Thank you for standing by. Welcome to the Dexus FY23 results briefing. All participants are in a listen-only mode. There will be a presentation, followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Darren Steinberg, CEO. Please go ahead.
Thanks for joining us today for our 2023 full year results presentation. I'd like to begin today by acknowledging the traditional custodians of the lands on which we operate and pay respects to their elders, past and present. Today, you'll hear from Keir on the financials, Deb on our funds business, Andy Collins, who we welcome as the new EGM for office, Stewart on industrial, and Ross on transactions and our development pipeline. We'll finish with any questions you may have. Our vision is to be globally recognized as Australasia's leading real asset investment manager. Our strategy is delivered through our strategic objectives of resilient income streams and being an investment manager of choice, with access to diversified pools of capital, ensuring our ability to operate through economic cycles.
We have built a scalable and efficient business across a fully integrated platform, and all of this is underpinned by a commitment to ESG and prudent capital management. This year, we added AUD 18 billion to funds under management via the acquisition of AMP Capital, with the total platform now having grown to AUD 61 billion. As you can see, we have scale across the real asset spectrum, including a high-quality real estate platform and a meaningful infrastructure business. Scale is important to the growth and performance of our business. It gives us the ability to attract, retain, and develop talented people. It helps us to gain insights and deliver solutions to our customers and third-party capital partners, and it provides the ability to invest in systems and processes. As a result of the AMP transaction, we have bolstered our capabilities in each sector.
In a challenging environment, we have maintained strong office occupancy above 95%, and our industrial portfolio is virtually full, which ensured strong cash flows with AFFO of AUD 555 million. We continued our asset recycling strategy, selling 43 assets across the platform, of which the balance sheet represented AUD 1.8 billion. Our balance sheet is in good shape, with gearing of 27.9%, and we continued to maintain high hedging levels. In our funds management business, we raised AUD 1.6 billion of new equity and launched an airport fund. We also have a track record of actively divesting on behalf of our funds, having sold AUD 4.5 billion of assets over the past three years. We continue to be globally recognized for our leadership in ESG.
We also launched our renewed sustainability strategy, which is supported by the priority areas where we believe we can make significant impact. I'll now pass you on to Keir to cover the financials.
Thanks, Darren, and good morning, everyone. Turning to the composition of the result. Through a complex operating environment, we've continued to diversify our earnings, with the contribution from management operations growing significantly and an elevated result from trading this year. Combined, these earning streams, considered more active in nature, account for 17% of FFO, while office property income now contributes 62% of FFO, given the impact of divestments. It has been an unprecedented year of interest rate rises, with 10 rises in 12 months, taking the RBA cash rate from less than 1% at the start of the year to 4.1% today.
In light of this increase, naturally, there has been a fall in asset values, with cap rates expanding by 47 basis points across our portfolio, driving an AUD 1.2 billion, or 6.9% reduction on prior book values for the 12 months to June 30. To put this in context, this offsets circa AUD 1 billion of gains made in the prior year. The value of the office portfolio reduced by 8.8% compared to prior book values, which was driven by higher cap rates, partially offset by market rental growth. The industrial portfolio was broadly flat compared to prior book values, with strong rental growth largely offsetting the impact of higher cap rates. Turning to the result in detail. Office property FFO decreased this year, primarily due to the impact of divestments and non-recurring income on development-impacted properties in the prior period.
Conversely, industrial property FFO increased due to recently completed developments and a full period contribution from Jandakot, partly offset by divestments. A result of new investments in AMP Capital Funds, income from co-investments increased this year. FFO from management operations also increased significantly to AUD 113 million due to development milestones being achieved, as well as the AMP Capital transaction, which reached first completion in late March. This transaction also increased group corporate costs. Higher floating rates drove an increase in net finance costs and were the primary driver of the 6.3% reduction in underlying funds from operations. Trading profits were strong in FY23, at AUD 50 million post-tax, and are expected to be lower in FY24. AFFO and distributions reduced by 3% to AUD 0.516 per security, which was at the top end of our guidance range.
Property devaluations, combined with the acquisition of intangible assets and transaction costs associated with the AMP transaction, drove an 11% reduction in NTA to AUD 10.88. Moving to capital management, where our disciplined approach has maintained a strong balance sheet in a market with significant volatility. Against that backdrop, it's pleasing to have arranged AUD 2.6 billion of facilities during the year, including the exchangeable notes, which diversified our funding sources in an uncertain environment, while securing 5-year fixed rate debt. At 27.9%, our gearing remains below the 30%-40% target range. Over the year, 86% of our debt was hedged with a weighted average maturity of 4.8 years, providing material interest rate protection. We are well-positioned with AUD 2.5 billion of cash and undrawn debt facilities.
Including the proceeds of contracted transactions settling post-30 June, our headroom has increased to circa AUD 3.3 billion. While our committed development spend is AUD 2.2 billion over the next five years, and we have around AUD 100 million of committed co-investments in our managed funds. Fully funding these commitments would see gearing increase to around the midpoint of our 30%-40% target range, in the absence of further asset sales or valuation movements. Thank you, I'll now hand over to Deb.
Thank you, Keir, and good morning, everyone. Our funds business has evolved into a diverse real estate and infrastructure platform, consisting of various products and catering to many investor types. We added AUD 10 billion of infrastructure and AUD 8 billion of real estate investments via the AMP Capital transaction, and in aggregate, these funds have grown since first completion. Third-party funds under management now totals AUD 43.6 billion, up 68% from FY22. Our real asset funds benefit from a prudent approach to capital management, with average gearing across the pooled funds at circa 25%. We've purposely broadened our asset classes, investor channels, and capability set, while we've grown funds under management, making us fit for purpose to fulfill investors' strategies. Like many other funds around the globe, we are dealing with redemptions.
We have a variety of funds on our platform, all with specific situations. Fortunately, we've been an active seller in the past few years and have a strong track record of delivering liquidity and doing the right thing by our investors. We've satisfied AUD 2 billion of redemptions this year. As part of the integration of the AMP Capital funds, we're streamlining our business and our operations to drive efficiencies. Our target remains to deliver a 60% margin on our fund management earnings. Our investor base, which includes institutional, wholesale, and retail investors, is increasingly diversified. Offshore investors have grown significantly, adding AUD 8 billion of funds under management in the past five years, and now represent 26% of funds under management, and we are expecting further growth. Our global roadshows provide a valuable insight into investor and market sentiment.
This year, we learned that many investors are positioning themselves for investment in anticipation of a peak in the interest rate cycle, asset valuations turning, and the anticipated listed security market recovery. There is increased investor appetite in healthcare, living, credit, and alternative investment opportunities, and we have investment options on our platform to cater to all these interests. It's important to note, though, for institutional investors, while Australia's fundamentals are seen as favorable, on a relative basis, asset pricing has become significantly less attractive compared to global markets. Turning to the highlights for this year, we raised AUD 1.6 billion across 14 vehicles, with strong interest in our healthcare and opportunity funds. Our new wholesale airport fundraising was oversubscribed, providing further capacity for investment into the fund. We onboarded 23 new institutional and private wealth groups to our products.
We delivered on the growth strategies of our healthcare fund and two infrastructure funds by increasing our platform investment in the Royal Adelaide Hospital. Importantly, our focus on ESG gained three of our funds global recognition by GRESB. From an asset class perspective, there is a wide opportunity set for us to deploy third-party capital. These include workplace, which captures the traditional real estate sectors of office, retail, and industrial. Transport and energy, which are pure infrastructure plays, and the more interesting niche sectors of healthcare and social, that sit between the two. All of these five verticals are benefiting from the key mega trends of urbanization, social and demographic change, and mirror the themes sought after by our investors. Thank you, and I'll now hand you to Andy.
Thank you, Deb. Good morning, everyone. The AUD 12.3 billion office portfolio represents 71% of our balance sheet and is concentrated in the highest quality market segments. We have achieved strong results in an operating environment that continues to present challenges. Occupancy is high at 95.9%, and the weighted average lease expiry across our stabilized portfolio continued to hold at 4.8 years. Incentives are up marginally to 30% and are expected to remain at that level in the near term. Leasing inquiry was steady, with increased activity from smaller tenants. Our leasing volumes across the stabilized portfolio were up 40,000 square meters, and we continued to benefit from the flight to quality, and in Sydney, the migration to the core. 57% of new deals involved customers upgrading to higher quality space.
Base rents grew during the year, and on an effective basis, our like-for-like income growth also improved to 5.6%, mainly driven by improved occupancy in Melbourne. Although activity is up in Melbourne, the CBD remains behind other capital cities in the return to the office. Moving to our expiry profile, a lot of work has been done to de-risk the forward profile, including through the retention of KWM at One Farrer Place in Sydney and BHP at 480 Queen Street in Brisbane. Current vacancy and near-term expiry risk is concentrated in core CBD markets. Our diversified customer base presents limited concentration risk, with our top customer representing 3.2% of income spread across a number of tenancies. Our top 10 customers combined represent 17.5% of income.
Only 30% of income is derived from large customers, those greater than 10,000 square meters. While softening business conditions present headwinds in the near term, the map on this slide demonstrates the importance of location and shows, at least in part, the impact of recent asset sales in improving portfolio composition. Most of the market vacancy in Sydney is concentrated in the Western Corridor and Midtown precincts. The average occupancy rate of premium space in the Sydney CBD core market is the highest of the four precincts, at 90%. In the Dexus portfolio, our premium buildings are 98% occupied. Evidence of the flight to quality and flight to core that contributes to the resilience of our portfolio in this environment. Thank you. I will now hand over to Stuart.
Thanks, Andy. Good morning. Turning to the performance of our industrial portfolio, occupancy has hit a five-year high of 99.4%. This was driven by continued leasing success and the sale of Axxess Corporate Park, which we traded at 7.4% premium to book value. Effective like-for-like income growth was 2.4%, impacted at by downtime and reversions at two of our larger facilities. Excluding divestments such as Axxess Corporate Park, like-for-like growth would be 3.6%. Incentives have reduced to 10.7%. Our portfolio delivered a one-year total return of 5.2% to the 30th of June. The portfolio was 13.6% under rented, benefiting from sustained market growth and tailwind business conditions.
We continue to see examples of strong re-leasing spreads, creating the opportunity to grow income by resetting the rents on upcoming lease expiries across approximately 17% of the portfolio by FY25. Now, let's take a closer look at demand. Industrial take-up is moderating and is returning to pre-COVID levels. In an environment of softening discretionary retail activity, the bulk of this demand will be supported by categories such as medical, supermarkets, and infrastructure project contractors. Looking forward, we expect to be leasing to those businesses that find tailwinds in challenging times, such as discounters, and positive conversations are ongoing with many of these groups already. Net face rents across the major logistics markets have grown between 12% and 32% over the year. Vacancy rates at record lows in major markets are supporting rents.
Rent growth is expected to return to more normal levels in the year ahead. We're really pleased with the conversations we're having with customers on utilizing our development capability and national platform to support their growth requirements across Australia. By way of example, this is playing out at our Jandakot Estate in Perth, where the rents achieved on new leasing are at around 30% above underwrite. Thank you. Now it's over to Ross to talk to transactions and developments.
Thanks, Stu, and good morning, everyone. It's been a productive year for the team as we recycle capital to improve portfolio quality and provide liquidity for the balance sheet and our clients. Australia has not been immune to the global repricing of assets, but has, relative to most developed markets, proved to be resilient and remained open and liquid across the major asset classes. For the balance sheet, we announced AUD 1.8 billion of divestments across the real estate sectors, a continuation of our existing program of capital recycling, providing capacity for investment in higher returning opportunities in the development and funds management businesses, which now include infrastructure and credit. While the platform has been a net seller, we are actively deploying capital across a number of strategies with AUD 1.3 billion of acquisitions across infrastructure, credit, health, industrial development, and distressed residential.
Development is a key part of our business as a source of returns, as a source of fund growth, and as a way to meet the evolving needs of our customers. We are focused on the long term. You can see that specifically in the way we have partnered with third-party capital in the pipeline, the way we've divested assets over the past five years to provide funding capacity, and the continued investment in our team and capability. The team really have delivered with some very exciting projects in the pipeline. Amongst the 25 active projects under construction across the group, we have the tallest hybrid timber structure in the, in the Southern Hemisphere at the Atlassian development, city shaping projects like Waterfront Brisbane, high-tech logistics facilities like Nike's new automated warehouse in Victoria, and multiple health precinct developments.
As a portfolio of projects, we see these as enhancing risk-adjusted returns over the long term, given the flight to quality we are seeing for both occupiers and investors, the project locations, and our approach to risk, specifically contractor procurement and pre-leasing. It was a strong year for trading profits, delivering AUD 50.2 million of post-tax earnings. We expect trading profits to be lower in the year ahead, circa AUD 10 million of post-tax earnings, partially a product of our decision to slow down the restocking of the pipeline late in the cycle. This is now a very good market to be investing in for trading opportunities, and we are actively looking to restock the book, which should see trading profits improve. Thank you, and I'll now pass you back to Darren.
Thanks, Ross. Dexus is well positioned. Over the past couple of years, we have continued to diversify our business. We've created a real asset platform with strong capability across all major asset subsectors in the country. Our capital is invested in a AUD 17.4 billion high-quality portfolio located in major cities, which generates stable core-type returns. Our balance sheet supports our capacity to invest in new initiatives alongside third-party clients. Our AUD 43 billion funds management business has access to diversified sources of capital that will organically fuel growth over the next decade. Our current development pipeline is fully funded, providing embedded future value by improving the quality of the portfolio while providing inventory to grow out our third-party relationships.
To conclude, we are halfway through a challenging period, which will continue into FY24, as capital flows and market sentiment are impacted by inflation, rising interest rates, and geopolitical risks, which all contribute to prolonged economic uncertainty. Based on current expectations and barring unforeseen circumstances, Dexus expects distributions of circa AUD 0.48 per security for the 12 months, ended June 30, 2024, below FY23, with the reduction driven by lower trading profits. As Ross said, we chose not to restock our trading pipeline while the market was nearing its peak. Pleasingly, AFFO, excluding trading profits, is forecast to be broadly in line with that delivered in FY23. Despite the challenges, we have continued to execute on our strategy, diversifying our capital sources, growing our funds business, reweighting the Dexus portfolio, commencing next generation developments, and maintaining a strong balance sheet.
As the world reverts to a normalized rates regime, we are well positioned for the future. That ends the formal part of the presentation. We'll now like to take any questions you may have.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Could you please limit your question to two? Your first question comes from Caleb Wheatley with Macquarie Group. Please go ahead.
Good morning, Darren and team. Thank you for the presentation. My first question was just on development. It seems like the focus, particularly on the uncommitted portion on projects like 60 Collins Street and Central Place, has softened somewhat over the past six months. Just keen to get an updated view on how you're seeing those sorts of projects on a go-forward basis, please.
Thanks, Caleb. I'll take that one. I think, I think we when we reflect on our development pipeline, I think what we're pleased about is the very high quality and locations that those projects are in, specifically the two ones-... that you mentioned, but I think there's no shying away from the fact that the pre-leasing market for big office commitments is quite tough at the moment. Particularly for projects like CPS here in Sydney, that is an emerging precinct, so we're very long-term believers in that precinct with all the infrastructure investment there. To get the big tech users that really need to underpin that tech and innovation precinct, you're not seeing them making those big commitments right now. I think we're being realistic and pragmatic about that.
We've still committed to working through the pre-leasing and the, and the planning approvals there, it's gonna take longer than what we may have envisaged a year or two ago. As it relates to projects like 60 Collins, we think it's probably the best development site in Melbourne CBD. There is reasonable investor interest, we're probably not chasing the big users there. We're probably chasing some smaller users and, and would look to start that project with a lower level of pre-commitment, but that's still working through. I guess, from a capital perspective, we want to bring a capital partner into that project from the outset. That's one project that is 100% on balance sheet. Projects like CPS, Dexus balance sheet only actually has a 0.25 interest.
For us, you know, having third-party capital in alongside us in these developments is very important.
All right. So it sounds like the tenant market's the major headwind. Would return to back from your perspective, if you could get pre-leasing in, as an example?
Sorry, I, I missed the second part of the question. Tenant, you're saying?
Uh-
Pre-leasing is the, the headwind.
Is pre-leasing the major concern, like, a return still making sense?
You'll see in the, the annexures to the presentation, we provide sort of rough yield on costs, and obviously, investors need to take a view around where markets stabilize for very high quality assets. I'll sort of make the point that these assets that we are developing would be amongst the best in any of the markets that we're, we're, we're in. We, we feel certainly on the, on the private capital side, that while the bid is not deep, there is still demand for those very high-quality assets. It's just taking more time to convert those sort of partners. We do feel that they are economic, and we are looking to make profits out of our development book. It's not a loss-making enterprise for us.
That's clear. Thank you. My final question, just on the maintenance CapEx incentive bucket. Conscious in the past, you've looked to flex those items to keep the overall bucket sort of broadly unchanged. With incentives remaining at a higher level, is there any concern that there's a potential catch-up to come through on the maintenance CapEx, or how should we think about that bucket if incentives were to remain elevated?
Hi, Caleb, it's Keir. I'll take that one. You'll see that the overall CapEx was broadly in line this year with where we landed last year. While we have had a benefit come through from some of the assets that we've been selling in the office space, you are seeing the impact of the higher incentive cycle through the portfolio. We're also doing a greater volume of stabilized leasing and for a longer weighted average lease term, so that you are seeing the impacts of that this year.
Okay, great. That's clear. Thank you for your time this morning.
The next question comes from James Druce with CLSA. Please go ahead.
Yeah. Hi, good morning. Just curious to hear a bit more about your divestment program for FY24.
Ross?
Hi, James. I think as Keir spoke to, we are in a really good position to fund our existing development commitments, and so we're not, we're really thinking about the capital recycling as a continuation of what we've been doing in the past. If it makes sense to trade, then we will sell assets at reasonable prices and look to invest in the amazing array of opportunities across the platform. We're not putting a target out there in terms of asset sales for the current year. We obviously achieved a significant number last year, $1.8 billion. We have a number of assets which are in the market at the moment or under detailed negotiation. I wouldn't want to compromise the outcome of those processes.
As it relates to, how those prices are tied into our current valuations and NTA, I think for those assets which are under detailed negotiations, it's fair to say that the book values and the NTA reflects where we think those assets trade.
I think the important thing is, you know, real estate has always been cyclic, and we've moved quickly and decisively in this cycle, so we don't have to sell another asset. As we said, our developments are fully funded now, and if we get the right prices, you know, we look at the returns, and we look at the returns we can get from reinvesting that capital, and that's how we've always operated. I think, you know, we've seen how challenging it is to sell assets, both by ourselves and, and other people in the market, and we're in a very good position right now as a result of moving quickly.
Yeah, okay, that's clear. just, just on the new debt that you issued over the period, how, how much was offshore and, and how much was onshore? Can you talk to the respective margins?
Sure. Of the debt that we did this year, the $2.6 billion, about $500 million of that was through the exchangeable note. The balance was through bank funding. The group of banks that we deal with, it's a mix of domestic and offshore, also a mix of tenors in there. You know, we were very mindful that margins or credit spreads were starting to widen throughout the course of the year, we moved early on that front, and we're really pleased with the rates that we've achieved on that funding.
Just the offshore credit markets, U.S. 144A, Europe?
Yeah, debt capital markets, I mean, as you all know, they remain challenging. I would say, you know, they are open to real estate groups, but at a price. We would typically go to those markets when we're looking for, both volume and tenor. You know, it's not, not too keen to rush to those markets for either of those things at the moment. We have a lot of headroom, which gives us, time and capacity to determine when we would choose to go back to, to offshore capital markets.
Okay, that offshore capital, can you, can you estimate the margin if you, if you were to issue today, or if it is open to you?
It's just not open realistically at this point in time for real estate.
Yeah. I think it's fair to say it's quite a premium over what you could achieve, from a bank perspective at the moment.
Okay, that's clear. Just the risk of, how are you seeing 123 Albert? I mean, that's being pushed out another 6 months. Pretty skinny yield on costs. Is, is that one you're going to make money on?
It's gonna be at the edges. I think, you know, realistically, that was put in context, that was essentially a single-tenanted lease building to Rio, which became largely vacant and needed a major refurb. The team were working through it. We're sort of, I think, 80% leased now, including heads, detailed negotiations under the residual 20%. It should PC April next year. You know, yield on cost is low fives, and, you know, you'll have a view on where market pricing is for assets in Brisbane at the moment, but it's probably around that level on a good day, so yeah, it's gonna be a tough project for us. You know, being pragmatic about it, we, we weren't gonna sell the asset at a big discount.
We, we think it's the right thing to do for us to roll up our sleeves and work through the re-leasing and reset, and we'll reassess the prospects for that asset in the books once we, once we get through the leasing.
Okay, thank you.
The next question comes from Sholto Maconochie, Jefferies. Please go ahead.
Oh, hi, everyone. Just following up on some of the other, the questions. First, I'll start with leasing first. The, the leasing in office seemed very strong in the last quarter, in the June half. Really picked up in that quarter. Where was the leasing mainly done?
Do you want to pick that up?
Yeah, sure. Hi, Sholto. 200,000 square meters of total volume over the year, so that's up 40,000 on the prior year. 35% of that volume by area, or 40% by income, was done with small tenants, less than 1,000 square meters, so that's 250 deals. That's really where the activity's been the highest. Noting, of course, that the big renewals with KWM, BNP, and BHP combined are just under 40,000 square meters.
Okay, surely. Thanks for that. That makes sense. Just on the assets that everyone's been touched on, have you still got, 1 Margaret Street on the market?
1 Margaret Street is probably one of those assets that's under, you know, detailed negotiations, contract, and the like, so I wouldn't want to compromise that at this stage, but that's certainly an asset that we're prepared to sell. We've got assets out in Parramatta, also in a similar position. We have a 100 Mount Street, which is a joint asset with our wholesale fund, DWPF, which is also going through an on-market campaign at the moment. I think, you know, we've got, how to say, irons in the fire. We're not forced sellers, as Keir and Darren have mentioned, but I think we're keen to keep recycling capital.
There's such an amazing array of opportunities that's sort of been brought, I want to say, brought to us, but exists through the AMP acquisition and what we're seeing in our development and trading businesses at the moment. I think we're, we're, we're not short of opportunities, but we don't want to, I guess, push the balance sheet too far, so recycling capital is a core part of the strategy.
You're just sort of happy to sit on them. I mean, you've got your development pipeline funded, and it's not critical you sell them, but until sort of price discovery and, and liquidity improves, so you're not rushed to sell those. You still want to sell them, but you'll wait till you get a price that you're... that's palatable?
I think, as we said, we don't have to sell another asset to meet any of our requirements, development or, or otherwise. As Ross alluded to, we're seeing a lot of other opportunities in some of the infrastructure space as well. You know, we're not just limited to real estate these days. As a result of that, if we can get good prices and we can redeploy that at higher expected returns, that's what we'll do.
I think that's the, that's the key point in my mind. It's really about the relative risk-return proposition from the, from the sales versus the deployment. And a, a lot of the assets that we have, particularly in the office side, they are replaceable and are gonna be replaced with much higher quality assets through the development pipeline. So I think we're in a very fortunate position that some other groups aren't, in that we can, we can, I guess, pull those levers and, and we're not gonna compromise the, the portfolio through these asset sales.
Just finally, on the, on the Atlassian one, it's, it's just going to be dragging on a while, and I think they've said that no one has to come back to work. How does that sort of play with building them a whole new tower? Can you, can you pause that one? You'd probably have a re-rate in your stock if you didn't go ahead with that one.
Well, I, I think, that's probably more a question directed to, to, to Atlassian. We have a 15-year lease with Atlassian, with, very attractive fixed increases, and I know the Atlassian team are actually very excited about bringing all their people together into, that workplace, and I think they've made comments in recent times, public comments, around the importance of.
... the physical work environment to the productivity and creativity of their, of their people and their business. You know, I think that's. You know, we're excited about the project, we're excited about the precinct, and we think this is gonna be a, a great investment for us over the long term.
All right. Thanks very much, Ross and Darren and the team. Thank you.
The next question comes from Tom Bodor with UBS. Please go ahead.
Good morning, team. I just was interested in Deb's comments around sort of the relative attractiveness of Australia from a capital perspective, as potentially sort of having a few headwinds there from a global perspective. Could you just elaborate on, on those comments, please?
Thanks, Tom. Yeah, look, I, I think we're just very aware of the asset discounts that are playing through in other markets, and the fact that, you know, a number of our major investors here in Australia are actually global investors. Their mandates are not necessarily geographically specific, and they will look to deploy where they think they're going to get the best possible risk return. Australia, you know, has, as an economy, performed very well on global standards, so therefore, we do often look expensive.
That's, that's really clear. Thank you for that. Just another one around the funds business and growth on the infrastructure side. I'd just be interested in any comments around some of the opportunities that are coming up in the airport space and the potential for Dexus to play into that space, and, and what you're seeing on the capital side from a demand perspective.
Thanks, Tom. Look, I think what's been pleasing in the first couple of months of ownership of the AMP or Collimate business, has just been that ability to do, you know, extra deals that we weren't able to get involved in before. We've done a student accommodation deal down in ANU in Canberra. We've done a hospital deal between 2, 2, 2 infrastructure funds and a real estate fund, and we've done an airport deal with Melbourne Airport coming on the balance sheet and being put out to high net wealth capital. Obviously, airports is one of the places that we have deep operational experience now with the Collimate team. They were involved in the first privatization of Melbourne Airport over 20 years ago.
We're definitely looking at some of those opportunities, and we have capital support to look at those opportunities. From a capital perspective, it's like you talk to anyone or any of the global investors, this is probably one of the most challenging times to raise capital anywhere around the globe in private capital. There's a lot of rebalancing going on across real estate and infrastructure. It is super challenging. Pleasingly, we've raised AUD 1.6 billion in that time. I think if you actually, you know, take out the redemptions, that's one of the stronger performances around the globe, not just here in Australia. Hopefully, that will improve as the year goes on.
I don't think it'll improve quickly, but it will improve as the year goes on, and, as I said, those airport transactions will take place in the 2nd half of this financial year, and, hopefully, we'll, we'll have some involvement in them.
Okay, great. Thanks. Just a final one, just an update on the, the cost out and integration of Collimate as well. When do you expect to sort of see that finished?
We settled on that transaction in late March. Pleasingly, we reached our first phase of integration milestones about a month after that. The balance of the integration is progressing really well, and we expect that will be closed out during the course of FY24. You should see some efficiencies, flow through in the first full year for FY25.
Okay, thanks.
Your next question comes from Alex Prineas with Morningstar. Please go ahead.
Thank you. On slide 45, the presentation has outlined AUD 5 billion of uncommitted, potential development projects. Just wondering if you can sort of, provide a bit more comment around, general, what, what, what sort of needs to happen to move those into committed in terms of, like, how much you're watching, maybe what rival, rival supplier might be coming through? How far away from meeting feasibility targets those projects might be? Is it, or is it more just focused on getting, getting approvals and getting, getting, balancing buyer power with those projects?
I might take that one. Thanks for your, your question. It really does depend on the project and the segment. I think in relation... I'll, I'll try and generalize. I think it's a, it's quite a broad question. In relation to industrial, it's largely, a rollout of our big land banks, We will meet the market in terms of, tenant demand and pre-leasing in those, in each of those estates. Typically, we would look to have a combined strategy of essentially pre-leasing a, a building and, and speccing a building next door. There are some efficiencies in us doing it that way.
That's really, I guess, leasing-ly, that's probably the constraint on activating those projects, and from a Dexus perspective, our equity position in those projects is typically 25%-50%, so we have third-party capital in most of those projects alongside us. As it relates to, you know, the big office projects, the uncommitted ones, it's, it's largely pre-leasing, and in the case of 60 Collins Street down in Melbourne, as I referred to in a previous answer, we'd would like to see third-party capital in alongside us, because 60 Collins Street is currently 100% on balance sheet. Third-party capital is an important part to seeing that project start.
there's probably some health projects in there as well, subject to tenant pre-commitments and planning. Cost, You did ask a question around cost, I guess. Construction costs are rising. We are seeing them sort of flatten out where we are now. We don't expect them to go backwards. Cost is not a constraint. We're seeing enough rental growth pretty much across the development book has more than offset any cost increases over the past 12 months.
Okay, thanks.
The next question is a follow-up question from James Druce with CLSA. Please go ahead.
Yeah, hi. Just, just following up on, on Sholto's question. Has Atlassian handed back any space?
In fact, we did approach them to give us back some space because there was some other demand for it. They declined.
Okay, fantastic. Thank you.
The next question comes from Solomon Zhang with JP Morgan. Please go ahead.
Morning, guys. Just a follow-up question on Tom's question on AMP and Collimate Capital. I guess when you first announced the deal, AMP was guiding to year one margins around 20%-25%. Do you have an update on the margins and where they sit today, and your expectations going forwards?
I can take that one. AMP's guidance around those margins was on a fully allocated basis, and it also included some other aspects of their platform that we haven't acquired. It's not going to be perfectly like for like, but fair to say, you know, those expectations probably still hold. You know, as we've said, once we complete the integration, we expect that we'll be able to improve the margins in that space, more akin to what you would see within the Dexus platform.
Gotcha. Another way of framing the question: Just on the AUD 2 million-AUD 5 million that you spent, do you have a rough guide for stabilized cash-on-cash returns on that?
We don't quote a cash-on-cash return on that. We You know, at the time that we announced the transaction, we disclosed an EBIT multiple of somewhere in the order of 12 times. That would improve to the extent that we realize some synergies. We are still working within that band.
I think, I think what we see today, it could be anywhere between 7 and 10 times, on completion.
Gotcha. final question, just on the asset sales, just noting in slide 22, you've sold a lot of assets in locations which you sort of see weaker fundamentals. Is your view that the pricing discount for assets that are located in less ideal pockets is still not sort of sufficient to compensate for the weaker fundamentals? You sort of continue to trim with the location and, and quality as the key criteria?
Absolutely. I mean, we've, we've got older buildings in the, in the core, I'll call it the super core, of, of Sydney, for example, that are, are full- fully occupied and have no problem leasing up. So it's not just this new, shiny building story. It's, it's location, location, location. Funnily enough, that's always what they say about real estate. Just, just to put some things into context, you know, 44 Market Street, there was a lot of noise about that, about that sale. You know, that price was virtually in line with the 2018 valuation. Guess where debt was in 2018? About, about 5.1%. Funnily enough, just about where it is today. Let's put everything in context.
It's been a great ride up when money was free, and throughout most of my career, if, if interest rates were 5%, we'd be pretty happy with that in real estate land. Guess what? We're, we're back to there. It's back, back to where we've been for most of the last 30 years.
Great. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. The next question comes from Steven Tjia with Barrenjoey. Please go ahead.
Hi, team. Just want to follow up on the strategy for the real assets and how are offshore investors thinking about, you know, real estate versus infrastructure?
It depends on their own makeup. I think there's different, different characteristics of both. I mean infrastructure tends to be a lot longer dated. You're looking at 30-year cash flows versus 10-year cash flows. Many of them have CPI links. Like we have a public-private partnership fund here that's sort of, for the most part, government-backed with CPI-linked returns. It's delivered 10% year in, year out for 15 years. It's got things like hospitals, schools, convention centers. It's got Optus Stadium over in, over in Perth. It's got, you know, Reliance Rail, the, you know, the New South Wales rail network that's here. So it's very diversified, and, you know, that's a great return, but it's, you know, 30-40-year type leases, so you've got to keep buying those things to keep the return going.
At the end of it, you've got 0. You know, that's, that's a different way, and a lot of insurance companies and, you know, like that style of product. A lot of pension funds like it because it gives quite a guaranteed return, versus a real estate, where you'll get sort of 7%-9%. Infrastructure's probably targeting 9%-12% type returns. Ross, anything you want to add to that?
No, I think it's, it, it is interesting in terms of capital formation, that a lot of investors are still structurally underweight infrastructure, which presents some opportunities for us. Real estate, I guess different organizations are at different points of their investment evolution about insourcing and outsourcing. Obviously, in Australia, you have the super fund consolidation, which is also creating a little bit of noise and actually seeing some redemptions, not because they're, they're overweight, but really because they're cleaning up their portfolios. I think that is playing through a lot of the managers, in the Australian market at the moment anyway.
Yeah, and the mergers of the funds.
Yeah, the super consolidation.
Yeah.
Thanks. Just a follow-up question. I think it may have been said before. Could you just repeat what the acquisition multiple for Collimate Capital is?
At the time of announcing the transaction, we'd said it was a 12 times EBIT multiple, potentially as low as 7 on realization of synergies. We're now working within that band. I'd say somewhere in the order of sort of 8-10 times.
Okay, great. Thanks, Keir.
Your next question comes from Winston Sammut with E&P Management. Please go ahead.
Can you hear me?
Sorry, Winston, just maybe speak again. That came through very muffled.
Can you hear me now? Okay. I have two questions. The first question relates to the AUD 2 billion of redemptions that you've met.
Winston, can you, can you dial back in?
Redemptions.
Winston, can you dial back in? It's just not coming through very clearly.
The question about what is the right price to sell an asset. There's a right price, there's a valuation, and there's a market price. If you look at the indication, and, and we go back to the Market Street, trade, are you sort of suggesting that, we should be looking at the right price in valuations back in 2019?
I think I'm saying it depends on the asset, it depends on your other uses for the capital. You know, as we know, valuations are not an exact science. We've sold assets in the past year. I think one of the assets we sold was a, what, 6% premium to the valuation?
Seven.
7% premium. We sold assets at discounts to val, we've sold assets at premiums to val. What we'll look at is the returns from that price on a go-forward basis. Our job is to try and get the best returns we can get for our shareholders. You know, we're not slaves to valuation prices. We're slaves to return.
Okay. On the redemption side?
Deb alluded to, you know, we've got redemptions throughout our portfolio, like most fund managers have across the globe. I think pleasingly, unlike many other managers, we've sold about AUD 4.6 billion of assets in our funds business over the last few years, and that has helped us satisfy a lot of redemptions. We also have a lot of rolling redemptions in our funds, not necessarily, not necessarily, you know, fixed windows inside them. You know, the team's used to managing it. We've got some to work through now. I think it's under 5% of our portfolio, Deb, does that sound about right?
Yeah, that's right, Darren. All those funds have plans which are in hand, and their investors are aware of what they are. We, we feel really confident that we can meet that. I think it's worth bearing in mind when we talk about redemptions across Dexus, we are talking about some retail funds as well as institutional pooled funds. The type of redemption is quite different depending on the type of product.
I understand that, but if you sort of look back over the last couple of years and say, we raised X amount and we've been doing X amount, it's a totally different environment. We were selling assets in a rising market. Now it's a different situation where it's not a rising market, and so to me, it's a different environment.
Sorry, I, I really can't understand the question. It's just a muffled line, Winston.
Just repeat that again, Winston.
What I'm saying is that it's all very well to say, over the last couple of years, or three or four years, we've, we've met redemptions from sales, AUD 4 point whatever it is billion, million. The reality is this is a totally different market. It, it, it... What happened in the past doesn't apply now.
I think, I think the point is, we weren't selling in the past couple of years just to meet redemptions. We were selling because we thought it was the right thing to do at an asset level and for the fund. As a result, the funds weren't over-levered like some we're seeing with many of our peers right now. That's why our funds are in a great position to ride through this cycle. You know, real estate always works in cycle. I think we are I think we are the group that has sold the most assets across the platforms over the last three years.
Further to Darren's point, if you take Winston, for example, DWPF. DWPF has had ongoing redemptions on a year-on-year basis, which have fluctuated up to, you know, $1 billion at certain times, and at other times in the market, that has been able to be met actually through new capital. We have been able to meet that through, you know, using different mechanisms. The mechanisms that are available to us today are, you know, what the market delivers for us, and those capital plans are broadly discussed with investors, as most investors are not actually taking their full position out of any fund at any one time. They remain ongoing investors as well.
I think to just bring it back to sort of market context, I think, Winston, there's something in, I guess, implied in your question around that the market outlook for transactions is gonna be tougher than where we've been. You know, I've been out there at the coalface. It has not been an easy market.
Yeah.
the last 4 years. You know, I think trying to transact assets through COVID has been very difficult. I think the pleasing thing is that the Australian market has remained open, it's remained liquid across all the real estate sectors. The same cannot be said about a number of the other developed markets. You know, maybe we're not getting the prices that we would like to get in a good market, but we're still what we believe is creating value for our clients and for ourselves in how we think about that capital recycling and the redeployment. Whether clients want to redeploy that elsewhere, you know, it's our duty in that, in that respect, to execute the sale.
In fact, selling Grosvenor just outside of COVID was, was one of the toughest transactions we made. In hindsight, it was a great transaction for that fund.
I see.
Thank you. We've come to the end of our Q&A session. I'll now hand back to Mr. Steinberg for closing remarks.
Okay. Thanks, everyone, for joining us today. I know it's a busy day for many of you. Look forward to catching up over the coming weeks to discuss the result in further detail. Have a good day.