Good afternoon, everybody, and welcome to the 2025 Annual General Meeting. I'm Warwick Negus, Chair of the Directors of Dexus Funds Management Limited. Before we start the meeting, I'd like to acknowledge the traditional custodians of the land on which we are presenting from today and pay our respects to their elders, past and present. I would also like to extend that respect to and welcome any First Nations people who are joining our meeting today. On behalf of the Dexus Board, welcome to our AGM. It's great to see some of you back again. Before we start the meeting, can I ask our audience in the room, please ensure your mobile phones are switched off or silenced? In the event of emergency, the fire exits are located along the corridor. Outside the room, this is also where you will find the restrooms.
I will table my appointment as Chair of today's meeting and declare the meeting open. We appreciate that not all security holders can attend in person and have provided the opportunity for anyone to participate in the meeting through our hybrid meeting format. Our online platform provides a live video feed so that those dialing in can view the meeting in real time, submit questions, and vote while the meeting is underway. A conference call facility is also available to enable security holders to ask questions in the meeting. For security holders online, you can access your voting card to vote on the resolutions for the meeting by selecting "Get a voting card" at the top of your screen. You will need to first register here, and then you'll be able to submit your vote at any time during the meeting.
You'll need your security holder number and postcode to register your vote. If you're a proxy holder, please enter the proxy number issued to you by MUFG Corporate Markets in the proxy details section and then click the "Submit Details and Vote" button. Online voting will close five minutes after the close of the meeting, and the results will be released to the ASX later this afternoon. If you have any questions to put to the meeting and you are not on the conference call telephone line, we suggest that you submit your questions as early as you can, specifying whether the question relates to general business or a specific resolution, and these will be addressed at the appropriate time during the meeting. For our security holders joining us today in the room, please raise your admission card during the question time if you have a question.
We'll take questions from the floor, then ask for questions or comments on the web phone facility, followed by questions and comments submitted via the online platform. We'll endeavor to respond to all questions and comments during the AGM, and for any questions that we do not have time to address, we'll ensure we get back to those investors separately. Today, I'm joined by my fellow Independent Directors, Mark Ford—wave as I say your name—Piyush Gupta, Rhoda Harrington, Alana Rubin, Nicola Roxon, Paula Dwyer, and Dexus's Group CEO and Managing Director, Ross Du Vernet. We'll hear from Rhoda and Alana on their re-election later in the meeting.
In the audience, I have also members of the Dexus executive team, in particular our Chief Financial Officer, Keir Barnes, and our auditors from KPMG and the lead partner, Aileen Hoggett, so to the extent you have detailed financial questions, we have people ready to answer. I would like to make two important acknowledgements. First, I would like to acknowledge Nicola Roxon, who is retiring from the board at the close of this meeting. Nicola has been an Independent Non-Executive Director of Dexus for eight years and has made a significant contribution to the board, as well as the People in Remuneration and Nomination and Governance Committees. Nicola helped establish our Sustainability Committee and became its inaugural Chair. The prominence that sustainability has within the Dexus business is a reflection of the energy she has applied in this role.
Nicola's expertise in governance, health, and law has also helped shape key policies and initiatives during her time on the board. Thank you, Nicola. I would also like to acknowledge Paula Dwyer, who is also retiring from the board today at the close of the meeting. Paula was an Independent Non-Executive Director of Dexus for nearly three years and has made a significant contribution to the board, as well as the Audit, Risk, and People in Remuneration and Nomination and Governance Committees. Paula is a seasoned Company Director, and her frank assessments have influenced the decisions made by the company and this board. Her experience of many years in Australian financial services, real estate, and construction have contributed to assisting Dexus navigate some real challenges in recent years. I'd like to personally thank Nicola and Paula for their support for me as Chair and their significant contributions to this company.
I'll now commence the meeting with my address, which will provide you with an overview of our positioning and key aspects of the 2025 result. I'll then hand over to Ross, who will discuss our quarterly update and Dexus Industria REIT's medium-term priorities. We'll then turn to the formal aspects relating to the resolution, which were outlined in the 2025 Notice of Meeting and Explanatory Memorandum sent out on the 25th of September. Accordingly, I formally call for a poll on all resolutions to be put to the meeting and declare the polls open so that you can now start to lodge your votes. Turning to strategy, our purpose, "Unlock Potential, Create Tomorrow," reflects our unique ability to create value for our people, customers, investors, and communities over the long term. Our vision is to be globally recognized as Australia's leading real asset manager.
We aspire to be known for our deep local sector expertise, our active approach to management, and most importantly, as a trusted partner investing alongside our clients. Our people, our focus on sustainability and governance, and our culture that promotes constant evolution and improvement are central to how we unlock potential in our business. We leverage our strengths in transacting, managing, and developing quality real estate and infrastructure assets to deliver superior risk-adjusted returns over the long term. Dexus Industria REIT is a unique investment proposition with scale across the real asset spectrum. Our high-quality balance sheet, together with a large diversified funds management business, differentiates us in a competitive market. Each of our sectors is scalable with potential for continued strong returns.
We also benefit from access to diverse pools of capital through the cycle, with third-party capital accounting for more than 70% of the platform's assets, with a well-established presence in office, industrial, and retail real estate, and an emerging presence in the growth markets of healthcare, infrastructure, and alternative investments. Today, our $14 billion balance sheet portfolio is largely invested in high-quality office and industrial real estate alongside third-party clients. This combination of balance sheet scale, multi-sector expertise, tight geographical focus, and access to broad and deep pools of third-party capital is what makes us unique. Our balance sheet is in transition from what was essentially a passive real estate investment trust that derives returns predominantly from office property to a more diversified investment portfolio that will generate stronger and more resilient long-term growth. We will do this both through our underlying investments and a more capital-efficient business model.
In doing so, we intend to grow the funds management business by more than the balance sheet over the longer term. This is a journey that the group has been on for a while, but with the A&P Capital transaction, together with a considerable upgrading of capability across our investment and management teams, we're now more actively pursuing this strategy. A combination of the COVID pandemic, falling asset values, and negative sentiment towards office have slowed the pace of this transition. However, with asset values stabilizing, opportunities to accelerate the transition should improve. While the transition has taken longer as a result of these challenges, the end result we're working towards is a more resilient business with a better long-term growth prospect.
Although Dexus Industria's operational performance has proven relatively resilient during recent disruption and shocks, we are mindful of the statutory and security price performance that has also impacted our security holders in recent years. Moving forward, we want to position the business so that it can not only navigate but prosper in volatile and uncertain markets. Moving to the highlights for the past financial year, despite a challenging environment, we delivered on our guidance with strong cash flows, for which AFFO is a proxy of $484 million. We paid distributions of $0.37 per security, reflecting a payout ratio of 82%, aligned with our updated distribution policy that we announced last year. Our balance sheet remains strong, with gearing at the low end of the range, despite the impact of devaluations over the past few years.
In the second half of FY25, our property portfolio valuations turned positive as the cycle turned, contributing to a statutory net profit for the year. In our funds business, where our focus is on delivering performance, core funds such as the Dexus Wholesale Property Fund, the Dexus Wholesale Shopping Centre Fund outperformed their benchmarks. In a market where raising funds for new investments has been really challenging, we raised new equity in growth markets, facilitated more than $450 million of secondary unit transactions, and divested assets on behalf of several funds to enable $1.8 billion of redemptions and enhance portfolio quality. Despite a subdued transaction market, we have taken an active approach to capital recycling to enhance the quality of the portfolio and strengthen our balance sheet. In FY24, we committed to $2 billion of assets being earmarked for divestment over the next three years.
Since then, we have completed circa $1.1 billion, including transactions settled post-year-end. These actions, along with the completion of committed developments, will further enhance the quality of our portfolio while maintaining a prudent level of gearing. Our investment philosophy seeks to leverage the deep expertise in our teams to own the assets that will generate the best risk-adjusted returns over the long run. We're seeing clearer signs that we have passed an inflection point in property markets. Overall, for the 12 months to the 30th of June, the portfolio value declined by 1.1%. Pleasingly, as markets started to turn, the second half of the year saw valuations increase by 0.4% for office and 1% for industrial, demonstrating the quality of the portfolio.
Indicators such as low future supply of space, declining interest rates and cap rates, positive net absorption, and stronger demand for high-quality, well-located space are all contributing to the improved outlook for office. This was mirrored across the broader Dexus Industria REIT real estate platform, with approximately 70% of funds under management recording a valuation uplift in the second half. Our $35 billion funds management business has scale and is diversified across sectors and investor type. In recent years, we've been working through elevated redemptions as some investors adjust their strategies and seek liquidity against the challenged macroeconomic environment, particularly across core products. We have actively divested assets on behalf of our clients to facilitate redemption requests and maintain prudent gearing levels while enhancing portfolios.
The market for raising capital globally remains challenged, but there is a cyclical element to this, and the recent improvement in unlisted wholesale fund returns is driving improving sentiment. Having access to diverse pools of capital positions us well as the cycle turns, and the leadership team we have put in place in our funds business is focused on both driving performance and fundraising. Over the year, we closed two sub-scale funds, and our focus on simplifying the funds platform will continue. We're working through fund-specific matters and redemptions, including the resolution of the APAC matter. This relates to client investments in Melbourne and Launceston airports. In response to the application of other parties to the matter, the court has moved out the hearing previously scheduled to be held in November to April next year, with the potential for mediation now by December this year.
We continue to work towards a resolution of this matter in the best interest of our clients. With real asset markets rebounding and the domestic super sector expected to double over the next decade to more than $8 trillion, the funds business is well positioned with high-quality assets in markets which are expected to outperform. We continue to explore new product launches in line with client demand. We continue to be globally recognized for our leadership in sustainability. We remain committed to sustainable outcomes, focusing on our priority areas and initiatives that make both financial sense and have a positive impact on our customers, the environment, and our communities. We continue to maintain net zero for Scope 1 and 2 emissions, including sourcing 100% renewable electricity for the managed portfolio. We are focused on reducing our reliance on offsets through a program of energy efficiency and electrification.
Our social value theme, "Creating Local Connections for Healthy Hearts and Minds," guides our community engagement and investment activities. Our assets play a unique role in bringing people together, and we're focused on creating inclusive, accessible spaces that foster belonging and support healthier, more connected communities. For our customers, this translates to safe, healthy, and high-performing spaces that support their well-being, productivity, and satisfaction. At the 2024 AGM, 25.5% of the votes were cast against our remuneration report, which resulted in a second strike. Following the AGM, the board engaged with investors and proxy advisors, and we thank them for their time and their feedback. We've undertaken a review of the executive remuneration framework, and with the assistance of an external independent advisor, the Board has adopted a back-to-basics approach to executive remuneration. The new framework is simple, sustainable, and credible.
It enables us to attract and retain key talent, while importantly aligning executive outcomes more closely with security holder experience. In assessing the appropriateness of STI outcomes for executive key management personnel, KMP, the Board considers general business matters outside of the scorecard, including group financial and operational performance and the security holder experience. As a result, the Board applied its discretion to reduce the raw STI scorecard this year for executive KMP by 20%. Additionally, the Group CEO has volunteered for his FY25 STI to be withheld until there is greater certainty regarding the outcome of the APAC litigation. Despite initially receiving positive feedback during our early engagement with investors, the proposed FY25 LTI options plan referenced in the 2024 remuneration report and notice of meeting was subsequently withdrawn, if you remember last year, due to those concerns from investors and proxy advisors.
As such, no LTI has yet been granted to the executive KMP for FY25. Subject to approval by security holders today, the FY25 and FY26 LTI will be granted following this AGM. We reintroduced a performance right LTI plan with performance to be assessed against both relative total security holder return and absolute total security holder return, both at 50%. Targets to be tested at the end of year three and four. The strategic component was removed from the LTI plan from FY25 onwards. Long-term value creation for security holders is a key focus, is the only focus of the LTI plan. In summary, we invest for the long term, and despite market challenges over the past few years, we're now past the inflection point with valuations turning positive in the six months to June.
Barring unforeseen circumstances for the 12 months ending June 2026, we expect AFFO-adjusted funds from operations of between $0.445 and $0.455 per security, with distributions of $0.37 per security. This was already disclosed to the market. We have solid foundations for differentiated funds performance, strong client relationships, and a diverse product offering. Our investment portfolio is high quality and positioned to benefit as liquidity returns to the office market. Before passing to Ross, I would like to thank my fellow directors and the Dexus team for their commitment and contribution over the past 12 months, and for you, our investors, for your continued support. On our path to Ross Du Vernet. Thank you, Warwick, and good afternoon, everyone. With our executive team now fully in place, we are well positioned to drive performance across the sectors and the funds as we enter the next phase of the cycle.
Our medium-term goals align to our strategic priority areas of transitioning the balance sheet, maximizing the contributions from our funds business, and unlocking the deep sector expertise that exists within our people and platform. We're making good progress against each of these goals, and in addition to those already outlined by Warwick, we selectively deployed capital into funds, including DREP2 and Dexus Wholesale Shopping Centre Fund, which really supported Dexus Wholesale Shopping Centre Fund's acquisition of Westfield Chermside and the stabilization of that fund. We materially reduced costs and closed two sub-scale funds. We strengthened organizational capability with key executive hires and system investments, and we achieved strong customer advocacy, as evidenced in a strong net promoter score. While progress has been slower than we would have liked, we continue to actively explore opportunities for new product launches to position the platform as the cycle turns.
Despite a challenging operating environment, we continue to see positive momentum across the platform in the September quarter. On balance sheet, rent collections across our office and industrial portfolios remain strong at 99.5%. As expected, our office portfolio occupancy reduced slightly to 91.2% due to anticipated expiry at 80 Collins Street in Melbourne and 25 Martin Place here in Sydney, but it remains well above the market average. Our industrial portfolio occupancy of 95.9% was supported by very strong leasing here in Sydney. Positively, office leasing volumes have improved. The slight increase we have seen in incentives can also be attributed to soft leasing, I should say, in Perth and North Sydney. In developments, we are progressing construction at our city shaping projects at Waterfront in Brisbane and Atlassian Central here in Sydney.
Atlassian Central is 100% leased, with a 15-year lease with 4% fixed annual increases, and Waterfront Brisbane is 52% leased with average rent increases of 3.4%. All our committed projects are delivered through fixed price contracts with Tier 1 contractors, providing construction cost confidence and various protections in the event of delay. In our industrial portfolio, we continue construction across more than 180,000 square meters, including in our key industrial estates in Ravenhall and Jandakot, and we've completed construction of three assets, all of which were 100% leased. Positive momentum continues across our funds platform, with flagship fund Dexus Wholesale Property Fund and the Dexus Wholesale Shopping Centre Fund continuing to outperform their benchmarks. PowerCo, which is New Zealand's largest dual electricity and gas distributor and majority owned by Dexus Managed Funds, entered into an agreement to acquire the First Light Network, a New Zealand electricity distribution business.
The acquisition, which is subject to regulatory approvals, reflects PowerCo's strong asset management capabilities and strategic approach to bolt-on growth, which aligns with Dexus's Climate Transition Action Plan to invest in resilient, future-focused infrastructure that supports the energy transition. Fundraising continues for DREP2, with an additional approximately $30 million of equity committed, taking the total equity commitments to over $510 million, with a final close scheduled for December this year. In sustainability, we continue to be recognized for sustainability leadership, with a five-star rating for Dexus in the Global Real Estate Sustainability Benchmark. Our unlisted funds also performed very well, with Dexus Diversified Infrastructure Trust, the Diversified Infrastructure Fund, achieving a historical best score of 98 out of 100 and achieving five stars, while Dexus Healthcare Property Fund, Dexus Wholesale Property Fund, and Dexus Office Land Trust all rank in their top three in their respective categories.
Over the past few years, we have enhanced the quality of the portfolio, including divesting lower quality assets, continuing to develop landmark assets, and implementing our leasing strategies, which are all focused on maximizing long-term value. This, combined with the diversity of our portfolio across more than 175 properties and more than 1,400 customers, contributes to the resilience of the portfolio, as shown in the key metrics of occupancy and incentives. One of the keys to our success in the industrial development business is the direct relationships that we hold with our high-value customers who have growth aspirations. This creates opportunity for repeat business, as we've done with the likes of groups like Amazon and HelloFresh. Looking to FY26, we've refreshed our medium-term goals to maintain momentum against our strategic priority areas.
To transition the balance sheet, we intend to deliver key milestones on the committed developments, continue our recycling program with around $1 billion of divestments remaining, and to continue co-investing alongside our clients in sectors that have tailwinds. To maximize the contribution of the funds, we will continue to execute the opportunity fund strategy, including the final close for DREP2. We'll resolve fund-specific matters and position the product offering for growth as the cycle has turned, and we'll pursue new products and opportunities to raise capital to match client demand. Finally, to unlock the deep sector expertise within the platform, we'll focus on delivering strong investment performance across all sectors while maintaining high customer satisfaction and enhancing our talent and capabilities to unlock the full potential of our fantastic people.
Thank you all for your support, and now I'll hand you back to Warwick to move to the formal business of the meeting. Thank you. Thank you, Ross. I'm going to pause here and ask if anyone has a question that they'd like to ask regarding what we've touched on so far. You will have an opportunity to ask questions for each of the resolutions as I bring them up. Before we go to the floor, I do have a question that has come in online, which I will read. Please comment on the share price having fallen significantly over the past 18 months from unit holder Mr. Ramdos. I hope I've pronounced his last name correctly. Over the past 18 months, Dexus has paid out more than $0.58 in distributions.
We're a more volatile stock, and perhaps the volatility of our stock has been influenced by the conditions that we've been operating under. Over 18 months, the share price has gone down by 3.7%. It has gone up when you incorporate the effect of the dividend. Over 12 months, our share price is 6.3% higher. The question about the share price having fallen significantly over 18 months is not factually correct, but we are, as I've said in the presentation, we were operating in challenging conditions, starting with COVID, the lingering effects from COVID, including work from home, and rising interest rates, rising cap rates. We think we are at the inflection point right now, and our share price is closely correlated with the performance of the value of office property. Our operating performance has actually been more resilient than our security price.
As a long-term investor, we have confidence in the value of the quality investment portfolio through the cycle, and there's ongoing demand to occupy well-located, high-quality office buildings. Our industrial portfolio continues to benefit from relatively low market vacancy, low land, and low land supply, supported by strong customer preference to be in well-connected logistics hubs. I assume there will be questions about the share price performance, and that is going to be the nature of the answer that I give to that. I'm happy to now go to the floor for questions. If you would just identify yourself and wait for the microphone, I'll go there first and then to you.
Thank you, Chairman.
I'll go next. I'm ready to go. Brian Eggett, a shareholder. I noticed there's 91.2% of the commercial properties are leased out. That's good. What percentage contain then that are sub-leases that are unlikely to be renewed? I'm going to look at Ross or even Andy, if you have a... I'm going to go to Andy Collins, who runs the office business for us now.
Sub-lease across the portfolio is in line with market averages at about 1%. There's no indication there as to whether or not that sub-lease space will be any more or less likely to be renewed at expiry.
You're saying 1%?
Yes.
Does that answer your question, Mr. Eggett? I have a second question if I may. With the industrial properties, what % of that $10 billion are in the latest business parks, and then contained therein is the next DC type businesses? You mean like data centres? Yeah, data centres. Yeah. I don't have that specific answer either. It's a very specific question, and the Head of Industrial is not here. Can I come back and give you the exact answer to that question? There is an exact answer, and I want to make sure you get it. Thank you. Okay. I'm going to move over here.
Thank you. Good afternoon, Chairman, and I'm Lewis Gomes from the Australian Shareholders Association, and I thank you and Alana for listening to us a few weeks ago. I'm here today representing 80 proxy givers. Now you might say 80, that's not very many, but I'll come to the reason for that shortly. Collectively, we speak for about 575,000 votes, so a very small minority, but I think our influence quite often exceeds our numerical strength. I explained to you and Alana that as a long-time civil engineer, I always admired the Dexus buildings. They were landmark buildings, and Dexus had a terrific reputation in the marketplace for office buildings. Of course, along came COVID, and the world changed, and Dexus had to pivot, as did many other companies. My sense is that that pivot hasn't gone as well for Dexus as it could have or even should have.
I did note to you that I've been disappointed to read about, I'll call them disputes, differences of opinion that Dexus has got into. We had the approach from Dexus to take over the A&P assets some time back. That played out. We then found Dexus in dispute over the Macquarie Shopping Centre with various other equity partners. By the way, in the annual report, it refers to the sale of Macquarie Centre as if that was just a business as usual transaction, and I don't believe it was. I think it was forced on you. Now, of course, we've got the disputes with your partners in APAC over Melbourne and Launceston airports, and I wonder how it is that a company like Dexus, with such a great reputation, can find itself in so many disputes. I don't read disputes when it comes to Goodman Group or Charter Hall.
LendLease have had a bucket load of disputes. We know that, but for other reasons. When I look at the Dexus business, and particularly the Dexus board in front of us, I mean, it's a quality board. There isn't a director on this board who I wouldn't vote for, and we will be voting for them. I kind of wonder, how is it with such a quality board that we got into so many disputes? The other thing I'll touch on, the focus on clients and stakeholders and investing partners, I don't get the sense that in Dexus it is anywhere near as strong as it is within, say, Goodman Group and Charter Hall. I know both those companies very well, and stakeholder relations, customer relations, shareholder-investor relations is uppermost in their minds. They're very commercial organizations, as you'd expect, but their CEOs are deeply invested in building those relationships.
Now, even today, with respect in the speeches that we've heard, I haven't heard, and I'll say it bluntly, from the CEO, I haven't heard that commitment to personally being involved in building customer relationships. It's critical to a business like this. We all know that. I'll just read out a very brief statement, and I'm not trying to embarrass you, Chair, because you listened very patiently and responded very patiently, but maybe the CEO at some stage may be willing to comment. This is in the letter in the opening of the annual report. Our vision is to be globally recognized as Australasia's leading real estate asset manager. I don't think you're anywhere near that at this point in time. Aspirations are great, and I'll be asking the CEO how he intends to get to the leading real estate asset manager in Australasia.
I think personally, it's like going to Everest Base Camp and trying to get up Everest without an oxygen tank, but he may have an answer. The other comment I made to you is that Dexus aims to deliver superior risk-adjusted returns to Dexus security holders and our clients. So clients do get a mention. When we go further down, we find that for FY25, the ASX 200 property accumulation A-REIT index delivered a 14.0% total shareholder return, TSR, as we often know it, in FY25, 14.0%. Dexus delivered 8.4% TSR over the same period. Half, almost just a bit over half. They do say, yeah, APAC sort of upset the share price. Fair enough, but why did APAC have to happen? Over the page, we go over the past 10 years, Dexus has delivered an annual compound return of 4.4% below the A-REIT index of 8.3%.
That includes the COVID years. I don't know how you could only get a compound annual return of 4.4%. Your competitors at Goodman Group and Charter Hall, they've been running 30 years and 20 years. They've been getting compound annual growth rates of assets of around 25%, 26% per annum over 20 and 30 years. Their TSR is around, I think, 13%, something like that. Their security price, and there was some mention about the security price, their securities trade on the ASX at three to four times net tangible assets. Dexus trade, last time I looked, at about a 15% discount. You're not alone there. There's a lot of other property companies that have struggled for all sorts of reasons. I'll just go back to that aspirational vision and ask, Chair, if you can give us some confidence that you can actually get there. Sorry for the.
I was waiting for the question.
Yeah, sorry.
Lewis, thank you. The reason we listen carefully is we value your opinion.
Yeah.
We always do, and we always will. I just want to hit on just a couple of things, and I'll come back to the vision. Our CEO is absolutely invested in customer relationships and deepening those relationships, whether they're our co-investors, our fund investors, and our unit holders. I see that. I see it every day. It's not something that you would see from the outside, but I can assure you it's something that's tested by the board, and it is something that not just the CEO, but each of our business leaders are fully invested in. The TSR, it's hard for me to comment on other companies. We are a balance sheet heavy organization, and we trade in a different way to companies that are management companies, and their NTA is different by nature. We have a large balance sheet. I also go back to coming out of COVID.
I think the underperforming asset class from COVID has been commercial office, and I think that explains a large part of the underperformance since COVID, and certainly the performance during COVID. I think we've seen industrial, you know, been an amazing asset class in the years since COVID. We've seen retail. We had a presentation from the executive who runs our retail business, and shopping centers has been a fabulous asset class, particularly in the last year, and will go better in the future. Office has been slower. It has been slower, and we are fully exposed. We have a great portfolio. We maximize the value of that portfolio as much as we can, but at the end of the day, we are subject to independent valuations. We think we're at a good point in the cycle. The discount that we trade to NTA is about 12%.
It's been larger, and I think the narrowing of the discount, my impression is that that's because we have value investors who have been coming onto the register, who are recognizing the potential in the next couple of years for commercial property. We think there is a significant opportunity. I want to come back to the vision, though, and I think companies need a vision. It's not who we are today. We know we're not Australia's leading real asset manager. We know we're not that today, and we know to become that is going to be really hard, but we need a vision to become much better than we are, and that's why we say that. That's what we want to be. I don't think there's ever going to be a measure that says we're there, but we know that we want to improve this company.
We want to make better decisions. We want to make better decisions for our balance sheet. We want to make better decisions for our customers, and we want to generate greater returns. There is great momentum internally to make this a better company than it has been. I think the down cycle has forced us faster to get better and has given us an opportunity to actually change the way we do business. We have a relatively new CEO, 18 months, maybe not so new, but with a new CEO comes a different way of doing business, and it will take time. Lewis, your comments are well accepted by us, and we see the same things. As a board, we challenge for the same things. You should take comfort that you're not alone in thinking about these issues because they're very much at the front of our minds as well.
Thanks, Chair. I mentioned we've only got 80 members that have given us their proxies, and that's disappointing because Dexus Industria has been and will be a great company, yet our members at this point in time don't see it as a great investment opportunity. We want to help you so that you can help our members find good places for them to park their investment dollars.
Yes, thank you. Okay, we'll move over here, David.
Thank you. Good afternoon.
It's on.
Good afternoon, Chair. No doubt you are an excellent Chair. The company, the REITs, are lucky to have you. However, I believe Dexus Industria needs strategic change and quickly. My comments and questions today are constructive advocacy of real change to fix the underperformance. Unlike your first question, which pertained to performance in 18 months, I'm looking over the last 5 to 10 years, Chair. We look at the annual report, and it says, "Unlock potential, create tomorrow." That's a fair comment because the past 5 to 10 years have been unsatisfactory. As the Australian Shareholders Association said, the annual report states that the compound return in the last 10 years has been 4.4%, way below the REIT average of 8.3%. Let's look at the specifics for five years, which are on page 100 of the annual report. Very disappointing. AFFO per share, $0.518 down to $0.45.
Return on capital, 8.3% down to 7%. NTA, concerningly, $11.42 down to $8.81, which is a big fall. Also, very concerningly, Chair, is the total shareholder return, which your annual report does list. In FY21, you delivered 22%. FY22, you lost 12.3%. FY23, you lost 6.3%. FY24, you lost 11.2%. FY25, you gained 8.4%. Sadly, as at through June 2025, the five-year TSR is actually negative. It's slightly positive now because the share price has moved. In essence, Dexus Industria is an orphan. It is the only major A-REIT that has delivered a negative TSR for five years. Again, picking up on a couple of comments from the Australian Shareholders Association, I'm in total independence. Problem of coming second, Chair, or third. I did pick out in the annual report some marketing bites, which in my opinion are misleading. Page 15, what Dexus Industria sets apart: active management approach.
We drive outperformance through the cycle. I wouldn't quibble with one or two years, Chair, but I'm talking about 10 years, so I don't think that's accurate. Page 18 of the annual report, the value that is created, superior long-term performance for our investors and third-party capital partners. I don't think that is consistent with the facts. Cutting to the chase, what's gone wrong? You don't have to agree, but I will give you my view as to what's gone wrong. In my view, from way before your time, Chair, you've only been in the Chair for three years. Dexus Industria has been asleep in not diversifying sufficiently away from its massive office skew. The irony is that under your funds management platform of $35 billion, you have massive diversification, but under your balance sheet assets of around about $14 billion, you are heavily skewed to offices.
Now, there are three companies that you know well, or real estate investment trusts, that have actually been proactively diversified away from their office skew. The first one is GPT, who I would rate their strategy as vastly superior to Dexus Industria. They substantially reduced their office exposure over the past 5 to 10 years. They're now roughly a third office, a third industrial, a third retail, whereas Dexus Industria is stuck at heavy weighting to office.
David, is there a question coming?
Look, Chair, I have gone to some trouble to make some comments. They're considered comments, Chair. I think it is worthwhile if you hear them. There are questions, but I do think these are critical issues, Chair, and I think the company needs to listen to them closely. As we talked before, Dexus is trading at a 13% discount to NTA, but that doesn't include the value for the platform, Chair. Now, you have $35 billion of funds management business. That contributes 17% of earnings. So really, the discount you're trading at relative to the total breakup value of the company is dramatically higher than the discount to NTA. I'm concerned about offices. Your cap rate is 6.18%, but what is the true office yield after the 28.7% incentives? It's probably around about 4%, Chair, which is not great.
Let's look at the second bit of constructive comment I'd like to make, Chair. I think Dexus is crazy to embark upon the office development risks it's been taking on. I appreciate some of these have had a long pipeline, but it is absolutely scary to read in the annual report and in the quarterly today that Dexus has $13.3 million development pipeline. Yes, not all of that will be done, but it's a scary number. I'm fine, Chair, with industrial developments. They're low rise. They're quick. You usually have a pre-committed tenant, but office towers are notoriously dangerous. You will lose money on the Atlassian building, and you will also lose money on Stage 1, Brisbane Waterfront, at a combined project cost of $2.27 billion. You've got to take into account all the holding costs, head office management costs, cost and time overruns, leasing incentives on Brisbane, etc.
I was concerned, Chair, on page 19 of the FY25 results Prezo. It sounded like a not-for-profit organization rather than an organization focused on total shareholder return to shareholders. Quote, "Two city shaping developments that will become next-generation assets and enhance portfolio quality for Dexus and its capital partners." That's referring to Atlassian and Stage 1, Brisbane Waterfront. They might be city shaping developments, but they're going to lose money. I would ask, Chair, in another document you have stated that the uncommitted office pipeline is $4.1 billion. For the sake of long-suffering Dexus investors, please do not commit. My final constructive comment, Chair, and then I'll get to a question. In my opinion, Dexus Industria REIT is the most fragmented major real estate investment trust anywhere in the world, and I do invest globally. Its fragmentation is bizarre.
Yes, in the balance sheet, its office is industrial, but then we get to the managed portfolio, the $35 billion, and we add shopping centers, one of which was lost recently. We add infrastructure, the APAC legal dispute. We add the opportunistic funds. We add the listed convenience center fund. We add the REIT investment fund. We add the struggling Dexus healthcare fund, whose value has declined in the past two years and been gated since December 2024. Most disturbingly of all, Chair, and Ross referred to it in the quarterly, it beggars comprehension that Dexus Industria REIT owns PowerCo, which is a New Zealand electricity and gas distributor. In my view, it is so fragmented it will lead to a dramatic loss of focus.
My two questions, Chair, given Dexus Industria REIT's TSR performance has been the worst of the large Australian real estate investment trusts in the past five years and way below average in the past 10 years, given Dexus Industria REIT's balance sheet assets are heavily office skewed, will you commit that Dexus Industria REIT will not undertake any new office developments? That's my first question. Second question?
Yes, please.
As I've outlined, and I do review REITs globally, Dexus is extraordinarily fragmented, which in my humble opinion leads to distraction, lack of focus. In contrast, the best performer on the ASX is Goodman, which is 100% focused on industrial. Will you commit, Chair, to start to focus on a limited number of core competencies and eradicate this quite bizarre, eclectic range of activities that Dexus is engaged in? Thank you.
David, thank you. Most of what you've read out is factual, and we don't shy away from that in any way. You made a comment about incentives and the effect of that on our portfolio. I'm not sure that that's accurate, that knocks the return down to 4%, but I'll come back to you on that and actually give you the right answer for that on office portfolio. On developments, and there are two questions. One is about developments. There is no development, and I'm talking office specifically, that is being contemplated today. It would be fair to say that the bar is high, and part of that has been the experience of the two developments that you have already mentioned.
I would say it's a bit early to call that they are going to be loss-making, but there have been challenges since commencement, mostly related to the increase in cap rates. A lot of our development pipeline is actually buildings that are occupied by tenants and paying rent, so it is not capital that is just sitting there idle. They are buildings where there is a potential to aggregate and at some point in the future to undertake a development. The bar's high, and I think in order to contemplate that, there would have to be an alignment of the stars that doesn't look likely today. I can't give you an unqualified commitment, but you have my assurance that it has our complete focus, and it would be unusual to undertake that.
We could undertake that on behalf of a capital partner, and we will look at any type of combination if it worked. The second part, which is your comment about fragmentation, PowerCo sits inside an infrastructure portfolio and was inside that portfolio when we acquired the A&P Capital business. It's a great asset and has been generating great returns. It's just made an acquisition, which we have been involved in, and which is fully funded by retained earnings and cash flow, but is going to be a very competitive asset in the portfolio that it sits in. We made a decision to be involved in infrastructure, and we had a board meeting this morning. A lot of the theme of what we talked about this morning was actually simplification. Maybe that goes to your comment about fragmentation, that a company like Dexus is too broad.
Simplification can be in many different forms. It might not be the assets that are sitting in portfolios, because I think some of them where we're an owner of an asset, but we don't run those assets. As an owner, for example, of PowerCo, we are the largest shareholder, but we don't run that company versus a building, for example, where we drive the returns. We do everything for a particular building. I think simplification could be in the forms of how we report to clients, the systems that we use to measure returns, the back office. There are many opportunities, I think, for Dexus to simplify its business, and it may not necessarily be the diversity of the assets that sit inside portfolios.
For the vast majority of those assets, there is a consistent theme, and that is some relationship to real estate, which I think is a business that we do know. Your point on fragmentation is a good one, and in a different definition, the board has talked about that many times as well, and we'll continue to keep coming back to it, because I think there's value for companies like us in simplification. The outcome of simplification is often better margins, and of course, that's one of the things that we're particularly interested in. David, as always, your comments are well-founded, and we listen to you because what you're saying is you're doing good research on our reports, and we listen to what you say. Thank you.
Thank you, Chair. Just one.
I was just going to let Ross make a particular comment.
I was just going to, you made some comments in relation to performance in the platform, and I think the reality is we don't control the stock price. That's actually what our shareholders do. If we look at our performance, for example, of our flagship fund, this is the diversified fund that's invested in office, retail, industrial, it's a core portfolio. It's outperformed the benchmark over all time periods. I think that plays to the strength and the ability of the platform to deliver investment performance over a long time period, and this is 1, 3, 5, 7, 10 years. The capabilities and the expertise exist in the platform. I think your points around portfolio concentration and office are well made and actually recognized in our strategy.
If you read our strategy documents from even a couple of years ago, we have been quite explicit that we would like to see no one sector represent more than 50% of our investment portfolio. In many respects, we agree. The reality has been this has been the most challenging market to trade office assets in. We have gone through a global pandemic, which has impacted not just the occupancy, not just the investments value, but also the ability to get liquidity out of office assets. I think in credit to the team and to be frank to the board, they steered into that, and they moved very quickly early in COVID.
We have been the most aggressive seller of office assets early in the cycle, and you see, it might not feel like that in the numbers, but the numbers would be a lot worse if we did not do that. In relation to, I think that kind of, we acknowledge the point around diversification. Your point around not being too distracted, I think our view around this next part of the investment cycle is it is going to be the deep local sector expertise. This is going to be a time in the cycle where local expertise and deep expertise is going to drive performance. This is what we want to play to. We have organized ourselves in a way.
The way I've thought about the people we have hired and the way we've organized our business is so, to be frank, I and the management team can focus on what they're good at. For example, we have excellent experts running end-to-end business lines in office, in retail, in industrial, in end-to-end. We have set ourselves up in a way that does not, I think, distract each of those executives from how they're running their operations. Ultimately, as a director, but also as a CEO, we will allocate shareholder capital into those business lines to those teams that can generate the best risk-adjusted returns for us.
Did you have a follow-up question, David?
Just a couple of brief.
Follow-ups. Thank you. Look, I respect everything you say, Chair. Thank you. It gives us some comfort that it's unlikely that you're going to embark upon new office development. Could you please just, it was in the quarterly again today, you know, low key, the $13.3 billion development pipeline. It's in the quarterly today, and it is scary. In the FY presentation, you actually talk about an office pipeline of $4.1 billion. Yes, I'm committed, but it just sends the wrong message. Yeah, whereas I'm comforted by your reassurance today that you're not about to do anything soon. Look, secondly, Ross, I respect what you've said. The paradox of this entity is that the better performing assets are in the managed funds. I accept that some of your managed funds have performed well. The irony, though, is Topco, and most people here today are shareholders of Topco.
That's the entity that's performed poorly. That's the entity with this nasty skew to offices. Whereas I accept that some of the funds have performed well, the bigger funds have performed well, I don't quite accept, though, that it's too difficult because GPT have done it, British Land have done it, Land Security has done it, have moved away from their abnormally high skew to offices to a much more balanced portfolio, which I think has improved the outcome for their shareholders.
Yeah.
Thank you.
I just think the record stands in terms of the current management team and our focus. We have been the most active seller of core Australian office properties of anyone in the last three years, and that is the agency upon which we have control.
Ross, you were CIO for many years before you became CEO, so I think you've been in an influential position for some time.
I wasn't the CEO.
We agree with you.
Okay.
We're going in the same direction.
All right. Thank you.
Thank you. I have a question down the back here.
Hello, James Brim, Australian Shareholders Association. The performance of the securities has been abysmal, and I've tried to take things into my own hands and have requested access to the register to call a general meeting to wind up Dexus. Why has the secretary not provided that list?
Can I?
Especially given that I have the.
Do you have a Company Secretary to respond?
Number of.
James, I'll get our Company Secretary to respond.
Isn't that Mr. Negus?
No, that's Mr. Negus.
Mr. Nem, Brett Cameron, I'm the Company Secretary.
Okay.
I acknowledge the receipt of your letter. Mr. Nem, we wrote back to you immediately and asked for certain additional information, which is required under the Corporations Act in order to get access to a register, including the purpose for which you sought to use the register and also some details around the organization which you purported to represent because we couldn't find any record of it on the internet or at the address from which you sent the letter. Having failed to receive any further information, I have your letter here with me today, including the cash that you enclosed for that, which I'm happy to hand back to you.
That was a different entity. I've also requested it from Dexus Funds Management Limited. I haven't received no correspondence to that.
Mr. Nem, I can provide you with copies of the correspondence we have sent to you if it would be helpful.
That only addresses one of the entities, and you can send it to.
James, can we?
This is important.
Yeah, it's with you.
The shareholders, the security holders here have been denied access to vote on this resolution to wind up Dexus Industria REIT.
Okay, I think.
It should have been included in this general meeting.
I think as the Company Secretary has said, they did respond to you. They asked further questions and did not receive a reply back. We know our obligations under the Corporations Act, and there is a prescribed way to do this. If you would like to engage with the Company Secretary after the AGM, we're happy to address the concerns that you have first and foremost, and then go through the proper process.
If anyone else would like to join and assist to get this resolution to wind up Dexus Industria REIT, that would be appreciated.
Thank you, James Lewis.
Very quickly, Chair, I may have misheard. I thought that previous speaker said he was from the Australian Shareholders Association. Did I hear?
Disabled, international disabled shareholders.
Disabled, sorry.
I'm sorry.
Yeah.
Okay.
Yeah.
Yeah.
I'm going to look over to Rhoda because I know that she has at least one online question.
Chair, we have a few questions from Stephen Main. The first question, Dexus has a highly favorable 75-year lease on the eight-story City of Melbourne-owned car park at the back of the Melbourne Club on Little Collins Street. The lease expires in 2037, and Dexus was the logical buyer when council put it on the market this year. Why did Dexus let Justin Hems pick it up for the bargain price of just $55 million? Is Dexus so gun-shy on CBD office towers post-COVID that it won't pick up prime sites at the Paris end of Collins Street? Were Victoria's skyrocketing land rates a factor in its reluctance?
Thank you, Rhoda. If you're listening, Stephen, welcome back. I'm going to refer the question to Ross.
I think clearly, investors.
Did everyone else hear the question, by the way? Yeah.
Clearly, investors have differential views around whether or not we should be pursuing office development projects. In specific answer to that question, we did have a lot of discussion over an extended period of time with Melbourne City Council to try and acquire the underlying freehold. Those direct discussions were unsuccessful, which ultimately led to the council running a competitive market process. We had a look, but we weren't the successful bidder. The price, in our view, is a strong price, and really, there is very limited development potential there given its adjacency to the Melbourne Club. It was always going to be largely a structural development of around the same kind of scale that it is today. We have a significant allocation to Melbourne. We didn't feel the need to pay strategic value for it.
Great. Thanks, Ross. There's a follow-up question, Roe.
Another question from Stephen Main. Thank you to Nicola Roxon for her eight years of service on the board. It is always helpful for investors to have access to some exit perspectives from retiring independent directors. Could Nicola please comment on what she regards as the best two decisions Dexus made during her time on the board?
Does she have any regrets?
I'm going to push back on that request, Steven. If you would like to engage with Nicola directly to talk about her experience as a director, I think that's probably the better response rather than handing out homework assignments.
Steven has a similar question for Paula Dwyer.
Same answer.
Yeah.
Is there a fourth?
There is. For what it's worth, and this is from Steven Main, for what it's worth, I think IFM overreacted in the Melbourne airport fight and are deploying share practices which don't reflect well on the culture within some of Australia's largest industry funds, who seem to be adopting an extremely impractical approach to secrecy and confidentiality when they should be pillars of transparency and openness in a democracy like ours. Has the shareholder fight impacted responsiveness inside the APAC boardroom on issues like the recent publicity over a Melbourne airport construction job?
I'm not sure about the Melbourne airport construction job, and I'm not personally a Board member of APAC, and there's very little that I can comment about. I will say, and we've said this before, that we are going to mediation in good faith, and we hope that all the other shareholders are doing the same. We hope for a resolution.
There's one final question from Kevin Daly. Why was the distribution reduced by 25% while FFO only fell 3%?
Kevin, and I hope you're listening, we have changed the payout ratio. Previously, our payout ratio was 100%. We changed the range of payout from 100% to 80% to 100%, and in effect, allowed us to retain some capital to deploy into higher returning opportunities. Yes, the FFO did decrease slightly, so earnings in total, let's call it, has decreased slightly, but the dividend has decreased because we have retained that capital and invested it. Okay, are there any more questions?
There are no further questions online.
There's one over here, and I'll come back to you. We're going to do that one over there.
Thank you. Ray Trannery, a shareholder. I read recently in the paper, I can't remember where, but I think probably the Financial Review, that there was in Sydney an office building that was redeveloped as a residential building, okay? It seemed to be a great success. They PR'd it as a great success and a well worthwhile thing to do. Now, given that COVID has pretty much changed the game in terms of how people view offices and that, you know, whereas before COVID, managers were very reluctant to let staff work from home, now they realize that it's a win-win situation for staff who are competent and independent and don't need the superficial view of having them managed actively by being in an office. Also for the organizations involved because everyone wins. I mean, staff don't have to do the daily commute into Sydney and that sort of thing.
Also now the organizations can reduce the amount of floor space they have to do. You hear about organizations with 60% hot desking or whatever, and they clearly, you know, they don't want to go back to a desk for everybody. They want to minimize the amount of floor space, which means you have to find more organizations to take up the floor space that they don't want. I mean, every building you've got that is going to become like that.
My question, I guess, is has any thought been given to, have you got any, first of all, have you got any properties in your portfolio which may be able to, you know, they're well located obviously because they're in the center of the cities and that sort of thing, but not every building is going to be suitable for a redevelopment and turned into an industrial, to a residential site. Has there been any consideration that maybe because you're trying to tilt away from office buildings and you can't sell them as office buildings or that easily, maybe sell them as a redevelopment for a residential site and that way you can dilute the weighting towards office buildings in your portfolio?
Ray, it's a really good question and it's a question that we have also raised. There's a couple of answers to that. First of all, the portfolio of office that we have is largely at the premium end, and there are unlikely to be the opportunities for conversion into residential. The conversions that we've seen in the market have been older buildings, buildings that are not as well located in the middle of the CBD, for example. That's one answer. There are planning challenges and safety, structural issues in converting an office into.
It's a difficult thing to do because you've got to replant a joint reef, and then false floors and false bloody ceilings.
The more you spend, the harder it is to actually make a reasonable return. There's also an example by us of converting an office building into student accommodation, and we've done that in Brisbane across the road from QUT. That is an easier thing to do because it takes away some of the planning issues that I've talked about. It's an easier conversion.
They've prepared to share bathrooms and that sort of stuff and cooking areas, and then you can make them much easier to partition off the place and make it.
It's an example of taking office and finding a better use, and we are definitely awake to that. I think it's going to be unlikely in a portfolio that is dominated by premium office. There are some examples of that going on in Sydney at the moment, but probably not from our portfolio.
I realize the market's going to be limited because it's for people that have got a lot of financial resources to take up those places because they're not the normal person, but clearly there's that side of things where the demand for office space is really reduced per company, and the other side where people are looking around for well-placed residential space, not out in the sticks out past Richmond or somewhere.
I'm not sure selling residential is in our wheelhouse. I know.
No, I mean you could.
David over here is having a conniption because we're getting more.
I know you don't have to, maybe you don't project manage the thing, but I mean you could at least focus the rollover of our property towards people that may do that.
Yeah, it's a good suggestion. Thank you.
Okay.
I have another question over here.
My name is Michael Heston. I'm a member of the company with my wife. My question is a very simple one and it deals with the working from home concept. Can you give me some indication of what effect that's likely to have on our office vacancy rate? I would just like to say this. In my experience, with many of the people I work with, you were flat out getting them to do an honest day's work breathing down the back of their neck. If they work from home, I don't think they'd strike a blow. I don't know how anyone else feels, but that's a serious question I'm asking. I know it's probing and in-depth and it'll really make you put you on the spot, but that's it.
It's a great question and you know I think in the immediate aftermath of COVID, it was something that gave real question to owners of office. I will say that it's less evident in premium office. The types of employers, the companies that are renting space in premium buildings like this, you're less likely to see that. In many of those companies, their businesses are expanding and so they're not giving, they may have some work from home but they're not giving back space. It's enshrined in some states in the law now and in some states is also more evident in the public service and probably having more of an effect. It's a good point. We have seen the decline of work from home in our tenants as a general statement. How far that goes, I don't know.
It would be a rare company that didn't offer even a small opportunity for work from home. Did you want to add something to that, Ross?
I just think in credit to Andy Collins, who runs our office business, he's done a fantastic job at positioning our portfolio to be very resilient from these trends. We call it the premiumization, ensuring we own the best assets in the very core CBDs. This is where customers want to be, and also our focus on small to medium size enterprise. Those businesses are less likely to be having these, let's call it like everyone can work from home every day type arrangements. Those businesses are generally running very hard, and whether it be through policy or, dare I say, culture, people are in the office most days. We certainly see that, and I think positively in terms of the prints we're seeing in the market data, we're seeing positive net absorption in the major CBDs, but really focused around that core.
I think our portfolio is pretty well positioned, I think, moving forward.
You had the anecdote of 33 Alfred where the tenants moving in as a group. 33 Alfred is the old AMP head office down at Circular Quay. Virtually all of the tenants moving into that building were looking for additional space and paying higher rents.
I think this is really interesting that if the employer is now competing with home, they have to actually make the in-place work experience even better. That's one of the drivers for this upgrading cycle we're seeing in office space, and that is both how accessible it is. Is it easy to get to? Public transport, you know, at the center of CBDs, it's where all the transport infrastructure is. What's it like when I'm there? What is it actually like? Is it easy to, does all the technology work? Are my colleagues there and what's the amenity around it? You know, can I get lunch? Is it enjoyable to be there? I think this kind of plays, again, really well to how our portfolio is positioned.
Just a brief follow-on. Everyone asks about work from home, but I'm also interested in AI. Like we hear yesterday, Amazon have retrenched 14,000 people. Clearly, it's only just starting, but do you have a view on AI impact over the next 5 to 10 years on office occupation? Thanks.
We're looking at AI as a company ourselves as a tool to make us better at what we do. We had a discussion today about different areas in our operations that we can deploy AI to create productivity. I think every company is doing that. I don't know that we have a particular view about office space demand.
I think what we would say is that there'll be redundancies, but there'll be new jobs created as well. It is very, I get everyone kind of reads the headlines, but what's the net impact? We're seeing a lot of investment in our customers in technology as they position for this. It is very hard to actually extract, I would call it the AI dividend at the moment. I think a lot of people are investing in it, but actually getting the headcount and the dividend out is quite hard. We see this as being a net positive for, let's call it, higher knowledge workers. If you think about how our portfolio is positioned, we are generally the more extensive product in town.
We are generally a very small part of the cost of our customers doing business, and more and more of those physical interactions that they're going to have in an office is going to be really valuable.
I'm looking at Rhoda, are there any questions online?
There are no further questions online, Chair.
Okay, then I think I'm going to move to the formal part of the business, the formal part of the meeting. Today's meeting has been convened in accordance with the constitution of each of our trusts and the Corporations Act. I've been informed by Registry, MUFG, that a quorum is present to enable the formal resolutions, the subject of the meeting, to be considered and passed. I'd also like to table the 2025 annual report, which includes the Director's Report, Financial Report, and Independent Auditor's Report for the financial year ending 30 June 2025. In accordance with the notice of meeting and voting form, for instances where I, as Chair, have been appointed as a proxy but not directed on how to vote, I intend to vote undirected proxies in favor of Resolutions 1, 2, and 3.
The way we'll run the meeting is that we'll go to a poll on Resolutions 1 to 3 and look at each of these resolutions and the proxies received individually, at which time you'll have the opportunity to ask questions or make comments about each of these resolutions. Accordingly, I formally call for a poll on resolutions being put to the meeting and declare the polls open. You can vote on these resolutions and for our attendees here at Dexus Place, you can hand your yellow voting card to the representatives from MUFG, who will collect them at the conclusion of this part of the meeting. For security holders joining us online in the online meeting platform, you can access your voting card and complete your voting as we proceed through the resolutions.
You would have received the notice of meeting, which sets out the resolutions and the accompanying explanatory memorandum, which provides security holders with information to assess the merits of the resolutions. Let's turn to Resolution 1. Resolution 1 is an ordinary resolution and concerns the adoption of the remuneration report for the year ended 30 June 2025. Under the Corporations Act, a listed company is required at its AGM to put to its shareholders a resolution to approve its remuneration report. Consistent with our corporate governance framework, the board has determined that Dexus will be subject to this obligation even though it is a listed staple group comprising real estate investment trusts. The vote on Resolution 1 is advisory only and does not bind the directors or Dexus Funds Management Limited. The proxies received are detailed on the screen and represent circa 94% of issued capital.
Let me now turn to questions in relation to Resolution 1. Are there any questions on this resolution for the remuneration report? Looking at Roe.
There are no questions online.
There are no questions. I'll now turn to Resolution 2. Resolution 2 is an ordinary resolution and relates to the grant of FY25 and FY26 long-term incentive performance rights to the Group Chief Executive Officer. We are not required to seek security holder approval for the grant of these rights as we buy Dexus Securities on market. However, for transparency and good governance, the Board has determined to seek security holder approval for the grant to be satisfied. These performance rights are subject to meeting Board-approved hurdles over three and four-year periods. The details of the FY25 grant of 513,001 performance rights are detailed on the screen. At the time of providing the 2025 notice of annual general meeting, the FY26 LTI performance right details were not available due to the extended allocation timing to the 25 trading day period post the release of our results.
Following the completion of that 25-day period, we announced that the value attributed to a performance right to be allocated to the CEO under the FY26 LTI has been determined to be $7.38. The proposed grant under this LTI will be 406,504 performance rights. The proxies received are detailed on the screen and represent circa 97% of issued capital. Are there any questions or comments in relation to this resolution? Looking at Roe, any online questions?
There are no questions in relation to this resolution.
I will now turn to Resolution 3.1. Resolution 3.1 is an ordinary resolution and seeks the continued appointment of Independent Director Rhoda Harrington. The proxies received are detailed on the screen and represent around 98% of issued capital. Before we turn to questions and comments relating to this resolution, I would like Rhoda to present to the meeting.
Thank you, Warwick. Good afternoon, as Warwick says, I'm Rhoda Harrington and I joined your board in January 2023, then as Rhoda Phillippo. I recently finally got round to changing my name as a result of my marriage, but I promise I'm still the same person you elected last time. I chair the Risk Committee and I serve on the Sustainability and Nominations Committee. I'm pleased to offer myself for reelection at this annual general meeting. Thank you for your consideration and I would be honored to continue to work on the board with Warwick, my fellow directors, Ross, and this team. I hold Australian, Kiwi, and New Zealand passports and have lived in Australia for the last 12 years. Prior to my broad board career, my executive career of some 35 years was in telecommunications, energy, IT, and infrastructure, the last 22 of those in New Zealand and Australia.
I hold a master's in business telecommunication and engineering from the University of London and have worked in commercial engineering, operational, and customer service leadership roles. I'm passionate about infrastructure, in particular energy, transportation, and technology, and as a result of some of what I've done, I've gained deep insights into the opportunities that there are for a company like Dexus in these areas. My global board experience started some 14 years ago in 2011, and in addition to my role on the Dexus board, I serve on the ASX listed board of APA, which is an electricity and gas transmission and renewables company, and Wavecom, which is the owners of Canadian Pension Fund-owned mobile phone tower business.
My prior board career includes chairing an IT company and a global transport payments provider, deputy chair of a New Zealand bank, non-executive director of an Australian Gentailer, and an ASX listed telco. In all of these roles, I've been either chair of or member of the risk committees or in the people and rem committees, and as a result, I've built some considerable governance insights into business risk, technology, cybersecurity, transformation culture, and change management. It would be fair to say that over the past two years, I've been drinking from a fire hose, learning a great deal about the property business, and I thank the first-class leadership team for being so generous in their time to help me do that. I think we've got a great portfolio of people, capability, and assets, and we are well placed to deliver on our strategy for shareholders.
Outside of work, I'm a proud mom and grandmom with family who live all over the world, including a son who is currently working with the UN in Ukraine. I often wish he'd pursued his childhood goal of being a pizza delivery boy. I'm a keen runner and triathlete. I've competed in 35 marathons and aim next year to complete my life goal of running seven marathons in seven continents by competing in the Antarctic Ice Marathon. Despite this, I confirm I've got sufficient time to dedicate to the Dexus board role, and if reelected, I look forward to working with this great team and hopefully adding value insights as we go forward. As a Board Director, I believe our role is to be the wind beneath the wings of the leadership team to help them achieve great outcomes for you, our shareholders. Thank you for your consideration.
If anyone would like to go for a run with Rhoda, you're most welcome. Are there any questions on this resolution? David, we have a question.
Thank you. David Kingston. Obviously a very interesting CV, colorful, and a skew on infrastructure and IT, those things. In my opinion, the biggest challenge for this company is the property performance, the strategy, and the property performance. Having heard what we've heard today, and some of it predates your time, but really poor five-year results, really poor 10-year results. We all know the old expression, do things the same way, you get the same outcome. In my opinion, the same outcome is not tolerable anymore. The excuses are finished. This company, REIT rather, must make change. Having heard what you've heard today, could you give us your thoughts about how do you see the performance over the past five, ten years? What do you think about office development?
What do you think about simplifying the company from about nine different subsets, one of which is your favorite, which is infrastructure and PowerCo? Thank you.
Thanks, David.
Thanks, David. Thanks for the question. I think I can only obviously speak from my nearly three years on the board, so can't comment on historical decisions prior to that. I think it would be fair to say, though, that when I came on as a director, I did significant due diligence and came on it well aware of the risks that there were in the portfolio because I joined just as we were coming out of the COVID time. I believe that the adjacencies and the overlaps between infrastructure and property investment are significant, and I would disagree with your perception that we're fragmented. I think what the team are looking at are the opportunities where one plus one equals three in this space, not just any old infrastructure investment.
I think I would say that the model that Ross has put in place and the strategy that he's pursuing now to downweight parts of our portfolio so that we're not as exposed as we have been. Taking your comment about wish it had been done sooner, I'm a great believer and we are where we are, and I know that the team is working proactively and really hard to achieve that strategic intent, which doesn't see us exposed to any sector greater than 50%. That takes time, and Ross's implementation of that strategy happened at a time when, as he said, it's really, really hard, has been really hard to recycle office, and I think the team have done a great job.
I think that the expertise that the business got when it bought the AMP business in the infrastructure space has some real highlights and some things that aren't as exciting, David. The company's fully owned that portfolio for just over 18 months now. You can't change something overnight, especially in this space, and I think the moves they're making, the considered moves they're making, and the expertise that they've brought in in different areas puts them in good stead to deal with these issues.
Thank you. All I'd respond very briefly is that there is no other major real estate investment trust anywhere in the world with such fragmentation, so I think it's absolutely clear-cut that Dexus is out on a limb and a very, very dangerous limb. Secondly, I don't think it's legitimate to talk about we need time. I think Ross has been CIO since when, Ross?
18 months ago.
Anyway, CEO for 18 months, but before that, CIO. I think the problem is that the results for 10 years are really poor. I don't think the board should tolerate more excuses, more time delays. I think you need to make change and make change quickly and strategic change. Thank you.
Thanks, David.
Thank you, David. Any other questions on Resolution 3.1? I am going to move to 3.2. It's an ordinary resolution and seeks the continued appointment of independent director Alana Rubin. The proxies received are detailed on the screen. Before we turn to questions and comments relating to this resolution, I'm going to ask Alana to present to the meeting.
Thank you, Warwick. Good afternoon. I'm Alana Rubin, and I've just completed my first term as the Director of Dexus Industria REIT, and I'm standing for reelection. For those that may not know me, my career started in social policy and industrial relations, then moved to superannuation and investment. When I reflect back on my career, I can see that all of those experiences have enabled me to bring diverse perspectives and an independent voice to my role. Over the past 20 years, I've been a non-executive director across a range of sectors and companies, including two other large diversified property trusts. I've also worked across infrastructure, financial services, technology, government, among others. I strongly believe it's a privilege to be involved in the governance of organizations, and that good governance adds value to organizations over time.
Boards play a key role in ensuring the voices of all stakeholders, including investors, customers, employees, and the community, are considered. This ensures that organizations are best placed to deliver sustainable, long-term competitive returns. At Dexus Industria REIT, I work with a CEO and team with strong values, deep respect for security holders, a clear sense of purpose, and a connection to the communities in which we operate. For me, Dexus Industria REIT brings together real assets in a way that can both generate good returns and have a positive impact on customers and broader stakeholders. We know that well-designed and well-managed assets also play a critical role in promoting sustainability and care for the environment while supporting communities.
Over my first term at Dexus Industria REIT, I have been an active participant at board, a member of the Risk Committee chaired by Rhoda Harrington, and a member of the Nominations and Governance Committee. Since 2024, I have chaired the People and Remuneration Committee. In that role, together with Warwick as Chair of the Board, I have engaged directly with proxy advisors and institutional shareholders to understand their views regarding past remuneration practices and their perspectives on the link between remuneration and performance. We've spent much of last year working on a new remuneration model to better align performance and remuneration. As at yesterday, I was very pleased to see that all four proxy advisors support our new remuneration model, and 93.55% of security holders support this year's remuneration report.
It's a privilege to be standing for reelection as a Director of Dexus Industria REIT, a company that is amongst the leaders in its sector and one that has a strong sense of purpose. I believe I have the skills, direct experience, and a diverse perspective from my work in other sectors to add value to the Dexus Industria REIT board. With your support, I look forward to being reelected as a Director. Thank you.
Thanks, Alana. Are there any questions in relation to 3.2? David.
Thank you, Chair. Very eloquent, Alana, but let me again get back to the key issue that troubles the security holders that you mentioned in your speech that you have deep respect for. In your three years, I think you've been here three years, you've delivered FY23 a loss of 6.3%, FY24 a loss of 11.2%, and hallelujah, you've delivered 8.4% gain in 2025. Alana, are you embarrassed by that poor performance? Because it certainly hurts the shareholders who have actually gone backwards over your three years of being a director. Thank you.
Thank you, David. It would clearly be preferable for us to be delivering a positive return, but as you've heard from Warwick, Ross, Rhoda, and others, we are where we are both in the composition of our portfolio and where we are in the cycle. What I can say is that Ross has brought a very clear focus and discipline around capital allocation and an absolute focus on how we manage our assets, both in terms of individual assets and the construction of our portfolios, to deliver as good returns as possible to our security holders. It's not a switch that's going to turn off and on, but it's something that we're absolutely focused on and working towards.
I'm just concerned with the comment, "We are where we are." That sounds extremely fatalistic. At the end of the day, companies or real estate investment trusts succeed or fail depending on the quality of the board and the quality of the management and decisions on strategy. You've been on the board for three years. It's been a bad three years, and all we hear today is, "We are where we are." That's disappointing.
I don't think it's fair to characterize it like that. We have a portfolio of physical assets which we need to ensure, both in terms of the construction of the portfolio, are optimal. It takes time to transact, and we also need to manage our assets as actively as we can, and we're doing that. I think the statement of, "We are where we are," means that I can't unwind COVID and I can't unwind the interest rate cycle. I can only look forward and make the best possible decisions for security holders in that context.
Alana, COVID and you know interest rate cycle are not impeding other REITs. This is the worst performing REIT out there. I'm just disappointed. I'd just love to hear what have you personally done to crack the whip on the poor performance. Like you've heard multiple speakers today, me, ASA, a couple of other people concerned about the share price on a board that you reside over, that you're seeking reelection of. What have you personally done to crack the whip on that. Thank you.
I won't disclose what a board discussion is. I think that would be inappropriate and with respect, you wouldn't expect me to. It's a bit of a leading question. The areas that I have worked on, as I've just said, is we've worked very hard to ensure that our remuneration structure is aligned to the security holder interests, and you will see that this year we've got in excess of a 93% vote in support of our remuneration structure, which tells us that we're going in the right direction around alignment of interest.
I can also say, Alana is a very active participant in the debates at this Board and is as focused as anyone else on trying to make good decisions to generate better returns in the future. That's what we're trying to do. We acknowledge the returns that you've outlined, David, and we'd like to generate much better returns in the future. Alana and Rhoda and everybody else, we're all trying to weigh in as much as we can. Thank you. Before we end the formal part of the meeting, I'd like to invite any other discussion. I think we have an online question.
Chair, we have a follow-up question online from Stephen Main, who has asked that this be read in full. I tried to ask this in general business, but the Chair prematurely deflected it given the proximity to the request for Nicola Roxon to offer some exit reflections. Mr. Chair, watch the man's blaming. Female directors should be heard, not just seen. As a fellow seasoned professional female public company director, is Alana Rubin concerned by the premature departure of Paula Dwyer from the Board, and could Paula please offer some frank assessments as to why she is departing after just 33 months?
I'm not going to ask Alana to reflect on Paula, to be honest. You know Paula has made a great contribution, and I'm not trying to stop a female director responding to a question in any way. Paula has made a great contribution as a director, and Paula is also really busy. The one thing that directors are called out on these days is for being overboarded. I think she's made a careful selection of the areas where she thinks that she can add value in the future. I don't think you should read anything untoward, Stephen, into the time that Paula has given us because she's made a great contribution while she's been with us.
Chair, we have one further question from Stephen Main. Both Alana and the Chair got the language technically wrong on the remuneration report voting outcome. It was neither 93% of issued capital in favor, as the Chair said, nor 93% of shareholders in favor, as Alana said. The mandate is actually 93% of directed proxy votes. To this end, will you disclose how many shareholders voted for and against in the poll results announcement to the ASX, as this will show that less than 5% of shareholders bothered to vote and highlight the chronic lack of participation by retail shareholders at AGMs?
My script was wrong, and Stephen is correct in that we didn't have 98% of issued capital voting in favor of the director reelections. It was 98% of those votes cast were in favor. The disclosure, as you will see at the ASX later this afternoon, will disclose the number of votes. Stephen knows how many issued units that we have in total, so he can determine very easily what proportion of votes have actually been cast. It's not 5%. It's in the area of about 80%, I think.
There are no further questions online.
Okay.
Just a couple of technical questions, Chair. I wasn't sure whether we were going to have a section on the annual results or not, but that was in the first section on questions. If I could ask Keir Barnes, Chief Financial Officer, please. Note 15C of the accounts refers to a loss of $113 million on interest rate derivatives. In the context where rates have been coming down, that's a very large number and surprising. Could you please clarify why you've lost $113 million?
Are you okay to answer that? Yep, we'll just get the microphone.
Thank you for the question, and certainly we are happy to come back to you with some more color. From looking at this, I believe the contracts are still in the money. They are just less in the money than where they were in the prior year.
It is not a realized loss. You have a follow-up question, Dave?
That'd be great if you could clarify because it's a large movement, and I hear what you say, it may be unrealized, but it stands out pretty. In these complex accounts, it stands out. I then have a question for the Chief Investment Officer, who's also KMP. I touched on before the actual large diminution in office headline return because of maintenance and leasing CapEx. If we look at page 140 of the annual report, it itemizes the actual maintenance and leasing CapEx at $177.1 million. Now, that's a very large proportion of the total revenue. Just be appreciated if you could, as CIO, if you could give us your insights as to whether the maintenance and leasing CapEx has peaked. I see in Ross's quarterly announcement today that the maintenance and leasing CapEx has increased a bit, but what's the guidance?
It really does severely reduce the economic returns from offices when you're paying that massive amount of money out as a maintenance and leasing CapEx. Thank you.
Dave, I'll just get Ross to provide a little bit of color first.
Yes, I think that's comprised of all of our investment portfolio, and as you say, that is in part a cost of doing business, and we are in an environment, whether it be office or even industrial to a degree, where we have elevated levels of vacancy, and as a consequence, there are elevated levels of incentives. This is something that the business is very attuned to. We could solve occupancy, to be frank, by inducing leasing deals, by giving bigger incentives. That's not what we're doing. You'll actually see in terms of the incentives in our office business are amongst the lowest in the market, if not the lowest in the market. I think we are attuned to the value loss through TIs or tenant incentives. Our response to driving value or just to preserving value in the long term is actually twofold.
First is what are the style of customers that we're going after? We're typically going after smaller customers. Smaller customers typically have lower tenant incentives. The second thing that we're doing, and this is an issue that has been championed more in the office business because the office business is certainly a lot more CapEx intensive than industrial, is thinking about it's okay to spend the money, but what's the lifecycle value of that? Are we spending a tenant incentive on a lease deal and at the end of seven years we're having to spend the same money again, or are we spending the money on the fit-out in a way that actually enables us to get two or three turns of the lease?
I would say the practice of the industry in the past has been write a check, give it to the tenant, let them spend it the way they would like, and therefore the landlord not having a high degree of agency or control in essentially how that money is spent. We are moving certainly away from that model to have a lot more control about where the money is spent and potentially to a point where we will be delivering those fit-outs for customers to ensure that we can drive incentives through the lifecycle of the asset to be a lot lower. That is what we're doing. To be frank, we're not leasing in a vacuum. There are elevated incentives in the market, and there will probably continue to be for the next year or two as we work through high levels of market vacancy.
Okay. Did you want to add anything, Jonathan?
I think nothing overly specific, and obviously we can't provide guidance around go forward numbers, but maybe sort of adding to what Ross mentioned there, two broad buckets. We've got about 9% vacancy in the office portfolio. As you mentioned throughout the discussion, incentives are elevated in that sector. There is more leasing to be done, which obviously will drive a higher number. The second portion of that is what's the overall level of incentive in the market, and the office market has been under pressure, but those fundamental dynamics are improving. We'd be looking forward to that market number to come down. The combination of those two numbers will determine how that tracks overall.
Thank you. Just one final response. I raised it before, Chair, and you were surprised, but the headline cap rate of your offices is around about 6.2%. Perhaps if I can ask the most recent speaker, by my calculations, that means the net effective true cash flow yield you are getting from your offices is around about low fours. Is that your understanding? After deducting the 27% you said earlier.
Yeah, after all the $177 million leasing and CapEx.
I think what you're commenting there on is effectively taking the overall FFO yield and reducing it by approximately that maintenance CapEx and incentive number out of the P&L.
What's the true yield you're getting on your offices? The headline cap rate, in my view, is misleading. Everyone does it the same way. I'm not criticizing Dexus. It's more a criticism of valuers. What's the true free cash flow yield you're getting from your offices after taking off the incentives?
I think that's got to be the answer. That's not a number that we necessarily disclose off the assets. As you say, the FFO yield, so the cap rate is around about 6%, and you've got an incentive number around about 30%. Those two numbers together will give you a steer.
All right. Seems like it is low fours. Thank you.
Okay. Are there any further comments or questions? I'm sorry, go ahead, Ray.
Yeah, just a quick comment. I want to commend you on showing on those pre-poll votings that the number of shareholders actually involved, the raw number of shareholders, not the number of shares voting, which tells you that it's fairly thinly held. Dexus Industria REIT is only about less than 600 actual shareholders. You can tell very much which way the big end of the town is voting and who's voting for the other categories. I would hope to see that continued in the future.
I think there are about 800 million shares being voted on most of the resolutions, roughly. I don't know how many individual shareholders, but.
I was counting. I just added up the categories of for, against, and not voted, and the actual number of shareholders is under 600. That's how I made it.
I'm not sure, but we'll see if we can actually get you a number.
Oh, I'm not worried about the exact number. It's just, you know, 600 or less than 600, actually about 580 would do my little mental calculation. It just shows you how thinly held this is in terms of the number of shareholders. I mean, obviously the big end of the town, like Argos.
Okay.
You know, they hold a big, big lot of them. Yeah, you can see it helps because you can see who's voting for what in terms of how many shares they own.
Okay. Thanks, Ray. I'm now going to call on the representatives at MUFG to circulate the ballot boxes and collect your completed voting cards. For security holders voting online, I ask that you complete your voting now if you haven't done so already. I remind you that the voting system will close five minutes after I formally close the meeting.
Can I think there's a Chairman?
Yeah, please. Yep, completed.
I'm so sorry, I have to change.
Vote in formal.
Okay.
Can you put the card on? Okay, ladies and gentlemen, that ends the formal part of today's meeting. I'd like to thank you, security holders, for your continued support and attending the meeting today. I thank you for the questions and comments that you've made today. For those attending in person, please join me and the fellow directors and members of management for some refreshments. I now formally close the meeting. Thank you.