we get earnings growth moving, we're doing it off a smaller capital base. So it's going to increase NTA, it'll increase NAB per security. it'll give us more positive leverage to growth as the business turns around. The other point I would make just on your earlier question around capacity for the buyback, I think we are thinking carefully about the balance sheet. We don't want to stretch it. But we have also announced that we're targeting to release at least $2 billion of capital over the next couple of years and we have a good track record in terms of capital release. So I kind of think certainly at current prices I think it would be a missed opportunity for us not to capitalise.

Right, thank you. And then just a final one for me, just in terms of some of the moving parts in FY27 guidance. I guess it's been pretty well flagged that performance fees and trading profits are kind of likely to feature less going forward or at least in 27. But it would be good to understand some of the kind of bigger moving parts, just given how big the sort of year-on-year decline is. Thank you.

Okay, do you want...

Happy to take that one. So you're right, as we have flagged, we anticipate an immaterial contribution from trading profits and performance fees. Now those factors alone account for 14% of the lower earnings. Outside of that, there are a number of moving parts. So we anticipate impacts from higher funding costs, practical completion of Atlassian. There's some slight dilution in there from disposals. as well as some allowances for a materially lower contribution from FUM that's under review or consultation. I think pleasingly offsetting those headwinds, we're anticipating solid growth in the core portfolio driven by leasing momentum, stronger office growth and continued industrial performance.

Just kind of closing out on that, I think that's kind of something that maybe just doesn't jump out of the result is notwithstanding, you know, the headline print of earnings being lower next year, the underlying business is actually pretty much flat. And that's after we take into account higher funding costs and the four-year impact of the last thing coming through. So I think that's something to, you know, certainly us as a management team, but also brokers to be focused on.

Okay. Thank you very much, guys. Appreciate it.

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

Oh, hi, Ross and team. Hey, just on the office, you provide a like-for-like number, X for divestments. I mean, you guys have, as Andy said, the best office portfolio in the market. And, you know, you don't report leasing spreads and like-for-like growth 0%. What's going on? When is this going to return?

Adam, hi, it's Andy. Is the question there what's like-to-like for 26x investments?

Yeah, x what's settling in that 30-hickson road, which I'm sure is trying to get down.

Yeah, so it would be about 2.5% as opposed to the basis points.

And what are leasing spreads?

So leasing spreads are improving, especially on an effective basis, and for the first time in a long time, we are now on an effective basis under-rented in Sydney CBD and in Brisbane CBD. The effective spreads on the deals we did in FY26 were negative 8.7. So that's down from 10.2 at 25.

Okay, that's clear. And then just on the divestments as well, you've got a coupon. Is that going to be coming through FFOs?

Yes, it will be. That's right.

Okay, that's clear. And then just maybe one quick one as well. Just on this APAC litigation expense, I mean, with the fund that's at risk, is that still fee paying currently? Is the full 7.3 or how do we think about the 4.5 fee paying? And is that expected to be fee paying throughout the year?

So, yes, we're still providing services and collecting fees in relation to that fund. As I said in, I think, the concluding remarks, we haven't had some allowances and guidance for a maturity law contribution from, let's call it, fund that is under review or consultation. We're not being specific as to what that is, but we need to make some assessments around what that is in determining guidance, and we've done that. So, yes, we've factored in on a reasonable basis what that looks like.

Okay, but it's fair to say that it's contingent on the actual decisions at court, so if that's delayed, you could see them paying, you could see that fee, that fund paying fees for all of FY27?

I would separate the litigation outcomes from the reviews that we're going through with fund clients and trustees.

Right, so you're doing reviews on the full 7.3 regardless? Correct.

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

Morning Ross, Kieran King. Thanks for taking my questions. Just another one on the infrastructure strategic review. How should we think about the timing of the progress you make there and at what point would you have made material progress and maybe at a high level what would success look like to you and DEXA security holders off the back of the reviewer.

Thanks David. In terms of timing, we just flagged that this is a process that we're working through with clients, trustees and investors and so it's not for DEXA to dictate the time table per se. I think there is a shared interest in trying to get resolution but I think there's a general acknowledgement amongst all the stakeholders that is a very complex situation and we also have to navigate, you know, as I said in some of the remarks, the conclusion of the litigation is probably going to impact some of the decisions as well. So I think we collectively as a stakeholder group would like to get clarity As soon as practical, it will take some time. We're not going to be... And we are not going to dictate the timetable. I think we're very respectful of all the stakeholders in relation to that. What does the success look like I think in the end for us it's not that complicated. We want to have strategies that we think can deliver attractive returns. We want to have strategies and products that our clients are going to support us in and ultimately the economics need to be a positive contribution for us given the complexity and the loss of control that you have when we're investing alongside clients. So I think that's the framework that we're looking at. I accept that this is a difficult situation. stakeholders and clients with differential interests, but that's how we're working through it in a methodical and considered way.

And just the second question, you mentioned you're targeting the release of $2 billion of capital over FY27-28. A few months ago there was an article in the press that mentioned VEXIS was trying to put together an office fund. that might include stakes in some of your top buildings. So if you could provide any comment on those couple of pieces. Thank you.

It's always dangerous to comment on press speculation. Look, we see a great opportunity to improve the returns for DEXA security holders and the capital efficiency of the business by bringing third-party capital into that very high-quality office portfolio, but I would say the same principle applies as we think about our logistics assets as well. So improved capital efficiency is a clear objective. We've got to get the timing of that right. We've got to make sure we get the right partners in. We're not under pressure to do a deal tomorrow, if that makes sense. The balance sheet is in a really good position. So for us, we'll work through it, again, in a methodical, considered way. I think, pleasingly, institutional capital interest in office has come back a long way. 12 months ago, it was hard. I think there is a general acceptance around the better assets are really going to perform well, and he's given you some good colour around, you know, I think the supply-demand dynamics have really favourable set-ups, and I think that is acknowledged globally by investors. So we're working through that. We'll update the market as we make meaningful progress. And as I think I flagged at the Macquarie Conference earlier this year, the scope for material capital release from these initiatives is significant, and the challenge is going to be back down on the redeployment and the use of those proceeds.

Thank you, Ross.

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

Good morning, Ross and team. I was just interested in whether you see FY27 as a trough year for FFO or do you think there could be sort of some risk into 28 as well?

We've only just delivered the 27 gardens. Tom, what do you want us to talk about 28? Look, I think... You know, we're very clear around the business needs to be in a position where it has a sustainable earnings base and it's going to deliver sustainable earnings growth for security holders. I think we're very clear around the plan of what we need to do in 27. You know, there's headwinds, there's tailwinds in relation to that. You know, the team is focused on 27, all with the lens of getting the business back to sustainable earnings growth. And so, you know, we'd be pleased to update the market on 28, probably this time next year.

Thanks for that and then on waterfront and the delays you know I think historically when you've sort of answered questions around that there's always been sort of a refrain of a fixed price contract and it's the builder's risk but clearly a fixed price contract isn't ever fully fixed because the builder can't take all the risks that could play out and it seems that whether contingencies have been eaten through does that mean that you're now on the hook for any excessive weather delay from here and what other risks are you exposed to in that contract?

Look, developments involve managing risk, absolutely, and we are laser-focused on this as a team. And I think while there has been delay and there will be some costs, and these are principally financing costs, as Andy alluded to, there really isn't a better project in the country to be invested in, certainly in the office space. And, you know, I'll let Andy provide some specific comments on the contract particulars, but for me, this is, you know, we picked the right market, This is the right product in the right location, a premium asset in a premium location. We've had the right leasing strategy. We didn't live it up too quickly. Notwithstanding views around John Holland, I think we have the right procurement strategy. This is a tier one builder with the expertise and financial support and they are very well equipped to deal with a build of this complexity. And notwithstanding the delays, and we do want to get this built as quickly as possible, the economics have been largely preserved. And so I think that's the important thing for us. I think you're right to identify, well, if there is further delays from this point, what's that look like? But I'll let Andy touch on that.

Thanks, Ross. Hi, Tom. So the fixed price contract remains intact. and it protects DEXIS and DWPF from escalation in construction costs. It also anticipates a regime for liquidated damages in the event of delays to practical completion and the previously announced delays have been absorbed within that capacity in the contracts. This delay to late 2029 is frustrating but we have been working closely with John Hollands to review the program It does include and resets an appropriate contingency for weather from this point on. And, you know, we'll feel much higher conviction about forecasting PC once we get to level five, which will be later this financial year. And at that point, it should be much clearer.

I hope there's no rhyme.

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

Thank you very much. Just a question on finance costs and how to think about, you know, the sources of funds over the next two years. There is one or two, you know, there's some potential to renew funding but also the exchangeable notes that's coming up in November 2027. Could you just guide us on how you see sources of funding and just overall funding costs over the next year or two?

Sure. I might take that one. Thanks, Howard. Maybe if we start with gearing. Gearing at 30 June was 33.4%. Now, that's towards the lower end of the range. If we pro forma for the post-balance state divestments that the team's achieved, pro forma gearing sits at around 30%. That's just with the initial proceeds from those sales. And then it steps up to around about 32% if you look at the half a billion dollars of committed DEVX over the course of FY27. Now things that might occur outside of that, Ross has talked to the $2 billion of capital release over FY27 and 28. That will further benefit gearing. Naturally there are also things that we are looking to spend on including the buyback as well as potential other investments. So it's difficult to give you a forward estimate, but hopefully that helps with some of the moving parts. If we're looking at cost of funding itself, look, the team has done a great job in terms of the hedge book. We have quite high hedge coverage. The average rate is around about 3%. As that rolls off, it will normalise to higher rates. And you are right, the exchangeable note, that expires towards the end of FY27. It's too early to say what we will do with that particular instrument, but you should assume at the moment that it will be in place until maturity.

Thank you very much. And just a second question coming back to thinking about the core portfolio. That portfolio has done well and remains strong. And just thinking about how DEXIS is allocating that next dollar, there's a few opportunities, it seems, at hand, both taking opportunities, maybe liquidity in the funds, the share buyback, and reinvesting into developments and the core portfolio. How are you thinking about allocating that next dollar of DEXIS across those opportunities?

The way we think about capital allocation is not about the next dollar, it's actually about thinking about the returns on the assets we already own. So it's both and that is also driving some of the decisions around divestment. You know, I think we see opportunity to sell assets where kind of the go forward returns are going to not meet our hurdles or returns relative to the redeployment opportunities. So I think you should expect us to continue to be active. There is no shortage of opportunities out there at the moment, quite genuinely. I think the challenge for our team is, given where the buyback's at, the bar is very high. So it doesn't mean that we're not going to do new things. It means that the Yeah, as I said, the bar is high in terms of doing new and different things. And if you look at actually where we have deployed capital, we have committed that marginal capital over the last year. It has been on things that generally have high returns and are adding to diversification and ideally capital efficiency in the business. So they're certainly going to be characteristics of any of the new things that we do.

Well, thank you very much. Thank you. The next question comes from James Drewes from CLSA. Please go ahead.

Yeah. Hi, Ross and team. I think part of the question might have just been answered, but just what you'd like to do with that $2 billion of capital that will be released over the next couple of years. Is there any other colour you can add?

I'd probably just be saying the same thing.

You can have another extra question if you want to. Yeah, yeah. Just on the maintenance capex and leasing capex of 27, is that heading up or down? Or what is that number?

Thanks for the question. So I'd expect it'll be a little bit lower than what we delivered in FY26. And that's a combination of... The office portfolio being smaller, as well as the work that the team has been doing in terms of managing CapEx and the way in which we do that, that's slightly offset by an increase in contribution from industrial as a consequence of higher incentives and flowing through the book.

Has that peaked, given what you're doing with the portfolio now? I mean, it should be trending down from here, I would have thought.

Yeah, I think that's fair. Maybe, Andy, you can talk to certainly office markets where that's the expectation.

Yeah, I think the short answer is we expect cash incentives as TI, AFFO CapEx, to continue to gradually reduce. What you see in the number will be a reflection of the composition of leasing. And so we're able to really drive incentives down in the markets that allow us to. Sydney Prime, Brisbane. incentives are sticky in Melbourne and in Perth. If you look at our FY28 expiries, we've got half of them in Sydney Prime, so we expect to do well there. On the maintenance CapEx and lessors work line, the timing of those works happens when the space becomes available and the TI flows when the space is leased. That's probably how I would suggest you look at that and we're trying to be really disciplined in how we allocate that capital, make sure we create a product that leases well, but we are capturing the benefits of scale.

Okay, that's clear. And one more if I may. Just on Atlassian, is that in the bucket to be capital to be released and what cap rate are you holding that asset at now?

So that's, I think when we started that project we said there's two times to monetise this asset. It's going to be before we start and when we complete and we kind of, to be frank, missed the boat unfortunately. So yes, as we get to completion that will be one of the assets as much from a, to be frank, portfolio concentration risk as anything else. So that's a levered structure. The financing is being put in place at the moment, so it reaches PC end of the year, and that is something that ideally would be bringing some third-party capital in. Given it's a levered structure, it's not a huge check to raise. It's in the books. I think it's 5, 3, 7, 5. If the cap rate, 15-year, fixed 4%, leases, clean cash flows, a lot's probably going to depend on where bonds are trading at the end of the year as to what that capital raise looks like.

Okay. And how levered is that on the project? Sorry, on the asset finance? About 65%.

I think it's actually good support from the financiers on that. So, yeah, I think that bodes well for the project. Yeah, I think that's clear.

Thank you. Thank you. The next question comes from Lauren Berry from Morgan Stanley. Please go ahead.

Oh, good day, guys. It's Jenny. How's everyone? Hey, guys, just got a couple of questions. The office expiry... in FY27, only about 8.5%. Can you give us some insights as to the retention rate you're expecting across that portfolio, please?

Hi Simon, it's Andy. Retention is one of those statistics that we don't focus too much on and the outcome of retention is printed ultimately in occupancy and leasing volumes. In FY28 we have some expiries, some known exits from the portfolio and so there's a known exit in Australia Square and a known exit in 3D5 Birth Street. Otherwise I think the retention in the year gone by was more than 50%.

No, I mean I used to get retention, I was small. or about downtime, et cetera, right? If you've got existing tenants leaving and it could take several months for you to backfill it. So is that going to create a drag in 27? But by the sounds of your answer, that's going to be a non-issue?

Well, if you look at... Well, look, it's all asset-specific. But if you look at two large exits we had from the portfolio last year, we were able to backfill them within 12 months. So one at 80 Collins Street South, and one at 25 Martin Place, two deals, about three and about 5,000 square metres.

Okay, so the bulk of the 8.5% expiring you're pretty comfortable with in terms of being tenanted over the course of the year?

So the 8.5% is the least expires in 2028 that as of today we haven't dealt with. So we are in active discussions. We know that we've got some work to do at 35 Bourke Street. Melbourne's a slow market to move and so that might not be solved by the end of FY27, but it shouldn't be too far from that.

I think perhaps just to add to that, FY26 was impacted by some downtime, particularly at 30 the Bond. I think what is pleasing in terms of our expectations is we're expecting more normalised growth in 27. just given the leasing momentum today as well as higher average physical occupancy.

Great. This is my next question. Hey, I'm just interested. You know, with the waterfront delay up in Brisbane, what does that mean for the tenants who had signed up to move in? Are you on the hook to help them out in terms of helping them extend their existing lease or were there flexibilities in the deal that they signed with you guys?

So we're working closely with our pre-commitment tenants, Simon, at the moment to mitigate the impact of this delay on their own space requirements. So three of the eight pre-commitment tenants are within our control at 1 Eagle Street and we're working closely with everyone to help mitigate that impact. I think the risk to pre-commitment leasing is relatively low. given where the market has moved on an effective rent basis and given that the project is 50% under-rented. But that's not something that we're taking for granted.

Okay, good luck. Thanks. Cheers, guys.

Thank you. The next question comes from Claire McHugh from Green Street. Please go ahead.

Thanks, guys. Just quickly on capital rotation, you've been selling assets in Brisbane. Is that simply a function of liquidity being stronger in those markets, or is there something specific about the return profile of those assets that makes the disposals the right call despite the market's compelling outlook?

Thanks, Claire. Don't read too much into it beyond we underwrite the assets. We look at the go-forward return. We look at the clearing price. the return at the clearing price and the alternative use of capital and then we look at the portfolio construction impacts. We're building our exposure in Brisbane through the waterfront precinct. That is going to be the best product in town I think for some time and all the trends that we see actually support strong investment performance from those sorts of assets. That's kind of the model that we approach it in, and clearly we've got better use for proceeds than assets going to give us, let's call it, more average type returns.

Okay. And then in terms of the targets, just as a follow-on, in terms of the targets for future disposals, there's been obviously a little bit of discussion, but are you looking at, just given the comments you've made around AI things and so forth, are you really looking to target some of those perhaps, you know, on the risk spectrum, more at-risk assets as you look to refine the portfolio, or will it continue to be, you know, opportunistic and, you know, commensurate with where you're seeing better liquidity?

There's a consistent and strong rigour that we apply as we kind of think about this analysis. I think the quality problem that we have, to be frank, is that the portfolio is of such high quality at the moment that it's called the bottom 10%. is typically better than kind of the average or the top quartile for some competitors. So, you know, I think we're kind of splitting here to some extent if we're kind of talking about quality. We have got principally out of the suburban markets. I think we've got like two assets left which are in joint ventures which we would like to exit, but again, it's at what price. So, yeah, I kind of, it's just going to be driven by the numbers.

Yep, no problems. And then maybe just lastly, just on the secondary units, can you just give us a sense across the sectors where they traded versus their own NAVs or NTAs?

For DWPF, for example, the flagship fund, part of the redemption facility has a baked-in discount of 2%, and that's where the most recent transactions have happened. Predominantly, other redemptions have been through liquidity mechanisms, so they weren't traded. But I would say, in summary, this year we've seen the discounts pretty much disappear.

Yeah, thanks. That's helpful.

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

Hi. Good morning, Ross and team. Just a very quick one for me. Can we just talk about the uncommitted pipeline? I was looking at 60 Collins Street. Your year-on-cost has increased to 67%, and it was 5% to 6% a year ago. And we know that the Melbourne office market isn't improving just yet. I'm just curious as to what has changed in the past year.

Hi Winky, it's Andy. I'll grab that one. So thanks for pointing that out. 60 Collins Street sits in our sort of pre-development classification which affords us the opportunity to iterate with the development scheme and the development feasibility. You'll see that the area and the project cost has also changed and so this smaller scheme we think delivers more potential for better risk-adjusted returns for a prospective capital partner.

And I'll just reiterate earlier comments around capital allocation, that there is a very high bar for us to commit incremental capital to things that includes development assets that haven't been otherwise committed.

Yes, that's clear. Thank you.

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

Look, thank you everyone. I know it is a really busy day. We look forward to catching up over the coming weeks. Thanks for your time.