I would now like to hand the conference over to Mr. Jason Weate, Fund Manager. Please go ahead.
Good morning. I'm Jason Weate, Fund Manager of Dexus Industria REIT, and I'm pleased to present Dexus's first half 2026 result. I would like to begin by acknowledging the traditional custodians of the many lands on which we operate and pay our respects to elders past and present. Today I will discuss Dexus's investment proposition, key highlights for the period, and our first half 2026 financial results. I will also share insight into our portfolio's performance, recent acquisitions, and development pipeline before opening for Q&A. Dexus provides investors with high-quality, strategically located industrial assets featuring significant diversity of over 88 assets valued at AUD 1,400,000,000 , access to 80% of the population within 60 minutes of our asset base, and strong exposure to the infill market. In addition, our portfolio has a significant development pipeline at Ascend at Jandakot.
DXI's investment proposition is to generate strong, risk-adjusted returns from Australian industrial real estate. We achieve this by focusing on three key objectives. Firstly, through owning a strategic portfolio that is attractive to a diverse range of tenants and capable of delivering secure and growing income. Second, we take an active approach to portfolio management to maximize value-adding opportunities. Finally, we practice prudent balance sheet management, providing us with flexibility to invest opportunistically through the cycle. Turning to the highlights for the period. We are pleased to provide slightly upgraded FFO guidance of AUD 0.174 and distributions of AUD 0.166 per security, driven by a high-performing portfolio and secured pre-leasing at Glendenning. For the half, funds from operations were AUD 0.089 per security, with distributions at AUD 0.083 per security. Portfolio like-for-like income growth was 7.4%, supported by embedded rental escalations and significant leasing and high occupancy.
We continue to deliver positive momentum across our development book, with over 24,000 square meters of completions at Jandakot, with further projects progressing as planned. We've now fully redeployed proceeds from the divestment of BTP in Queensland into acquisitions across three high-quality urban infill locations. Our balance sheet remains strong, with look-through gearing of 26.2% at 31 December remaining below our target range and providing us with capital deployment flexibility. Our portfolio continues to deliver positive valuation momentum, with AUD 15 ,000,000 of gains contributing to a 1.5% increase in our NTA. The DXI portfolio delivers an attractive and differentiated mix of income security with embedded rental growth drivers and a development pipeline of scale that provides an additional layer of growth for investors.
Our income security is supported by high occupancy of 99.7%, and we are well-placed to manage near-term expiries with potential to unlock under-renting opportunities over the medium term. We are exposed to a diverse tenant base with approximately 87% of income subject to contracted rental increases above 3%, and our scale development pipeline provides the vehicle with opportunity to drive outsized returns for investors and enhance FFO growth over the medium term. Dexus remains committed to delivering sustainability outcomes that generate both environmental and financial benefits. Our sustainability initiatives include solar installations, recycling or reusing materials, and EV charging capability for trucks, which not only reduce environmental impact but also enhance asset appeal and long-term value. Turning to our financial results. For the period, Dexus delivered funds from operations of AUD 28,200,000 or AUD 0.089 per security. Distributions were AUD 0.083.
At the property line, strong like-for-like income growth and leasing outcomes more than offset reduced income from the sale of BTP. Net finance costs increased over the period, driven primarily by higher cost of debt from increasing hedge rates and floating rates. Together, these factors resulted in a marginal decline in FFO per security compared to the prior period. Look-through gearing remained low at 26.2% and is expected to increase by approximately 2.3% following the Moorebank acquisition. Even if we fully debt-fund our current development pipeline, gearing would remain within our target range, underscoring the strength and capacity of our balance sheet. During the period, we refinanced and extended AUD 150 ,000,000 of debt on more attractive margins while eliminating short-term refinancing risk with no maturities until FY28.
DXI reported a positive valuation uplift of AUD 14,800,000 over the half, or a 1% increase on prior book values, driven by strong leasing outcomes and development progress at Jandakot. Cap rate expansion slowed to three basis points across the industrial portfolio compared to 11 basis points in FY 2025, which reflects stabilizing market conditions and continued investor demand for industrial assets. Our portfolio continues to deliver strong operating performance. In the stabilized portfolio, we secured 13,500 square meters of leasing with renewal incentives below market and occupancy remaining high at 99.7%. Like-for-like income growth of 7.4% was up from 5.9% in FY 2025 and was supported by positive lease spreads on renewals of 7.6% and average rent reviews of 3.3% across the portfolio.
We have acquired four high-quality assets located at Glendenning, two in Dandenong South, and has released to the market yesterday the acquisition of our remaining 50% interest in Moorebank. We've now redeployed the entirety of BTP sale proceeds into acquisitions with a distinct investment thesis. Glendenning is a repositioning opportunity. We've acquired an older asset in a land-constrained northwest Sydney precinct with strong occupier demand. As such, we've taken the opportunity to bring forward the lease-up of that asset, requiring only minor refurbishments. We will preserve the option for a full repositioning into a modern multi-unit facility with a secured DA that we will keep in place. Dandenong South is a reversion play. We're acquiring at a 6% cap rate with approximately 20% under-renting, a portion of which we have the opportunity to unlock in two years' time from now.
At Moorebank, the opportunity allows us to lift our Sydney weighting from 6%-10%, a segment we think will be additive to the portfolio's rent growth profile over time. The recently completed development has material valuation upside potential upon full lease-up of the asset. These acquisitions collectively enhance portfolio quality by deploying capital into supply-constrained markets with embedded rental growth. Turning to our development pipeline at Jandakot, which represents an AUD 225 ,000,000 investment opportunity and is an important driver of future earnings growth. Since we acquired Jandakot, South Perth rents have grown at over 14% per annum and well ahead of construction costs. And this spread is what underpins our development returns. The chart on the right shows the result. And importantly, it shows momentum. Yields on cost have improved from circa 5% when we started to approximately 6.6% that we expect to deliver on our committed pipeline.
Overall, the development pipeline is well-positioned to provide the fund with an ongoing source of earnings accretion into the future. More specifically, on first half 2026 completions at 19 and 21 Pilatus Street, we delivered a fully leased yield on cost of 7.4% and 7.1% respectively. Our committed pipeline spans across seven projects at Jandakot, with 77% of income already pre-leased. Moving on to market fundamentals. Notwithstanding a period of normalization in net absorption, which has been influenced by material supply, the outlook is set to rebound. The development economics in Sydney and Melbourne are significantly challenged, with rents needing to rise within a range of 10%-36% in key submarkets before new development becomes viable. Market forecasts assume that all development-approved projects proceed, but feasibility constraints suggest that many won't.
The third chart on the right projects how this may play out in relation to speculative completions, which are expected to decline by some 44% over 2026 and 2027. These market dynamics position us well for rental growth over the medium term. In summary, we are well-placed to continue delivering long-term value for investors, supported by a resilient earnings profile and strong, flexible balance sheet. DXI's momentum in activating high-quality developments continues to enhance portfolio quality and drive long-term growth. DXI is currently trading at a significant discount to our NTA and, as such, presents a compelling investment opportunity to access embedded value and future growth. Looking to FY26, barring unforeseen circumstances, DXI has upgraded its guidance to deliver FFO of AUD 0.174 per security and distributions of AUD 0.166 for FY26. Thank you for joining the call. I will now hand back to the moderator for questions.
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 2. And if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Andy MacFarlane from Bell Potter. Please go ahead.
Good morning, Jason and team. Yeah, first question for me from A. Can you talk about the moving parts that might sit in guidance for FY26 that's now been upgraded?
Yeah, thanks, Andy. And I think we've called out that the primary driver for the slight upgrade relates to the secured pre-leasing that we've done at Glendenning. I guess there's always a few additional drivers. So in addition to that, we've done a little bit of extra leasing at Moorebank.
The second tranche of the sale of BTP was delayed a little bit. So that'll be another positive driver. And I guess the combination of those things will more than offset roughly a 60 basis point increase in second-half floating rates since we set guidance.
Makes sense. Just in terms of Glendenning, can you just talk maybe a little bit about what's changed in terms of the approach there with the asset?
Yeah, so what's happened at Glendenning is we've had an opportunity to secure a 3PL tenant that specializes in last mile. They're attracted to the site. Given its proximity to the M7, they'll relocate from Smithfield.
And I guess given the certainty that that offer provides us, we've taken the opportunity to bring forward that income whilst retaining optionality to undertake extensive works for a multi-unit facility for which we have a DA secured and that will keep on foot and look to utilise potentially the next rental cycle. But that's what's happened with the asset. And that security of income has influenced the yield on cost that we are now buying on. But obviously, we have future development profits as a source of upside.
Makes sense. Final one from me, if I may. Just on Moorebank, if you can just talk through the rationale, I guess, for you increasing your estate that you didn't already own and how you're thinking about leasing from here on that asset.
Yeah, so firstly, on the acquisition side of things, I mean, obviously, the key one is we get to consolidate ownership in a brand new asset that we know really well. There's value attached to that. We have a rent guarantee that'll protect us or protect our FY26 earnings piece as we further look to lease up. And we're confident that there's valuation upside once that asset is fully leased, which we hope will translate to an attractive IRR profile for the acquisition. And it's also, obviously, just really difficult to replicate that kind of prime product in Sydney. As it relates to leasing, we think the platform's making some progress steadily. We've got 4 of the 6 units in total that are now leased. We've got a strong amount of inquiry on the remaining couple of units. Importantly, we're not seeing us lose out to competing product.
But we also do acknowledge that as part of that lease-up process, that leasing decisions on the part of incoming tenants is taking longer. Landlords are offering more incentives than they previously have. And that's to help keep their sitting tenants in place. And that's making it, at the margin, harder to attract relocations than some 12 months ago. And I guess on top of that, you've got some macroeconomic uncertainty that in relation to things like interest rates, elections, and tariffs and the like that has weighed on and, frankly, slowed tenant decision-making. But all in all, we're really happy with the levels of inquiry that we continue to get for that asset. And we're really confident about our leasing prospects going forward.
Quickly, thanks, Jason.
Thanks, Andy. Thank you.
Your next question comes from David Pobucky from Macquarie Group. Please go ahead.
Good morning, Jason and team. Thanks for taking my questions. Just a follow-up on Glendenning. Is all of that site pre-leased now? And how much have you had to spend on the modest kind of refurb that you've done or that you're doing now?
Yeah, thanks, David. So it currently is a one-unit facility. So that incoming tenant will see the asset fully occupied. We do have a smallish scale of CapEx to make some minor refurbishments to the site. There'll be some forecourt works , for example. And that will cost us around about AUD 4 ,000,000 compared to the AUD 10 ,000,000 scheme that we were previously contemplating for the multi-unit facility.
Thank you. Just one question on guidance. I think it implies a bit of a skew to the first half, 51-49. Is that normal? Or is there anything kind of one-off that needs to be called out in the first half? Or is that a reflection of the 60 basis points increase in floating rates for the second half?
Yeah, thanks, David. I think there's a couple of factors there. Floating rates ticking up is undoubtedly one of them. I think you can expect our all-in cost of debt to track or edge up slightly higher than what it was in the first half. But also, we had the benefit of BTP, high-yielding income, in the first half that we won't have in the second half. So that's the other area of skew sorry, that's driving that skew.
Thank you. And just the last one from me on the refinancing that you did, the AUD 150 ,000,000. You mentioned that you did it on more attractive margins. Are you able to specify kind of what margin? And you also mentioned no maturities until FY28. So is there a possibility of refinancing to lock in lower debt margins that might be on offer at the moment?
Yeah, so that particular refinancing attracted a saving of about 7-8 basis points. And in addition to that and I guess it's to your point around other opportunities. With the acquisition of Moorebank, we've taken on a new debt facility. And that's coming at, again, a really attractive margin at some sort of 15 basis points inside of what we feel like market is. So with the more refinancing we do, we are continuing to access cheaper margins.
Thanks, Jason. Appreciate it.
Thanks, David.
Thank you. Your next question comes from Murray Connellan from Moelis Australia. Please go ahead.
Morning, Jason. First question was just on that 7.4% like-for-like growth number. I was wondering whether you could just unpack that for us a little bit. Obviously, quite a bit higher than what the embedded fixed bumps would be and probably in line with what you've been reporting in terms of leasing spreads in the past year or so. What drove that 7.4%?
Yeah, thanks, Murray. I guess that headline number has benefited from what was prior period downtime at 2 Maker Place. So first half 2025 had about three months' vacancy in it for that asset. Obviously, it didn't repeat for first half 2026. But in addition to that lack of downtime, we also benefited from a 40% rent reversion on that particular lease. And so I think that's probably the key driver that's adding to some of the other leases that we've struck over the period.
Got it. And then just having a look at some of the yields on costs that are coming through on these various sheds that are getting put up at Jandakot and comparing that to some of the, well, basically, delivering in the sort of high 6%-early 7% versus the 6.25% for the sort of more longer-term portfolio. I was wondering whether your thinking around return hurdles has shifted much in the past 6 months or so given first of all, it looks as if deliveries of yields on cost have been pretty strong on the more recent completions. But we've also got slightly higher funding costs that have come through in the last 3 months as well.
Yeah, Murray. I mean, we haven't had a fundamental reset in terms of how we think about hurdles for Jandakot. You will note in the pack that we still quote to a 6.25%+ target for a yield on cost. That is to reflect something of a baseline expectation that we have through the cycle. But obviously, as you can see where yields on costs have trended up towards, we're currently cycling through yields that are better than that. Bearing in mind, it will vary, depend on the size of blocks that we're ultimately putting down on the ground. At the moment, you can expect sort of more around the high sixes mark into the near term on our committed segment of the pipeline. Yeah, Murray, no real fundamental change in how we think about thresholds unless, of course, you're referring to some of the other new acquisitions as well.
No, it was more just on the Jandakot development pipeline till the acquisitions are clear. But just lastly, on the balance sheet, broadly speaking, the look-through gearing still looks pretty conservative. It's sub-30% even when factoring in the acquisition that was announced yesterday. And you've obviously mentioned the pretty deep discount at which the shares are trading. I was wondering whether you might consider deploying a little bit of that balance sheet into a buyback given the accretion that seems to be at play there.
Yeah, sure. So just starting with the gearing piece, we are currently at 26.2%. Following Moorebank, that'll tick up to about 28.5%. So still some significant optionality on the table. We are comfortable taking that gearing towards the midpoint of the target range as we fund the development pipeline and continue to pursue opportunities. But that'll take us on a pro forma basis to the mid-30s.
And so where we take it from there will be dependent on the nature and attractiveness of deployment opportunities that are available to us, of which obviously, the buyback is one of those. It's not off the table. We continue to assess that as part of our capital allocation planning. Fundamentally, it does come down to the marginal dollar of spend and where value creation is greatest. We do have a portfolio of scale with diversification. But we are conscious of some of the negatives associated with shrinking the vehicle from where it is now. So still very much an option on the table. But there are obviously broader considerations that go into that decision-making.
Fantastic. Thank you, Jason. T
hanks, Murray.
Thank you. Once again, if you do wish to ask a question, please press star one and wait for your name to be announced. Your next question comes from Mithun Rathakrishnan from CLSA. Please go ahead.
Hi, all. Thank you for taking my question. It seems like the broader sector conditions seem to be stabilizing despite some upward pressure. Could you just talk through how leasing conditions differ across your key markets and which sub-markets you would describe as stabilizing versus under pressure? And I guess how does the forward supply outlook differ across those markets?
Yeah. So I guess in terms of how we're thinking about probably the rents side of things, I think as a more general comment, we do expect face rents to continue to grow across most sub-markets. Albeit, the pace has normalized. Growth is becoming more varied by sub-market. I think infill locations do continue to outperform non-infill. And we think that aligns well with our portfolio given close to 80% are in the infill locations.
And obviously, the development feasibility constraint piece in Sydney and Melbourne is supportive to promote ongoing rental growth. But in terms of how we're thinking about some of the other markets that perhaps are attractive, we think sort of middle ring industrial precincts in supply-constrained sub-markets and close to population and transport infrastructure is sort of on our radar. And we'll remain sort of East Coast focused for Sydney and Melbourne, which are sort of our priority markets given existing Jandakot land holdings in Perth. But in terms of leasing across our portfolio and how that sort of contrasts with the broader market comments I've made, I mean, we've achieved 7.6% leasing spreads on our stabilized portfolio over the period. And that's across seven deals. We are continuing to strike incentives that we think are below market. So let's call it at the 15% mark.
I think those leasing results sort of demonstrate a balanced market more generally.
Yeah, thank you for that. Just secondly, I know you alluded to all-in cost of debt jumping 60 basis points. I just guess in terms of the second half cost of debt guidance, could you clarify what base rate assumption you're using?
Yeah, sorry. The quote I made before was a specific reference to the increase in floating rates. We've assumed a second half floating rate of 4.1%. That's what's jumped up 60 basis points since we first set guidance. But the way to think about it in the movement of our all-in cost of debt is we're currently cycling through 4.9% in the first half. I think you can expect that to trickle up to just a touch over 5% for the full year.
Yeah, no, thank you for the clarification. And just one more, if I may. Occupancy jumped 110 basis points over the half. Are you able to just provide a bit more color in terms of the income contribution from that, whether or not it'll be captured across that second half or pushed further back?
There will be most of the shift in that occupancy, I think, is mostly flowing through the portfolio. And we don't expect that to be an incremental driver over the second half but for the fact that BTP has come out of those occupancy numbers. And that's also influencing the headline number.
Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Weate for closing remarks.
Well, I'd like to thank you all again for taking the time to join the call and hear the DXI update. I really look forward to catching up with you all in the coming days. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.