Company Reports

Dexus' fiscal 2026 adjusted funds from operations, or AFFO, and distributions per security were both flat, at AUD 45 cents and AUD 37 cents, respectively. Management expects next year's AFFO to drop by between 12%-17%, with lower trading profits and performance fees, and higher debt costs.

Diversification has been at the forefront of Dexus’ strategy in recent years. Once Australia’s largest office landlord, Dexus is shifting focus to managing third-party assets rather than having investment properties on its own balance sheet. Dexus has a record of selling stakes in assets into funds management vehicles. Dexus' third-party funds under management grew substantially over the last five years, to AUD 36 billion at the end of June 2026, largely thanks to the acquisition of AMP Capital’s domestic real estate and infrastructure platform in 2023. The funds platform was subsequently hit by property devaluations due to higher interest rates and a slew of large investor redemptions. The recent Melbourne Airport debacle is another setback. We expect FUM to shrink in the near to medium term before rising again.

Dexus lost the legal fight with Australia Pacific Airports, owner of Melbourne and Launceston Airports. It is being forced to sell the 27% stake in APAC that its infrastructure funds hold (together, the Dexus Bloc) back to APAC's co-owners.

Diversification has been at the forefront of Dexus’ strategy in recent years. Once Australia’s largest office landlord, Dexus is shifting focus to managing third-party assets rather than having investment properties on its own balance sheet. Dexus has a record of selling stakes in assets into funds management vehicles. Dexus' third-party funds under management grew substantially over the last five years, to AUD 36 billion at the end of December 2025, largely thanks to the acquisition of AMP Capital’s domestic real estate and infrastructure platform in 2023. The funds platform was subsequently hit by property devaluations due to higher interest rates and a slew of large investor redemptions. The recent Melbourne Airport debacle is another setback. We expect FUM to shrink in the near to medium term before rising again.

Dexus is putting the securities buyback program, which started in March 2026, on the back burner. While management reaffirmed targets for fiscal 2026 adjusted funds from operations and distributions, it warns of a challenging fiscal 2027 in light of the interest rate outlook.

Diversification has been at the forefront of Dexus’ strategy in recent years. Once Australia’s largest office landlord, Dexus is shifting focus to managing third-party assets rather than having investment properties on its own balance sheet. Dexus has a record of selling stakes in assets into funds management vehicles. The asset base on its funds management platform grew substantially over the last five years, to AUD 36 billion at the end of December 2025, largely thanks to the purchase of AMP Capital’s domestic real estate and infrastructure funds in 2023. Funds management currently accounts for one-fourth of total funds from operations, up from 7% in fiscal 2019. We expect the segment to account for roughly 30% of midcycle FFO in the future.

Dexus' first-half adjusted funds from operations rose 1% to AUD 23.6 cents per security. Management announced plans to repurchase up to 10% of its securities over calendar 2026. Securities jumped 8% on the day.

Diversification has been at the forefront of Dexus’ strategy in recent years. Once Australia’s largest office landlord, Dexus is shifting focus to managing third-party assets rather than having investment properties on its own balance sheet. Dexus has a record of selling stakes in assets into funds management vehicles. The asset base on its funds management platform grew substantially over the last five years, to AUD 36 billion at the end of December 2025, largely thanks to the purchase of AMP Capital’s domestic real estate and infrastructure funds in 2023. Funds management currently accounts for one-fourth of total funds from operations, up from 7% in fiscal 2019. We expect the segment to account for roughly 30% of midcycle FFO in the future.

Dexus acquired a 25% stake in Westfield Chermside in Brisbane from Scentre Group for AUD 683 million, marking the launch of a new fund. This is the second transaction on Westfield Chermside between the two parties—a Dexus retail fund acquired a 25% interest in the shopping mall earlier this year.

Dexus delivered adjusted funds from operations of AUD 0.45 per security, which fell 6% from last year. Distributions of AUD 0.37 per security were 23% lower than in fiscal 2024. But with tough times behind them, management views fiscal 2026 as the start of a new cycle.

Diversification has been at the forefront of Dexus’ strategy in recent years. Once Australia’s largest office landlord, Dexus is shifting focus to managing third-party assets rather than having investment properties on its own balance sheet. Dexus has a record of selling stakes in assets into funds management vehicles. The asset base on its funds management platform grew substantially over the last five years, to AUD 36 billion at the end of June 2025, largely thanks to the purchase of AMP Capital’s domestic real estate and infrastructure funds in 2023. Funds management currently accounts for 17% of the total funds from operations, up from 7% in fiscal 2019. We expect the segment to account for roughly 30% of midcycle FFO in the future.

The real estate sector is not immune to the potential economic impact of US tariffs. There is growing uncertainty as the likelihood of slower Australian gross domestic product growth mounts.

Diversification has been at the forefront of Dexus’ strategy in recent years. Once Australia’s largest office landlord, Dexus is shifting focus to managing third-party assets rather than having investment properties on its own balance sheet. Dexus has a record of selling stakes in assets into funds management vehicles. The asset base on its funds management platform more than doubled over the last five years, to AUD 39 billion at the end of December 2024, largely thanks to the purchase of AMP Capital’s domestic real estate and infrastructure funds in 2023. Funds management currently accounts for 16% of the total funds from operations, up from 7% in fiscal 2019. We expect the segment to account for roughly 30% of midcycle FFO in the future.

In the first half of fiscal 2025, Dexus reported adjusted funds from operations per security of AUD 23.4 cents, tracking our expectations. Our estimated full-year adjusted FFO is AUD 45 cents per security, at the midpoint of the reaffirmed guidance range of AUD 44.5 cents-AUD 45.5 cents, and down 6% from the previous year. We expect fiscal 2025 distributions of AUD 37 cps, representing a payout ratio of 82%.

We lower our fair value estimate for Dexus by 9% to AUD 9.60 per security as we transfer coverage to a new analyst. The cut is mainly driven by a change in our weighted average cost of capital assumption, now 7%, and in line with similar Australian REITs under our coverage, from 6.8%. Another key driver is our revised estimate on the value of Dexus’ hedged debts based on the most recent fiscal year-end data. As of June 30, 2024, 92% of the debts are hedged, with a weighted average interest rate of 2%. We assume the June 30 cost of debt of 4.1% will gradually rise to our long-term cost of debt assumption of 5.8% as debt hedges roll off.

Diversification has been at the forefront of Dexus’ strategy in recent years. Once Australia’s largest office landlord, Dexus is shifting focus to managing third-party assets rather than having investment properties on its own balance sheet. Dexus has a record of selling stakes in assets into funds management vehicles. The asset base on its funds management platform more than doubled over the last five years, to AUD 40 billion at the end of fiscal 2024, largely thanks to the purchase of AMP Capital’s domestic real estate and infrastructure funds in 2023. Funds management currently accounts for 16% of the total funds from operations, up from 7% in fiscal 2019. We expect the segment to account for roughly 30% of midcycle FFO in the future.

Narrow-moat Dexus' fiscal 2024 adjusted funds from operations excluding trading profits was broadly in line with last year at AUD 506 million. Total distributions per security of AUD 0.48 was consistent with guidance and our forecast, down 7% year on year. FFO from office and industrial properties dropped 7% and 14%, respectively. The declines were mostly offset by higher FFO from co-investments in pooled funds and funds management operations, both driven by the AMP Capital platform acquisition. Driven by higher debt costs, management guides to AFFO of AUD 0.445-AUD 0.455, down 6% on fiscal 2024. Fiscal 2024 distribution guidance is AUD 0.37, 23% lower than fiscal 2024 and representing a payout ratio of roughly 82% of AFFO, in line with the new target payout ratio of 80%-100% compared with 100% previously. Guidance is lower than we expected, and along with the lower payout ratio is probably why shares fell 9% on Aug. 20.

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.

We transition to a new analyst and maintain our AUD 10.80 fair value estimate for narrow-moat Dexus. Dexus’ securities trade at around a 35% discount to fair value, likely due to concerns over office market headwinds. Office accounted for around 60% of the group’s fiscal 2024 first half funds from operations, or FFO, and Dexus is experiencing a cyclical downturn, with tenant incentives weighing on office rental income. With its office portfolio over-rented – for example, its Sydney office tenants pay about 10% above current effective market rents – it faces a decline in rents as leases expire.

Dexus is a diversified Australian REIT that generates income from charging rent; managing property for clients; funds management, which typically includes property management and investment management services; and development and trading.