Transferring Coverage of Narrow-Moat Dexus Property Group; AUD 11.00 FVE Unchanged

We confirm our AUD 11.00 per share fair value estimate for diversified Australian REIT Dexus Property Group as we transition coverage to a new analyst. Our narrow moat, medium fair value uncertainty, and Standard stewardship ratings are unchanged. At current prices, the stock is trading 18% above our valuation. Dexus owns high-quality assets, but the high growth rate in office rents over 2016-19 looks unsustainable due to the upcoming supply-side response and moderating growth in the white-collar work force. Our valuation implies a forward fiscal 2019 P/E ratio of 16.6 and a distribution yield of 4.6%. Assumptions include office rents growing by 3.5% annually to fiscal 2021 but occupancy slipping on new supply from 2022. On balance, we believe the combination of ongoing demand for high-quality office space and some constraints on supply should lead to rent growth exceeding inflation in the long term.