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Annual Report
2015
Creating Value
DEXUS
AnnuAl REPORT 2015
CONTENTS
Chair and CEO Review
Board of Directors
Corporate Governance Statement
Directors’ Report
Auditor’s Independence Declaration
1
4
6
18
47
Consolidated Statement of Comprehensive Income 48
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
About this Report
49
50
52
53
55
Notes to the Financial Statements
Group Performance
55
Property Portfolio Assets
65
Capital and Financial Risk and Working Capital 72
Other Disclosures
86
Directors’ Declaration
Independent Auditor’s Report
Additional Information
Investor Information
Key ASX Announcements
93
94
96
98
100
DEXUS Property Group (DXS) (ASX Code: DXS)
consists of DEXUS Diversified Trust (DDF) (ARSN
089 324 541), DEXUS Industrial Trust (DIT), DEXUS
Office Trust (DOT) and DEXUS Operations Trust (DXO),
collectively known as DXS or the Group.
The registered office of the Group is Level 25,
Australia Square, 264-278 George Street, Sydney,
NSW 2000.
Under Australian Accounting Standards, DDF has
been deemed the parent entity for accounting
purposes. Therefore the DDF consolidated Financial
Statements include all entities forming part of DXS.
All ASX and media releases, Financial Statements
and other information are available on our website:
www.dexus.com
2015 ANNUAL REPORTING SUITE
1
3
2
4
DEXUS Property Group presents its 2015 Annual
Reporting Suite for the year ended 30 June 2015,
demonstrating how it manages its financial and non
financial performance in line with its strategy.
1. The 2015 DEXUS Annual Review
An integrated report summarising financial, operational
and Corporate Responsibility and Sustainability (CR&S)
performance. This report should be read in conjunction
with the DEXUS 2015 Annual Report.
2. This 2015 DEXUS Annual Report
Provides DEXUS’s Consolidated Financial Statements,
Operating and Financial Review, Corporate Governance
Statement and Board of Directors information. This
report should be read in conjunction with the
2015 DEXUS Annual Review.
3. The 2015 DEXUS Combined Financial Statements
Comprises the Financial Statements of DEXUS Industrial
Trust, DEXUS Office Trust and DEXUS Operations Trust.
This report should be read in conjunction with the 2015
DEXUS Annual Report and Annual Review.
4. The 2015 DEXUS Performance Pack
Provides the data and detailed information supporting
the results outlined in the 2015 DEXUS Annual Review
and is available in the online Annual Reporting Suite,
at www.dexus.com.
The Annual Reporting Suite is available in hard copy by email
request to ir@dexus.com or by calling +61 1800 819 675.
1
Achieved a distribution of 41.04 cents
per security, an increase on FY14 of
9.3%
DEXUS Office Partnership portfolio
delivered an unlevered total return
for 12 months to 30 June 2015
12.7%
During the year, we leveraged our diverse capabilities to:
§ Improve the performance of our property portfolio
§ Drive the performance of, and generate revenue from, our funds
management business
§ Deliver trading profits from identified trading opportunities
In our property portfolio we focused on maximising cash flow by working
closely with new and existing customers to secure great leasing outcomes
throughout the year, increasing office portfolio occupancy to 95.3%. We created
value through meeting the needs of a diverse range of customers, including
expanding our fitted suites offering to attract small to medium businesses.
In our third party funds management business, we transacted properties
and progressed the development pipeline to satisfy the investment plans of our
clients, growing third party funds under management by 10% to $9.6 billion.
We also progressed plans to enhance the retail space at the base of our office
buildings to improve customer amenity and enhance returns.
In our trading business, we delivered an improved after tax profit of
$42.6 million driven by settlements of properties that we had actively
repositioned. We also made progress on replenishing the trading pipeline
for future years.
Chair and CeO review
DEXUS Property Group delivered
strong results across key business
areas in 2015, ensuring it is well
positioned to continue to create
value for investors.
We are pleased to present the 2015 Annual Review
for DEXUS Property Group.
DEXUS has had a successful 12 months, reflecting our determination
to create value at every level of our operations and ensuring we are
well-positioned to continue to create value for investors.
DEXUS’s performance during the year has met or exceeded all of our
financial objectives.
We delivered on the upgraded guidance for our FFO and distribution
per security, which both increased 9.3% on the prior year and
contributed to the average growth in distributions per security of
8.6% per annum since FY12.
DEXUS’s net profit increased 52.2% to $618.7 million. Return On
Equity1 for the 12 months to 30 June 2015 was 11.5%, above our
target of 9–10% per annum through the cycle, and ahead of the prior
year which was impacted by the CPA transaction.
MARkET CONDiTiONS
Our strong financial outcomes were achieved in a market characterised
by mixed economic news, both domestically and globally. Office
markets are showing early signs of improvement, particularly in the
Sydney and Melbourne CBDs, however the recovery in the Brisbane
and Perth markets remains subdued.
Investment demand for Australian real estate remains strong, despite
volumes having tapered off from the record levels seen at the end of
2014 due to the limited amount of available stock. In this competitive
market, we successfully acquired and divested properties on balance
sheet and for our third party clients.
DELivERiNg ON STRATEgy
Our strategy continues to deliver for investors and in FY15 we further
positioned DEXUS as a leader in the Australian real estate sector.
Our people remained focused on enhancing returns for investors
and creating value through our four strategic objectives:
§ To be the leader in office
Investing in and developing properties and spaces that our
customers want to occupy
§ To have the best core capabilities
Utilising our core capabilities to constantly improve the levels
of service and amenity we provide to our customers
§ To be the wholesale partner of choice
Partnering with third parties to grow in core markets and
attract expertise
§ To actively manage capital and risk Maintaining a conservative
approach to financial and operational risk
1. Return on equity is calculated as the growth in NTA per security plus the distribution
paid/payable per security divided by the opening NTA per security.
2015 dexus annual rePOrT 2
Chair and CEO Review
Continued
STRONg RETURNS FROM COMMONwEALTh PROPERTy OFFiCE FUND TAkEOvER
FOCUS ON ThE CUSTOMER
We have made it a priority to increase our understanding of our
customers and their needs, providing workspace solutions for a
diverse range of customers. In office, we continued to deliver on
our fitted suites offering to capture demand from a rising number of
small to medium sized businesses. We also introduced a number of
initiatives to enhance the customer experience.
Our active leasing approach resulted in the leasing of almost 400,000
square metres of space across the DEXUS portfolio, representing a
25.6% increase in leasing volumes compared to the prior year.
CREATiNg vALUE ThROUgh DEvELOPMENT
Our key office developments at 5 Martin Place in Sydney and Kings
Square in Perth will enhance the quality of our office portfolio and
contribute to future growth. The Kings Square development project
is nearing completion and Ashurst moved into 5 Martin Place in
July 2015.
CREATiNg A high PERFORMANCE CULTURE
We create value through leveraging the expertise of our people and invest
in their development so they can perform at their best. Over the year, we
invested in leadership and training programs to further develop our high
performance culture. We also provided opportunities for our people to
move to different areas within the business to bring fresh ways of thinking
into how we do business, and awarded more than 15% of new job roles
to internal applicants.
It is important to us that we maintain an inclusive and diverse culture
as we believe diversity enables our people to make better informed
decisions. During the year we introduced a new superannuation
framework for parental leave to assist in closing the superannuation
gender gap. We have also progressed diversity targets.
DRiviNg bUSiNESS EXCELLENCE AND
hARNESSiNg iNNOvATiON ACROSS ThE gROUP
As traditional business models continue to be challenged, we have
set innovation as a fundamental driver of business excellence.
We recognise that developing a culture of innovation to drive new
products and processes is essential to the continual strengthening of
our competitive position.
A great example of DEXUS innovation in action was the launch of
DEXUS Place, a state-of-the-art premium meeting, training and
conference facility. The facility was created following extensive
market research and is specifically tailored to meet the needs of our
customers for on-demand access to quality meeting space. Our first
facility is located at One Margaret Street in Sydney and we have plans
to replicate the facility in Melbourne and Brisbane.
In an effort to ensure a clear approach to how innovation is harnessed,
a framework has been created to systematically prioritise and evaluate
ideas generated within the business. This framework is overseen by
our Innovation Forum comprising members of the Group Management
Committee and chaired by the CEO.
Along with innovation we have also worked hard to instil a culture of
continuous improvement to achieve operational efficiencies in the way we
work. During the year we launched a mechanism to capture ideas from
the business and enable improvements to be shared across the Group.
This has had the benefits of reducing costs and saving time.
We realised value from the takeover of Commonwealth Property Office
Fund (CPA), by acting on identified opportunities in the portfolio. The
DEXUS Office Partnership2 portfolio delivered an unlevered total return
12.7% for the 12 months to 30 June 2015. DEXUS’s investment in the
Office Partnership delivered a 20.4% levered return to DEXUS for the year.
DELivERiNg SOLiD SECURiTy hOLDER RETURNS
DEXUS has outperformed the A-REIT index by 190 basis points over the
past five years. While DEXUS underperformed the A-REIT index over one
and three year periods, it has delivered solid total security holder returns
of 15.8% per annum over both of these periods.
As at 30 June 2015
DEXUS
S&P/ASX 200 Property
Accumulation Index
20.3%
18.4%
15.8%
15.8%
16.2%
14.3%
1 Year
3 Years
5 Years
Source: UBS Securities Australia 2015
MAiNTAiNiNg A STRONg bALANCE ShEET
In a competitive market, we sourced and secured new opportunities where
we saw potential to add value to our portfolio or satisfy the objectives of our
third party clients. We conducted these activities while maintaining a strong
balance sheet, with gearing of 28.5% at 30 June 2015.
The strength of DEXUS’s balance sheet was enhanced through an equity
raising in April that included a $400 million institutional placement, and a
Security Purchase Plan for eligible security holders which raised a further
$77.8 million. This equity raising enabled DEXUS to pursue compelling
acquisition opportunities while maintaining low gearing.
Including the divestment of non-strategic and trading properties, we
undertook $2 billion of transactions across the office, industrial and
retail sectors.
Our acquisition of Lakes Business Park, in Botany in January 2015
presents an opportunity to create value though a dual strategy to
enhance value and advance a trading opportunity.
In June 2015, we announced that DEXUS and DEXUS Wholesale
Property Fund (DWPF) had entered into a conditional agreement to
jointly acquire Waterfront Place and Eagle Street Pier in Brisbane
(Waterfront Place Complex) for a total price of $635 million3, building
on our established presence in the Brisbane CBD office market and
enabling us to leverage our expertise in a market where we have been
able to demonstrate leasing success.
We continued to improve the diversification, duration and cost of our debt
through accessing a market we know well, raising $250 million through a
US Private Placement issue.
2. DEXUS executed the $3.7 billion takeover of Commonwealth Property Office Fund
in April 2014 and formed the DEXUS Office Partnership with its capital partner,
Canada Pension Plan Investment Board.
3. Excluding acquisition costs.
3
This should result in a more competitive transactional landscape which
will provide potential upside for our property values. Consequently, we
will continue to recycle properties and selectively invest in opportunities
where we have high conviction.
Looking ahead to FY16, we will continue to create value and position
the Group for future growth by maximising the performance of our core
property portfolio.
Our business has a strong leadership team, supported by outstanding
people. On behalf of the Board, we would like to thank our employees
around Australia for their dedication and hard work in delivering
these results.
Barring unforeseen changes to operating conditions, DEXUS’s guidance1
for the 12 months ending 30 June 2016 is for FFO per security growth
of 5.5–6.0%, with FFO from the underlying business (excluding trading
profits net of tax) expected to grow by 3.0–3.5%.
Distributions will be paid in line with free cash flow, to deliver growth
in distribution per security of 5.5–6.0% for the 12 months ending
30 June 2016.
Additional information on our financial and operational performance
is provided in the 2015 DEXUS Annual Review which is available at
www.dexus.com/annualreview2015 or by emailing ir@dexus.com
to request a printed copy.
Finally, we would like to thank you, our security holders, for your
continued support. We are committed to building on DEXUS’s strong
foundations and delivering superior risk- adjusted returns.
Chris Beare
Chair
Darren Steinberg
CEO
11 August 2015
SUSTAiNAbiLiTy APPROACh
The way we look at sustainability continues to evolve to respond
to new perspectives. During the year, after consulting with our key
stakeholders, we revised our sustainability approach to embrace the
broader ecosystem in which we operate.
Through our new approach we continue to set commitments targeting
our people, community, environment and customers, with ‘cities’
introduced as a new area of focus. Recognising the role we play in
creating leading cities, we continued to position our portfolio to be
successful in a low carbon economy, while monitoring the current
international debate on climate change for potential local impacts.
bOARD OF DiRECTORS
The Board renewal process over the past few years has produced
a strong Board of Directors with a broad and diverse skill set. There
were no changes to the Board this year, with the Board comprising
seven non-executive directors and two executive directors. Further
details relating to the Board are included in the Corporate Governance
Statement in this Annual Report.
ANNUAL gENERAL MEETiNg
Our Annual General Meeting (AGM) was held at our head office at
Australia Square in October 2014. All resolutions were passed. Post
the AGM, a number of investors took the opportunity to tour two of
our Premium properties, Governor Phillip Tower at 1 Farrer Place,
and 1 Bligh Street in Sydney.
OUTLOOk AND FUTURE PRiORiTiES
The economic outlook for the year ahead remains subdued, with the
economy expected to grow at a similar rate in FY16. Over the next year,
the economies of New South Wales and Victoria are likely to outperform
other states. Queensland will remain a two-tier office market and
Western Australia’s economic performance will lag as it recovers from
the end of the mining boom.
Positive leasing momentum is expected to continue in Sydney and
Melbourne, where the majority of our properties are located, as positive
business confidence supports a mild improvement in tenant demand.
However, rental growth prospects remain relatively subdued in FY16
due to the availability of new supply.
Investment demand is expected to remain high for quality office
properties in our core markets of Sydney, Melbourne, Brisbane
and Perth.
1. Barring unforeseen circumstances guidance is supported by the following assumptions: flat
like-for-like income across the DEXUS combined portfolio, weighted average cost of debt of
circa 4.9%, trading profits of approximately $60m net of tax, Management Operations FFO
of $45-50m (including third party development management fees), approximately $150m
net proceeds from non-core property divestments during FY16, excluding any buy-back of
DEXUS securities, and excluding any further transactions.
2015 dexus annual rePOrT 4
Board of Directors
ChRiSTOPhER T bEARE
Chair and Independent Director
BSc, BE (Hons), MBA, PhD, FAICD
Chris Beare is both the Chair and an Independent Director of DEXUS Funds Management Limited. He is also
Chair of the Board Nomination Committee and a member of the Board People & Remuneration Committee.
Chris has significant experience in international business, technology, strategy, finance and management.
Previously Chris was Executive Director of the Melbourne based Advent Management venture capital firm prior
to joining investment bank Hambros Australia in 1991. Chris became Head of Corporate Finance in 1994 and
joint Chief Executive in 1995, until Hambros was acquired by Société Générale in 1998. Chris remained a Director
of SG Australia until 2002. From 1998 onwards, Chris helped form Radiata, a technology start-up in Sydney and
Silicon Valley, and as Chair and Chief Executive Officer, Chris steered it to a successful sale to Cisco Systems in
2001 and continued part time for four years as Director Business Development for Cisco. Chris has previously
been a director of a number of companies in the finance, infrastructure and technology sectors.
ELizAbETh A ALEXANDER AM
Independent Director
BComm, FCA, FAICD, FCPA
Elizabeth Alexander is an Independent Director of DEXUS Funds Management Limited, Chair of DEXUS Wholesale
Property Limited and a member of the Board Audit Committee.
Elizabeth is the Chair of Medibank and the Chancellor of the University of Melbourne.
Elizabeth brings to the Board extensive experience in accounting, finance, corporate governance and risk
management and was formerly a partner with PricewaterhouseCoopers. Elizabeth’s previous appointments
include National Chair of the Australian Institute of Company Directors, National President of the Australian
Society of Certified Practising Accountants, Deputy Chairman of the Financial Reporting Council and a member
of the Takeovers Panel. Elizabeth was previously Chair of CSL and Director of Amcor and Boral.
PENNy biNghAM-hALL
Independent Director
BA (Industrial Design), FAICD, SF (Fin)
Penny Bingham-Hall is an Independent Director of DEXUS Funds Management Limited and a member of the
Board Risk Committee and Board People & Remuneration Committee.
Penny is a Non-executive Director of BlueScope Steel Limited, Port Authority of NSW, SCEGGS Darlinghurst
Limited and Taronga Conservation Society Australia. She is also an independent director of Macquarie Specialised
Asset Management Limited.
Penny has broad industry experience having spent more than 20 years in a variety of senior management roles
with Leighton Holdings Limited including Executive General Manager Strategy, responsible for the Group’s overall
business strategy and Executive General Manager Corporate, responsible for business planning, corporate
affairs including investor relations and governance systems. Penny is a former director of the Australian Postal
Corporation and the Global Foundation (a member-based organisation promoting high-level thinking within
Australia and cooperation between Australia and the world). She also served as the inaugural Chair of Advocacy
Services Australia Limited (a not-for-profit organisation promoting the interests of the Australian tourism, transport,
infrastructure and related industries) from 2008 to 2011.
JOhN C CONDE AO
Independent Director
BSc, BE (Hons), MBA
John Conde is an Independent Director of DEXUS Funds Management Limited, Chair of the Board People
& Remuneration and a member of the Board Nomination Committee.
John is the Chairman of Bupa Australia Holdings Pty Limited, Cooper Energy Limited and the McGrath Foundation.
John is President of the Commonwealth Remuneration Tribunal and Deputy Chairman of Whitehaven Coal Limited.
John is also Chairman of the Australian Olympic Committee (NSW) Fundraising Committee.
John brings to the Board extensive experience across diverse sectors including commerce, industry and
government. John was previously Chairman of Ausgrid (formerly EnergyAustralia), Destination NSW and the
Sydney Symphony Orchestra. He was Director of BHP Billiton and Excel Coal Limited, Managing Director of
Broadcast Investment Holdings Pty Limited, Director of Lumley Corporation and President of the National Heart
Foundation of Australia.
5
TONiANNE DwyER
Independent Director
BJuris (Hons), LLB (Hons)
Tonianne Dwyer is an Independent Director of DEXUS Funds Management Limited and DEXUS Wholesale
Property Limited, Chair of the Board Risk Committee and a member of the Board Audit Committee.
Tonianne is a Director of Cardno Limited, Metcash Limited and Queensland Treasury Corporation. She is also
a member of the Senate of the University of Queensland.
Tonianne brings to the Board significant experience as a company director and executive working in listed
property, funds management and corporate strategy across a variety of international markets.
Tonianne was a Director from 2006 until 2010 of Quintain Estates and Development – a listed United Kingdom
property company comprising funds management, investment and urban regeneration – and was Head of Funds
Management from 2003. Prior to joining Quintain, Tonianne was a Director of Investment Banking at Hambros
Bank, SG Cowen and Societe Generale based in London. Tonianne also held directorships on a number of
boards associated with Quintain’s funds management business including the Quercus, Quantum and iQ Property
Partnerships and the Bristol & Bath Science Park Stakeholder Board.
CRAig D MiTChELL
Executive Director Finance & Chief Operating Officer
BComm, MBA (Exec), FCPA, HBS (AMP)
Craig is Executive Director Finance and Chief Operating Officer (COO) of DEXUS Property Group and an Executive
Director of DEXUS Funds Management Limited.
Craig is responsible for operational and strategic finance, accounting, tax, treasury and IT and in his role as COO,
is responsible for third party funds management and DEXUS’s retail property portfolio.
Craig has more than 20 years of financial management and accounting experience, with over 15 years specialising
in the property industry. Craig previously held positions with Stockland Group and Westfield.
Craig has a Masters of Business Administration (Executive) from the Australian Graduate School of Management,
a Bachelor of Commerce and is a Fellow of CPA Australia. He has also completed the Advanced Management
Program at Harvard University, Boston.
RiChARD ShEPPARD
Independent Director
BEc Hons, FAICD
Richard Sheppard is an Independent Director of DEXUS Funds Management Limited, Chair of the Board Audit
Committee and a member of the Board Risk Committee.
Richard is the Chairman of Green State Power Pty Ltd, a Director of Snowy Hydro Limited and Echo Entertainment
Group, and a Treasurer of the Bradman Foundation.
Richard brings to the DEXUS Board extensive experience in banking and finance and as a director and Chairman
of listed and unlisted property trusts. He was Managing Director and Chief Executive Officer of Macquarie Bank
Limited and Deputy Managing Director of Macquarie Group Limited from 2007 until late 2011.
Following seven years at the Reserve Bank of Australia, Richard joined Macquarie Group’s predecessor, Hill
Samuel Australia in 1975, initially working in Corporate Finance. He became Head of the Corporate Banking
Group in 1988 and headed a number of the Bank’s major operating Groups, including the Financial Services
Group and the Corporate Affairs Group. He was a member of the Group Executive Committee since 1986 and
Deputy Managing Director since 1996. Richard was also Chairman of the Australian Government’s Financial Sector
Advisory Council, Macquarie Group Foundation and Eraring Energy.
PETER b ST gEORgE
Independent Director
CA(SA), MBA
Peter is an Independent Director of DEXUS Funds Management Limited and a member of the Board Audit
Committee and Board Risk Committee.
Peter is a Director of First Quantum Minerals Limited (listed on the Toronto Stock Exchange and London Stock Exchange).
Peter has more than 20 years’ experience in senior corporate advisory and finance roles within NatWest Markets
and Hill Samuel & Co in London. Peter acted as Chief Executive/Co-Chief Executive Officer of Salomon Smith
Barney Australia/NatWest Markets Australia from 1995 to 2001. Peter was previously a Director of Boart Longyear,
Spark Infrastructure Group, its related companies and SFE Corporation Limited.
DARREN J STEiNbERg
Chief Executive Officer and Executive Director
BEc, FAICD, FRICS, FAPI
Darren Steinberg is the CEO of DEXUS Property Group and an Executive Director of DEXUS Funds Management Limited.
Darren has over 25 years’ experience in the property and funds management industry with an extensive
background in office, industrial and retail property investment and development.
Darren has a Bachelor of Economics from the University of Western Australia. Darren is a Director and the former
National President of the Property Council of Australia, a Fellow of the Australian Institute of Company Directors,
Royal Institution of Chartered Surveyors and the Australian Property Institute.
2015 dexus annual rePOrT 6
Corporate Governance statement
ASX CORPORATE gOvERNANCE COUNCiL PRiNCiPLES AND RECOMMENDATiONS RECONCiLiATiON
The Corporate Governance Statement is accurate and up to date as at 11 August 2015 and has been approved by the Board on 29 July 2015.
The following reconciliation of the ASX Corporate Governance Principles & Recommendations with 2014 Amendments – Third Edition
(ASX Principles) against DEXUS’s governance framework discloses how DEXUS meets each of the ASX Principles.
ASX Principles
Reference Comply
Principle 1 – Lay solid foundations for management and oversight
1.1
1.2
1.3
1.4
1.5
A listed entity should disclose:
(a)
(b)
the respective roles and responsibilities of its board and management, and
those matters expressly reserved to the board and those delegated to management
A listed entity should:
(a) undertake appropriate checks before appointing a person, or putting forward to security holders
a candidate for election, as a director, and
(b) provide security holders with all material information in its possession relevant to a decision on
whether or not to elect or re-elect a director
A listed entity should have a written agreement with each director and senior executive setting out the terms
of their appointment.
The company secretary of a listed entity should be accountable directly to the board, through the chair,
on all matters to do with the proper functioning of the board.
A listed entity should:
(a) have a diversity policy which includes requirements for the board or a relevant committee of the
board to set measurable objectives for achieving gender diversity and to assess annually both the
objectives and the entity’s progress in achieving them
Page 9
1.1 – 1.5
2.4
Notice of
Meeting
2.4
1.4
3.6
(b) disclose that policy or a summary of it, and
(c) disclose as at the end of each reporting period the measurable objectives for achieving gender
diversity set by the board or a relevant committee of the board in accordance with the entity’s
diversity policy and its progress towards achieving them, and either:
i.
the respective proportions of men and women on the board, in senior executive positions and
across the whole organisation (including how the entity has defined ‘senior executive’ for these
purposes), or
if the entity is a ‘relevant employer’ under the Workplace Gender Equality Act, the entity’s most
recent ‘Gender Equality Indicators’, as defined in and published under that Act
ii.
1.6
A listed entity should:
(a) have and disclose a process for periodically evaluating the performance of the board, its committees
2.9
and individual directors, and
(b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in
the reporting period in accordance with that process
1.7
A listed entity should:
(a) have and disclose a process for periodically evaluating the performance of its senior executives, and
(b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in
Remuneration
Report
the reporting period in accordance with that process
Principle 2 – Structure of the board to add value
2.1
The board of a listed entity should:
(a) have a nomination committee which:
Pages 9-13
2.8
i.
ii.
iii.
iv.
v.
has at least three members, a majority of whom are independent directors, and
is chaired by an independent director, and disclose
the charter of the committee
the members of the committee, and
as at the end of each reporting period, the number of times the committee met throughout the
period and the individual attendances of the members at those meetings, or
(b)
if it does not have a nomination committee, disclose that fact and the processes it employs to
address board succession issues and to ensure that the board has the appropriate balance of
skills, knowledge, experience, independence and diversity to enable it to discharge its duties and
responsibilities effectively
2.2
A listed entity should have and disclose a board skills matrix setting out the mix of skills and diversity that
the board currently has or is looking to achieve in its membership
2.1
ASX Principles
2.3
2.4
2.5
2.6
A listed entity should disclose:
(a)
(b)
the names of the directors considered by the board to be independent directors
if a director has an interest, position, association or relationship of the type described in Box 2.3 but
the board is of the opinion that it does not compromise the independence of the director, the nature
of the interest, position, association or relationship in question and an explanation of why the board
is of that opinion, and
the length of service of each director
(c)
A majority of the board of a listed entity should be independent directors.
The chair of the board of a listed entity should be an independent director and, in particular, should not be
the same person as the CEO of the entity.
A listed entity should have a program for inducting new directors and provide appropriate professional
development opportunities for directors to develop and maintain the skills and knowledge needed to perform
their role as directors effectively.
Principle 3 – Act ethically and responsibly
3.1
A listed entity should:
(a) have a code of conduct for its directors, senior executives and employees, and
(b) disclose that code or a summary of it
Principle 4 – Safeguard integrity in corporate reporting
4.1
The board of a listed entity should:
(a) have an audit committee which:
(1) has at least three members, all of whom are non-executive directors and a majority of whom are
7
Reference Comply
2.3
2.2 and 2.3
2.2 and 2.3
2.4
Pages 14-15
3.1
Page 15
4.1
independent directors, and
is chaired by an independent director, who is not the chair of the board,
(2)
and disclose:
(3)
(4)
(5)
the charter of the committee
the relevant qualifications and experience of the members of the committee, and
in relation to each reporting period, the number of times the committee met throughout the
period and the individual attendances of the members at those meetings, or
(b)
if it does not have an audit committee, disclose that fact and the processes it employs that
independently verify and safeguard the integrity of its corporate reporting, including the
processes for the appointment and removal of the external auditor and the rotation of the audit
engagement partner
4.2
The board of a listed entity should, before it approves the entity’s financial statements for a financial
period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity
have been properly maintained and that the financial statements comply with the appropriate accounting
standards and give a true and fair view of the financial position and performance of the entity and that the
opinion has been formed on the basis of a sound system of risk management and internal control which is
operating effectively.
4.3
A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available
to answer questions from security holders relevant to the audit.
Principle 5 – Make timely and balanced disclosure
5.1
A listed entity should:
(a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules,
and
(b) disclose that policy or a summary of it
Principle 6 – Respect the rights of security holders
4.1
6.1
Page 16
5.1
Page 16
6.1
6.2
6.3
6.4
A listed entity should provide information about itself and its governance to investors via its website.
www.dexus.com
A listed entity should design and implement an investor relations program to facilitate effective two-way
communication with investors.
A listed entity should disclose the policies and processes it has in place to facilitate and encourage
participation at meetings of security holders.
A listed entity should give security holders the option to receive communications from, and send
communications to, the entity and its security registry electronically.
6.2
6.2
6.2
2015 dexus annual rePOrT 8
Corporate Governance Statement
Continued
ASX CORPORATE gOvERNANCE COUNCiL PRiNCiPLES AND RECOMMENDATiONS RECONCiLiATiON (CONTINUED)
ASX Principles
Principle 7 – Recognise and manage risk
7.1
The board of a listed entity should:
(a) have a committee or committees to oversee risk, each of which:
Reference Comply
Page 17
7.1
i.
ii.
iii.
iv.
v.
has at least three members, a majority of whom are independent directors, and
is chaired by an independent director, and disclose
the charter of the committee
the members of the committee, and
as at the end of each reporting period, the number of times the committee met throughout the
period and the individual attendances of the members at those meetings, or
(b)
if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the
processes it employs for overseeing the entity’s risk management framework
The board or a committee of the board should:
(a) review the entity’s risk management framework at least annually to satisfy itself that it continues to be
7.1 and 7.2
7.2
7.3
7.4
sound, and
(b) disclose, in relation to each reporting period, whether such a review has taken place
A listed entity should disclose:
(a)
(b)
if it has an internal audit function, how the function is structured and what role it performs, or
if it does not have an internal audit function, that fact and the processes it employs for evaluating
and continually improving the effectiveness of its risk management and internal control processes
A listed entity should disclose whether it has any material exposure to economic, environmental and social
sustainability risks and, if it does, how it manages or intends to manage those risks.
Principle 8 – Remunerate fairly and responsibly
8.1
The board of a listed entity should:
(a) have a remuneration committee which:
(1) has at least three members, a majority of whom are independent directors, and
(2)
(3)
(4)
(5) as at the end of each reporting period, the number of times the committee met throughout the
is chaired by an independent director, and disclose
the charter of the committee
the members of the committee, and
period and the individual attendances of the members at those meetings, or
(b)
if it does not have a remuneration committee, disclose that fact and the processes it employs for
setting the level and composition of remuneration for directors and senior executives and ensuring
that such remuneration is appropriate and not excessive
7.3
7.2
Page 17
8.1
8.2
8.3
A listed entity should separately disclose its policies and practices regarding the remuneration of
non-executive directors and the remuneration of executive directors and other senior executives.
A listed entity which has an equity-based remuneration scheme should:
(a) have a policy on whether participants are permitted to enter into transactions (whether through the
use of derivatives or otherwise) which limit the economic risk of participating in the scheme, and
Remuneration
Report
Remuneration
Report
(b) disclose that policy or a summary of it
DEXUS Funds Management Limited (DXFM) is the Responsible Entity of each of the four Trusts that comprise DEXUS Property Group (DEXUS).
DXFM is also responsible for management of the Group’s third party funds.
The Board implements a corporate governance framework that applies to all DXFM funds, the DEXUS Wholesale Property Fund (DWPF), capital
partner investments and mandates.
The Board has determined that good corporate governance supports:
§ a culture of ethical behaviour resulting in an organisation that acts with integrity
§
improved decision making processes
§ better controls and risk management
§
improved relationships with stakeholders
§ accountability and transparency
The framework meets the requirements of the ASX Corporate Governance Principles and Recommendations (third edition) (ASX Principles), and
addresses additional aspects of governance which the Board considers important. To assist stakeholders in accessing key documents outlining
our approach to corporate governance, DEXUS maintains a Corporate Governance page on its website www.dexus.com/corporategovernance.
The website is updated throughout the year, as policies and procedures are reviewed.
9
PRiNCiPLE 1 – LAy SOLiD FOUNDATiONS FOR MANAgEMENT
AND OvERSighT
1.1 Roles and responsibilities
As DEXUS comprises four real estate investment trusts, its corporate
governance practices satisfy the requirements relevant to unit trusts.
The Board has determined that the governance framework will also
meet the highest standards of a publicly listed company. This includes
the convening of an Annual General Meeting, the appointment of
directors by DEXUS security holders and their consideration of its
remuneration report.
1.4 Company Secretaries
Company Secretaries play an important role in supporting the
effectiveness of the Board and Board Committees. Company
Secretaries are responsible for ensuring the smooth running
of the Boards and Board Committees and governance matters
are appropriately addressed. They are accountable directly to the
CEO, the Chair of the Board and the Chairs of the Board Committees
on all matters relating to the proper functioning of the Board and
its Committees.
All directors have direct access to the Company Secretaries for
guidance and assistance.
1.2 Board responsibilities
The framework ensures accountability and a balance of authority by
defining the respective roles and responsibilities of the Board and
executive management (as outlined in the Terms of Reference for
the Board and the Group Management Committee). This enables
the Board to maintain a focus of strategic guidance while exercising
effective oversight.
1.5 Group Management Committee responsibilities
The Board has appointed a Group Management Committee responsible
for achieving DEXUS’s goals and objectives, including the prudent
financial and risk management of the Group. The Group Management
Committee generally meets weekly.
Members of the Group Management Committee during 2015 were:
Terms of Reference for the Board and its delegated Committees are
available at www.dexus.com/boardcommittees
§ Chief Executive Officer & Executive Director
§ Deputy Chief Financial Officer*
The Board’s responsibilities include (but are not limited to):
§ Executive Director Finance & Chief Operating Officer
§ Determining strategy, including reviewing and approving DEXUS’s
§ Executive General Manager, Investor Relations, Marketing
business objectives and strategies to achieve them. These
objectives inform the setting of performance targets for the
Chief Executive Officer and the Group Management Committee
members. Performance against these objectives is reviewed
by the Board People & Remuneration Committee and is a
primary input to the remuneration review of Group Management
Committee members
§ Approving the annual business plan
§ Approving periodic market guidance
§ Approving the financial statements and disclosures
§ Approving significant acquisitions and divestments and major
developments
§ Ensuring that DEXUS has in place an appropriate Risk
Management Framework (including a Risk Appetite Statement)
to support the company’s risk policies
§ Ensuring that DEXUS’s fiduciary and statutory obligations to
stakeholders (including third party clients, and capital partners)
are met
The Board is also responsible for appointing and removing the Chief
Executive Officer and Company Secretaries, ratifying the appointment
of the Executive Director, Finance & Chief Operating Officer and
monitoring the performance of the Group Management Committee.
1.3 The Role of the Chair
The role and responsibility of the Chair includes leading the
Board, facilitating the effective contribution of all directors, and
promoting constructive and respectful relations between directors
and between the Board and management. The Chair is also
responsible for promoting the interests of the Group to its
security holders and regulators.
The Chair of the DXFM Board, Chris Beare, is a Non-Executive
Director. Mr Beare is also Chair of FlexiGroup Limited. The Board
is satisfied that Mr Beare commits the appropriate time necessary
to serve the DXFM Board and DEXUS.
& Communications
§ Executive General Manager, Office & Industrial
§ Executive General Manager, People & Property Services
§ Executive General Manager, Strategy, Transactions & Research
§ General Counsel & Company Secretary
* The Deputy Chief Financial Officer commenced employment at DEXUS on 12 January 2015.
PRiNCiPLE 2 – STRUCTURE ThE bOARD TO ADD vALUE
2.1 DEXUS corporate governance structure
During 2014, DEXUS undertook a detailed review of its Committee
structure, analysing the existing structure against the ASX Principles
and best practice. It resulted in the implementation of a streamlined
Board Committee structure from 1 September 2014 with the following
Committees established to support the Board in discharging its
responsibilities:
§ Board Audit Committee
§ Board Nomination Committee
§ Board People & Remuneration Committee
§ Board Risk Committee
Board Committee membership and responsibilities are revised
regularly to ensure maximum effectiveness. The Terms of Reference
for the DEXUS Board and the Board Committees are reviewed at
least annually.
Non-Executive Directors have a standing invitation to attend any
or all Board Committee meetings. Each Board Committee meeting
has a standing agenda item to identify improvements to reporting
or processes that would benefit the Committee, as well as any
items that require immediate reference to the Board or a regulator
(where applicable).
2015 dexus annual rePOrT 10
Corporate Governance Statement
Continued
PRiNCiPLE 2 – STRUCTURE ThE bOARD TO ADD vALUE (CONTINUED)
2.1 DEXUS corporate governance structure (continued)
The Board and Board Committees are supported by Management Committees.
Chris Beare
Chair
To lead and guide the Board
The Board
1 Non-executive Chair
6 Non-executive Directors
2 Executive Directors
To ensure that the fiduciary
and statutory obligations to its
Investors are met. Meets at least
eight times a year.
Board Risk Committee
T Dwyer (Chair)
Board Audit Committee
R Sheppard (Chair)
Board Nomination Committee
C Beare (Chair)
Board People & Remuneration
Committee
J Conde (Chair)
4 Non-executive Directors
4 Non-executive Directors
3 Non-executive Directors
3 Non-executive Directors
To assist the Board, DWPL and
DEXUS’s third party clients and
capital partners in fulfilling their
responsibilities as they relate
to risk management (including
Work, Health & Safety),
compliance management,
internal audit, and sustainability
practices and procedures. Meets
at least four times a year.
To assist the Board in fulfilling
its responsibilities by reviewing
the integrity and quality of the
Group’s financial statements and
disclosures including auditing,
accounting and financial
reporting processes. Meets at
least four times a year.
To assist the Board in fulfilling its
responsibilities by overseeing all
aspects of the Board nomination
and performance evaluation.
Meets at least twice a year.
To assist the Board in fulfilling
its responsibilities by overseeing
all aspects of Director, Group
Management Committee
(‘GMC’) and Key Management
Personnel remuneration and
also oversees aspects of human
resources management. Meets
at least four times a year.
Group Management Committee
D Steinberg (Chair)
1 CEO & Executive Director
1 Exec. Director Finance & COO
6 Executive General Managers
To ensure that the financial
and human resources of DXFM
are efficiently and effectively
employed in the achievement
of its operational and strategic
objectives. Meets weekly,
or as required.
Management Committees
Group Management Committee
Capital Markets Committee
Compliance, Risk & Sustainability Committee
Continuous Disclosure Committee
Corporate Responsibility, Inclusion & Diversity Committee
Innovation Committee
Investment Committee
Project Prioritisation Committee
11
Board skills matrix
The Board Nomination Committee is responsible for reviewing the size, composition, diversity, skill and desired competencies of the Board and
Board Committees (and recommending approval by the Board).
The Committee has identified the skills and expertise deemed necessary for the Board to fulfil its obligations.
The following table outlines the required skills and expertise that the DEXUS Board should possess.
Areas of skills & expertise
LEADERSHIP
§ Directorship experience (past & present)
§ Senior management experience (past & present)
CAPITAL & FUNDS MANAGEMENT
§ Experience in the dynamics of raising capital and investment banking
§ Experience in the management of third party funds
FINANCE & ACCOUNTING
§ Experience in analysing accounting material & financial statements and assessing financial viability
§ Experience in understanding financial drivers/funding and business models
GOVERNANCE
§ Experience with corporate governance and standards of complex organisations
§ Ability to assess and commitment to ensure the effectiveness of governance structures
PEOPLE MANAGEMENT & REMUNERATION
§ Ability to manage people and influence organisational culture
§ Experience in relation to remuneration and the legislation/framework governing remuneration
PROPERTY EXPERIENCE (INCLUDING DEVELOPMENTS)
§ Experience and industry knowledge in the management of properties including property development
§ Understanding of stakeholder needs and industry trends
RISK MANAGEMENT
§ Experience in managing areas of major risk to the organisation
§ Experience in workplace health & safety, environmental & community, social responsibility and technology matters affecting organisations
STRATEGY
§ Experience in mergers & acquisitions activities
§ Ability to guide and review strategy through constructive questioning and suggestions
§ Experience in developments and successful implementation of strategy
The Board has also determined that director tenure and diversity is integral to a well functioning board.
Details on the skills and qualifications of our directors are provided on pages 4 and 5 of this report.
The Board has reviewed the skills of the current directors against the skill categories in the table above and has determined that the current
composition of the Board meets or exceeds the minimum requirements in each category.
2.2 Size and tenure
DEXUS has determined that the size of the Board should be small enough to be able to act quickly, but large enough to ensure a diverse range
of views is provided on any issue.
At 30 June 2015, the Board comprised nine members including seven Non-Executive Directors, the Chief Executive Officer and the Executive
Director Finance & COO. The DXFM constitution allows for the appointment of up to 10 directors.
Details of directors at 30 June 2015 are:
name
Independent
Qualifications
Date appointed
Chris Beare (Chair)
Elizabeth Alexander AM
Penny Bingham-Hall
John Conde AO
Tonianne Dwyer
Craig Mitchell
Richard Sheppard
Peter St George
Darren Steinberg
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
No
BSc, BE (Hons), MBA, PhD, FAICD
Director and Chair since 4 August 2004
BComm, FCA, FAICD, FCPA
Director since 1 January 2005
BA (Industrial Design), FAICD, SF (Fin)
Director since 10 June 2014
BSc, BE (Hons), MBA
Director since 29 April 2009
BJuris (Hons), LLB (Hons)
Director since 24 August 2011
BComm, MBA (Exec), FCPA, HBS (AMP)
Appointed Executive Director on 12 February 2013
BEc Hons, FAICD
CA(SA), MBA
Director since 1 January 2012
Director since 29 April 2009
BEc, FAICD, FRICS, FAPI
Appointed Executive Director on 1 March 2012
2015 dexus annual rePOrT 12
Corporate Governance Statement
Continued
PRiNCiPLE 2 – STRUCTURE ThE bOARD TO ADD vALUE (CONTINUED)
2.2 Size and tenure (continued)
Professional
Qualifications
Tenure
Diversity
Science 13%
Economics 25%
Commerce/Accounting 25%
MBA 25%
Law 6%
Other 6%
0-3 years 23%
3-6 years 33%
6-9 years 22%
9+ years 22%
Men 67%
Women 33%
2.3 Board independence
Non-Executive Directors must be free of any business or other
relationship that could interfere materially with the exercise of their
unfettered and independent judgement.
DXFM directors, other than the Chief Executive Officer, will hold office
for three years following his or her first appointment (or, if appointed
by the Board between DEXUS Annual General Meetings, from the date
of the Annual General Meeting after the initial appointment).
The Board has determined that each Non-Executive Director:
§
§
Is not a substantial security holder of DEXUS, nor otherwise
associated with a substantial security holder of DEXUS
Is not employed, nor within the last three years has been
employed, in an executive capacity by DEXUS (there must be a
period of at least three years between ceasing such employment
and serving on the Board)
§ Has not been, within the last three years, a principal or an
employee of a material professional adviser or a material
consultant to DEXUS
§ Has not been a material supplier or customer of DEXUS,
or otherwise associated with a material supplier or customer
§ Has no material contractual relationship with DEXUS (other than
as a Non-Executive Director of DEXUS)
§ Has not served on the Board for a period which could, or could
reasonably be perceived to, interfere materially with the director’s
ability to act in the best interests of DEXUS
§
§
Is free from any interest and any business or other relationship
which could, or could reasonably be perceived to, interfere with
the director’s ability to act in the best interests of DEXUS, and
Is free from family ties or cross-directorships that may
compromise director independence
The Board regularly assesses the independence of its directors in light
of interests disclosed to it and has determined that each Non-Executive
Director has maintained independence throughout the year.
2.4 Appointment of directors
While directors of the Responsible Entity are not technically subject
to the approval of security holders, the Board has determined that all
directors, other than the Chief Executive Officer, will stand for election
by DEXUS stapled security holders. If a nominated director fails to
receive a majority vote, that director will cease to be appointed to the
Board of DXFM.
At the time of appointment, each Non-Executive Director is required to
sign a letter of appointment which sets out terms and conditions. The
letter defines the term of office, independence, role and responsibilities
of the director.
Executive Directors and other members of the Group Management
Committee are also required to enter into an employment agreement
setting out their terms of employment.
The Induction Program for newly appointed directors is comprehensive
and includes familiarisation with specific structures, policies and legal
documents including (but not limited to):
§ Outline of the Corporate and Committee structure
§ Organisational charts providing details of business units
§ Terms of Reference for the Board and Board Committees
§ Minutes of the previous Board and Board Committee meetings
§ A copy of the Constitution
§ A copy of the business plan
§ DEXUS Compliance Management Framework
§ DEXUS Risk Management Framework
§ Key DEXUS policies including:
– Directors’ Code of Conduct
– Securities Trading (including inside information) Policy
– Continuous Disclosure Policy
A newly appointed Non-Executive Director will meet with key
managers who provide an overview of their areas of responsibility.
Newly appointed Non-Executive Directors are encouraged to attend
each of the Board Committee meetings to assist in understanding the
DEXUS business model and approach to corporate governance.
Background checks of newly appointed Non-Executive Directors are
performed which include:
§ National Police Check
§ ASIC Banned and Disqualified Register check
§ ASIC Authorised Representative search
13
§ ASIC Enforceable Undertaking Register search
§ APRA Disqualified Register check
§ Directorships check
§ AML/CTF Global Official Lists check (sanctions list)
§ Public Record check
§ Academic Qualification check
§ Employment history check
§ Bankruptcy Record check
The process for selecting and appointing new directors to the Board
can be found at www.dexus.com/appointment
2.5 Meetings
The Board generally meets monthly between February and November,
with additional meetings held throughout the year as required.
A Board Calendar is developed and agreed six months ahead of
the new calendar year. The calendar provides dates of Board and
Board Committee meetings.
Board meetings are normally held at the registered office of DEXUS,
although some meetings may be held ‘offsite’ allowing directors to visit
DEXUS owned and managed properties. To maximise participation,
video conferencing facilities are utilised as required.
Each standard Board meeting includes a Non-Executive Director only
session, led by the Chair, followed by a session in which the Executive
Directors join the board. The remaining members of the Group
Management Committee and Company Secretary then join the meeting.
Senior management is also available to provide clarification or answer
questions directors may have either prior to the Board meeting or may
be invited to attend and present at the Board meeting.
Board papers are provided to directors electronically at least three
business days prior to the meeting.
Any Action Items identified by the directors are recorded in the
minutes. The Company Secretary ensures that the Action Items are
appropriately addressed.
Agenda items for Board meetings are set by the Chair in conjunction
with the Chief Executive Officer and Company Secretary and include
(but are not limited to):
§ Chief Executive Officer’s report
§ Company Secretary’s report
§ Minutes of Board Committee meetings
§ Reports on asset acquisitions, disposals and developments
§ Management presentations
§ Other business where directors can raise any topical matters
Some of the key issues addressed by the Board during 2015
include the:
§ One-for-six security consolidation
§ Continued oversight of capital management
§ Acquisition and disposal of office and industrial properties
§
Institutional placement of Share Purchase Plan
§ Work Health Safety (WHS) policies and practices
Directors are expected to use their best endeavours to attend all
scheduled meetings. For the year to 30 June 2015, there was 100%
attendance of Non-Executive Directors at all Board and Board
Committee meetings (for which they are a member).
2.6 Access to training and information
Directors receive regular presentations by management and
external advisers regarding sector, fund, and industry specific trends.
Non-Executive Directors are encouraged to seek additional information
from management as necessary.
Non-Executive Directors also attend property tours and are
encouraged to pursue professional development opportunities
at the Group’s expense.
Should a Non-Executive Director wish to seek independent professional
advice that they believe is necessary to discharge their responsibility as
a director, the matter should initially be referred to the Chair.
Where the Chair determines it is appropriate that advice be sought by
the Non-Executive Director, DEXUS will pay for such advice. Where
the Chair seeks independent professional advice, approval is required
by a majority of the Non-Executive Directors.
2.7 Membership on other Boards
The Board acknowledges that concurrent service on multiple boards
by DEXUS directors may impact their overall performance and ability
to devote adequate time to each board/position. The Board recognises
that the time required to fulfil each directorship role varies and as a
result, has determined that it is not appropriate to set a limit on the
total number of directorships held.
Directors will consider the number of directorships they hold to
ensure they have sufficient time to attend to the affairs of DEXUS
Property Group. Should a director wish to accept directorships in
addition to those already held, the matter is referred to the Chair
of the DXFM Board for approval.
2.8 Board Nomination Committee
The Board Nomination Committee oversees all aspects of:
§ Board renewal
§ Board and Board Committee performance evaluation
§ Director nominations
The Committee comprises three Non-Executive Directors:
§ Chris Beare, Chair, Non-Executive Director (Chair)
§
John Conde AO, Non-Executive Director
§ Richard Sheppard, Non-Executive Director
The Chief Executive Officer and Executive General Manager,
People & Property Services attend the Board Nomination Committee
meeting by invitation.
2.9 Performance
The Board Nomination Committee oversees a three year Board
performance evaluation cycle in which Board and Board Committee
performance is evaluated in the first year and individual director
performance in the next. Every third year, an independent consultant
is engaged to facilitate the Board performance review. Any areas
for improvement identified in the performance evaluation process
are agreed by the Board Nomination Committee which oversees the
implementation of process enhancements.
In 2015, directors were asked to provide feedback on the function of
the Board and its Committees, structure of Board meetings and the
role of the Chair of the Board and Board Committees. Feedback from
the anonymously completed questionnaires was co-ordinated by the
Company Secretary and provided to the Board Nomination Committee
for discussion.
The process for Board performance evaluation can be found
at www.dexus.com/corporategovernance
2015 dexus annual rePOrT 14
Corporate Governance Statement
Continued
PRiNCiPLE 3 – ACT EThiCALLy AND RESPONSibLy
3.1 Codes of Conduct
To meet statutory and fiduciary obligations (including those relating
to the management of third party funds and capital partners) and to
maintain confidence in its integrity, the Board implements a series of
clearly articulated policies and procedures to which all employees must
adhere. These policies are reviewed at least annually:
§ The Board considers it important that all employees meet the
highest ethical and professional standards and has established
an Employee Code of Conduct and a Directors’ Code of Conduct.
Any alleged breach of the Codes of Conduct is investigated.
A significant breach may result in termination of employment
§ DEXUS’s Anti-Bribery policy addresses the acceptance and
granting of gifts and benefits and reinforces the Group’s
commitment not to donate to political parties
§ The Group strongly supports the identification and disclosure of
corrupt conduct, illegality or substantial waste of company assets
under its Good Faith Reporting Policy. Employees who make
such disclosures are protected from any detrimental action or
reprisal, and an independent external disclosure management
service provider has been appointed to ensure anonymity for those
reporting incidents
All employees are required to confirm, on an annual basis, compliance
with key DEXUS policies. In 2015, employees were asked to confirm
ongoing compliance with policies addressing:
§ Code of Conduct
§ Compliance Incidents
§ Good Faith Reporting
§ Conflicts of Interest (Personal and Business), and
§ Securities Trading (including inside information)
DEXUS Board and Corporate Policies are available at
www.dexus.com/corporategovernance
3.2 Trading in DEXUS securities
The Group’s Securities Trading (including inside information) Policy
applies to directors and employees who wish to invest in DEXUS
securities for themselves or on behalf of an associate.
The policy requires any Non-Executive Director who wishes to trade
in DEXUS securities to obtain approval from the Chair and General
Counsel/Company Secretary. Should the Chair wish to trade in DEXUS
securities, approval is required from a Non-Executive Director and
General Counsel/Company Secretary.
Employees wishing to trade in DEXUS securities must obtain written
approval from the Chief Executive Officer and General Manager,
Compliance, Risk & Governance/Company Secretary before entering
into a transaction.
Non-Executive Directors and employees are permitted to trade DEXUS
securities only in defined trading windows, provided approval has been
granted and only if they are not in possession of inside information.
In the event that the Chair, Chief Executive Officer or General Counsel
considers that there is the potential that inside information may be held
or that a significant conflict of interest may arise, trading will not be
permitted, even during defined trading windows.
The Securities Trading Policy is available at
www.dexus.com/corporategovernance
3.3 Non-Executive Director holdings in DXS
On 26 November 2014, the Board approved the policy that the
minimum holding by each Non-Executive Director be set at 16,500
securities by 29 October 2017. Newly appointed Non-Executive Directors
should hold 16,500 securities within three years of appointment.
At 30 June 2015, Non-Executive Directors’ holdings in DEXUS were
as follows:
Chris Beare (Chair)
Elizabeth Alexander AM
Penny Bingham-Hall (appointed 10 June 2014)
John Conde AO
Tonianne Dwyer
Richard Sheppard
Peter St George
16,667
16,667
8,334
16,667
16,667
70,090
17,333
At 1 July 2015, Darren Steinberg (Executive Director) has been
awarded the following:
§ Performance Rights granted under the 2014 STI Rights Plan
giving the right to 32,179 securities
§ Performance Rights granted under the 2013 LTI Rights Plan giving
the right to 188,029 securities
§ Performance Rights granted under the 2014 LTI Rights Plan giving
the right to 205,943 securities
§ 195,164 securities
At 1 July 2015, Craig Mitchell (Executive Director) has been awarded
the following:
§ Performance Rights granted under the 2014 STI Rights Plan
giving the right to 17,836 securities
§ Performance Rights granted under the 2013 LTI Rights Plan giving
the right to 59,253 securities
§ Performance rights granted under the 2014 LTI Rights Plan giving
the right to 85,503 securities
§ 153,995 securities
Dealings in DXS securities by directors are reported to the ASX
within five business days of the transaction.
The Board is considering introducing a minimum security holding
requirement for Executive Key Management Personnel once an
appropriate vested equity position has been achieved through the
Deferred STI and LTI plans which were first introduced in 2012.
3.4 Conflicts of interest and related party dealings
The Group’s Conflict of Interest policies address the management of
conflicts of interest and related party transactions which may arise:
§ When allocating property transactions; where a new property
acquisition opportunity meets the mandate of more than one
DEXUS client (including DXS)
§ When negotiating leases; where a prospective tenant is interested
in more than one property owned by different DEXUS clients
§ When executing transactions between DEXUS clients
§ When the personal interests of an employee or director conflict
with those of DEXUS or its clients
Where a conflict of interest is identified, the Compliance, Risk &
Governance team liaises with the business representatives to ensure
effective and timely management of the conflict. Where information
barriers are put in place, the team monitors compliance with the
relevant policies.
15
On a monthly basis, the General Counsel reports to the Board on
related party transactions and the General Manager, Compliance,
Risk & Governance reports conflicts of interest to the Board Risk
Committee each quarter.
Leasing Conflicts of Interests that have been identified and managed
during the quarter are reported to:
The results of this year’s audit were presented to the Group
Management Committee as part of a new calibration process
at the end of the annual DEXUS Compensation Review.
DEXUS’s Diversity Principles are available at
www.dexus.com/corporategovernance
§ Group Management Committee
§ Compliance, Risk & Sustainability Committee
§ Board Risk Committee
§ Relevant capital partners and mandates
Where there is an actual, potential or perceived conflict of interest
between the personal interests of a director and the duties the director
owes to DEXUS, the director is required to disclose the circumstances
to the Chair for determination as to the most appropriate method in
which to manage the conflict.
A director with an actual, potential or perceived conflict in relation to
a matter before the Board will be excluded from attending that part of
the Board meeting. Papers or minutes in relation to the matter will not
be provided to the director.
During 2015, the Conflicts of Interest policies and procedures (as they
relate to allocation of property transactions and leasing transactions) were
subject to an independent, external review. The Compliance team also
facilitated refresher Conflicts of Interest training for DEXUS employees.
Successful completion of all compliance training is compulsory.
3.5 Responsible investment
DEXUS’s Environmental Management Policy aims to minimise the overall
environmental impact of its operations, both in the development of new
properties and the management of existing properties. As a signatory
to the United Nations Principles of Responsible Investment (UNPRI),
DEXUS incorporates these principles into its investment decisions.
3.6 Diversity
DEXUS comprises a socially and culturally diverse workplace and has
created a culture that is tolerant, flexible and adaptive to the changing
needs of its industry. DEXUS is committed to diversity and promotes
a work environment conducive to the merit-based appointment
of qualified employees, senior management and directors. Where
professional intermediaries are used to identify or assess candidates,
they are made aware of DEXUS’s commitment to diversity.
During 2015, the Corporate Responsibility, Inclusion & Diversity
Committee, chaired by the Chief Executive Officer, continued to
promote and encourage a work environment where diversity is
understood and valued.
DEXUS currently publishes annual statistics on the diversity profile of
its Board and senior management, including a breakdown of the type
and seniority of roles undertaken by women. DEXUS acknowledges and
fulfils its obligations under relevant employment legislation including
Workplace Gender Equality Act 2012.
The DEXUS gender diversity target by 30 June 2015 was set at
33% of Non-Executive Directors to be held by women and 33% of
senior management roles to be held by women.
As at 30 June 2015, DEXUS’s workforce profile places women at
43% of Non-Executive Directors and 26% senior manager roles.
Women represent 48% of DEXUS’s employees.
DEXUS’s definitions of ‘Senior Management’ and ‘Measurable
Objectives’ are disclosed in its Diversity Target which is available
at www.dexus.com/corporategovernance
DEXUS undertakes Gender Pay Equity audits to gain insight into
the effectiveness of its Diversity Principles and to review its position
on diversity both internally and against external benchmarks.
PRiNCiPLE 4 – SAFEgUARD iNTEgRiTy iN CORPORATE REPORTiNg
4.1 Board Audit Committee
To ensure the accurate presentation of each Trust’s financial position,
DXFM has in place a structure of review and authorisation, where the
Board Audit Committee reviews (among other matters):
§ Financial statements of each entity
§
Independence and competence of the external auditor
§ Semi-annual management representations to the Committee,
affirming the veracity of each entity’s Financial Statements
The Committee’s Terms of Reference require that all members are
Non-Executive Directors with financial expertise and an understanding
of the industry in which DEXUS operates. The Committee:
§ Has access to management
§ Has unrestricted access to external auditors without
management present
§ Has the opportunity to seek explanations and additional
information as it sees fit
§ May also obtain independent professional advice in the
satisfaction of its duties at the cost of the Group and independent
of management
The Committee meets as frequently as required to undertake its role
effectively, but not less than four times a year, and the external auditor
is invited to attend all meetings.
From 1 July to 31 August 2014, the members of the Committee were:
§ Richard Sheppard, Chair, Non-Executive Director
§ Elizabeth Alexander AM, Non-Executive Director
§ Chris Beare, Non-Executive Director
Following the implementation of a streamlined Board Committee
structure from 1 September, the members of the Committee for the
10 months ending 30 June 2015 were:
§ Richard Sheppard, Chair, Non-Executive Director
§ Elizabeth Alexander AM, Non-Executive Director
§ Tonianne Dwyer, Non-Executive Director
§ Peter St George, Non-Executive Director
The following reports are provided to the Committee:
§ The Chief Executive Officer and the Executive Director Finance
& COO make representations on a semi-annual basis on
the veracity of the Financial Statements and financial risk
management systems
§ The Compliance, Risk & Sustainability Committee completes a
fraud risk questionnaire semi-annually to advise of any instances
of actual or perceived fraud during the period
PricewaterhouseCoopers (PwC) continues as statutory auditor of
DXFM and its related trusts and entities.
In order to ensure the independence of the statutory auditor, the
Committee has responsibility for approving the engagement of the
auditor for any non-audit service greater than $100,000. At 30 June
2015, fees paid to the external auditor for non-audit services were
11.3% of audit fees (25.5% at 30 June 2014).
DEXUS’s policy on the selection and appointment of the external
auditor is available at www.dexus.com/corporategovernance
2015 dexus annual rePOrT 16
Corporate Governance Statement
Continued
PRiNCiPLE 5 – MAkE TiMELy AND bALANCED DiSCLOSURE
PRiNCiPLE 6 – RESPECT ThE RighTS OF SECURiTy hOLDERS
5.1 Continuous disclosure
To ensure continuous disclosure obligations are met, DEXUS has the
following processes and procedures in place:
6.1 Annual General Meeting
The Board conducts an Annual General Meeting (AGM) increasing the
number of opportunities it has to interact with DEXUS security holders.
§ Ongoing education of managers and directors ensuring all parties
clearly understand the ASX Listing Rule obligations and the
consequences of a breach
§ Efficient reporting channels capturing potential information
requiring disclosure and bringing it to the immediate attention
of the Chief Executive Officer or the General Counsel
Each AGM is designed to:
§ Supplement effective communication with security holders
§ Provide them with ready access to balanced and readily
understandable information
§
Increase the opportunities for participation
§ An effective monitoring system which helps ensure ongoing
§ Facilitate security holders’ rights to appoint Non-Executive
compliance
Directors to the Board of DXFM
§ A clear and concise policy outlining obligations and expectations
of our employees in the identification and management of matters
that may require disclosure to the market. The policy was subject
to an independent external review during 2015 to ensure it reflects
regulatory requirements and industry best practice
DEXUS recognises the importance of security holder participation
at the AGM and supports and encourages that participation.
The Group’s policy is that all directors attend the AGM, and in 2014
all directors attended the AGM.
DEXUS has established a Continuous Disclosure Committee to assist in
the identification and reporting of material matters to the market in the
spirit of legislation and regulations.
Committee members comprise:
§ General Counsel & Company Secretary (Chair)
§ Chief Executive Officer
§ Executive Director Finance & COO
§ EGM – Investor Relations, Marketing & Communications
§ EGM – Strategy, Transactions & Research
The Committee meets on a regular basis to consider whether any
disclosure obligation is likely to arise as a result of the activities being
undertaken by the Group. The Committee is comprised of executives
based at DEXUS’s corporate head office allowing meetings to be held
at short notice.
The Continuous Disclosure Committee ensures:
§
Investors continue to have equal and timely access to material
information, including the financial status, performance,
ownership and governance of the Trusts
§ Announcements are factual and presented in a clear and
balanced way
Management is required to provide a quarterly attestation to the
Compliance, Risk & Governance team that there have been no issues
within their area of responsibility that would be subject to continuous
disclosure requirements.
The Chief Executive Officer and/or General Counsel will immediately
notify the Chair of the DXFM Board should any material concern arise
regarding continuous disclosure. The Chair will then decide whether
the issue should be further referred to the full Board or a nominated
board Sub-Committee prior to any market release, if considered
appropriate, is made.
The DXFM Board has a standing Agenda Item for it to assess if there
are any matters that should be disclosed to the market.
The Continuous Disclosure Policy is available at
www.dexus.com/corporategovernance
The external auditor of the Trusts attends each AGM and is available
to answer investor questions regarding the conduct of the audits of the
Trusts’ financial records and their Compliance Plans, as well as the
preparation and content of the Auditor’s Report.
DEXUS engages an independent service provider, Link Market
Services, to conduct any security holder vote required at the AGM.
To facilitate participation, the AGM is webcast live and archived for
viewing on DEXUS’s website for those security holders unable to attend
the meeting. The results of voting on the items for the formal business
of the meeting are released to the market and posted to DEXUS’s
website after the AGM.
6.2 Stakeholder communication
In addition to conducting an AGM, the Group has an investor relations
and communications strategy that promotes an informed market and
encourages participation with investors. This strategy involves providing
an open and ongoing two-way dialogue with the investment community
and other key stakeholders that integrates the communication of
financial and operational performance, marketing and regulatory
reporting requirements.
Annual and half-year financial results presentation briefings with
institutional investors and analysts are webcast and made available
to all investors on DEXUS’s website.
DEXUS’s website enables access to all ASX announcements and media
releases, annual and half year reviews, annual reports, presentations
and analyst support material. Investors can subscribe to alerts from the
website to receive DEXUS communications immediately after release.
The website also provides historical distribution and tax information
and includes a security holder login section to enable security holders
to update their details directly and download statements from Link
Market Services.
DEXUS maintains an Investor Relations app available for iPhone, iPad
and Android users that provides security holders with instant access
to corporate and stock information such as recent announcements,
results reporting and research reports. DEXUS has a corporate
company page on LinkedIn which enables it to ‘push’ news stories
and ASX releases to its large network of DEXUS followers.
Any enquiries received from security holders are addressed in a timely
manner in accordance with DEXUS’s policy on handling of enquiries
and complaints.
The Communications Policy is available at
www.dexus.com/corporategovernance
17
PRiNCiPLE 7 – RECOgNiSE AND MANAgE RiSk
7.1 Board Risk Committee
The Board Risk Committee oversees risk management within DEXUS.
The Committee oversees the Group’s enterprise risk management
practices, as well as work health & safety, environmental management,
sustainability initiatives, compliance and internal audit practices. It also
oversees the effectiveness of the Group’s Risk Management Framework
and Compliance Management Framework.
The Risk Management Framework is subject to annual review.
The continuing evolution of a Risk Appetite Statement will result
in further enhancements to the Risk Management Framework.
DEXUS’s Risk Management Policy is available at
www.dexus.com/corporategovernance
Members of the Committee from 1 July to 31 August 2014 were:
§ Richard Sheppard, Chair, Non-Executive Director
§ Elizabeth Alexander AM, Non-Executive Director
§ Chris Beare, Non-Executive Director
Following the implementation of a streamlined Board Committee
structure from 1 September, the members of the Committee
for the 10 months ending 30 June 2015 increased to four
Non-Executive Directors:
§ Tonianne Dwyer, Chair, Non-Executive Director
§ Penny Bingham-Hall, Non-Executive Director
§ Richard Sheppard, Non-Executive Director
§ Peter St George, Non-Executive Director
The Compliance, Risk & Governance team promotes an effective risk
and compliance culture by providing advice, drafting and updating
relevant risk and compliance policies and procedures, conducting
training and monitoring and reporting adherence to key policies
and procedures.
Frameworks have been developed and implemented in accordance
with ISO 31000:2009 (Risk Management) and AS 3806:2006
(Compliance Programs).
The functions of the Compliance, Risk & Governance team include
risk and compliance management, corporate governance and
internal audit. The ongoing effectiveness of the risk management,
compliance management and internal control systems is reported by
the General Manager, Compliance, Risk & Governance to the Board
Risk Committee.
DEXUS’s internal control procedures are also subject to annual
independent verification as part of the GS007 (Audit Implications
of the Use of Service Organisations for Investment Management
Services) audit.
During 2015, the Board Risk Committee also focused on:
§ The formalisation of DEXUS’s Risk Appetite Statement
§ Security risk management at head office and across the portfolio
as a result of the heightened terrorist alert announced by
Australian National Security
§ Work health and safety acknowledging both physical and
mental health
§
Identification and management of conflicts of interest
While most risks are identified, managed and monitored internally,
DEXUS has appointed independent experts to undertake monitoring
of health and safety, environmental risks and other risks where expert
knowledge is essential to ensure DEXUS has in place best practice
processes and procedures.
The Committee is empowered to engage consultants, advisers or other
experts independent of management.
7.3 Internal audit
The internal audit program has a three year cycle, the results of
which are reported quarterly to the Compliance, Risk & Sustainability
Committee and to the Board Risk Committee.
DEXUS has appointed Ernst & Young to perform the internal audit
program. An Ernst & Young partner attends each Board Risk Committee
to present findings of internal audits undertaken during the quarter.
7.2 Risk management
The management of risk is an important aspect of DEXUS’s activities,
and the Group has a segregated risk function reporting to the General
Counsel on a day-to-day basis, as well as a Compliance, Risk &
Sustainability Committee that supports the Board Risk Committee.
The General Manager, Compliance, Risk & Governance has direct
access to the Chief Executive Officer and Non-Executive Directors.
Risks to DEXUS arise from both internal and external factors
and include:
§ Strategic risks
§ Market risks
§ Health and safety risks
§ Operational risks
§ Environmental risks
§ Financial risks
§ Regulatory risks
§ Reputational risks
§ Fraud risks
Further information relating to the identification and management
of risks is available at page 44 of this report.
PRiNCiPLE 8 – REMUNERATE FAiRLy AND RESPONSibLy
8.1 Board People & Remuneration Committee
The Board People & Remuneration Committee oversees all aspects of:
§ Director and Executive remuneration
§ Director, Chief Executive Officer, and management
succession planning
The Committee comprises three Non-Executive Directors:
§
John Conde AO, Chair, Non-Executive Director
§ Chris Beare, Non-Executive Director
§ Penny Bingham-Hall, Non-Executive Director
The Chief Executive Officer and Executive General Manager,
People & Property Services attend the Board People & Remuneration
Committee meeting by invitation.
It is the practice of the Board People & Remuneration Committee
to meet without executives, and non-committee members are not in
attendance when their own performance or remuneration is discussed.
Details of the Group’s remuneration framework for Executives,
Non-Executive Directors and employees are set out in the
Remuneration Report that forms part of the Directors’ Report contained
in this report commencing on page 19. There are no schemes
for retirement benefits (other than compulsory contributions to
superannuation) for Non-Executive Directors.
2015 dexus annual rePOrT 18
Directors’ report
The Directors of DEXUS Funds Management Limited (DXFM) as
Responsible Entity of DEXUS Diversified Trust (DDF or the Trust)
present their Directors’ Report together with the consolidated Financial
Statements for the year ended 30 June 2015. The consolidated
Financial Statements represent DDF and its consolidated entities,
DEXUS Property Group (DXS or the Group).
The Trust together with DEXUS Industrial Trust (DIT), DEXUS Office
Trust (DOT) and DEXUS Operations Trust (DXO) form the DEXUS
Property Group stapled security.
1. DiRECTORS AND SECRETARiES
1.1 Directors
The following persons were Directors of DXFM at all times during the
year and to the date of this Directors’ Report, unless otherwise stated:
Directors
Christopher T Beare
Elizabeth A Alexander, AM
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Craig D Mitchell
W Richard Sheppard
Darren J Steinberg
Peter B St George
Appointed
4 August 2004
1 January 2005
10 June 2014
29 April 2009
24 August 2011
12 February 2013
1 January 2012
1 March 2012
29 April 2009
1.2 Company Secretaries
The names and details of the Company Secretaries of DXFM
as at 30 June 2015 are as follows:
Brett D Cameron LLB/BA (Science & Technology), GAICD
Appointed: 31 October 2014
Brett is the General Counsel and Company Secretary of DEXUS
Property Group companies and is responsible for the legal function,
company secretarial services and compliance, risk and governance
systems and practices across the Group.
Prior to joining DEXUS, Brett was Head of Legal for Macquarie Real
Estate (Asia) and has held senior legal positions at Macquarie Capital
Funds in Hong Kong and Minter Ellison in Sydney and Hong Kong.
Brett has 19 years’ experience as in-house counsel and in private
practice in Australia and in Asia, where he worked on real estate
structuring and operations, funds management, mergers and
acquisitions, private equity and corporate finance across a number
of industries.
Brett graduated from The University of New South Wales and holds
a Bachelor of Laws and a Bachelor of Arts (Science and Technology)
and is a member of the Law Societies of New South Wales and
Hong Kong. Brett is also a graduate of the Australian Institute of
Company Directors.
Scott D Mahony B Bus (Acc) MBA (e-commerce) Grad Dip (Applied
Corporate Governance), AGIA, RMIA
Appointed: 1 April 2014
Scott is the General Manager, Compliance, Risk and Governance and
is responsible for the development, implementation and oversight of
DEXUS’s compliance, property & corporate risk management and
corporate governance programs.
Scott joined DEXUS in October 2005 after two years with
Commonwealth Bank of Australia as a Senior Compliance Manager.
Prior to this, Scott worked for over 11 years for Assure Services
& Technology (part of AXA Asia Pacific) where he held various
management roles.
Scott graduated from Charles Sturt University with a Bachelor
of Business (Accountancy), a Graduate Diploma in Business
Administration and an MBA. He has completed a Graduate Diploma
in Applied Corporate Governance through the Governance Institute of
Australia, and is a member of both the Risk Management Institution of
Australasia and the Governance Institute of Australia.
2. ATTENDANCE OF DiRECTORS AT bOARD MEETiNgS AND bOARD COMMiTTEE MEETiNgS
The number of Directors’ meetings held during the year and each Director’s attendance at those meetings is set out in the table below.
The Directors met 11 times during the year. Ten Board meetings were main meetings and one meeting was held to consider specific business.
Christopher T Beare
Elizabeth A Alexander, AM
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Craig D Mitchell
W Richard Sheppard
Darren J Steinberg
Peter B St George
Main
meetings
held
Main
meetings
attended
Specific
meetings
held
Specific
meetings
attended
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
19
Special meetings are held at a time to enable the maximum number of Directors to attend and are generally held to consider specific items that
cannot be held over to the next scheduled main meeting.
During 2014, the Group undertook a detailed review of its Board Committee structure which resulted in the implementation of a streamlined
Board Committee structure from 1 September 2014.
The table below sets out the number of Board Committee meetings held during the year for the Committees in place between 1 September 2014
and 30 June 2015 and each Director’s attendance at those meetings.
Board Audit
Committee
Board Risk
Committee
Board nomination
Committee
Board People &
Remuneration
Committee
held
attended
held
attended
held
attended
held
attended
Christopher T Beare
Elizabeth A Alexander, AM
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Craig D Mitchell
W Richard Sheppard
Darren J Steinberg
Peter B St George
–
3
–
–
3
–
3
–
3
–
3
–
–
3
–
3
–
3
–
–
4
–
4
–
4
–
4
–
–
4
–
4
–
4
–
4
3
–
–
3
–
–
3
–
–
3
–
–
3
–
–
3
–
–
4
–
4
4
–
–
–
–
–
4
–
4
4
–
–
–
–
–
Craig D Mitchell and Darren J Steinberg were not members of any Board Committees during the year ended 30 June 2015.
Elizabeth A Alexander and Tonianne Dwyer were also Directors of DWPL and attended the Board meetings during the year ended 30 June 2015
(refer note 22).
The table below sets out the number of Board Committee meetings held during the year for the Committees in place between 1 July 2014 and
31 August 2014 and each Director’s attendance at those meetings.
Board Audit, Risk &
Sustainability Committee
Board
Compliance Committee
Board nomination,
Remuneration &
Governance Committee
Board Finance
Committee
held
attended
held
attended
held
attended
held
attended
1
1
–
–
–
–
1
–
–
1
1
–
–
–
–
1
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
1
–
–
–
–
1
–
–
1
1
–
–
–
–
1
–
–
1
1
–
–
–
–
1
–
–
–
–
–
1
–
1
1
–
–
–
–
–
1
–
1
Christopher T Beare
Elizabeth A Alexander, AM
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Craig D Mitchell
W Richard Sheppard
Darren J Steinberg
Peter B St George
3. REMUNERATiON REPORT
Overview
The Remuneration Report has been prepared in accordance with the Corporations Act 2001 and relevant accounting standards. Whilst the Group
is not statutorily required to prepare such a report, the Board continues to believe that the disclosure of the Group’s remuneration practices is in
the best interests of all security holders.
The Board believes that the Group’s remuneration framework encourages Executives to perform in the best interests of security holders. Short term
financial and operational objectives are approved annually for each Executive, promoting alignment between investor returns and the rewards an
Executive can receive under the STI plan. In addition, the Board has determined a set of financial performance hurdles within the LTI plan which
provide the Executive with a performance and retention incentive which is strongly linked to security holder returns over the longer term.
2015 dexus annual rePOrT 20
Directors’ Report
Continued
3. REMUNERATiON REPORT (CONTINUED)
Overview (continued)
The Board notes that the senior management team at DEXUS is small and focused. Consequently, an understanding of the individual roles and
accountabilities is relevant in making remuneration judgements compared to other organisations in the sector. In some cases, revised job titles
reflect the broader accountabilities.
Below are the principal Key Management Personnel (KMP) remuneration-related changes during the year ended 30 June 2015, which were
approved by the Board and prospectively disclosed in the 2014 Remuneration Report:
§ Fixed remuneration for the Executive Director & Chief Executive Officer increased to $1,500,000 (+$100,000) effective 1 July 2014.
This was the first fixed remuneration increase for Mr Steinberg since his commencement in March 2012 and was informed by
market remuneration data and independent advice
§ Fixed remuneration for the Executive Director Finance & Chief Operating Officer increased to $900,000 (+$125,000) effective 1 July 2014.
Mr Mitchell’s increase was based on peer comparison within the property industry and financial services industries, noting his increased
responsibilities following a reduction in the size of the senior executive team
§ The Board Chair’s base fee increased to $375,000 (+$25,000) effective 1 July 2014, with Board Members’ base fees increasing to
$160,000 (+$10,000). This was the first increase in Directors’ fees since 2010
§ Following security holder approval at the 2014 Annual General Meeting, the aggregate Directors’ fee pool was increased from $1,750,000
to $2,200,000. The fee pool had remained unchanged since the 2008 Annual General Meeting
§ The number of securities required to be held by each Director increased from 50,000 to 100,000 (this was adjusted to 16,500 post the
security consolidation undertaken in October 2014). Securities are to be purchased on-market with personal funds and are to be acquired
within three years of the 2014 Annual General Meeting. Newly appointed Directors need to acquire the relevant number of securities within
three years of their appointment
Remuneration-related decisions effective 1 July 2015 approved by the Board are:
§ No fixed remuneration increase for the Executive Director & Chief Executive Officer
§ No fixed remuneration increase for the Executive Director Finance & Chief Operating Officer
§ Modest increases for other Executives, averaging just over 2%
§ Positively amending the Long Term Incentive (LTI) plan, with Adjusted Funds From Operations (AFFO) Growth replacing Funds From
Operation (FFO) Growth as a performance measure to reflect management’s performance in managing maintenance capital expenditure,
leasing incentives, derivative close-out costs and other one-off items
§ The intent to introduce a minimum security holding requirement for Executive KMP once an appropriate vested equity position has been
achieved through the Deferred STI and LTI plans which were first introduced in 2012.
This Remuneration Report has been prepared in accordance with AASB 124 Related Party Disclosures and section 300A of the Corporations Act 2001.
The information provided in this Report has been audited in accordance with the provisions of section 308 (3C) of the Corporations Act 2001.
Key Management Personnel
In this report, Key Management Personnel (KMP) are those individuals having the authority and responsibility for planning, directing and
controlling the activities of the Group, either directly or indirectly. They comprise:
§ Non-Executive Directors
§ Executive Directors
§ Key Executives considered KMP under the Corporations Act 2001 (Executive KMP)
Below are the individuals determined to be KMP of the Group, classified between Non-Executive Directors, Executive Directors and Executive KMP:
Non-Executive Directors
non-Executive Directors
Christopher T Beare
Elizabeth A Alexander AM
Penny Bingham-Hall
John C Conde AO
Tonianne Dwyer
W Richard Sheppard
Peter B St George
Barry R Brownjohn
Stewart F Ewen OAM
Title
Chair
Director
Director
Director
Director
Director
Director
Director
Director
KMP
FY14
✓
✓
Part-year
✓
✓
✓
✓
Part-year
Part-year
KMP
FY15
✓
✓
✓
✓
✓
✓
✓
–
–
Executive Directors
Executive Directors
Position
Darren J Steinberg
Executive Director and Chief Executive Officer
Craig D Mitchell
Executive Director Finance and Chief Operating Officer
Executive KMP
Executive KMP
Position
Kevin L George
Executive General Manager, Office & Industrial
Ross G Du Vernet
Executive General Manager, Strategy, Transactions & Research
KMP
FY14
✓
✓
KMP
FY14
✓
✓
21
KMP
FY15
✓
✓
KMP
FY15
✓
✓
Board People & Remuneration Committee
The objective of the Committee is to assist the Board in fulfilling its responsibilities to oversee all aspects of Director and Executive remuneration
and also oversee aspects of Human Resources management. The primary accountabilities of the Committee are to review and recommend to
the Board:
§ CEO & Executive succession plans
§ Remuneration structures, including design and operation of employee incentive plans
§ CEO & Executive performance objectives, evaluation and remuneration outcomes
§ Non-Executive Directors’ base and committee fees
§ Talent management and learning & development strategies
§ Diversity principles and general people & culture practices
The Committee comprises three independent Non-Executive Directors. For the years ended 30 June 2014 and 2015 Committee members were:
non-Executive Director
Title
John C Conde AO
Committee Chair
Christopher T Beare
Committee Member
Penny Bingham-Hall
Committee Member
Tonianne Dwyer
Committee Member
Stewart F Ewen OAM
Committee Member
2014
2015
✓
✓
–
Part-year
Part-year
✓
✓
Part-year
Part-year
–
Mr Conde continued in his role as Committee Chair, drawing upon his extensive experience from a diverse range of appointments, including his
role as President of the Commonwealth Remuneration Tribunal. The Committee’s capabilities are further enhanced through the membership of
Mr Beare and Ms Bingham-Hall, each of whom has significant management experience in the property and financial services sectors.
Following Mr Ewen’s standing down from the Board in October 2013, Ms Dwyer joined the Committee for the remainder of FY14. She was
subsequently replaced by Ms Bingham-Hall when the new Board Committee structure was implemented on 1 September 2014.
The Committee operates independently from management, and may at its discretion appoint external advisers or instruct management to compile
information for its consideration. The CEO attends certain Committee meetings by invitation but is not present during discussions related to his
own remuneration arrangements.
During the year, the Committee appointed Egan Associates to provide remuneration advisory services. Egan Associates was paid a total of
$27,200 for general advisory services to the Committee. The Committee is satisfied the information and general advice received from Egan
Associates is free from undue influence from the KMP to whom it relates.
The 2014 Remuneration Report received positive security holder support at the 2014 Annual General Meeting with a vote of 87.1% in favour.
2015 dexus annual rePOrT 22
Directors’ Report
Continued
3. REMUNERATiON REPORT (CONTINUED)
Executive remuneration
Context
The Board believes that Executives should be rewarded at levels
consistent with the complexity and risks involved in their positions.
Incentive awards should be scaled according to the relative
performance of the Group, as well as business unit performance
and individual effectiveness.
The Group requires, and needs to retain, an Executive team
with significant experience in:
§
the office, industrial and retail property sectors
§ property management, including securing new tenancies under
contemporary lease arrangements, asset valuation and related
financial structuring and property development in its widest context
§ capital markets, funds management, fund raising, joint venture
negotiations and the provision of advice and support to
independent investment partners
§
treasury, tax and compliance
In this context, the Committee reviews trends in employee reward
structures and strategies embraced across these sectors, including:
§ comparable international funds and asset managers which have
an active presence in Australia
§ ASX listed entities
§
salary benchmarking information from reputable industry sources
such as Aon Hewitt and FIRG
§ boutique property asset managers and consultants
§ where relevant, information from private equity and hedge funds
will be considered
Remuneration structure
Remuneration mix
At the Executive level, the Committee reviews feedback and
information from remuneration advisers, proxy advisers and
institutional investors, and considers stakeholder interests at
each stage of the remuneration review process.
The Group’s remuneration principles and target
remuneration structure are:
Fair and
competitive
Aligned
to investor
interests
Attract,
motivate
and retain
talent
Link
between
performance
and reward
Fixed
Remuneration
+
Variable ‘At-risk’
Remuneration
The remuneration structure for Executive Directors and Executive KMP (collectively referred to as ‘Executives’ in this report) comprises fixed
remuneration, a short term incentive and a long term incentive. The mix between these components varies according to the individual’s position
and is determined based on the Group’s remuneration principles.
The chart below displays the remuneration structure for Executive KMPs expressed as a percentage of Fixed Remuneration at both target and
outperformance (stretch) levels.
k
s
i
R
t
A
d
e
x
i
F
100%
25%
75%
100%
31%
94%
75%
25%
75%
75%
31%
94%
50%
25%
75%
50%
31%
94%
100%
100%
100%
100%
100%
100%
Target
Outperformance
Target
Outperformance
Mr Steinberg
Mr Mitchell
Target
Mr George & Mr Du Vernet
Outperformance
Fixed
STI
Deferred STI
LTI
23
STI plan
Purpose
Participation
Performance
Payment
Deferral
Distributions
Forfeiture
The STI plan is designed to motivate and reward Executives for their annual contribution to the financial and
non-financial performance of the Group.
At Target, each Executive can earn 100% of fixed remuneration under the STI plan and up to a maximum of 125%
of fixed remuneration for Outperformance. 25% of the STI award is then deferred at further risk as Rights to DXS
securities, subject to clawback and potential forfeiture.
The amount each Executive can earn is guided by how he/she performs against a personalised balanced scorecard of
key performance indicators (KPIs) that are set at the beginning of each year. The balanced scorecard is arranged in
categories and each category is weighted differently depending on the specific accountabilities of each Executive. If an
Executive does not meet Threshold performance in a category, the incentive benefit under that category will be zero.
KPIs at the Target level are set with an element of stretch against Threshold performance, which ensures that it is
difficult for an Executive to achieve 100% in any category. Following the same theme, KPIs at the Outperformance
level have a significant amount of stretch, and would require exceptional outcomes to be achieved. KPIs at both the
Target and Outperformance levels incorporate year-on-year performance improvement.
Aggregate performance below predetermined thresholds would result in no award being made under the STI plan.
STI payments are made in August, following the sign-off of statutory accounts and announcement of the Group’s
annual results for the period to which the performance relates.
25% of any award under the STI plan is deferred in the form of Rights to DXS securities.
The Rights vest ordinarily in two equal tranches, 12 and 24 months after being awarded. However, they are subject
to clawback and continued employment, and are based on a deferral period commencing 1 July after the relevant
performance period.
The number of Rights awarded is based on 25% of the STI value awarded to the Executive divided by the volume
weighted average price (VWAP) of securities 10 trading days either side of the first trading day of the new financial year.
Executives will be entitled to the benefit of distributions paid on the underlying DXS securities prior to vesting,
through the issue of additional Rights.
Forfeiture will occur should the Executive’s employment terminate within six months of the grant date for any reason,
or if the Executive voluntarily resigns or is terminated for cause prior to the vesting date.
Notwithstanding the above, if an Executive’s employment is terminated for reasons such as retirement, redundancy,
reorganisation, change in control or other unforeseen circumstances, the Board may decide that the Executive
should remain in the plan as a ‘good leaver’.
Alignment
The STI plan is aligned to security holder interests in the following ways:
Oversight
LTI plan
Purpose
Participation
Allocation
§ as an immediate reward opportunity to attract, motivate and retain talented Executives who can influence the
future performance of the Group
§
through a 25% mandatory STI deferral for Executives, allowing for future clawback of STI awards
The CEO monitors and assesses performance of Executives as part of the Group’s annual performance management
cycle. The CEO makes STI recommendations to the Board People and Remuneration Committee, who subsequently
make recommendations to the Board for approval.
The CEO’s own performance is assessed in a similar manner, with the Chair of the Board making recommendations
to the Committee for the Board’s ultimate approval.
The Board retains the right to amend, suspend or cancel the STI plan at any time.
The LTI plan is designed to motivate and reward Executives for sustained earnings and security holder returns and is
delivered in the form of Performance Rights to DXS securities.
The CEO receives an LTI grant equal to 100% of his fixed remuneration. The Executive Director Finance and
Chief Operating Officer receives an LTI grant equal to 75% of his fixed remuneration and other Executive KMP 50%.
Executives receive a grant of Performance Rights to DXS securities which are at risk and subject to performance
conditions set by the Board. The number of Performance Rights granted is based on the Executive’s grant value
(% of fixed remuneration) divided by the volume weighted average price (VWAP) of securities 10 trading days either
side of the first trading day of the new financial year.
Tranches
Each grant is split into two equal tranches, with a vesting period of three and four years respectively after the grant date.
2015 dexus annual rePOrT 24
Directors’ Report
Continued
3. REMUNERATiON REPORT (CONTINUED)
Remuneration structure (continued)
LTI plan (continued)
Performance conditions
The Board sets the performance conditions for the LTI plan on an annual basis. The four performance conditions for
the 2015 LTI plan remain the same as last year but with a change to one of the internal performance conditions as
explained below:
External Performance Conditions (50%)
§ 25% is based on the Group’s relative performance against a Total Shareholder Return (Relative TSR)
performance hurdle measured against listed peers within the A-REIT sector
TSR represents an investor’s return, calculated as the percentage difference between the initial amount invested
and the final value of DXS securities at the end of the relevant period, assuming distributions were reinvested
§ 25% is based on the Group’s relative performance against a Return On Equity (Relative ROE) performance
hurdle measured against unlisted peers
ROE represents the annualised composite rate of return to security holders, calculated as a percentage,
comprising the change in net tangible asset value per security together with the distributions paid to security
holders per security, divided by the net tangible asset value per security at the beginning of the period
Internal Performance Conditions (50%)
§ 25% is based on the Group’s performance against a predetermined Adjusted Funds From Operations (AFFO)
per security growth hurdle
Based on an internal review and cognisant of investor feedback, the Board has elected to make the change to
AFFO from FFO (as used in previous year’s plans) in order to reflect the impact of maintenance capex, leasing
incentives, derivative close-out costs and other one-off items
For the purposes of these performance hurdles, AFFO is defined as per the definition adopted by the Property
Council of Australia.
§ 25% is based on the Group’s performance against a predetermined Return on Equity (ROE) performance hurdle
ROE represents the annualised composite rate of return to security holders, calculated as a percentage,
comprising the change in net tangible asset value per security together with the distributions paid to security
holders per security, divided by the net tangible asset value per security at the beginning of the period
Vesting
Relative TSR and Relative ROE
Vesting under both the Relative TSR and Relative ROE conditions will be on a sliding scale reflecting relative
performance against a comparator group of entities.
§ Nil vesting for performance below the median of the comparator group
§ 50% vesting for performance at the median of the comparator group
§ Straight line vesting for performance between the 50th and 75th percentile
§ 100% vesting for performance at or above the 75th percentile
The listed and unlisted comparator groups remain unchanged ahead of the 2015 grant. Specifically:
§ Listed: all members of the S&P/ASX 200’s A-REIT Index
§ Unlisted: all members of the Mercer IPD Core Wholesale Property Fund Index
The Board reserves the right to review the comparator groups annually, with relative performance monitored by an
independent external adviser at 30 June each year.
AFFO Growth and ROE
Vesting under both the AFFO Growth and ROE measures will be on a sliding scale reflecting performance against
predetermined performance conditions set by the Board.
§ Nil vesting for below Target performance
§ 50% vesting for Target performance
§ Straight line vesting between Target and Outperformance
§ 100% vesting for Outperformance
AFFO Growth is the implied compound annual growth rate (CAGR) of the aggregate AFFO earnings per security
in the three and four year vesting periods. ROE is measured as the per annum average at the conclusion of each
vesting period.
Following a review of the Group’s strategy and having complicated extensive internal forecasting, the Board has
set the internal performance conditions for the 2015 LTI grant. Due to their commercially sensitive nature, LTI
performance conditions will only be disclosed at the conclusion of the vesting period in line with the contemporary
market practise.
25
Distributions
Forfeiture
Executives are not entitled to distributions paid on underlying DXS securities prior to Performance Rights vesting.
If the pre-determined performance conditions are not met then the Performance Rights relating to that tranche will
be forfeited. There is no retesting of forfeited Rights.
Additionally, forfeiture will occur should the Executive’s employment terminate within 12 months of the grant date for
any reason, or if the Executive voluntarily resigns or is terminated for cause prior to the vesting date.
Notwithstanding the above, if an Executive’s employment is terminated for reasons such as retirement, redundancy,
reorganisation, change in control or other unforeseen circumstances, the Committee may recommend that the
Executive should remain in the plan as a ‘good leaver’, for decision by the Board.
Alignment
The LTI plan is aligned to security holder interests in the following ways:
§ As a reward to Executive’s when the Group’s overall performance exceeds specific pre-determined earnings
and security holder return benchmarks
§ As a reward mechanism which encourages Executive retention and at the same time allows for future forfeiture
of LTI grants for financial underperformance, deliberate misrepresentation or fraud
§ By aligning the financial interests of Executives to security holders through exposure to DXS securities and
Group performance
§ By encouraging and incentivising Executives to make sustainable business decisions within the Board-
approved strategy of the Group
Oversight
The administration of the LTI plan is supported by the LTI plan guidelines which provide Executives with the rules of
the plan and guidance as to how it is to be administered.
Executives are prevented from hedging their exposure to unvested DXS securities. Trading in DXS securities or
related products is only permitted with the permission of the CEO.
The Group also has Conflict of Interest and Insider Trading policies in place to support the integrity of the LTI plan,
which extends to family members and associates of the Executive.
The Board has appointed Link Market Services as Trustee and Administrators of the DEXUS Performance Rights
Plan Trust, which is the vehicle into which unvested units are purchased and held in trust for the Executive pending
performance assessment.
The Board retains the right to amend, suspend or cancel the LTI plan at any time.
Service agreements
Executive service agreements detail the individual terms and conditions of employment applying to the CEO and Executives of the Group.
The quantum and structure of remuneration arrangements are detailed elsewhere in this report, with the termination scenarios and other key
employment terms detailed below:
CEO – Mr Steinberg
Terms
Employment agreement
An ongoing Executive Service Agreement.
Termination by the CEO
Termination by Mr Steinberg requires a six month notice period. The Group may choose to place Mr Steinberg on
‘leave’ or make a payment in lieu of notice at the Board’s discretion.
All unvested STI and LTI awards are forfeited in this circumstance.
Termination by the Group
without cause
If the Group terminates Mr Steinberg without cause, Mr Steinberg is entitled to a payment of 12 months Fixed
Remuneration. The Board may (in its absolute discretion) also approve a pro-rata STI or LTI award based on
part-year performance.
Depending on the circumstances, the Board has the ability to treat Mr Steinberg as a ‘good leaver’, which may result
in Mr Steinberg retaining some or all of his unvested STI and LTI.
Termination by the Group
with cause
No notice or severance is payable in this circumstance.
Other contractual
provisions and restrictions
Mr Steinberg’s Executive Service Agreement includes standard clauses covering intellectual property, confidentiality,
moral rights and disclosure obligations.
2015 dexus annual rePOrT 26
Directors’ Report
Continued
3. REMUNERATiON REPORT (CONTINUED)
Service agreements (continued)
Executives – Messrs Mitchell, George and Du Vernet
Terms
Employment agreement
An ongoing Executive Service Agreement.
Termination by
the Executive
Termination by the Executive requires a three month notice period. The Group may choose to place the Executive on
‘leave’ or make a payment in lieu of notice at the Board’s discretion.
All unvested STI and LTI awards are forfeited in this circumstance.
Termination by the Group
without cause
If the Group terminates the Executive without cause, the Executive is entitled to a combined notice and severance
payment of 12 months Fixed Remuneration. The Board may (in its absolute discretion) also approve a pro-rata STI
or LTI award based on part-year performance.
Depending on the circumstances, the Board has the ability to treat the Executive as a ‘good leaver’, which may result
in the Executive retaining some or all of his unvested STI and LTI.
Termination by the
Group with cause
No notice or severance is payable in this circumstance.
Other contractual
provisions and restrictions
The Executive Service Agreement includes standard clauses covering intellectual property, confidentiality, moral
rights and disclosure obligations.
Performance pay
Group performance
FY15 Highlights
Group
Property Portfolio
Third Party Funds
Management
Trading
Capital Management
Delivered a 9.3% increase
in FFO and distribution per
security. Increased AFFO
by 19.0% to $369.8 million
Achieved a 15.8%
one-year total security
holder return and 11.5%
return on equity
Leased 394,133 square
metres of space across the
total portfolio
Increased third party funds
under management by 10%
to $9.6 billion
Generated trading profits
of $42.6 million
Maintained a strong balance
sheet, with gearing of 28.5%,
below the target range
Maintained high occupancy
95.3% across the DEXUS
office portfolio
Involved in $863 million of
transactions on behalf of
third party clients
More than 60% of FY15
trading profits realised from
the active repositioning of
office properties
Continued to diversify and
increase duration of debt,
securing $250 million of US
Private Placement debt
Total Return of DXS Securities
The chart below illustrates DXS’s performance against the S&P/ASX200 Property Accumulation index since listing in 2004.
220
200
180
160
140
120
100
80
60
40
20
4
0
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p
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4
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5
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r
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9
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p
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0
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c
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1
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r
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3
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4
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5
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J
DEXUS Property Group
S&P/ASX200 Property Accumulation Index
27
Total return analysis
The table below sets out DXS’s total security holder return over a one, three and five year time horizon, relative to the S&P/ASX200 Property
Accumulation Index:
Year Ended 30 June 2015
DEXUS Property Group
S&P/ASX200 Property Accumulation Index
Median – Relative TSR Comparator Group
1 Year
(% per annum)
3 Years
(% per annum)
5 years
(% per annum)
15.8%
20.3%
18.9%
15.8%
18.4%
21.0%
16.2%
14.3%
17.2%
DXS achieved a 15.8% per annum return over a rolling three year basis, underperforming the S&P/ASX200 Property Accumulation index by 2.6%
and the median return of the benchmark peer group by 5.2%.
Individual performance assessment – Balanced Scorecards
Prior to the commencement of each financial year, the Board approves the Group’s strategic and operational objectives which are then translated
into a series of weighted financial and non-financial Key Performance Indicators (KPIs) for management. Each Executive’s Balanced Scorecard is
agreed based on these indicators.
The Scorecard is divided into five major components – ‘Group Financial Performance’, ‘Business & Portfolio Management’, ‘Funds Management
& Transactions’, ‘Stakeholder Engagement’ and ‘People & Culture’. These components are differentially weighted to reflect the responsibilities of
each Executive. For each of the components the Executive has objectives and specific initiatives set for that year. The Scorecards are agreed with
the KMP Executive at the beginning of the year, reviewed at the half year and assessed for performance awards at the end of the year.
Below is a table which summarises the CEO’s Balanced Scorecard for the year ended 30 June 2015.
Category & Principal KPIs
Weighting
Result
Performance Detail
Group Financial Performance
Funds from operation (FFO), Return on equity
(ROE), Development trading profits, like for like
property net operating income (NOI) growth
Business & Portfolio Management
Rent at risk, deliver divisional business plans,
debt duration, operating costs, development
delivery, leasing transactions
30%
Above target
20%
At target
Funds Management & Transactions
Funds investment performance, funds
under management (FUM) growth, strategy
development, transactions effectiveness
Stakeholder Engagement
Investor engagement and feedback, media
and community profile, sustainability, tenant
relationships, internal and external service
standards
30%
Above target
10%
Above target
People & Culture
Leadership effectiveness, employee engagement
and culture, talent attraction and retention,
succession planning, employee development
10%
Above target
On balance, the Board has determined that Group Financial
Performance is above target, due to FFO, ROE, and trading
profits exceeding targets, and market guidance, and property
NOI growth in line with expectations.
Consistently strong capital management and corporate
disciplines have underpinned sound performance across
property portfolios. Highlights include maintenance of strong
credit ratings, debt WALE profile, solid occupancy rates and
the delivery of business unit objectives around operational
efficiency and continuous improvement.
Unlisted funds growth through new and existing partners and
fund investment performance exceeding expectations and
continuing to outperform benchmarks.
Senior Executives increasing engagement with investors and
new capital partners, whilst developing existing relationships.
Investors and the broader market gained an increased
understanding of key areas of the business through the
inaugural Investor Day and the sustainability approach
was enhanced. Continuing focus on improving customer
relationships and community profile through innovation and
service-based businesses.
Increased focus on leadership, culture and diversity to sustain
a performance oriented culture was noted by the Board.
Improvements in recruitment and succession processes have
enabled talent strategies to be deployed through moderate
growth in employee population.
The scorecards for other Executive KMP are similar to that of the CEO, but with different weightings and with KPIs tailored to their individual roles.
2015 dexus annual rePOrT 28
Directors’ Report
Continued
3. REMUNERATiON REPORT (CONTINUED)
Performance pay (continued)
STI awards
Application of the KPIs against the Balanced Scorecards resulted in no executive achieving their target STI or the maximum possible STI. The
following table summarises the final awards made to each Executive KMP with respect to their performance during the year ended 30 June 2015.
Executive
Darren J Steinberg
Craig D Mitchell
Kevin L George
Ross G Du Vernet
Deferred STI grants
STI Award
($)
1,425,000
810,000
575,000
500,000
% of
Maximum
Possible STI
Earned
% of
Maximum
STI Forfeited
% of STI to be
Deferred
76%
72%
72%
73%
24%
28%
28%
27%
25%
25%
25%
25%
25% of the value of the STI awarded to each Executive will be deferred as Rights to DXS securities, subject to service and clawback conditions,
and vesting in two equal tranches after 12 and 24 months.
The table below shows the number of Rights to be granted to Executives under the 2015 Deferred STI plan (details of which are provided earlier
in this report).
Executive
Darren J Steinberg
Craig D Mitchell
Kevin L George
Ross G Du Vernet
number
of Rights
1st
Vesting Date
50%
2nd
Vesting Date
50%
48,302
27,456
19,490
16,948
1 July 2016
1 July 2017
1 July 2016
1 July 2017
1 July 2016
1 July 2017
1 July 2016
1 July 2017
The number of Rights granted to each Executive is based on 25% of the dollar value of STI approved by the Board in its discretion and with
reference to the remuneration framework, divided by the Volume Weighted Average Price (VWAP) of DXS securities 10 trading days either side
of 1 July 2015, which was confirmed as $7.3754.
DXS securities relating to Deferred STI grants are purchased on-market in accordance with ASX Listing Rule 10.15B and are held by the DEXUS
Performance Rights Plan Trust until the scheduled vesting date.
LTI grants
The table below shows the number of Performance Rights to be granted to Executives under the 2015 LTI plan (details of which are provided
earlier in this report).
Executive
Darren J Steinberg
Craig D Mitchell
Kevin L George
Ross G Du Vernet
number of
Performance
Rights
1st
Vesting Date
50%
2nd
Vesting Date
50%
203,379
1 July 2018
1 July 2019
91,520
43,387
37,286
1 July 2018
1 July 2019
1 July 2018
1 July 2019
1 July 2018
1 July 2019
The number of Performance Rights granted to each Executive is based on the dollar value of LTI approved by the Board in its discretion and with
reference to the remuneration framework, divided by the Volume Weighted Average Price (VWAP) of DXS securities 10 trading days either side of
1 July 2015, which was confirmed as $7.3754.
DXS securities relating to LTI grants are purchased on-market in accordance with ASX Listing Rule 10.15B and are held by the DEXUS
Performance Rights Plan Trust until the scheduled vesting date.
29
Executive remuneration actual cash received
In line with best-practice recommendations, the amounts shown in the table below provide a summary of actual remuneration received during the
year ended 30 June 2015. The STI and DDPP cash payments were received for performance in the 2014 and 2011 financial years respectively.
Executive
Darren J Steinberg
Craig D Mitchell
Kevin L George
Ross G Du Vernet
Cash Salary
($)
1,481,217
866,997
616,417
531,217
Pension
& Super
Benefits 1
($)
Other
Short Term
Benefits
($)
18,783
33,003
23,583
18,783
–
–
–
–
Earned in Prior Financial Years
STI Cash
Payment 2
($)
1,312,500
727,500
337,500
562,500
DDPP Cash
Payment 3
($)
Total
($)
–
2,812,500
625,005
2,252,505
–
–
977,500
1,112,500
1
Includes employer contributions to superannuation under the superannuation guarantee legislation and salary sacrifice amounts.
2 Cash payment made in August 2014 with respect to the 2014 STI Plan (i.e. annual performance payment for the prior financial year).
3 Cash payment made in August 2014 with respect to the 2011 DDPP award that vested on 1 July 2014 (i.e. realisation of three year deferred performance payment).
Executive remuneration statutory accounting method
The amounts shown in this table are prepared in accordance with AASB 124 Related Party Disclosures and do not represent actual cash payments
received by Executives for the year ended 30 June 2015. Amounts shown under Share based and Long Term Benefits reflect the accounting
expenses recorded during the year with respect to prior year deferred remuneration and awards that have or are yet to vest. For performance
payments and awards made with respect to the year ended 30 June 2015, refer to the Performance Pay Outcomes section of this report.
Short Term Benefits
Cash
Salary
($)
STI Cash
Award 1
($)
Other
Short
Term
Benefits
($)
Executive
Year
Darren J Steinberg
2015
1,481,217
1,068,750
Craig D Mitchell
Kevin L George
2014
1,382,225
1,312,500
2015
2014
2015
2014
866,997
607,500
751,300
727,500
616,417
431,250
602,425
337,500
Ross G Du Vernet
2015
531,217
375,000
2014
482,225
562,500
Total
2015 3,495,848 2,482,500
2014
3,218,175 2,940,000
–
–
–
–
–
–
–
–
–
–
Post-
Employ-
ment
Benefits
Share Based & long Term Benefits
Pension
& Super
Benefits 2
($)
Deferred
STI Plan
Accrual 3
($)
DDPP
Plan
Accrual 4
($)
Transition
Plan
Accrual 5
($)
lTI
Plan
Accrual 6
($)
Total
($)
18,783
430,168
17,775
360,799
33,003
231,836
–
–
–
104,853
748,595 3,852,366
105,000
434,572
3,612,871
124,825
295,273
2,159,434
23,700
177,281
57,105
125,000
159,995
2,012,476
23,583
131,628
22,575
271,020
18,783
155,454
17,775
116,960
94,152
949,086
–
–
–
–
–
–
–
180,568 1,383,446
110,452
1,343,972
49,930
142,487
1,272,871
50,000
84,037
1,313,497
279,608
1,366,923
8,668,117
81,825
926,060
57,105
280,000
789,056
8,292,221
1 FY15 annual cash STI performance award, payable in August 2015.
2 Includes employer contributions to superannuation under the superannuation guarantee legislation and salary sacrifice amounts.
3 Reflects the accounting expense accrued during the financial year for Deferred STI awards made with respect to FY13, FY14 and FY15 performance. Refer to note 21 of the DXS Financial
Statements. Mr George’s accrual for FY14 also included accounting for Performance Rights detailed in the 2014 Remuneration Report as Special Terms.
4 Reflects the accounting expense accrued during the financial year. The DDPP was closed to new members as of 1 July 2013 and Mr Mitchell is the only KMP beneficiary of this legacy
plan. The amount presented includes a $9,405 adjustment to the 2014 disclosure which did not include June 2014 distributions as required by the plan. Mr Mitchell has no further residual
entitlements under this plan.
5 FY12 Transitional plan applicable to all Executives, excluding Mr George. Reflects the accounting expense accrued during the financial year.
6 Reflects the accounting expense accrued during the financial year for LTI grants made with respect to FY13, FY14 and FY15 plans. Refer to note 21 of the DXS Financial Statements.
2015 dexus annual rePOrT 30
Directors’ Report
Continued
3. REMUNERATiON REPORT (CONTINUED)
Deferred remuneration plans
Rights Plan – vesting deferred STI
The table below shows the number of rights that vested to executives under the Deferred STI during the year ended 30 June 2015.
Participant
Darren J Steinberg
Craig D Mitchell
Kevin L George
Ross G Du Vernet
Award Date
Tranche
number
of Rights1
number of
Additional
Rights 2
Vesting
Date
1 July 2013
1 July 2013
1 July 2013
1 July 2013
1
1
1
1
34,565
14,813
6,518
7,604
1,898
1 July 2014
813
358
418
1 July 2014
1 July 2014
1 July 2014
1 Amounts have been restated to reflect the one-for-six security consolidation in October 2014.
2 Additional Rights are provided for under the terms of the STI Plan to reflect the distributions the participant would have received had they held the securities personally during the vesting period.
Rights Plan – unvested deferred STI
The table below shows the number of unvested rights held by Executives as at 30 June 2015 under the Deferred STI plan.
Participant
Darren J Steinberg
Craig D Mitchell
Kevin L George
Ross G Du Vernet
Award Date
Tranche
number
of Rights1
Fair Value
($) Vesting Date
1 July 2013
1 July 2014
1 July 2013
1 July 2014
1 July 2013
1 July 2014
1 July 2013
1 July 2014
2
1
2
2
1
2
2
1
2
2
1
2
34,565
32,179
32,179
14,813
17,836
17,836
6,518
8,274
8,274
7,604
13,791
13,791
6.27
6.72
6.72
6.27
6.72
6.72
6.27
6.72
6.72
6.27
6.72
6.72
1 July 2015
1 July 2015
1 July 2016
1 July 2015
1 July 2015
1 July 2016
1 July 2015
1 July 2015
1 July 2016
1 July 2015
1 July 2015
1 July 2016
1 Amounts have been restated to reflect the one-for-six security consolidation in October 2014.
31
Performance Rights plan – unvested LTI
The table below shows the number of unvested Performance Rights held by Executives as at 30 June 2015 under the LTI plan.
Participant
Darren J Steinberg
Craig D Mitchell
Kevin L George
Ross G Du Vernet
Award Date
Tranche
number
of Rights1
Fair Value
($) Vesting Date
1 July 2013
1 July 2014
1 July 2013
1 July 2014
1 July 2013
1 July 2014
1 July 2013
1 July 2014
1
2
1
2
1
2
1
2
1
2
1
2
1
2
1
2
94,015
94,015
102,971
102,971
29,626
29,626
42,752
42,752
27,177
27,177
22,985
22,985
19,751
19,751
18,388
18,388
5.79
5.63
5.66
5.43
5.79
5.63
5.66
5.43
5.79
5.63
5.66
5.43
5.79
5.63
5.66
5.43
1 July 2016
1 July 2017
1 July 2017
1 July 2018
1 July 2016
1 July 2017
1 July 2017
1 July 2018
1 July 2016
1 July 2017
1 July 2017
1 July 2018
1 July 2016
1 July 2017
1 July 2017
1 July 2018
1 Amounts have been restated to reflect the one-for-six security consolidation in October 2014.
Legacy Plan – unvested Transitional Rights
The table below shows the number of unvested Rights held by Executives under the Transitional Rights plan, which received security holder
approval at the 2012 Annual General Meeting. The Board granted these once-off Rights to Executives, with respect to performance during the
year ended 30 June 2012, as a transitional measure towards the adoption of the Group’s new remuneration framework which came into effect
1 July 2012.
Participant
Darren J Steinberg
Craig D Mitchell
Ross G Du Vernet
Award Date
1 Jul 2012
1 Jul 2012
1 Jul 2012
number
of Rights1 Vesting Date
75,570
89,964
35,985
1 Jul 2015
1 Jul 2015
1 Jul 2015
1 Amounts have been restated to reflect the one-for-six security consolidation in October 2014.
At the Board’s instruction, Rights were purchased on-market and the plan is subject to both service and clawback conditions. For more
information on the Transitional Performance Rights plan, refer to the 2012 Annual Report.
2015 dexus annual rePOrT 32
Directors’ Report
Continued
3. REMUNERATiON REPORT (CONTINUED)
Non-Executive Directors
Board fee structure
Non-Executive Directors’ fees are reviewed annually by the Committee to ensure they reflect the responsibilities of directors and are market
competitive. The Committee reviews information from a variety of sources to inform their recommendation regarding Non-Executive Directors’
fees to the Board. Information considered included:
§ Publicly available remuneration reports from ASX listed companies with similar market capitalisation and complexity
§ Publicly available remuneration reports from A-REIT competitors
§
Information supplied by external remuneration advisers, including Egan Associates
Other than the Chair who receives a single fee, Non-Executive Directors receive a base fee plus additional fees for membership of Board Committees.
The table below outlines the Board fee structure (inclusive of statutory superannuation contributions) for the year ended 30 June 2015:
Committee
Director’s Base Fee (DXFM)
Board Risk Committee
Board Audit Committee
Board Nomination Committee
Board People & Remuneration Committee
DWPL Board
Chair
($)
Member
($)
375,000 1
160,000
30,000
30,000
15,000
30,000
45,000
15,000
15,500
7,500
15,000
22,500
1 The Chairman receives a single fee for his entire engagement, including service on Committees of the Board.
As mentioned in the overview section of this report, fees for Non-Executive Directors were increased effective 1 July 2014. The Board Chair’s
base fee increased to $375,000 (+25,000), with Board Members’ base fees increasing to $160,000 (+$10,000). These were the first increase
in Directors’ fees since 2010.
Total fees paid to Non-Executive Directors for the year remained within the aggregate fee pool of $2,200,000 per annum approved by security
holders at the AGM in October 2014.
Minimum security holding
The minimum security holding requirement for Non-Executive Directors was increased to 100,000 (+50,000) DXS securities at the AGM in
October 2014. This was then adjusted in October 2016 to 16,500 securities following the DXS security consolidation, with the requisite holding
to be acquired by 29 October 2017. Newly appointed Directors are required to acquire the minimum security holding within three years of their
appointment, noting that the minimum requirement is not dissimilar to one year’s base directors’ fees.
Securities held by Directors are subject to the Group’s existing trading and insider information policies. No additional remuneration is provided
to Directors to purchase these securities. As at 30 June 2015, all Directors met this requirement, with the exception of Penny Bingham-Hall who
was appointed to the Board on 10 June 2014. Details of Directors’ holdings are included in this Directors’ Report.
33
Non-Executive Directors’ Statutory Accounting Table
The amounts shown in this table are prepared in accordance with AASB 124 Related Party Disclosures. The table is a summary of the actual cash
and benefits received by each Non-Executive Director for the year ended 30 June 2015.
non-Executive Director
Christopher T Beare
Elizabeth A Alexander AM
Penny Bingham-Hall1
Barry R Brownjohn2
John C Conde AO
Tonianne Dwyer
Stewart F Ewen OAM3
W Richard Sheppard
Peter B St George
Total
Short Term
Benefits
($)
Post
Employment
Benefits
($)
Other
long Term
Benefits
($)
356,217
332,225
201,683
178,490
168,950
7,921
–
54,920
179,224
164,760
205,596
165,798
–
47,644
191,781
167,206
171,233
151,030
18,783
17,775
18,317
16,510
18,147
733
–
5,080
17,026
15,240
18,764
15,337
–
7,356
18,219
15,467
16,267
13,970
1,474,684
1,269,994
125,523
107,468
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Year
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
1 Ms Bingham-Hall was appointed on 10 June 2014.
2 Mr Brownjohn stood down from the Board on 29 October 2013 and is included for comparative purposes only.
3 Mr Ewen stood down from the Board on 29 October 2013 and is included for comparative purposes only.
4. DiRECTORS’ RELEvANT iNTERESTS
The relevant interests of each Director in DXS stapled securities as at the date of this Directors’ Report are shown below:
Directors
Christopher T Beare
Elizabeth A Alexander, AM
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Craig D Mitchell
W Richard Sheppard
Darren J Steinberg
Peter B St George
1 Includes interests held directly and through performance rights (refer note 21).
Total
($)
375,000
350,000
220,000
195,000
187,097
8,654
–
60,000
196,250
180,000
224,360
181,135
–
55,000
210,000
182,673
187,500
165,000
1,600,207
1,377,462
no. of securities
16,667
16,667
8,334
16,667
16,667
300,834 1
70,090
604,928 1
17,333
2015 dexus annual rePOrT 34
Directors’ Report
Continued
5. REviEw OF RESULTS AND OPERATiONS
The Group’s financial performance for the year ended 30 June 2015 is summarised in the following section. In order to fully understand the
results, the full Financial Statements included in this Financial Report should be referred to.
DEXUS OVERVIEW
DEXUS Property Group (DEXUS or the Group) is an Australian Real Estate Investment Trust (A-REIT) listed on the Australian Securities Exchange
(ASX) that invests in, develops, manages and trades Australian office and industrial property. On behalf of third party clients which are mainly
domestic and international pension funds, DEXUS also transacts, develops, and manages Australian office, industrial and retail property.
The owned portfolio consists primarily of high quality central business district (CBD) office properties, held long term and leased to derive stable
and secure ongoing income streams. Developments, acquisitions and divestments are undertaken to enhance the quality and value of the portfolio.
DEXUS generates both rental income from its own properties and fees for leasing, property management and development on behalf of third party
clients. In addition, DEXUS has a trading trust that enables the development and repositioning of properties to enhance value and sell for a profit.
The total property portfolio of $19.1 billion as at 30 June 2015 includes:
§ $9.5 billion of owned property, with an additional $1.2 billion development pipeline, and
§ $9.6 billion of property managed for third party clients, with an additional $2.3 billion development pipeline
DEXUS PORTFOLIO
$9.5bn
THIRD PARTY FUNDS PORTFOLIO
TOTAL GROUP PORTFOLIO
$9.6bn
$19.1bn
DEXUS owned and managed portfolio of
Australian office and industrial properties
Management of a diverse portfolio of office,
industrial and retail properties on behalf of
third party partners and funds
Office: $7.8bn
Industrial: $1.7bn
Office: $4.6bn
Industrial: $1.2bn
Retail: $3.8bn
Office: $12.4bn
Industrial: $2.9bn
Retail: $3.8bn
DEVELOPMENT PIPELINE
(future growth)
Development $1.2bn
DEVELOPMENT PIPELINE
(future growth)
Development $2.3bn
DEVELOPMENT PIPELINE
(future growth)
Development $3.5bn
DEXUS employs more than 350 property professionals with offices in Sydney, Melbourne, Brisbane and Perth. The team manages approximately
1.7 million square metres of office space, 2.2 million square metres of industrial space and 0.8 million square metres of retail space, making
DEXUS the largest office manager and second largest industrial manager in Australia.
STRATEGY
DEXUS’s vision is to be globally recognised as Australia’s leading real estate company. This will be achieved by delivering superior risk adjusted
returns from Australian real estate by investing primarily in CBD office properties. DEXUS sets measurable targets across its key stakeholder
groups in line with its strategy and drives ethical and responsible performance in all areas of its operations.
Vision
Strategy
To be globally recognised as Australia’s leading real estate company
To deliver superior
risk-adjusted returns for investors from high
quality Australian real estate primarily comprising CBD office buildings
Strategic
Objectives
DEXUS has objectives
in support of its overall
strategy
LEADERSHIP IN
OFFICE
CORE CAPABILITIES
THIRD PARTY
PARTNERSHIPS
CAPITAL & RISK
MANAGEMENT
Being the leading
owner and manager
of Australian office
property
Having the best people,
strongest tenant
relationships and most
efficient systems
Being the wholesale
partner of choice
in Australian office,
industrial and retail
property
Actively managing
capital and risk in a
prudent and disciplined
manner
35
DEXUS’s strategy has several key elements:
1. Investing in and developing properties and spaces that DEXUS customers (tenants) want to occupy
DEXUS understands what drives demand from its customers and focuses on high quality properties in prime locations. This enables access to
facilities and amenities which are sought after by DEXUS’s customers.
2. Constantly improving the levels of service and amenity provided to customers
DEXUS utilises its core capabilities to continually improve the amenity of its real estate through property enhancements, and develops new
products and services to enhance the customer experience. This focus increases the market appeal of DEXUS’s properties and assists in building
meaningful relationships to attract and retain customers.
3. Partnering with third parties to grow in core markets and attract expertise
DEXUS partners with third parties to increase its access to properties and grow in core markets. The third party funds management platform
enables DEXUS to invest in the best people, systems and processes, and ultimately minimise the costs of running the portfolio.
4. Maintaining a conservative approach to financial and operational risk
DEXUS has a strong ‘A-’ Standard & Poor’s credit rating and ‘A3’ investment grade rating from Moody’s. These ratings are the result of measuring,
pricing and managing risk in a prudent manner. The success DEXUS has had in attracting significant amounts of capital from third parties is an
endorsement of its approach to investing and managing risk. Since 2012, DEXUS has raised more than $4 billion from some of the world’s largest
and most sophisticated investors in unlisted property.
DEXUS considers corporate responsibility and sustainability an integral part of its daily business operations. Committed to understanding,
monitoring and managing social, environmental and economic impact, DEXUS delivers these responsibilities through measurable actions and
within corporate policies. DEXUS’s sustainability approach supports its strategy through its overarching goal of delivering sustained value.
Reflecting DEXUS’s strategy of delivering superior risk adjusted returns for investors, DEXUS has identified three long term measures for success:
§ FFO growth of 3-5% through the cycle
§ Return on Equity of 9-10% through the cycle
§ Top quartile total security holder return
DEXUS draws on the core capabilities of its people to achieve its long term and short term targets.
Key earnings drivers – FY15 result
DEXUS sets short term targets against its earnings drivers across three areas of its business: the property portfolio, funds management and
property services, and trading. The following chart summarises the FY15 result against the targets set for each of the earnings drivers.
PROPERTY
PORTFOLIO
FUNDS MANAGEMENT
& PROPERTY SERVICES
TRADING
FY15 Target
FY15 Result
Positive like-for-like income growth
$35-40 million
Approximately $40 million
$645.6 million
95.3% office portfolio occupancy
Total portfolio +0.3%
L-F-L income growth3
$37.9 million
DEXUS Office Partnership delivered
a levered one-year total return
to DEXUS of 20.4%
89% FFO1
5% FFO1
Underlying business
$42.6 million2
6% FFO1
Trading
1 FFO contribution is calculated before Finance costs and Group corporate costs.
2 Trading profits generated less FFO tax expense that is being recognised for Rosebery in the year.
3 Like-for-like income growth is calculated on an effective basis.
DEXUS achieved its FY15 targets against each of its earnings drivers. Funds from Operations1 (FFO) from the owned property portfolio delivered
$645.6 million, within the 80-90% target range. Funds management and property services delivered $37.9 million and the trading business
achieved $42.6 million in profits (post tax).
1 FFO is in line with the Property Council of Australia definition and comprises net profit/loss after tax attributable to stapled security holders calculated in accordance with Australian Accounting
Standards and adjusted for: property revaluations, impairments, derivative and FX mark to market impacts, fair value movements of interest bearing liabilities, amortisation of tenant incentives,
gain/loss on sale of certain assets, straight line rent adjustments, deferred tax expense/benefit, rental guarantees, coupon income and distribution income net of funding costs.
2015 dexus annual rePOrT 36
Directors’ Report
Continued
5. REviEw OF RESULTS AND OPERATiONS (CONTINUED)
STRATEGY (continued)
FY15 Achievements
The successful achievement of the FY15 targets against the key earnings drivers is underpinned by activities relating to DEXUS’s four strategic
objectives. The table below details achievements for FY15 for each of the strategic objectives.
Strategic
Objective
Leadership
In Office
FY15
Achievements
Leveraged property expertise to improve the DEXUS office portfolio occupancy rate to 95.3%.
Developed and implemented a ‘fitted suites’ offering of customised office space for customers with needs of less
than a whole floor, enabling DEXUS to attract and retain more tenants.
Developed and introduced ‘DEXUS Place’ in Sydney, providing state of the art meeting room and conference
facilities for DEXUS customers, enabling DEXUS to attract and retain more customers through enhanced
customer offering.
Launched multiple new services for DEXUS customers including on-site secure Australian Post parcel locker
facilities, DEXUS Diners Club charge card for payment of rent and accruing reward points, and insurance based
‘security bond’ facilities. These services assist in increasing customer satisfaction and improve the willingness to
enter or renew leases.
Core
Capabilities
Leveraged the capabilities of the business to deliver trading profits of $42.6 million (after tax).
Continued to attract and retain the best people in key positions to enhance expertise and leadership across the
Group including a new leadership role of Deputy Chief Financial Officer.
Through ongoing investment in people and processes, continued to develop a culture of efficiency and continuous
improvement to achieve high performance.
Leveraged industrial expertise to acquire and develop new industrial product.
Leveraged retail expertise to reposition the quality and income earning capacity of city retail spaces in the office
portfolio and the shopping centres managed on behalf of third party partners.
Third Party
Partnerships
Delivered a 12.7% unlevered total return for the DEXUS Office Partnership portfolio in the 12 months to 30 June
2015, exceeding original performance assumptions.
Capital
and Risk
Management
Involved in $863 million of transactions on behalf of third party clients across the office, industrial and
retail markets.
Grew the third party development pipeline from $2.0 billion to $2.3 billion.
Achieved continued outperformance to benchmark for DEXUS Wholesale Property Fund (DWPF) over three and five
year periods.
Maintained a prudent balance sheet, with gearing of 28.5% (debt as a percent of total assets) below DEXUS’s
30-40% target range.
Maintained a competitive cost of capital with a debt cost of 5.2% and maintained hedging of greater than 65%
of total debt.
Improved access and diversity of funding sources, including acquiring properties in joint partnership with existing
partners (DEXUS Industrial Partnership and DWPF).
Recycled properties through divestment and acquisition consistent with the return on investment objectives of
creating security holder value over individual property life cycles.
37
REVIEW OF OPERATIONS
DEXUS has adopted FFO as its underlying earnings measure which has been defined in accordance with the guidelines established by the
Property Council of Australia for its reporting with effect from 1 July 2014.
In accordance with Australian Accounting Standards, net profit includes a number of non-cash adjustments including fair value movements in
asset and liability values. FFO is a global financial measure of real estate operating performance and is determined by adjusting net profit after
finance costs and taxes, and is adjusted for certain items which are non-cash, unrealised or capital in nature.
The Directors consider FFO to be a measure that reflects the underlying performance of the Group.
The following table reconciles between profit attributable to stapled security holders, FFO and distributions paid to stapled security holders.
Net profit for the year attributable to stapled security holders
Net fair value gain of investment properties1
Net fair value loss of derivatives and interest bearing liabilities
Net loss on sale of investment properties
CPA transaction costs
Finance break costs attributable to sales transactions
Foreign currency translation reserve transfer on disposal of foreign operations
Incentive amortisation and rent straight-line1,2
Reversal of impairment of management rights
Coupon income
Deferred tax
Funds from Operations (FFO)
Retained earnings3
Distributions
FFO per security4 (cents)
Distribution per security4 (cents)
Net tangible asset backing per security4 ($)
1
2
Including DEXUS’s share of equity accounted investments.
Including cash, rent free and fit out incentives amortisation.
3 Based on DEXUS’s distribution policy to payout in line with free cash flow. The payout ratio equated to 69% of FFO in both FY15 and FY14.
4 All FY14 per security figures in this report are restated to reflect the one-for-six security consolidation completed on 14 November 2014.
30 June 2015
($m)
30 June 2014
($m)
618.7
(241.0)
406.6
(165.5)
47.0
3.1
–
–
2.1
79.9
–
15.5
19.2
544.5
158.9
385.6
59.5
41.04
6.68
40.6
8.3
76.7
4.5
(0.8)
58.4
(7.3)
13.1
12.0
446.6
131.2
315.4
54.4
37.56
6.36
2015 dexus annual rePOrT 38
Directors’ Report
Continued
5. REviEw OF RESULTS AND OPERATiONS (CONTINUED)
REVIEW OF OPERATIONS (continued)
Operating result
GROUP
DEXUS’s net profit after tax was $618.7 million or 67.6 cents per security, an increase of $212.1 million from the prior year
(FY14: $406.6 million). The key drivers of this movement included:
§ Funds from Operations, or FFO, increased by $97.9 million resulting in FFO per security of 59.5 cents, an increase of 9.3%
§ Net revaluation gains of investment properties of $241.0 million, representing a 2.6% uplift across the portfolio, were $75.5 million
higher than the FY14 gains. This was driven primarily by value uplifts across the office portfolio
§ The FY14 statutory net profit was reduced by costs of $76.7 million relating to the CPA transaction which completed in April 2014
Revaluation gains achieved across DEXUS’s office portfolio primarily drove the 32 cent increase in NTA per security to $6.68, reflecting the
contribution of leasing success on capital values and capitalisation rate compression at properties with strong tenant covenants.
The following table provides a summary of the key components of FFO and AFFO based on the information provided in the Group Performance
and Property Portfolio assets sections included in this Financial Report.
Office Property FFO
Industrial Property FFO
Total Property FFO
Management operations
Group corporate
Net finance costs
Other1
Underlying FFO
Trading profits (net of tax)
FFO
Maintenance capex, lease incentives and leasing costs paid
AFFO2
1
‘Other’ income includes development management fees.
30 June 2015
$m
30 June 2014
$m
533.3
112.3
645.6
37.9
(30.4)
(150.8)
(0.4)
501.9
42.6
544.5
(174.7)
369.8
455.4
122.8
578.2
27.9
(27.5)
(139.4)
3.1
442.3
4.3
446.6
(135.9)
310.7
2 AFFO is calculated in line with the Property Council of Australia definition and comprises PCA FFO and adjusted for: maintenance capex,incentives (including rent free incentives) given to
tenants during the period and other items which have not been adjusted in determining FFO.
Operationally, FFO increased 21.9% to $544.5 million (FY14: $446.6 million).
The key drivers of the $97.9 million increase included:
§ Office Property FFO increased by $77.9 million to $533.3 million, driven by additional income from the DEXUS Office Partnership
properties. This was partially offset by a $10.5 million reduction in Industrial Property FFO to $112.3 million as a result of divestments
and lower occupancy at Auburn, Gladesville and Rosebery
§ Management operations income increased by $10.0 million to $37.9 million, driven by the DEXUS Office Partnership and growth in other
third party Funds Under Management (FUM)
§ Group corporate costs increased by $2.9 million (up 10.5% compared to FY14) despite the significant increase in revenues and FUM,
demonstrating the scalability of DEXUS’s business
§ Finance costs net of interest revenue increased by $11.4 million to $150.8 million, due to an increase in debt to fund the CPA transaction,
partially offset by lower interest costs
§ Trading profits (net of tax) increased by $38.3 million to $42.6 million after tax
On a per security basis, FFO increased 9.3% to 59.5 cents. The per security result takes into account the scrip issued in April 2014 as part of the
CPA transaction, explaining the difference in growth rates between the aggregate total dollar value of FFO and FFO per security. The underlying
business excluding trading profits delivered FFO per security of 54.8 cents, and grew by 1.7% on the previous year.
Distributions
Distributions per security for the year ended 30 June 2015 were 41.04 cents per security, up 9.3% on the previous year (FY14: 37.56 cents).
The distribution payout for the year was in line with free cash flow, in accordance with DEXUS’s distribution policy.
39
Return on equity
DEXUS delivered Return on Equity of 11.5%1 in FY15, above the 9–10% per annum target through the cycle and above the 6.7% delivered
in the prior year which was impacted by the CPA transaction.
Management expense ratio
Group corporate costs
Asset management costs
Total corporate and asset management costs
Closing funds under management (balance sheet only)
Group management expense ratio (MER)
30 June 2015
$m
30 June 2014
$m
30.4
9.1
39.5
9,533
41bps
27.5
10.8
38.3
7,820 2
49bps
While Group corporate costs increased to $30.4 million as a result of business growth, DEXUS has been able to maintain these corporate costs
enough to reduce the overall Management expense ratio3 (MER) from 49 basis points in FY14 to 41 basis points.
The following sections review the FY15 performance of the Group’s key financial drivers: Property Portfolio, Funds Management & Property
Services, and Trading.
PROPERTY PORTFOLIO
DEXUS remains focused on maximising the performance of its property portfolio through leasing and asset management activities, with the
property portfolio contributing to 89% of FFO in FY15.
DEXUS increased the size of its direct portfolio to $9.5 billion at 30 June 2015 from $9.1 billion at FY14. This movement was driven by the
acquisition of Lakes Business Park, Botany for $153.5 million and three industrial properties through the DEXUS Industrial Partnership for
$55.1 million in aggregate, the positive contribution of developments and investment property revaluations, which were partially offset by
$433 million of divestments including DEXUS’s remaining offshore property in New Zealand as well as three trading properties.
Office portfolio
Portfolio value:
Total area:
$7.8 billion
1,403,255 square metres
Area leased during the year: 211,071 square metres4
Key metrics
Occupancy by income
Occupancy by area
WALE by income
Average incentive
Average rental increase/(decrease) 6
Retention rate
Total return – 1 year
30 June 2015 30 June 2014
95.3%
95.5%
94.6%
94.3%
4.3 years
4.7 years
15.0%
0.1%
61%
9.6%
18.6%5
3.1% 5
61% 5
9.2%5
DEXUS improved occupancy and maximised cash flows across its office portfolio by capturing demand from diverse tenant groups and increasing the
number of effective leasing deals (with no incentives). Continued positive momentum for space in core A-grade properties in Sydney and Melbourne
has driven leasing volumes across the office portfolio, resulting in occupancy increasing to 95.3% and delivering on the ‘above 95%’ target set at the
start of the year.
DEXUS signed 275 leases across 98,340 square metres for spaces less than 1,500 square metres, representing 47% of all leasing undertaken by area.
The combination of improved tenant demand and increased acceptance of effective deal structures allowed DEXUS to maintain a focus
on reducing incentives, resulting in average incentives of 15.0% across all office leasing, an improvement from 18.6% at 30 June 2014.
During the year, DEXUS leased 211,071 square metres4 of office space across 303 transactions on average lease terms of 5.5 years.
Office portfolio occupancy by income improved from 94.6% at 30 June 2014 to 95.3% and portfolio WALE reduced to 4.3 years. Despite
tenant retention of 61%, DEXUS successfully leased 51% of the vacated area during the year, with average downtime of only four months.
1 Return on Equity is calculated as the growth of NTA per security plus the distribution paid/payable per security divided by the opening NTA per security.
2 FY14 listed FUM uses an average rather than closing to account for the purchase of the CPA portfolio in April 2014.
3 DEXUS’s MER is calculated as unallocated Group corporate and asset management expenses divided by on-balance sheet FUM.
4
Including Heads of Agreement.
5 Excluding the DEXUS Office Partnership properties.
6 Average change in face rents for leasing undertaken during the year.
2015 dexus annual rePOrT
40
Directors’ Report
Continued
5. REviEw OF RESULTS AND OPERATiONS (CONTINUED)
REVIEW OF OPERATIONS (continued)
Operating result (continued)
PROPERTY PORTFOLIO (continued)
The DEXUS office portfolio delivered a one-year total return of 9.6% (FY14: 9.2%) driven by a strong revaluation uplift across the DEXUS Office
Partnership properties, partially offset by a reduction in the valuation of 240 St Georges Terrace in Perth. Office property FFO increased by
$77.9 million to $533.3 million underpinned by the additional income from the DEXUS Office Partnership properties, with office like-for-like income
growth of 0.2%.
In June 2015, DEXUS and DWPF announced that they had reached a conditional agreement to jointly (50/50) acquire Waterfront Place and
Eagle Street Pier located within the prime commercial precinct of the Brisbane CBD known as the ‘Golden Triangle’ for $635 million1, reflecting a
capitalisation rate of 6.9%. The property is an excellent long term core investment, and Eagle Street Pier offers one of the best future development
sites in the Brisbane CBD. The acquisition is expected to settle on or around 1 October 2015 and increases DEXUS’s weighting to the Brisbane
CBD office market from 12.2% to 15.6%.
In FY16, DEXUS will continue to proactively manage and drive the performance of the office portfolio while enhancing the value of newly acquired
properties. DEXUS will focus on maintaining occupancy of >95%; reducing FY17 office lease expiries to 10%; and continuing to reduce incentives
and undertaking effective leasing deals. DEXUS expects flat like-for-like income growth across the DEXUS combined portfolio.
Industrial portfolio
Portfolio value:
Total area:
$1.7 billion
1,294,735 square metres
Area leased during the year: 183,062 square metres2
Key metrics
Occupancy by income
Occupancy by area
WALE by income
Average incentive
Average rental increase/(decrease)3
Retention rate
Total return – 1 year
30 June 2015 30 June 2014
92.4%
91.7%
93.0%
93.1%
4.0 years
4.0 years
10.8%
(4.6)%
53%
11.3%
11.0%
(8.6)%
41%
9.0%
Low interest rates are boosting business supported by housing construction and infrastructure projects which is translating into demand for
industrial facilities aligned to key transport corridors. With the increasing conversion of South Sydney and Inner West industrial sites into
residential and mixed uses, the central and outer western Sydney markets are benefiting from increased demand from a wide user category
seeking to be centrally located and in proximity to major arterial roads.
During the year, DEXUS leased 183,062 square metres2 of industrial space across 75 transactions including 44 leases with new tenants.
Tenant retention improved to 53% from 41% during FY14. DEXUS’s industrial portfolio occupancy by income reduced from 93.0% at 30 June
2014 to 92.4%, driven by an increase in vacancy at large scale facilities including Matraville, Flemington and Dandenong. DEXUS expects
industrial occupancy to improve over the next six months driven by further leasing at properties such as Dandenong which secured a new
10,612 square metre tenant in FY15 and now has 10,920 square metres remaining to lease.
Industrial Portfolio WALE remained steady at 4.0 years. New rents reduced 4.6% on average compared with prior rents, driven by reversions on
renewals and new leases, as the industrial portfolio remains 6.9% over-rented. Average incentives decreased slightly to 10.8% (FY14: 11.0%).
DEXUS’s industrial portfolio delivered a one-year total return of 11.3% (FY14: 9.0%) driven by improved property values. Industrial property FFO
of $112.3 million was down 8.6% on FY14, primarily as a result of divestments and lower occupancy at properties such as Rosebery. Like-for-like
income growth was 0.7%, driven by fixed increases across the portfolio, leasing at 15-23 Whicker Road, Gillman and 30 Bellrick St, Acacia Ridge,
offset by vacancy at Pound Road West, Dandenong.
DEXUS acquired Lakes Business Park, Botany, NSW for $153.5 million1 in January 2015, investing in one of DEXUS’s core industrial markets.
The property has the potential for superior rental growth in the medium term due to the lack of greenfield land options, combined with strong
momentum with competing land use opportunities in the area.
In FY16, DEXUS will focus on active asset management of the industrial portfolio to deliver attractive income returns; pursuing non-core
divestments and/or change of use repositioning opportunities within the existing portfolio; developing core new industrial product and pursuing
core plus acquisition opportunities for DEXUS and its third party partners.
1 Excluding acquisition costs.
2
Including Heads of Agreement.
3 Average change in face rents for leasing undertaken during the year.
41
Development
DEXUS continued to enhance future investor returns through progressing its $1.2 billion development pipeline, with key office projects
nearing completion.
DEXUS utilises its development expertise and leverages its portfolio scale to deliver best-in-class office buildings and prime industrial facilities
improving portfolio quality and enhancing investor returns. Development provides DEXUS with access to stock and leads to improved portfolio
quality and diversification, attracts revenues through development management fees and delivers on capital partner strategies.
DEXUS allocates up to 15% of Funds Under Management (FUM) across its direct portfolio to development and trading/value-add activities.
Currently representing 6.5% of FUM, these activities are focused on providing earnings accretion and enhancing total return.
The first stage of the 5 Martin Place, Sydney development reached practical completion on 30 June 2015, with Ashurst moving into levels
5 to 11 across 12,644 square metres in July 2015. The entire project is due for completion in September 2015. The office space is currently 82%
committed from 42% at acquisition and the retail space is 73% committed.
Two of the three towers at Kings Square, Perth were completed, with Shell to fully occupy one of the towers as its new corporate headquarters.
The remaining tower is expected to be completed in August 2015. A rental guarantee secured at time of acquisition ensures full income on the
properties for a further five years from practical completion with the office space currently 55% committed.
The Premium grade 480 Queen Street, Brisbane development topped out on 16 July 2015 with the office space 81% committed prior to the
development’s scheduled completion in early 2016.
The three year program for the Quarrywest at Greystanes development is underway, with a pre-commitment secured for a warehouse facility.
Over the year, the Group development pipeline grew to $3.5 billion, (DEXUS portfolio of $1.2 billion; Third Party Funds portfolio of $2.3 billion).
In FY16 DEXUS will deliver key office developments in Sydney, Perth and Brisbane; progress the DEXUS Industrial Partnership developments
at Quarrywest, Hemmant and Larapinta; and progress the Australian Industrial Partnership development at Laverton North.
FUNDS MANAGEMENT AND PROPERTY SERVICES
DEXUS’s Third Party Funds Management business represents over half of the Group’s $19.1 billion funds under management and its $2.3 billion
development pipeline will drive organic growth across the platform. Third party funds under management increased to $9.6 billion, up 10% from
30 June 2014, achieved through acquisitions, developments and revaluations.
The activities undertaken by the Third Party Funds Management business include managing office, industrial and retail investments on behalf
of third party partners and funds. These activities result in DEXUS earning fees for its funds management, property management, leasing and
development management services.
Over the past three years, DEXUS has established partnerships with three major investors and the DEXUS Wholesale Property Fund has raised
approximately $1.5 billion of capital. These results reflect third party partner recognition of DEXUS’s transactional capabilities, strategic asset and
development management expertise, as well as its best-practice corporate governance principles.
In FY16 DEXUS will continue to drive performance in the third party portfolios through active leasing; successfully deliver third party office,
industrial and retail developments; and deliver on third party clients’ transactional requirements.
TRADING
Trading is a capability that involves the identification of opportunities, repositioning or developing to enhance value with the intention to sell.
Trading properties are either acquired with the direct purpose of repositioning or development, or they are identified in DEXUS’s existing portfolio
as having value-add potential and acquired by DXO to be repositioned or developed, then sold.
Since 2010, DEXUS has been undertaking trading activities and recognising trading profits in its FFO. Over the past three years, DEXUS has
established a robust trading portfolio that DEXUS believes will drive consistent delivery of profits from this area of the business.
Trading profits of $42.6 million1 were realised in FY15, with more than 60% of trading profits realised from the active repositioning of office
properties at 50 Carrington Street, Sydney, and 40 Market Street, Melbourne.
The initial payment for Rosebery, net of tax, contributed to FY15 trading profits and the remaining proceeds will be realised in FY16.
In July 2015, DEXUS settled on the sale of 5-13 Rothschild Avenue and 22-55 Rosebery Avenue, Rosebery and 154 O’Riordan Street, Mascot.
These properties will deliver FY16 trading profits of approximately $60 million (post tax).
DEXUS continued to grow its trading pipeline, identifying a number of properties as potential opportunities for repositioning or development
and trading in future years including 32 Flinders Street, Melbourne and the southern site of Lakes Business Park, Botany. In FY16, DEXUS will
continue to progress these opportunities along with others in the trading pipeline.
1 Trading profits generated less FFO tax expense recognised for Rosebery in the year.
2015 dexus annual rePOrT 42
Directors’ Report
Continued
5. REviEw OF RESULTS AND OPERATiONS (CONTINUED)
REVIEW OF OPERATIONS (continued)
Financial position (look-through)
Office properties1
Industrial properties1
Other assets2
Total assets
Borrowings3
Other liabilities
Net assets
Less: intangibles
Net tangible assets
Total securities on issue
NTA per security ($)
30 June 2015
$m
30 June 2014
$m
7,822
1,711
838
10,371
2,957
637
6,777
(292)
6,485
7,659
1,470
933
10,062
3,117
892
6,053
(292)
5,761
970,806,349
905,531,797
6.68
6.36
Total look-through assets increased by $309 million primarily due to $181.1 million of acquisitions, development capital expenditures and
$241.0 million of property valuation increases, partially offset by $405.9 million of divestments.
Total look-through borrowings reduced by $160 million as debt was paid down with proceeds from the equity raising (including Security Purchase
Plan) and property divestments mentioned above, partially offset by funding required for the acquisitions and development capital expenditures
mentioned above.
Capital management
§ Cost of debt
§ Duration of debt
§ Gearing (look through)4
§ S&P/Moody’s credit rating:
5.2%
5.7 years
28.5%
A-/A3
DEXUS maintained the strength of its balance sheet with gearing4 at 28.5%, securing new debt at competitive margins and extending the duration
of its debt to 5.7 years. DEXUS has minimal short term refinancing requirements and will continue to take advantage of its improved credit ratings
to secure new debt funding.
DEXUS remains within all of its debt covenant limits and target ranges.
Equity raising
DEXUS completed an equity raising comprising a $400 million Institutional Placement in April 2015 followed by a $77.8 million Security Purchase
Plan (SPP) which completed in June 2015. The equity raising was undertaken to enable DEXUS to pursue compelling acquisition opportunities,
including the acquisition of Waterfront Place which was announced on 22 June 2015, while ensuring DEXUS remained lowly geared.
Security consolidation
DEXUS implemented a one-for-six security consolidation in November 2014 which reduced the total number of securities on issue.
On market securities buy-back
On 14 October 2014, DEXUS announced a new on-market securities buy-back of up to 5% of DEXUS securities on issue. The buy-back provided
DEXUS with the flexibility to acquire securities on market should conditions permit, with a focus on enhancing returns for investors. The buy-back
is yet to be utilised and was suspended on 21 April 2015 as a consequence of the announcement of an equity raising.
1
2
3
Includes DEXUS’s share of investment properties in equity accounted investments.
Including intangibles.
Includes DEXUS’s share of borrowings in equity accounted investments.
4 Adjusted for cash and for debt in equity accounted investments. Pro-forma gearing is 29.3% post the receipt of proceeds from the divestment of the Rosebery and Mascot trading properties
and the acquisition of the Waterfront Place Complex which is expected to settle in October 2015.
43
OUTLOOK
Group
The majority (80-90%) of DEXUS’s FFO is derived from rental income from its direct property portfolio, with the remainder derived from the
funds management & property services and trading businesses. Key lead indicators and factors affecting the outlook of each of these areas of
the business are outlined below.
Property portfolio
Office: The performance of office markets is influenced by the strength of the broader economy and business confidence, the supply and demand
characteristics of particular CBD markets and the leasing characteristics of individual properties.
Lead indicators such as ANZ job advertisements continue to suggest an improvement in hiring intentions which would have a flow on effect to
white collar employment growth and low interest rates are having a positive impact on business growth. With continued improvement in enquiry
levels in Sydney and Melbourne, the steady economic recovery is expected to translate into increased demand for space in these markets with
rental growth remaining subdued as supply comes online in the short to medium term. Brisbane and in particular Perth are expected to lag the
other CBD markets in the short term.
DEXUS is in a strong position to benefit from an improvement in office markets with its high quality office portfolio 86% weighted to Prime grade
properties, 61% located in Sydney and 14% located in Melbourne. DEXUS’s key office developments completed at 5 Martin Place in Sydney and
Kings Square in Perth are 82% and 55% committed respectively, with 480 Queen Street in Brisbane 81% leased. DEXUS has a five year and two
year rental guarantee in place at Kings Square, Perth and 480 Queen Street, Brisbane respectively.
Industrial: Industrial markets are expected to benefit from low interest rates, which are boosting small to medium business activity in particular.
The lower Australian dollar is expected to continue to drive Sydney port volumes and translate to demand from general merchandise retail for
industrial space.
With the increasing conversion of South Sydney and Inner West industrial sites into residential and mixed uses, central and outer western Sydney
markets will benefit from increased enquiry levels. The Melbourne industrial markets will continue to suffer from supply coming online and
elevated incentives.
DEXUS’s industrial portfolio in Sydney will benefit from tenant demand as a result of the stimulatory economic environment and stock withdrawals,
and will remain challenged in Melbourne in the short term. DEXUS will undertake industrial developments on both a pre-commitment and
speculative basis utilising its development capabilities to produce new product to attract quality tenants in Sydney, Melbourne and Brisbane.
Funds management & property services
DEXUS’s third party funds management platform is currently 47% weighted to office, 13% to industrial and 40% to retail properties. Its office
and industrial property performance will be impacted by the key lead indicators discussed above. For retail properties, sales growth is expected
to improve further in FY16 in response to low interest rates, lower petrol prices, strengthening employment and the depreciation of the Australian
dollar which is expected to boost domestic tourism and constrain online spending.
The weight of capital searching for Australian real estate is expected to remain strong in FY16, supported by low interest rates globally and the
high yields offered by Australian property relative to global peers.
DEXUS will continue to satisfy the investment objectives of its third party clients and funds through growing existing funds via acquisitions and
progressing the $2.3 billion third party development pipeline. DEXUS will maximise the performance of properties managed on their behalf to
continue its recognition as a wholesale partner of choice.
Trading
The trading business is an ongoing revenue stream, with the recognition of trading profits included in FFO. DEXUS will continue to identify
potential trading opportunities within its existing portfolio and seek new trading opportunities in core markets in order to replenish the future
trading pipeline. DEXUS has already exchanged on the properties that comprise FY16 trading profit guidance and is progressing the high priority
opportunities in the trading pipeline.
FY16 guidance
Barring unforeseen changes to operating conditions, DEXUS’s guidance1 for the 12 months ending 30 June 2016 is for FFO per security growth of
5.5-6.0%, with FFO from the underlying business (excluding trading profits net of tax) expected to grow by 3.0-3.5%.
Distributions will be paid in line with free cash flow, which is expected to deliver growth in distribution per security of 5.5-6.0% for the 12 months
ending 30 June 2016.
1 Barring unforeseen circumstances guidance is supported by the following assumptions: Flat like-for-like income growth across the DEXUS combined portfolios, weighted average cost of
debt of circa 4.9%, trading profits of approximately $60 million, Management Operations revenue of approximately $45-50 million (including third party development management fees),
$150 million of non-core property divestments, excluding any buy-back of DEXUS securities and excluding any further transactions.
2015 dexus annual rePOrT 44
Directors’ Report
Continued
5. REviEw OF RESULTS AND OPERATiONS (CONTINUED)
RISKS
There are various risks that could impact DEXUS’s strategy and outlook. The nature and potential impact of these risks can change over time.
Further information relating to DEXUS’s risk management framework is detailed in the Corporate Governance statement. DEXUS actively reviews
and manages risks it faces over the short, medium and long term, overseen by the Board Risk Committee. A number of the important strategic
risks, their potential impact and how DEXUS manages and monitors them are outlined in the table below.
Risk
Description
Potential impact
How DEXuS is equipped to manage and monitor this risk
Market volatility
– general
Volatility in equity or debt
markets and GDP growth
(domestically or globally) has
a material adverse effect on
leasing, investment demand,
or financing costs
§ Reduction in business
confidence and leasing
activity
§ DEXUS has a high quality, diversified portfolio which
is less sensitive to changes in investment demand
§ DEXUS has a low level of gearing, with a stated target
§ Reduction in ability to
range of 30-40%
attract and retain tenants
§
Increased cost of
borrowing
§ Further information relating to Financial risk management
is detailed in note 12 of the financial statements
§ DEXUS has a diversified source of income with
rental income being derived from 102 properties with
970 tenants. In addition, DEXUS derives income from
funds management and trading activities
§ A high proportion of DEXUS’s near term income
is secured via lease (contract)
§ DEXUS adopts a conservative approach to interest rate
hedging, with 69% of debt currently hedged
§ DEXUS tracks and reports performance through monthly
monitoring of budgets and expenditures
§ DEXUS tracks economic conditions and forecasts real
estate market performance
Property
valuations
decline
Depreciation in the value of
DEXUS’s property investments.
This can be caused by
changes in investment demand
for commercial property and/
or changes to the property
fundamentals (e.g. property
income) and/or changes to
global bond rates
§ Reduction in Net Tangible
Asset backing per security
§ DEXUS has a high quality, diversified portfolio which
is less sensitive to changes in investment demand
§ Deterioration of key credit
§ DEXUS has a low level of gearing, with a stated target
metrics
range of 30-40%
§
Increased cost of financing
and/or need to refinance
§ Reduction in market price
of DXS securities
§ Further information relating to Financial risk management
is detailed in note 12 of the financial statements
Funds from
Operations (FFO)
decline
FFO is lower than that
assumed in management
forecasts
§ Reduction in
distributions to investors
§ Reduction in market
price of DXS securities
§ DEXUS has a diversified source of income with rental
income being derived from 102 properties with 970
tenants. In addition, DEXUS derives income from funds
management and trading activities
§ A high proportion of DEXUS’s near term income
is secured via lease/contract
§ DEXUS adopts a conservative approach to interest rate
hedging, with 69% of debt currently hedged
§ DEXUS tracks and reports performance through monthly
monitoring of budgets and expenditures
Workplace
health and
safety
Financial or physical impact
arising from an accident or
event at an asset owned or
managed by DEXUS
§ Death or serious injury
§ DEXUS maintains comprehensive work health and
§ Financial loss arising
from an event claim
safety programs
§ Ensures compliance by site contractors and employees
§ Reputational damage
§ Maintains ongoing independent certification by British
Talent retention
Inability to attract and
retain the talent required
to execute the strategy
§ Legal proceedings
§ Loss of property and
platform expertise
§
Increased operating
costs via staff churn and
wage impacts
Standards International
§ DEXUS monitors and acts upon employee opinions
received through the Employee Opinion Surveys and
Culture Surveys
§ Annually reviews remuneration framework to benchmark
against market rates
§ Maintains succession plans for senior management
§
Implements awareness programs covering diversity,
gender and health in the workplace, ensuring diversity
and equality are understood and valued
45
6. DiRECTORS’ DiRECTORShiPS iN OThER LiSTED ENTiTiES
The following table sets out directorships of other ASX listed entities (unless otherwise stated), not including DXFM, held by the Directors at any
time in the three years immediately prior to the end of the year, and the period for which each directorship was held:
Director
Christopher T Beare
Company
Mnemon Group Limited
Flexigroup Limited
Elizabeth A Alexander, AM
Medibank Private Limited2
Bluescope Steel Limited
Date appointed
6 November 2009
1 July 2014
31 October 2008
29 March 2011
Date resigned
27 May 2013
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
W Richard Sheppard
Peter B St George
Whitehaven Coal Limited
3 May 2007
Cooper Energy Limited
25 February 2013
Cardno Limited
Metcash Limited
25 June 2012
24 June 2014
Echo Entertainment Group
21 November 2012
Boart Longyear Limited
21 February 2007
21 May 2013
First Quantum Minerals Limited1
20 October 2003
1 Listed for trading on the Toronto Stock Exchange in Canada and the London Stock Exchange in the United Kingdom.
2 Listed for trading on the Australian Securities Exchange since 24 November 2014.
7. PRiNCiPAL ACTiviTiES
During the year, the principal activity of the Group was to own, manage and develop high quality real estate assets and manage real estate funds
on behalf of third party investors. There were no significant changes in the nature of the Group’s activities during the year.
8. TOTAL vALUE OF TRUST ASSETS
The total value of the assets of the Group as at 30 June 2015 was $10,099.1 million (2014: $9,750.9 million). Details of the basis of this valuation
are outlined in the Notes to the Financial Statements and form part of this Directors’ Report.
9. LikELy DEvELOPMENTS AND EXPECTED RESULTS OF OPERATiONS
In the opinion of the Directors, disclosure of any further information regarding business strategies and future developments or results of the
Group, other than the information already outlined in this Directors’ Report or the Financial Statements accompanying this Directors’ Report,
would be unreasonably prejudicial to the Group.
10. SigNiFiCANT ChANgES iN ThE STATE OF AFFAiRS
The Directors are not aware of any matter or circumstance not otherwise dealt with in this Directors’ Report or the Financial Statements that has
significantly or may significantly affect the operations of the Group, the results of those operations, or the state of the Group’s affairs in future
financial years.
11. MATTERS SUbSEqUENT TO ThE END OF ThE FiNANCiAL yEAR
Since the end of the financial year, the Directors are not aware of any matter or circumstance not otherwise dealt with in this Directors’ Report or
the Financial Statements that has significantly or may significantly affect the operations of the Group, the results of those operations, or the state
of the Group’s affairs in future financial years.
12. DiSTRibUTiONS
Distributions paid or payable by the Group for the year ended 30 June 2015 were 41.04 cents per security (2014: 37.56 cents per security1)
as outlined in note 7 of the Notes to the Financial Statements.
13. DXFM FEES
Details of fees paid or payable by the Group to DXFM for the year ended 30 June 2015 are outlined in note 22 of the Notes to the Financial
Statements and form part of this Directors’ Report.
1 All FY14 per security figures in this Report are restated to reflect the one-for-six security consolidation completed on 14 November 2014.
2015 dexus annual rePOrT 46
Directors’ Report
Continued
14. iNTERESTS iN DXS SECURiTiES
The movement in securities on issue in the Group during the year and
the number of securities on issue as at 30 June 2015 are detailed in
note 15 of the Notes to the Financial Statements and form part of this
Directors’ Report.
Details of the number of interests in the Group held by DXFM or its
associates as at the end of the financial year are outlined in note
22 of the Notes to the Financial Statements and form part of this
Directors’ Report.
The Group did not have any options on issue as at 30 June 2015
(2014: nil).
15. ENviRONMENTAL REgULATiON
The Group’s senior management, through its Board Risk Committee,
oversee the policies, procedures and systems that have been
implemented to ensure the adequacy of its environmental risk
management practices. It is the opinion of this Committee
that adequate systems are in place for the management of its
environmental responsibilities and compliance with its various
licence requirements and regulations. Further, the Committee
is not aware of any material breaches of these requirements.
16. iNDEMNiFiCATiON AND iNSURANCE
The insurance premium for a policy of insurance indemnifying
Directors, officers and others (as defined in the relevant policy
of insurance) is paid by DEXUS Holdings Pty Limited (DXH).
PricewaterhouseCoopers (PwC or the Auditor), is indemnified out
of the assets of the Group pursuant to the DEXUS Specific Terms
of Business agreed for all engagements with PwC, to the extent that
the Group inappropriately uses or discloses a report prepared by PwC.
The Auditor, PwC, is not indemnified for the provision of services where
such an indemnification is prohibited by the Corporations Act 2001.
17. AUDiT
17.1 Auditor
PricewaterhouseCoopers continues in office in accordance with section
327 of the Corporations Act 2001.
17.2 Non-audit services
The Group may decide to employ the Auditor on assignments,
in addition to their statutory audit duties, where the Auditor’s expertise
and experience with the Group are important.
Details of the amounts paid or payable to the Auditor for audit and
non-audit services provided during the year are set out in note 19
of the Notes to the Financial Statements.
The Board Audit Committee is satisfied that the provision of non-audit
services provided during the year by the Auditor (or by another person
or firm on the Auditor’s behalf) is compatible with the standard of
independence for auditors imposed by the Corporations Act 2001.
The reasons for the Directors being satisfied are:
§ A Charter of Audit Independence provides guidelines under which
the Auditor may be engaged to provide non-audit services without
impairing the Auditor’s objectivity or independence
§ The Charter states that the Auditor will not provide services
where the Auditor may be required to review or audit its own
work, including:
– the preparation of tax provisions, accounting records and
financial statements
– the design, implementation and operation of information
technology systems
– the design and implementation of internal accounting and risk
management controls
– conducting valuation, actuarial or legal services
– consultancy services that include direct involvement in
management decision making functions
– investment banking, borrowing, dealing or advisory services
– acting as trustee, executor or administrator of trust or estate
– prospectus independent expert reports and being a member
of the due diligence committee, and
– providing internal audit services
§ The Board Audit Committee regularly reviews the performance
and independence of the Auditor and whether the independence
of this function has been maintained having regard to the
provision of non-audit services. The Auditor has provided a
written declaration to the Board regarding its independence at
each reporting period and Board Audit Committee approval is
required before the engagement of the Auditor to perform any
non-audit service for a fee in excess of $100,000
The above Directors’ statements are in accordance with the advice
received from the Board Audit Committee.
17.3 Auditor’s Independence Declaration
A copy of the Auditor’s Independence Declaration as required under
section 307C of the Corporations Act 2001 is set out on page 47 and
forms part of this Directors’ Report.
18. CORPORATE gOvERNANCE
DXFM’s Corporate Governance Statement is set out in a separate
section of the DEXUS Property Group Annual Report.
19. ROUNDiNg OF AMOUNTS AND CURRENCy
The Group is a registered scheme of the kind referred to in Class
Order 98/0100, issued by the Australian Securities & Investments
Commission, relating to the rounding off of amounts in this Directors’
Report and the Financial Statements. Amounts in this Directors’ Report
and the Financial Statements have been rounded off in accordance
with that Class Order to the nearest tenth of a million dollars, unless
otherwise indicated. All figures in this Directors’ Report and the
Financial Statements, except where otherwise stated, are expressed
in Australian dollars.
20. DiRECTORS’ AUThORiSATiON
The Directors’ Report is made in accordance with a resolution of the
Directors. The Financial Statements were authorised for issue by the
Directors on 11 August 2015. The Directors have the power to amend
and reissue the Financial Statements.
Christopher T Beare
Chair
11 August 2015
Darren J Steinberg
Chief Executive Officer
11 August 2015
auditor’s Independence Declaration
47
2015 dexus annual rePOrT 48
Consolidated statement of Comprehensive Income
For the year ended 30 June 2015
REvENUE FROM ORDiNARy ACTiviTiES
Property revenue
Proceeds from sale of inventory
Interest revenue
Management fee revenue
Total revenue from ordinary activities
Net fair value gain of investment properties
Share of net profit of investments accounted for using the equity method
Net fair value gain of interest bearing liabilities
Reversal of previous impairment of management rights
Net fair value gain of derivatives
Total income
EXPENSES
Property expenses
Cost of sale of inventory
Finance costs
Impairment of goodwill
Net fair value loss of derivatives
Net loss on sale of investment properties
Net fair value loss of interest bearing liabilities
Impairment of investments accounted for using the equity method
Transaction costs
Management operations, corporate and administration expenses
Total expenses
Foreign currency translation reserve transfer on disposal of foreign operations
Profit/(loss) before tax
Tax expense
Profit/(loss) for the year
OThER COMPREhENSivE iNCOME/(LOSS):
Items that may be reclassified to profit or loss:
Exchange differences on translating foreign operations
Foreign currency translation reserve transfer on disposal of foreign operations
Changes in the fair value of cash flow hedges
Total comprehensive income/(loss) for the year
Profit/(loss) for the year attributable to:
Unitholders of the parent entity
Unitholders of other stapled entities (non-controlling interests)
Profit/(loss) for the year
Total comprehensive income/(loss) for the year attributable to:
Unitholders of the parent entity
Unitholders of other stapled entities (non-controlling interests)
Total comprehensive income/(loss) for the year
note
2
10
9
18
2
10
4
18
9
3
5(a)
16(a)
16(a)
16(a)
2015
$m
548.8
220.1
0.4
89.6
858.9
130.4
252.1
–
–
17.4
1,258.8
(142.8)
(172.2)
(192.4)
(0.1)
–
(3.0)
(15.9)
–
–
(86.3)
(612.7)
(2.1)
644.0
(25.3)
618.7
(0.3)
2.1
17.9
638.4
174.7
444.0
618.7
192.6
445.8
638.4
2014
$m
572.3
69.3
0.2
58.0
699.8
145.7
58.3
12.3
7.3
–
923.4
(141.4)
(65.3)
(190.0)
(0.1)
(2.1)
(7.7)
–
(3.3)
(23.9)
(71.3)
(505.1)
0.8
419.1
(12.5)
406.6
5.3
(0.8)
(9.3)
401.8
141.4
265.2
406.6
132.1
269.7
401.8
EARNiNgS PER UNiT ON PROFiT/(LOSS) ATTRibUTAbLE TO UNiThOLDERS OF ThE
PARENT ENTiTy
Basic earnings per unit
Diluted earnings per unit
EARNiNgS PER STAPLED SECURiTy ON PROFiT/(LOSS) ATTRibUTAbLE TO STAPLED
SECURiTy hOLDERS
Basic earnings per security
Diluted earnings per security
1 Restated to reflect the one-for-six security consolidation.
Cents
Cents 1
19.08
19.08
67.58
67.58
17.24
17.24
49.57
49.57
6
6
6
6
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
Consolidated statement of Financial Position
as at 30 June 2015
49
2014
$m
14.1
111.6
139.6
80.3
8.7
8.1
362.4
2015
$m
13.0
55.5
5.5
110.3
17.7
27.3
229.3
6,207.3
5,926.5
20.5
164.5
10.8
235.9
2,795.9
2,813.9
367.2
10.8
292.2
2.3
9,860.7
10,090.0
110.7
4.2
150.0
231.1
10.8
506.8
2,624.0
–
159.2
17.2
2.1
3.4
2,805.9
3,312.7
6,777.3
1,990.6
8.6
190.3
2,189.5
71.5
35.9
292.6
1.4
9,388.5
9,750.9
111.1
1.3
149.5
197.2
2.4
461.5
2,782.1
338.4
85.7
21.1
4.9
3.9
3,236.1
3,697.6
6,053.3
1,833.4
(9.3)
193.0
2,017.1
3,939.9
3,625.7
42.8
605.1
4,587.8
6,777.3
41.2
369.3
4,036.2
6,053.3
CURRENT ASSETS
Cash and cash equivalents
Receivables
Non-current assets classified as held for sale
Inventories
Derivative financial instruments
Other
Total current assets
NON-CURRENT ASSETS
Investment properties
Plant and equipment
Inventories
Investments accounted for using the equity method
Derivative financial instruments
Deferred tax assets
Intangible assets
Other
Total non-current assets
Total assets
CURRENT LiAbiLiTiES
Payables
Current tax liabilities
Interest bearing liabilities
Provisions
Derivative financial instruments
Total current liabilities
NON-CURRENT LiAbiLiTiES
Interest bearing liabilities
Loans with related parties
Derivative financial instruments
Deferred tax liabilities
Provisions
Other
Total non-current liabilities
Total liabilities
Net assets
EqUiTy
Equity attributable to unitholders of the parent entity
Contributed equity
Reserves
Retained profits/(accumulated losses)
Parent entity unitholders’ interest
EqUiTy ATTRibUTAbLE TO UNiThOLDERS OF OThER STAPLED ENTiTiES
Contributed equity
Reserves
Retained profits/(accumulated losses)
Other stapled unitholders’ interest
Total equity
note
17(a)
17(b)
11
10
12(c)
17(c)
8
10
9
12(c)
5(c)
18
17(d)
5
13
17(e)
12(c)
13
22
12(c)
5(d)
15(a)
16(a)
16(c)
15(b)
16(a)
16(c)
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
2015 dexus annual rePOrT
50
Consolidated statement of Changes in equity
For the year ended 30 June 2015
Attributable to unitholders of the parent entity
Attributable to unitholders of other stapled entities
Opening balance as at 1 July 2013
Net profit/(loss) for the year
Other comprehensive income/(loss) for the year
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Issue of additional equity
Buy-back of contributed equity, net of transaction costs
Purchase of securities, net of transaction costs
Security-based payments expense
Distributions paid or provided for
Total transactions with owners in their capacity as owners
Closing balance as at 30 June 2014
Opening balance as at 1 July 2014
Net profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Issue of additional equity
Purchase of securities, net of transaction costs
Security-based payments expense
Distributions paid or provided for
Total transactions with owners in their capacity as owners
Closing balance as at 30 June 2015
note
Contributed
equity
$m
1,577.7
–
–
–
281.2
(25.5)
–
–
–
255.7
1,833.4
1,833.4
–
–
–
157.2
–
–
–
157.2
1,990.6
15
15
16
16
7
15
16
16
7
Reserves
$m
Retained
profits
$m
–
–
(9.3)
(9.3)
–
–
–
–
–
–
(9.3)
(9.3)
–
17.9
17.9
–
–
–
–
–
8.6
181.2
141.4
–
141.4
–
–
–
–
(129.6)
(129.6)
193.0
193.0
174.7
–
174.7
–
–
–
(177.4)
(177.4)
190.3
Total
$m
1,758.9
141.4
(9.3)
132.1
281.2
(25.5)
–
–
(129.6)
126.1
2,017.1
2,017.1
174.7
17.9
192.6
157.2
–
–
(177.4)
(20.2)
2,189.5
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Contributed
equity
$m
3,106.3
Reserves
$m
36.6
–
4.5
4.5
–
–
(3.1)
3.2
–
0.1
41.2
41.2
–
1.8
1.8
–
(4.0)
3.8
–
(0.2)
42.8
Retained
profits
$m
289.9
265.2
–
265.2
(185.8)
(185.8)
369.3
369.3
444.0
444.0
–
–
–
–
–
–
–
–
(208.2)
(208.2)
605.1
Total
$m
3,432.8
265.2
4.5
269.7
569.2
(49.8)
(3.1)
3.2
(185.8)
333.7
4,036.2
4,036.2
444.0
1.8
445.8
314.2
(4.0)
3.8
(208.2)
105.8
4,587.8
Total
equity
$m
5,191.7
406.6
(4.8)
401.8
850.4
(75.3)
(3.1)
3.2
(315.4)
459.8
6,053.3
6,053.3
618.7
19.7
638.4
471.4
(4.0)
3.8
(385.6)
85.6
6,777.3
–
–
–
–
–
–
–
–
–
–
–
–
569.2
(49.8)
519.4
3,625.7
3,625.7
314.2
314.2
3,939.9
Attributable to unitholders of the parent entity
Attributable to unitholders of other stapled entities
Opening balance as at 1 July 2013
Net profit/(loss) for the year
Other comprehensive income/(loss) for the year
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Issue of additional equity
Buy-back of contributed equity, net of transaction costs
Purchase of securities, net of transaction costs
Security-based payments expense
Distributions paid or provided for
Total transactions with owners in their capacity as owners
Closing balance as at 30 June 2014
Opening balance as at 1 July 2014
Net profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Issue of additional equity
Purchase of securities, net of transaction costs
Security-based payments expense
Distributions paid or provided for
Total transactions with owners in their capacity as owners
Closing balance as at 30 June 2015
Contributed
equity
Reserves
Retained
profits
note
$m
1,577.7
$m
–
–
(9.3)
(9.3)
–
–
–
–
–
–
(9.3)
(9.3)
–
17.9
17.9
–
–
–
–
–
8.6
$m
181.2
141.4
–
141.4
–
–
–
–
(129.6)
(129.6)
193.0
193.0
174.7
–
174.7
–
–
–
(177.4)
(177.4)
190.3
Total
$m
1,758.9
141.4
(9.3)
132.1
281.2
(25.5)
–
–
(129.6)
126.1
2,017.1
2,017.1
174.7
17.9
192.6
157.2
–
–
(177.4)
(20.2)
2,189.5
–
–
–
–
–
–
–
–
–
–
–
–
281.2
(25.5)
255.7
1,833.4
1,833.4
157.2
157.2
1,990.6
15
15
16
16
7
15
16
16
7
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Contributed
equity
$m
3,106.3
–
–
–
569.2
(49.8)
–
–
–
519.4
3,625.7
3,625.7
–
–
–
314.2
–
–
–
314.2
3,939.9
Reserves
$m
36.6
–
4.5
4.5
–
–
(3.1)
3.2
–
0.1
41.2
41.2
–
1.8
1.8
–
(4.0)
3.8
–
(0.2)
42.8
Retained
profits
$m
289.9
265.2
–
265.2
–
–
–
–
(185.8)
(185.8)
369.3
369.3
444.0
–
444.0
–
–
–
(208.2)
(208.2)
605.1
Total
$m
3,432.8
265.2
4.5
269.7
569.2
(49.8)
(3.1)
3.2
(185.8)
333.7
4,036.2
4,036.2
444.0
1.8
445.8
314.2
(4.0)
3.8
(208.2)
105.8
4,587.8
51
Total
equity
$m
5,191.7
406.6
(4.8)
401.8
850.4
(75.3)
(3.1)
3.2
(315.4)
459.8
6,053.3
6,053.3
618.7
19.7
638.4
471.4
(4.0)
3.8
(385.6)
85.6
6,777.3
2015 dexus annual rePOrT
52
Consolidated statement of Cash Flows
For the year ended 30 June 2015
CASh FLOwS FROM OPERATiNg ACTiviTiES
Receipts in the course of operations (inclusive of GST)
Payments in the course of operations (inclusive of GST)
Interest received
Finance costs paid to financial institutions
Distributions received from investments accounted for using the equity method
Income and withholding taxes paid
Proceeds from sale of property classified as inventory
Payments for property classified as inventory
Net cash inflow/(outflow) from operating activities
CASh FLOwS FROM iNvESTiNg ACTiviTiES
Proceeds from sale of investment properties
Payments for capital expenditure on investment properties
Payments for acquisition of investment properties
Payments for acquisition of subsidiaries
Payments for investments accounted for using the equity method
Transaction costs paid
Return of capital from investments accounted for using the equity method
Payments for management rights
Payments for plant and equipment
Net cash inflow/(outflow) from investing activities
CASh FLOwS FROM FiNANCiNg ACTiviTiES
Proceeds from borrowings
Repayment of borrowings
Repayment of loan with related party
Proceeds from loan with related party
Payments for buy-back of contributed equity
Proceeds from issue of additional equity
Purchase of securities for security-based payments plans
Distributions paid to security holders
Net cash inflow/(outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
note
2015
$m
2014
$m
20(a)
706.5
(286.4)
0.4
(144.2)
217.6
(1.0)
221.8
(53.3)
661.4
144.1
(93.9)
(14.8)
(160.0)
(263.9)
(7.5)
372.6
–
(12.1)
(35.5)
703.0
(275.6)
0.2
(134.6)
79.0
0.1
69.3
(23.1)
418.3
172.9
(110.0)
–
–
(1,103.4)
(14.0)
–
(42.0)
(4.0)
(1,100.5)
3,003.5
4,557.8
(3,408.0)
(3,848.3)
(338.4)
–
–
471.4
(4.0)
(351.5)
(627.0)
(1.1)
14.1
–
13.0
–
338.4
(75.3)
–
(3.1)
(288.3)
681.2
(1.0)
14.9
0.2
14.1
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
about this report
For the year ended 30 June 2015
53
iN ThiS SECTiON
This section sets out the basis upon which the Group’s Financial Statements are prepared.
Specific accounting policies are described in their respective notes to the Financial Statements. This section also shows information
on new or amended accounting standards and their impact on the financial position and performance of the Group.
(a) Basis of preparation
DEXUS Property Group stapled securities are quoted on the
Australian Securities Exchange under the ‘DXS’ code and comprise
one unit in each of DDF, DIT, DOT and DXO. In accordance with
Australian Accounting Standards, the entities within the Group must
be consolidated for financial reporting purposes. The parent entity
and deemed acquirer of DIT, DOT and DXO is DDF. These Financial
Statements therefore represent the consolidated results of DDF, and
include DDF and its controlled entities, DIT and its controlled entities,
DOT and its controlled entities, and DXO and its controlled entities.
Equity attributable to other trusts stapled to DDF is a form of
non-controlling interest and represents the equity of DIT, DOT and DXO.
The amount of non-controlling interest attributable to stapled security
holders is disclosed in the Statement of Financial Position. DDF is a
for-profit entity for the purpose of preparing Financial Statements.
Each entity forming part of the Group continues as a separate legal
entity in its own right under the Corporations Act 2001 and is therefore
required to comply with the reporting and disclosure requirements
under the Corporations Act 2001 and Australian Accounting Standards.
DEXUS Funds Management Limited (DXFM) as Responsible Entity for
DDF, DIT, DOT and DXO may only unstaple the Group if approval is
obtained by a special resolution of the stapled security holders.
These general purpose Financial Statements have been prepared in
accordance with the requirements of the Constitution of the entities
within the Group, the Corporations Act 2001, Australian Accounting
Standards and other authoritative pronouncements and interpretations
of the Australia Accounting Standards Board. Compliance with
Australian Accounting Standards ensures that the Financial
Statements and notes also comply with International Financial
Reporting Standards (IFRS).
Amounts in these Financial Statements have been presented in
Australian dollars and rounded off in accordance with ASIC Class
Order 98/100 to the nearest tenth of a million dollars, unless
otherwise indicated.
These Financial Statements are prepared on a going concern basis,
using historical cost conventions except for investment properties,
investment properties within equity accounted investments, security-
based payments, derivative financial instruments and other financial
liabilities which are stated at their fair value. Refer to the specific
accounting policies within the notes to the Financial Statements for
the basis of valuation of assets and liabilities measured at fair value.
The Group has unutilised facilities of $758.1 million (2014:
$462.3 million) (refer to note 13) and sufficient working capital
and cash flows in order to fund all requirements arising from the
net current asset deficiency as at 30 June 2015 of $277.5 million
(2014: $99.1 million).
The accounting policies adopted are consistent with those of the
previous financial year and corresponding interim reporting period,
unless otherwise stated.
Critical accounting estimates
In the process of applying the Group’s accounting policies, management
has made a number of judgements and applied estimates of future
events. Judgements and estimates which are material to the financial
report are discussed in the following notes:
Note 8
Note 10
Investment properties
Inventories
Note 12(b)
Interest bearing liabilities
Note 12(c)
Derivative financial instruments
Note 18
Note 21
Intangible assets
Security-based payments
Page 65
Page 70
Page 73
Page 78
Page 86
Page 89
(b) Principles of consolidation
These consolidated Financial Statements incorporate the assets,
liabilities and results of all subsidiaries as at 30 June 2015.
(i) Controlled entities
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power to direct the activities
of the entity. Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are deconsolidated from the
date that control ceases.
(ii) Joint arrangements
Investments in joint arrangements are classified as either joint
operations or joint ventures depending on the contractual rights and
obligations each investor has, rather than the legal structure of the
joint arrangement.
Joint operations
Where assets are held directly as tenants in common, the Group’s
proportionate share of revenues, expenses, assets and liabilities are
included in their respective items of the Statement of Financial Position
and Statement of Comprehensive Income.
Joint ventures
Investments in joint ventures are accounted for using the equity
method. Under this method, the Group’s share of the joint ventures’
post-acquisition profits or losses is recognised in the Statement of
Comprehensive Income and distributions received from joint ventures
are recognised as a reduction of the carrying amount of the investment.
(iii) Employee share trust
The Group has formed a trust to administer the Group’s securities-based
employee benefits. The employee share trust is consolidated as the
substance of the relationship is that the trust is controlled by the Group.
2015 dexus annual rePOrT 54
About this Report
Continued
(c) Foreign currency
The Financial Statements are presented in Australian dollars.
Foreign currency transactions are translated into the Australian dollars
functional currency using the exchange rates prevailing at the dates of
the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at period end
exchange rates of financial assets and liabilities denominated in foreign
currencies are recognised in the Statement of Comprehensive Income.
On 18 November 2014, settlement occurred on the sale of Lumley
Centre in New Zealand. The cumulative historical exchange differences
recognised in the foreign currency translation reserve were recycled
to the Statement of Comprehensive Income on disposal of this
foreign operation.
As at 30 June 2015, the Group has no investments in foreign operations.
AASB 9 Financial Instruments (effective 1 July 2018).
AASB 9 Financial Instruments addresses the classification,
measurement and derecognition of financial assets and financial
liabilities. It also sets out new rules for hedge accounting and
impairment of financial assets. The Group intends to apply the standard
from 1 July 2018. Application of this standard will not affect any of the
amounts recognised in the Financial Statements but will require the
disclosure of additional information.
AASB 15 Revenue from Contracts with Customers (effective 1 July 2018).
AASB 15 Revenue from Contracts with Customers clarifies the
principles for recognising revenue from contracts with customers.
It applies to all contracts with customers except leases, financial
instruments and insurance contracts. The Group intends to apply the
standard from 1 July 2018 and does not expect any significant impacts.
(d) Goods and services tax
Revenues, expenses and capital assets are recognised net of any amount
of Australian Goods and Services Tax (GST), except where the amount
of GST incurred is not recoverable. In these circumstances the GST is
recognised as part of the cost of acquisition of the asset or as part of the
expense. Cash flows are included in the Statement of Cash Flows on a
gross basis. The GST component of cash flows arising from investing and
financing activities that is recoverable from or payable to the Australian
Taxation Office is classified as cash flows from operating activities.
(e) New accounting standards and interpretations
Certain new accounting standards and interpretations have been
published that are not mandatory for the 30 June 2015 reporting
period. The Group’s assessment of the impact of these new standards
and interpretations is set out below:
(f) Notes to the Financial Statements
The notes include information which is required to understand the
Financial Statements and is material and relevant to the operations,
financial position and performance of the Group. Information is
considered material and relevant if, for example:
§ The amount in question is significant because of its size or nature
§
§
§
It is important in understanding the results of the Group
It helps to explain the impact of significant changes in the
Group’s business
It relates to an aspect of the Group’s operations that is important
to its future performance
The notes to the Financial Statements have been reordered and rewritten
in order to provide more meaningful information to the readers of the
Financial Statements. The notes are organised into the following sections:
Group performance
Property portfolio assets
Capital and financial
risk management and
working capital
Other disclosures
1. Operating segments
2.
3.
Property revenue and
expenses
Management operations,
corporate and administration
expenses
4. Finance costs
5. Taxation
6. Earnings per unit
7.
Distributions paid
and payable
8.
9.
Investment properties
12. Capital and financial risk
18. Intangible assets
Investments accounted for
using the equity method
management
19. Audit, taxation and transaction
13. Interest bearing liabilities
services fees
10. Inventories
11. Non-current assets classified
as held for sale
14. Commitments and
contingencies
15. Contributed equity
16. Reserves and retained
20. Reconciliation of net profit to
net cash flows from operating
activities
21. Security-based payments
profits
22. Related parties
17. Working capital
23. Parent entity disclosures
24. Subsequent events
notes to the Financial statements
Group Performance
55
iN ThiS SECTiON
This section explains the results and performance of the Group.
It provides additional information about those individual line items in the Financial Statements that the Directors consider most relevant
in the context of the operations of the Group, including: results by operating segment, property revenue and expenses, management
operations, corporate and administration expenses, finance costs, taxation, earnings per unit and distributions paid and payable.
The key indicators of the Group performance are detailed in the following table:
Statutory net profit ($m)
FFO1 ($m)
AFFO1 ($m)
Distribution ($m)
NTA2 ($m)
FFO1 per security3 (cents)
AFFO1 per security3 (cents)
Distribution per security3 (cents)
NTA2 per security3 ($)
Return on equity4
Gearing (look-through)5
2015
618.7
544.5
369.8
385.6
6,485
59.5
40.4
41.04
6.68
11.5%
28.5%
2014
406.6
446.6
310.7
315.4
5,761
54.4
37.9
37.56
6.36
6.7%
33.7%
2013
514.5
388.0
290.1
282.1
4,948
49.4
36.9
36.00
6.31
11.2%
29.0%
2012
182.9
395.2
269.3
257.4
4,784
49.0
33.4
32.10
6.00
4.5%
27.2%
2011
555.1
386.6
234.1
250.7
4,878
48.0
29.0
31.08
6.05
11.8%
28.4%
1 Funds From Operations (FFO) is defined in note 1.
FFO and AFFO have been restated for previous periods to reflect the PCA definition.
2 Net Tangible Assets (NTA) is calculated as total assets less intangible assets.
3 Restated to reflect the one-for-six security consolidation.
4 Change in NTA per security plus distribution per security divided by previous year’s NTA per security.
5 Gearing calculation is detailed in note 12(a) and is adjusted for cash and for debt in equity accounted investments.
NOTE 1. OPERATiNg SEgMENTS
(a) Description of segments
The Chief Operating Decision Maker (CODM) has been identified as the Board of Directors as they are responsible for the strategic decision
making within the Group. DXS management has identified the Group’s operating segments based on the sectors analysed within the management
reports reviewed by the CODM in order to monitor performance across the Group and to appropriately allocate resources. Refer to the table below
for a brief description of the Group’s operating segments.
Segment
Office
Industrial
Description
Office space with any associated retail space; as well as car parks and office developments in Australia
and New Zealand.
Domestic industrial properties, industrial estates and industrial developments.
Property management
Property management services for third party clients and owned assets.
Funds management
Funds management of third party client assets.
Development and trading
Revenue earned and costs incurred by the Group on developments and inventory.
All other segments
Corporate expenses associated with maintaining and operating the Group. This segment also includes
the centralised treasury function.
2015 dexus annual rePOrT 56
notes to the Financial Statements
Group Performance (continued)
NOTE 1. OPERATiNg SEgMENTS (CONTINUED)
(b) Segment information provided to the CODM
30 June 2015
Segment performance measures
Property revenue and property management fees
Proceeds from sale of inventory
Management fee revenue
Total operating segment revenue
Property expenses and property management salaries
Management operations expenses
Corporate and administration expenses
Cost of sale of inventory
Interest revenue
Finance costs
Incentive amortisation and rent straight-line
Tax expense
Coupon income and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Net fair value gain/(loss) of derivatives
Foreign currency translation reserve transfer
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Deferred tax (expense)/benefit
Coupon income
Net profit/(loss) attributable to stapled security holders
Segment asset measures
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
Office
$m
607.4
–
–
607.4
(156.0)
–
(7.4)
–
–
–
73.9
–
15.4
533.3
213.5
–
–
(2.4)
–
(73.9)
–
(15.5)
655.0
Industrial
$m
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
133.1
–
–
133.1
(25.1)
–
(1.7)
–
–
–
6.0
–
–
112.3
27.5
–
–
(0.7)
–
(6.0)
–
–
133.1
4,795.5
1,411.8
–
–
2,983.9
7,779.4
5.5
–
61.9
1,479.2
13.2
24.7
17.2
–
32.5
49.7
(12.2)
(24.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40.5
40.5
(15.8)
(6.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
220.1
6.4
226.5
(172.2)
(5.3)
42.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
274.8
274.8
13.2
24.7
42.8
(250.1)
Eliminations
$m
(0.8)
(0.8)
1,056.4
Total
$m
756.9
220.1
79.4
(193.3)
(46.3)
(38.7)
(172.2)
1.0
(151.8)
79.9
(6.1)
15.6
544.5
241.0
(31.1)
(2.1)
(3.1)
(15.9)
(79.9)
(19.2)
(15.5)
618.7
6,207.3
5.5
274.8
3,045.8
9,533.4
0.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(30.4)
–
1.0
(151.8)
–
(0.8)
0.2
(181.8)
–
(31.1)
(2.1)
(15.9)
(19.2)
–
–
–
–
–
–
–
–
Property revenue and property management fees
607.4
133.1
NOTE 1. OPERATiNg SEgMENTS (CONTINUED)
(b) Segment information provided to the CODM
30 June 2015
Segment performance measures
Proceeds from sale of inventory
Management fee revenue
Total operating segment revenue
Property expenses and property management salaries
Management operations expenses
Corporate and administration expenses
Incentive amortisation and rent straight-line
Cost of sale of inventory
Interest revenue
Finance costs
Tax expense
Coupon income and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Net fair value gain/(loss) of derivatives
Foreign currency translation reserve transfer
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Deferred tax (expense)/benefit
Coupon income
Net profit/(loss) attributable to stapled security holders
Segment asset measures
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
Office
$m
Industrial
$m
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
607.4
(156.0)
(7.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
73.9
15.4
533.3
213.5
(2.4)
(73.9)
(15.5)
655.0
2,983.9
7,779.4
133.1
(25.1)
(1.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
6.0
112.3
27.5
(0.7)
(6.0)
133.1
5.5
–
61.9
1,479.2
4,795.5
1,411.8
17.2
–
32.5
49.7
(12.2)
(24.3)
–
–
–
–
–
–
–
–
–
40.5
40.5
–
(15.8)
–
–
–
–
–
–
–
13.2
24.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13.2
24.7
–
–
–
–
–
–
–
–
–
–
–
220.1
6.4
226.5
–
(6.2)
–
(172.2)
–
–
–
(5.3)
–
42.8
–
–
–
–
–
–
–
–
42.8
–
–
274.8
–
274.8
–
–
–
–
–
–
(30.4)
–
1.0
(151.8)
–
(0.8)
0.2
(181.8)
–
(31.1)
(2.1)
–
(15.9)
–
(19.2)
–
(250.1)
–
–
–
–
–
(0.8)
–
–
(0.8)
–
–
0.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57
Total
$m
756.9
220.1
79.4
1,056.4
(193.3)
(46.3)
(38.7)
(172.2)
1.0
(151.8)
79.9
(6.1)
15.6
544.5
241.0
(31.1)
(2.1)
(3.1)
(15.9)
(79.9)
(19.2)
(15.5)
618.7
6,207.3
5.5
274.8
3,045.8
9,533.4
2015 dexus annual rePOrT 58
notes to the Financial Statements
Group Performance (continued)
NOTE 1. OPERATiNg SEgMENTS (CONTINUED)
(b) Segment information provided to the CODM (continued)
30 June 2014
Segment performance measures
Property revenue and property management fees
Proceeds from sale of inventory
Management fee revenue
Total operating segment revenue
Property expenses & property management salaries
Management operations expenses
Corporate and administration expenses
Cost of sale of inventory
Interest revenue
Finance costs
Incentive amortisation and rent straight-line
Tax expense
Coupon income and net CPA distribution income
Funds From Operations (FFO)
Net fair value gain of investment properties
Net fair value loss of derivatives
Finance costs attributable to sales transactions
CPA transaction costs
Foreign currency translation reserve transfer
Net loss on sale of investment properties
Net fair value gain of interest bearing liabilities
Incentive amortisation and rent straight-line
Reversal of impairment of management rights
Deferred tax expense
Coupon income and net CPA distribution income
Net profit/(loss) attributable to stapled security holders
Segment asset measures
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
Office
$m
540.4
–
–
540.4
(137.9)
–
(7.6)
–
–
–
52.6
–
7.9
455.4
155.3
–
–
–
–
(4.2)
–
(52.6)
–
–
(7.9)
546.0
4,673.6
130.1
–
2,717.8
7,521.5
Industrial
$m
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
146.3
–
–
146.3
(25.8)
–
(3.2)
–
–
–
5.5
–
–
122.8
10.2
–
–
–
–
(4.1)
–
(5.5)
–
–
–
123.4
1,252.9
9.5
–
29.3
1,291.7
13.6
–
22.5
36.1
(8.9)
(17.4)
32.0
32.0
(13.9)
9.8
18.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
69.3
1.4
70.7
(3.0)
(65.3)
0.3
2.7
(0.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
316.2
316.2
(27.5)
0.7
(140.1)
(0.5)
5.2
(162.2)
(52.9)
(4.5)
(76.7)
0.8
12.3
7.3
(12.0)
(5.2)
(293.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.8
18.1
2.4
$m
(0.6)
(0.6)
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$m
699.7
69.3
55.9
824.9
(172.6)
(34.3)
(37.7)
(65.3)
0.7
(140.1)
58.4
(0.5)
13.1
446.6
165.5
(52.9)
(4.5)
(76.7)
0.8
(8.3)
12.3
(58.4)
7.3
(12.0)
(13.1)
406.6
5,926.5
139.6
316.2
2,747.1
9,129.4
NOTE 1. OPERATiNg SEgMENTS (CONTINUED)
(b) Segment information provided to the CODM (continued)
30 June 2014
Segment performance measures
Property revenue and property management fees
Proceeds from sale of inventory
Management fee revenue
Total operating segment revenue
Property expenses & property management salaries
Management operations expenses
Corporate and administration expenses
Cost of sale of inventory
Interest revenue
Finance costs
Incentive amortisation and rent straight-line
Tax expense
Coupon income and net CPA distribution income
Funds From Operations (FFO)
Net fair value gain of investment properties
Net fair value loss of derivatives
Finance costs attributable to sales transactions
CPA transaction costs
Foreign currency translation reserve transfer
Net loss on sale of investment properties
Net fair value gain of interest bearing liabilities
Incentive amortisation and rent straight-line
Reversal of impairment of management rights
Deferred tax expense
Coupon income and net CPA distribution income
Net profit/(loss) attributable to stapled security holders
Segment asset measures
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
Office
$m
540.4
540.4
(137.9)
(7.6)
52.6
7.9
455.4
155.3
(4.2)
(52.6)
(7.9)
546.0
4,673.6
130.1
2,717.8
7,521.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
146.3
146.3
(25.8)
(3.2)
5.5
122.8
10.2
(4.1)
(5.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
123.4
1,252.9
9.5
–
29.3
1,291.7
Industrial
$m
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
13.6
–
22.5
36.1
(8.9)
(17.4)
–
–
–
–
–
–
–
–
–
32.0
32.0
–
(13.9)
–
–
–
–
–
–
–
9.8
18.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.8
18.1
–
–
–
–
–
–
–
–
–
–
–
69.3
1.4
70.7
–
(3.0)
–
(65.3)
–
–
0.3
–
–
2.7
–
–
–
–
–
–
–
(0.3)
–
–
–
2.4
–
–
316.2
–
316.2
–
–
–
–
–
–
(27.5)
–
0.7
(140.1)
–
(0.5)
5.2
(162.2)
–
(52.9)
(4.5)
(76.7)
0.8
–
12.3
–
7.3
(12.0)
(5.2)
(293.1)
–
–
–
–
–
(0.6)
–
–
(0.6)
–
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
59
Total
$m
699.7
69.3
55.9
824.9
(172.6)
(34.3)
(37.7)
(65.3)
0.7
(140.1)
58.4
(0.5)
13.1
446.6
165.5
(52.9)
(4.5)
(76.7)
0.8
(8.3)
12.3
(58.4)
7.3
(12.0)
(13.1)
406.6
5,926.5
139.6
316.2
2,747.1
9,129.4
2015 dexus annual rePOrT 60
notes to the Financial Statements
Group Performance (continued)
NOTE 1. OPERATiNg SEgMENTS (CONTINUED)
(c) Other segment information
(i) Funds From Operations (FFO)
On 1 July 2014, the Group adopted the Property Council of Australia definition of FFO. Comparative information has been adjusted to reflect this
change. The Directors consider FFO to be a measure that reflects the underlying performance of the Group. FFO is calculated as net profit for
the year adjusted for: property revaluations, impairments, derivative and FX mark-to-market impacts, fair value movements of interest bearing
liabilities, amortisation of tenant incentives, gain/loss on sale of certain assets, straight line rent adjustments, deferred tax expense/benefit, rental
guarantees, coupon income and distribution income net of funding costs.
(ii) Reconciliation of segment revenue to the Statement of Comprehensive Income
Gross operating segment revenue
Share of property revenue from joint ventures
Share of management fees charged to joint ventures
Interest revenue
Total revenue from ordinary activities
2015
$m
1,056.4
(208.1)
10.2
0.4
2014
$m
824.9
(127.4)
2.1
0.2
858.9
699.8
(iii) Reconciliation of segment assets to the Statement of Financial Position
The amounts provided to the CODM as a measure of segment assets is the direct property portfolio. The direct property portfolio values
are allocated based on the operations of the segment and physical location of the asset and are measured in a manner consistent with the
Statement of Financial Position. The reconciliation below reconciles the total direct property portfolio balance to total assets in the Statement
of Financial Position.
Direct property portfolio1
Cash and cash equivalents
Receivables
Intangible assets
Derivative financial instruments
Deferred tax assets
Plant and equipment
Prepayments and other assets2
Total assets
2015
$m
2014
$m
9,533.4
9,129.4
13.0
55.5
292.2
384.9
10.8
20.5
(220.3)
10,090.0
14.1
111.6
292.6
80.2
35.9
10.8
76.3
9,750.9
1
Includes the Group’s portion of investment properties accounted for using the equity method.
2 Other assets include the Group’s share of total net assets of its investments accounted for using the equity method less the Group’s share of the investment property value which is included
in the direct property portfolio.
61
NOTE 2. PROPERTy REvENUE AND EXPENSES
Rental revenue is recognised on a straight-line basis over the lease term for leases with fixed rent review clauses.
Prospective tenants may be offered incentives as an inducement to enter into operating leases. These incentives may take various forms including
cash payments, rent free periods, or a contribution to certain lessee costs such as fit-out costs or relocation costs. The costs of incentives are
recognised as a reduction of rental revenue on a straight-line basis from the lease commencement date to the end of the lease term. The carrying
amount of the lease incentives is reflected in the fair value of investment properties.
Rent and recoverable outgoings
Incentive amortisation
Other revenue
Total property revenue
2015
$m
549.3
(61.9)
61.4
548.8
Property expenses of $142.8 million (2014: $141.4 million) include rates, taxes and other property outgoings incurred in relation to
investment properties.
NOTE 3. MANAgEMENT OPERATiONS, CORPORATE AND ADMiNiSTRATiON EXPENSES
Audit, taxation, legal and other professional fees
Depreciation and amortisation
Employee benefits expense and other staff expenses
Administration and other expenses
Management operations, corporate and administration expenses
2015
$m
6.6
2.8
69.2
7.7
86.3
2014
$m
568.6
(59.5)
63.2
572.3
2014
$m
3.7
2.3
56.9
8.4
71.3
NOTE 4. FiNANCE COSTS
Borrowing costs include interest, amortisation or ancillary costs incurred in connection with arrangement of borrowings and net fair value
movements of interest rate swaps. Borrowing costs are expensed as incurred unless they relate to qualifying assets.
Qualifying assets include investment properties and inventories which take more than 12 months to develop for their intended use or sale.
In these circumstances, borrowing costs are capitalised to the cost of the asset during the period of time that is required to complete and develop
the asset for its intended use or sale. To the extent that funds are borrowed generally to fund development, the amount of borrowing costs to be
capitalised to qualifying assets must be determined by using a weighted average capitalisation rate.
Interest paid/payable
Net fair value loss of interest rate swaps
Amount capitalised
Other finance costs
Finance costs attributable to sales transactions
Total finance costs
2015
$m
135.8
57.7
(6.0)
4.9
–
2014
$m
135.5
51.3
(6.1)
4.8
4.5
192.4
190.0
The average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 7.00% (2014: 7.00%).
2015 dexus annual rePOrT 62
notes to the Financial Statements
Group Performance (continued)
NOTE 5. TAXATiON
Under current Australian income tax legislation, DDF, DIT and DOT are not liable for income tax provided they satisfy certain legislative
requirements, which were met in the current and previous financial years. DXO is liable for income tax and has formed a tax consolidated
group with its wholly owned and controlled Australian entities. As a consequence, these entities are taxed as a single entity.
Income tax expense is comprised of current and deferred tax expense. Current and deferred tax is recognised in profit or loss, except to the
extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is recognised in other
comprehensive income or directly in equity, respectively.
Current tax expense represents the expense relating to the expected taxable income at the applicable rate of the financial year.
Deferred tax expense represents the tax expense in respect of the future tax consequences of recovering or settling the carrying amount of an
asset or liability. Deferred income tax liabilities are recognised for all taxable temporary differences. Deferred income tax assets are recognised
for all deductible temporary differences and unused tax losses, to the extent it is probable that future taxable profit will be available to utilise them.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the
liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.
The carrying amount of deferred income tax assets is reviewed at balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to utilise them.
DOT NZ Sub-Trust No.1, a wholly owned Australian sub-trust of DOT, is liable for New Zealand corporate tax on its New Zealand taxable income at
the rate of 28%. In addition, until November 2014 when the Group disposed of its property in New Zealand, a deferred tax liability and its related
deferred tax expense was recognised on differences between the tax cost base and the accounting carrying value of the New Zealand property.
(a) Income tax (expense)/benefit
Current tax (expense)/benefit
Deferred tax (expense)/benefit
Total tax (expense)/benefit
Deferred income tax expense included in income tax (expense)/benefit comprises:
(Decrease)/increase in deferred tax assets
(Increase)/decrease in deferred tax liabilities
Total deferred tax expense
(b) Reconciliation of income tax (expense)/benefit to net profit
Profit/(loss) before tax
Less amounts not subject to income tax
Prima facie tax (expense)/benefit at the Australian tax rate of 30% (2014: 30%)
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Depreciation and amortisation
Reversal of previous impairment
Movements in the carrying value and tax cost base of properties
Accounting loss on sale of assets
Reversal of prior year income tax liability
Other timing differences
note
5(c)
5(d)
2015
$m
(0.8)
(24.5)
(25.3)
(25.1)
0.6
(24.5)
2015
$m
644.0
(551.7)
92.3
(27.7)
2.1
–
7.7
(7.2)
–
(0.2)
2.4
2014
$m
(0.5)
(12.0)
(12.5)
(3.5)
(8.5)
(12.0)
2014
$m
419.1
(357.7)
61.4
(18.4)
2.3
2.2
0.2
(0.1)
1.0
0.3
5.9
Tax (expense)/benefit
(25.3)
(12.5)
(c) Deferred tax assets
The balance comprises temporary differences attributable to:
Derivative financial instruments
Tax losses
Employee provisions
Other
Total non-current assets – deferred tax assets
Movements:
Opening balance at the beginning of the year
(Utilisation)/recognition of tax losses
Movement in deferred tax asset arising from temporary differences
(Charged)/credited to the Statement of Comprehensive Income
Closing balance at the end of the year
The tax losses are expected to be fully utilised by 30 June 2016.
(d) Deferred tax liabilities
The balance comprises temporary differences attributable to:
Derivatives financial instruments
Intangible assets
Investment properties
Other
Total non-current liabilities – deferred tax liabilities
Movements:
Opening balance at the beginning of the year
Movement in deferred tax liability arising from temporary differences
Transfer to current tax liability
Foreign currency translation
Charged/(credited) to the Statement of Comprehensive Income
Closing balance at the end of the year
63
2014
$m
0.1
25.2
9.6
1.0
35.9
39.4
(2.3)
(1.2)
(3.5)
35.9
2015
$m
–
1.0
8.3
1.5
10.8
35.9
(24.3)
(0.8)
(25.1)
10.8
2015
$m
2014
$m
2.2
1.9
12.7
0.4
17.2
21.1
(0.6)
(3.3)
–
(3.9)
17.2
2.8
2.0
16.0
0.3
21.1
12.1
8.5
–
0.5
9.0
21.1
2015 dexus annual rePOrT 64
notes to the Financial Statements
Group Performance (continued)
NOTE 6. EARNiNgS PER UNiT
Earnings per unit are determined by dividing the net profit attributable to unitholders by the weighted average number of ordinary units
outstanding during the year. Diluted earnings per unit are adjusted from the basic earnings per unit by taking into account the impact of
dilutive potential units.
The weighted average number of units has been adjusted to reflect the one-for-six security consolidation.
(a) Net profit used in calculating basic and diluted earnings per unit
Profit attributable to unitholders of the parent entity
Profit attributable to stapled security holders
(b) Weighted average number of units used as a denominator
2015
$m
174.7
618.7
2014
$m
141.4
406.6
2015
no. of
securities
2014
no. of
securities 1
Weighted average number of units outstanding used in calculation of basic and diluted earnings per unit
915,462,824
820,257,691
1 Restated to reflect the one-for-six security consolidation.
NOTE 7. DiSTRibUTiONS PAiD AND PAyAbLE
Distributions are recognised when declared.
(a) Distribution to security holders
31 December (paid 27 February 2015)
30 June (payable 31 August 2015)
Total distributions to security holders
(b) Distribution rate
31 December (paid 27 February 2015)
30 June (payable 31 August 2015)
Total distributions
1 Restated to reflect the one-for-six security consolidation.
(c) Franked dividends
Opening balance at the beginning of the year
Franking credits utilised for payment of distribution
Closing balance at the end of the year
2015
$m
178.2
207.4
385.6
2014
$m
142.1
173.3
315.4
2015
Cents per
security
2014
Cents per
security 1
19.68
21.36
41.04
18.42
19.14
37.56
2015
$m
9.8
–
9.8
2014
$m
16.2
(6.4)
9.8
notes to the Financial statements
Property Portfolio assets
65
iN ThiS SECTiON
The following table summarises the property portfolio assets detailed in this section:
30 June 2015
Investment properties
Equity accounted investments
Inventories
Assets held for sale
Total
note
8
9
10
11
Office
$m
4,795.5
2,983.9
42.9
–
Industrial
$m
1,411.8
61.9
231.9
5.5
Total
$m
6,207.3
3,045.8
274.8
5.5
7,822.3
1,711.1
9,533.4
These assets are used to generate the Group’s performance and are considered to be the most relevant to the operations of the Group.
The assets are detailed in the following notes:
§
§
Investment properties: relates to investment properties, both stabilised and under development
Investments accounted for using the equity method: provides summarised financial information on the material joint ventures and other
joint ventures. The Group’s joint ventures comprise interests in property portfolio assets held through investments in trusts
§
Inventories: relates to the Group’s ownership of industrial and office assets or land held for repositioning, development and sale
§ Non-current assets classified as held for sale: relates to investment properties which are expected to be sold within 12 months of the
balance sheet date and are currently being marketed for sale
The list of property portfolio assets is detailed in the Property Synopsis, available at www.dexus.com/synopsis
NOTE 8. iNvESTMENT PROPERTiES
The Group’s investment properties consist of properties held for long-term rental yields and/or capital appreciation and property that is being
constructed or developed for future use as investment property. Investment properties are initially recognised at cost including transaction costs.
Investment properties are subsequently recognised at fair value in the Financial Statements.
The basis of valuations of investment properties is fair value, being the price that would be received to sell the asset in an orderly transaction
between market participants at the measurement date.
Changes in fair values are recorded in the Statement of Comprehensive Income. The gain or loss on disposal of an investment property is
calculated as the difference between the carrying amount of the asset at the date of disposal and the net proceeds from disposal and is included
in the Statement of Comprehensive Income in the year of disposal.
Subsequent redevelopment and refurbishment costs (other than repairs and maintenance) are capitalised to the investment property where they
result in an enhancement in the future economic benefits of the property.
Leasing fees incurred and incentives provided are capitalised and amortised over the lease periods to which they relate.
2015 dexus annual rePOrT 66
notes to the Financial Statements
Property Portfolio Assets (continued)
NOTE 8. iNvESTMENT PROPERTiES (CONTINUED)
(a) Reconciliation
note
Office
$m
Industrial
$m
Develop-
ment
$m
Opening balance at the beginning of the year
4,673.6
1,213.9
Additions
Acquisitions
Lease incentives
Amortisation of lease incentives
Rent straightlining
Disposals
Transfers to non-current assets classified as held for sale
Transfers to inventories
Net fair value gain/(loss) of investment properties
11
10
Foreign exchange differences
Closing balance at the end of the year
Acquisitions
42.4
–
62.4
(53.4)
2.5
(0.2)
–
(30.4)
98.6
–
8.3
114.4
14.9
(7.0)
1.0
(1.6)
(5.5)
–
32.3
–
4,795.5
1,370.7
39.0
11.2
–
–
–
–
(6.9)
–
(1.6)
(0.6)
–
41.1
2015
$m
2014
$m
5,926.5
6,085.0
61.9
114.4
77.3
(60.4)
3.5
(8.7)
(5.5)
(32.0)
130.3
–
71.9
–
75.4
(57.4)
8.4
(172.5)
(139.6)
(101.4)
145.7
11.0
6,207.3
5,926.5
§ On 16 January 2015, settlement occurred on the acquisition of Lakes Business Park, 2-13 Lord Street, Botany, for $153.5 million
excluding acquisition costs. This comprises $109.8 million ($114.4 million including acquisition costs) classified as investment
property and $43.7 million ($45.6 million including acquisition costs) classified as inventory. Refer note 10
Disposals
§ On 23 January 2015, 79A Egerton Street, Silverwater, NSW, was disposed of for gross proceeds of $1.7 million (carrying value
of $1.6 million)
§ During the year, three land parcels of Quarry Greystanes, NSW, were disposed of for gross proceeds of $6.3 million (carrying value
of $6.9 million)
(b) Valuation process
Independent valuations are carried out for each individual property at least once every three years by a member of the Australian Property
Institute of Valuers. Each valuation firm and its signatory valuer are appointed on the basis that they are engaged for no more than three
consecutive valuations. Independent valuations may be undertaken earlier where the Responsible Entity believes there is potential for a material
change in the fair value of the property being the greatest of 5% of the asset value, or $5 million.
The Group’s investment properties are required to be internally valued at least every six months unless they have been independently valued
during the current reporting period. Internal valuations are compared to the carrying value of investment properties at the reporting date.
Where the Directors determine the internal valuations present a more reliable estimate of fair value the internal valuation is adopted as book value.
Internal valuations are performed by the Group’s internal valuers who hold recognised relevant professional qualifications and have previous
experience as property valuers from major real estate valuation firms.
An appropriate valuation methodology is utilised according to asset class. In relation to office and industrial assets this includes the capitalisation
approach (market approach) and the discounted cash flow approach (income approach). The valuation is also compared to, and supported by,
direct comparison to recent market transactions. The adopted capitalisation rates and discount rates are determined based on industry expertise
and knowledge and, where possible, a direct comparison to third party rates for similar assets in a comparable location. Rental revenue from
current leases and assumptions about future leases, as well as any expected operational cash outflows in relation to the property, are also built
into each asset assessment of fair value.
In relation to development properties under construction for future use as investment property, where reliably measurable, fair value is determined
based on the market value of the property on the assumption it had already been completed at the valuation date (using the methodology
as outlined above) less costs still required to complete the project, including an appropriate adjustment for industry benchmarked profit and
development risk.
67
(c) Fair value measurement, valuation techniques and inputs
The following table represents the level of the fair value hierarchy and the associated unobservable inputs utilised in the fair value measurement
for each class of investment property.
Fair value
Range of unobservable inputs
Class of
property
Fair value
hierarchy
2015
$’000
2014
$’000
Inputs used to measure fair
value
Office1
Level 3
4,795.5
4,673.6
Industrial
Level 3
1,370.7
1,213.9
Adopted capitalisation rate
Adopted discount rate
Adopted terminal yield
Current net market rental (per sqm)
10 year average market rental growth
Adopted capitalisation rate
Adopted discount rate
Adopted terminal yield
Current net market rental (per sqm)
10 year average market rental growth
2015
2014
5.83% – 8.25%
7.76% – 9.50%
5.87% – 8.50%
$338 – $1,141
2.14% – 3.84%
6.75% – 11.00%
8.25% – 11.50%
7.00% – 11.00%
$40 – $305
2.45% – 3.52%
6.05% – 8.50%
8.09% – 9.50%
6.05% – 12.65%
$334 – $1,065
2.10% – 3.87%
7.13% – 11.00%
9.00% – 11.50%
7.63% – 11.00%
$43 – $300
2.52% – 3.26%
Development
Level 3
41.1
39.0
Adopted capitalisation rate
Land rate (per sqm)
6.50%
$35 – $418
7.13%
$50 – $418
Total
6,207.3
5,926.5
1 Excludes car parks.
Key estimates: inputs used to measure fair value of investment properties
Judgement is required in determining the following key assumptions:
§ Adopted capitalisation rate: The rate at which net market rental revenue is capitalised to determine the value of a property.
The rate is determined with regard to market evidence and the prior external valuation
§ Adopted discount rate: The rate of return used to convert cash flows, payable or receivable in the future, into present value.
It reflects the opportunity cost of capital, that is, the rate of return the cash can earn if put to other uses having similar risk.
The rate is determined with regard to market evidence and the prior external valuation
§ Adopted terminal yield: The capitalisation rate used to convert the future net market rental revenue into an indication of the anticipated
value of the property at the end of the holding period when carrying out a discounted cash flow calculation. The rate is determined
with regard to market evidence and the prior external valuation
§ Net market rental (per sqm): The net market rent is the estimated amount for which a property should lease between a lessor and a
lessee on appropriate lease terms in an arm’s length transaction
§ 10 year average market rental growth: The expected annual rate of change in market rent over a 10 year forecast period in alignment
with expected market movements. The rate is determined with reference to forecast market movements
§
Land rate (per sqm): The land rate is the market land value per sqm
(d) Sensitivity information
Significant movement in any one of the inputs listed in the table above may result in a change in the fair value of the Group’s investment
properties as shown below:
Significant inputs
Adopted capitalisation rate
Adopted discount rate
Adopted terminal yield
Net market rental (per sqm)
10 year average market rental growth
Land rate (per sqm)
Fair value measurement sensitivity
to significant increase in input
Fair value measurement sensitivity
to significant decrease in input
Decrease
Increase
Increase
Decrease
2015 dexus annual rePOrT
68
notes to the Financial Statements
Property Portfolio Assets (continued)
NOTE 8. iNvESTMENT PROPERTiES (CONTINUED)
(d) Sensitivity information (continued)
Generally, a change in the assumption made for the adopted capitalisation rate is often accompanied by a directionally similar change in the
adopted terminal yield. The adopted capitalisation rate forms part of the capitalisation approach whilst the adopted terminal yield forms part
of the discounted cash flow approach.
Under the capitalisation approach, the net market rental has a strong interrelationship with the adopted capitalisation rate as the fair value of
the investment property is derived by capitalising, in perpetuity, the total net market rent receivable. An increase (softening) in the adopted
capitalisation rate may offset the impact to fair value of an increase in the total net market rent. A decrease (tightening) in the adopted
capitalisation rate may also offset the impact to fair value of a decrease in the total net market rent. A directionally opposite change in the
total net market rent and the adopted capitalisation rate may increase the impact to fair value.
The discounted cash flow is primarily made up of the discounted cash flow of net income over the cashflow period and the discounted
terminal value (which is largely based upon market rents grown at forecast market rental growth rates capitalised at an adopted terminal yield).
An increase (softening) in the adopted discount rate may offset the impact to fair value of a decrease (tightening) in the adopted terminal
yield. A decrease (tightening) in the discount rate may offset the impact to fair value of an increase (softening) in the adopted terminal yield.
A directionally similar change in the adopted discount rate and the adopted terminal yield may increase the impact to fair value.
A decrease (softening) in the forecast rental growth rate may result in a negative impact on the discounted cash flow approach value whilst
a strengthening may have a positive impact on the value under the same approach.
(e) Investment properties pledged as security
Refer to note 13 for information on investment properties pledged as security.
NOTE 9. iNvESTMENTS ACCOUNTED FOR USiNg ThE EqUiTy METhOD
Investments are accounted for in the Financial Statements using the equity method of accounting (refer to the ‘About this Report’ section).
Information relating to these entities is set out below:
name of entity
Bent Street Trust
DEXUS Creek Street Trust
DEXUS Martin Place Trust
Grosvenor Place Holding Trust1,2
Site 6 Homebush Bay Trust1
Site 7 Homebush Bay Trust1
DEXUS 480 Q Holding Trust
DEXUS Kings Square Trust
DEXUS Office Trust Australia
DEXUS Industrial Trust Australia
DEXUS Eagle Street Pier Trust
Total investments accounted for using the equity method
Ownership interest
2015
%
33.3
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
2014
%
33.3
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
–
2015
$m
264.2
131.5
89.7
303.3
37.2
49.8
149.7
165.7
2014
$m
250.2
131.8
81.5
293.5
37.5
50.8
82.9
88.8
1,546.3
1,777.8
57.4
1.1
19.1
–
2,795.9
2,813.9
1 These entities are 50% owned by DEXUS Office Trust Australia. The Group’s economic interest is therefore 75% when combined with the interest held by DEXUS Office Trust Australia.
These entities are classified as joint ventures and accounted for using the equity method as a result of contractual arrangements requiring unanimous decisions on all relevant matters.
2 Grosvenor Place Holding Trust owns 50% of Grosvenor Place, 225 George Street, Sydney, NSW. The Group’s economic interest in this property is therefore 37.5%.
The above entities were formed in Australia and their principal activity is property investment in Australia.
69
The table below provides summarised financial information for the Group’s share of joint ventures that are material, as well as other individually
immaterial joint ventures.
DEXuS Office
Trust Australia
Grosvenor Place
Holding Trust
Bent Street
Trust
Other joint
ventures
Total
Summarised Statement of
Financial Position
2015
$m
2014
$m
2015
$m
2014
$m
2015
$m
2014
$m
2015
$m
2014
$m
2015
$m
2014
$m
Current assets
Cash and cash equivalents
Other current assets
Total current assets
Non-current assets
6.6
3.9
10.5
21.7
6.7
28.4
0.8
0.6
1.4
0.4
0.7
1.1
1.3
0.4
1.7
0.8
2.9
3.7
3.4
5.0
8.4
3.2
4.4
7.6
12.1
9.9
22.0
26.1
14.7
40.8
Investment properties
1,567.9
1,506.9
304.6
295.5
265.6
250.3
711.9
505.3
2,850.0
2,558.0
Investments accounted for
using the equity method
Loan to related party 1
Other non current assets
195.2
–
0.4
188.2
338.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
195.2
–
0.5
188.2
338.4
–
Total non-current assets
1,763.5
2,033.5
304.6
295.5
265.6
250.3
712.0
505.3
3,045.7
3,084.6
Current liabilities
Provision for distribution
Interest bearing liabilities
Other current liabilities
Total current liabilities
Non-current liabilities
Borrowings
Total non-current liabilities
11.0
172.0
33.6
216.6
63.7
73.5
34.7
171.9
11.1
11.1
112.2
112.2
–
–
2.7
2.7
–
–
1.8
–
1.3
3.1
–
–
1.8
–
1.4
3.2
–
–
2.3
–
1.5
3.8
–
–
0.2
–
38.0
38.2
–
–
1.0
–
19.5
20.5
13.0
172.0
75.7
260.7
68.8
73.5
57.0
199.3
–
–
11.1
11.1
112.2
112.2
Net assets
1,546.3
1,777.8
303.3
293.5
264.1
250.2
682.2
492.4
2,795.9
2,813.9
Reconciliation of
carrying amounts:
Opening balance at the
beginning of the year
1,777.8
–
293.5
289.1
250.2
248.3
Additions
56.2
1,878.7
8.8
2.4
–
3.1
182.6
–
(9.0)
(3.3)
14.7
–
18.2
–
29.2
–
13.7
–
Share of net profit/(loss)
after tax
Impairment
Distributions received/
receivable
492.4
199.3
25.6
–
369.4
2,813.9
906.8
113.1
264.3
1,997.3
35.4
252.1
–
–
58.3
(3.3)
(97.7)
(88.6)
(13.7)
(16.2)
(15.3)
(14.9)
(35.1)
(25.5)
(161.8)
(145.2)
Return of capital
(372.6)
–
–
–
–
–
–
–
(372.6)
–
Closing balance at the
end of the year
1,546.3
1,777.8
303.3
293.5
264.1
250.2
682.2
492.4
2,795.9
2,813.9
1 Refer to note 12(b)(iv). Represents the Group’s share of proceeds from the sale of four properties by DEXUS Office Trust Australia.
2015 dexus annual rePOrT 70
notes to the Financial Statements
Property Portfolio Assets (continued)
NOTE 9. iNvESTMENTS ACCOUNTED FOR USiNg ThE EqUiTy METhOD (CONTINUED)
The table below provides summarised financial information for the Group’s share of joint ventures that are material, as well as other individually
immaterial joint ventures.
DEXuS Office
Trust Australia
Grosvenor Place
Holding Trust
Bent Street
Trust
Other joint
ventures
Total
Summarised Statement of
Comprehensive Income
Property revenue
Property revaluations
Interest income
Finance costs
Other expenses
2015
$m
143.8
91.2
0.4
(8.0)
2014
$m
63.7
3.0
0.3
(5.4)
(44.8)
(70.6)
Net profit/(loss) for the year
182.6
(9.0)
2015
$m
20.3
(0.7)
–
–
(4.9)
14.7
2014
$m
22.6
–
–
–
(4.4)
18.2
2015
$m
16.3
16.3
–
–
(3.4)
29.2
2014
$m
17.0
–
0.1
–
(3.4)
13.7
2015
$m
27.7
3.8
0.2
–
(6.1)
25.6
2014
$m
24.1
16.8
0.1
–
(5.6)
35.4
2015
$m
208.1
110.6
0.6
(8.0)
2014
$m
127.4
19.8
0.5
(5.4)
(59.2)
(84.0)
252.1
58.3
Total comprehensive
income/(loss) for the year
182.6
(9.0)
14.7
18.2
29.2
13.7
25.6
35.4
252.1
58.3
NOTE 10. iNvENTORiES
Land and properties held for repositioning, development and sale are recorded at the lower of cost and net realisable value. Cost is assigned by
specific identification and includes the cost of acquisition, and development and holding costs such as borrowing costs, rates and taxes. Holding
costs incurred after completion of development are expensed.
Key estimate: net realisable value (NRV) of inventories
NRV is determined using the estimated selling price in the ordinary course of business less estimated costs to bring inventories to their
finished condition, including marketing and selling expenses. NRV is based on the most reliable evidence available at the time and the
amount the inventories are expected to be realised. These key assumptions are reviewed annually or more frequently if indicators of
impairment exist. Key estimates have been reviewed and no impairment provisions have been recognised.
(a) Inventories – land and properties held for resale
Current assets
Land and properties held for resale
Total current assets – inventories
Non-current assets
Land and properties held for resale
Total non-current assets – inventories
Total assets – inventories
2015
$m
110.3
110.3
164.5
164.5
274.8
2014
$m
80.3
80.3
235.9
235.9
316.2
71
note
8
2015
$m
316.2
32.0
(172.2)
98.8
274.8
2014
$m
252.9
101.4
(65.3)
27.2
316.2
(b) Reconciliation
Opening balance at the beginning of the year
Transfer from investment properties
Disposals
Acquisitions and additions
Closing balance at the end of the year
Acquisitions
§ On 16 January 2015, settlement occurred on the acquisition of Lakes Business Park, 2-13 Lord Street, Botany, for $153.5 million
excluding acquisition costs. This comprises $109.8 million ($114.4 million including acquisition costs) classified as investment property
and $43.7 million ($45.6 million including acquisition costs) classified as inventory. Refer note 8
Disposals
§ On 1 July 2014, 30 Distribution Drive, Laverton North, VIC was disposed of for gross proceeds of $19.0 million. 50% of this property was
classified as non-current assets classified as held for sale at 30 June 2014 (carrying value of $8.5 million in inventory). Refer note 11
§ On 1 December 2014, 50 Carrington Street, Sydney, NSW was disposed of for gross proceeds of $88.0 million (carrying value of
$75.8 million)
§ On 22 May 2015, 40 Market Street, Melbourne, VIC was disposed of for gross proceeds of $105.3 million (carrying value of $87.9 million)
§ On 13 August 2014, the Group exchanged contracts for the sale of 5-13 Rosebery Avenue and 25-55 Rothschild Avenue, Rosebery,
NSW for $190.0 million, represented by a $19.0 million option fee and $171.0 million settlement payment. The Group will recognise the
option fee over the term of the option and has therefore recognised $17.3 million during the year ended 30 June 2015. The balance of
$1.7 million and the settlement amount of $171.0 million will be recognised in the year ended 30 June 2016
NOTE 11. NON-CURRENT ASSETS CLASSiFiED AS hELD FOR SALE
Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than
through continuing use, and a sale is considered highly probable.
Non-current assets classified as held for sale are presented separately from the other assets in the balance sheet.
Non-current assets classified as held for sale relate to investment properties and are measured at fair value. As at 30 June 2015, the balance
related to Units 10/11, 108 Silverwater Road, Silverwater, NSW. Refer note 24.
Disposals
§ On 1 July 2014, 30 Distribution Drive, Laverton North, VIC was disposed of for gross proceeds of $19.0 million. 50% of this property was
classified as inventory at 30 June 2014. Refer to note 10
§ On 18 November 2014, Lumley Centre, 88 Shortland Street, Auckland, New Zealand, was disposed of for gross proceeds of NZ
$146.0 million
2015 dexus annual rePOrT 72
notes to the Financial statements
Capital and Financial risk Management and Working Capital
iN ThiS SECTiON
The Group’s overall risk management program focuses on reducing volatility from impacts in movements of financial markets and seeks to
minimise potential adverse effects on the financial performance of the Group. Note 12 Capital and financial risk management outlines how
the Group manages its exposure to a variety of financial risks (interest rate risk, foreign currency risk, liquidity risk and credit risk) and details
the various derivative financial instruments entered into by the Group.
The Board determines the appropriate capital structure of the Group, how much is borrowed from financial institutions and capital markets
(debt), and how much is raised from shareholders (equity) in order to finance the Group’s activities both now and in the future. This capital
structure is detailed in the following notes:
§ Debt: Interest bearing liabilities in note 13 and Commitments and contingencies in note 14;
§ Equity: Contributed equity in note 15 and Reserves and retained profits in note 16.
Note 17 provides a breakdown of the working capital balances held in the Statement of Financial Position.
NOTE 12. CAPiTAL AND FiNANCiAL RiSk MANAgEMENT
Capital and financial risk management is carried out through a centralised treasury function which is governed by a Board approved Treasury
Policy. The Group has an established governance structure which consists of the Group Management Committee and Capital Markets Committee.
The Board has appointed a Group Management Committee responsible for achieving DEXUS’s goals and objectives, including the prudent
financial and risk management of the Group. The Group Management Committee generally meets weekly. A Capital Markets Committee has been
established to advise the Group Management Committee.
The Capital Markets Committee is a management committee that is accountable to the Board. It convenes at least quarterly and conducts a
review of financial risk management exposures including liquidity, funding strategies and hedging. It is also responsible for the development of
financial risk management policies and funding strategies for recommendation to the Board, and the approval of treasury transactions within
delegated limits and powers.
(a) Capital risk management
The Group manages its capital to ensure that entities within the Group will be able to continue as a going concern while maximising the return to
owners through the optimisation of the debt and equity balance.
The capital structure of the Group consists of debt, cash and cash equivalents and equity attributable to security holders. The Group continuously
monitors its capital structure and it is managed in consideration of the following factors:
§ The cost of capital and the financial risks associated with each class of capital
§ Gearing levels and other debt covenants
§ Potential impacts on net tangible assets and security holders’ equity
§ Potential impacts on the Group’s credit rating, and
§ Other market factors
The Group has a stated target gearing level of 30% to 40%. The table below details the calculation of the gearing ratio in accordance with our
primary financial covenant requirements:
Total interest bearing liabilities1
Total tangible assets2
Gearing ratio
Gearing ratio (look-through)3
2015
$m
2,556.3
9,402.1
27.2%
28.5%
2014
$m
2,919.3
9,342.2
31.2%
33.7%
1 Total interest bearing liabilities excludes deferred borrowing costs and includes the impact of foreign currency fluctuations of cross currency swaps.
2 Total tangible assets comprise total assets less intangible assets, derivatives and deferred tax balances.
3 The look-through gearing ratio is adjusted for cash and debt in equity accounted investments and is not a financial covenant.
The Group is rated A- by Standard & Poor’s (S&P) and A3 by Moody’s. The Group is required to comply with certain financial covenants in respect of
its interest bearing liabilities. During the 2014 and 2015 reporting periods, the Group was in compliance with all of its financial covenants.
DXFM is the Responsible Entity for the managed investment schemes (DDF, DOT, DIT and DXO) that are stapled to form the Group. DXFM has
been issued with an Australian Financial Services Licence (AFSL). The licence is subject to certain capital requirements including the requirement
to maintain liquidity above specified limits. DXFM must also prepare rolling cash projections over at least the next 12 months and demonstrate
it will have access to sufficient financial resources to meet its liabilities that are expected to be payable over that period. Cash projections and
assumptions are approved, at least quarterly, by the Board of the Responsible Entity.
73
DWPL, a wholly owned entity, has been issued with an AFSL as it is the Responsible Entity for DEXUS Wholesale Property Fund (DWPF). DEXUS
Wholesale Management Limited (DWML), a wholly owned entity, has been issued with an AFSL as it is the trustee of third party managed funds.
These entities are subject to the capital requirements described above.
(b) Financial risk management
The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effects on the financial performance of the Group. The Group’s principal financial instruments, other than derivatives, comprise cash, bank loans
and capital markets issuance. The main purpose of financial instruments is to manage liquidity and hedge the Group’s exposure to financial
risks namely:
§
Interest rate risk
§ Foreign currency risk
§ Liquidity risk, and
§ Credit risk
The Group uses derivatives to reduce the Group’s exposure to fluctuations in interest rates and foreign exchange rates. These derivatives create
an obligation or a right that effectively transfers one or more of the risks associated with an underlying financial instrument, asset or obligation.
Derivative financial instruments that the Group may use to hedge its risks include:
§
Interest rate swaps
§ Cross currency interest rate swaps
§ Foreign exchange contracts, and
§ Option contracts (interest rate)
The Group does not trade in derivative instruments for speculative purposes. The Group uses different methods to measure the different types
of risks to which it is exposed, including monitoring the current and forecast levels of exposure and conducting sensitivity analysis.
(i) Market risk
INTEREST RATE RISK
Interest rate risk arises from interest bearing financial assets and liabilities that the Group utilises. Non-derivative interest bearing financial
instruments are predominantly short term liquid assets and long term debt issued at fixed rates which expose the Group to fair value interest rate
risk as the Group may pay higher interest costs than if it were at variable rates. The Group’s borrowings which have a variable interest rate give
rise to cash flow interest rate risk as variable interest rates may increase.
The Group’s risk management policy for interest rate risk seeks to minimise the effects of interest rate movements on its asset and liability
portfolio through active management of the exposures. The policy prescribes minimum and maximum hedging amounts for the Group, which is
managed on a portfolio basis.
The Group maintains a mix of offshore and local currency fixed rate and variable rate debt, as well as a mix of long term and short term debt.
The Group primarily enters into interest rate swaps and cross currency interest rate swap agreements to manage the associated interest rate
risk. The Group hedges the interest rate and currency risk on the majority of its foreign currency borrowings by entering into cross currency
swaps, which have the economic effect of converting foreign currency borrowings to local currency borrowings at contracted rates. The derivative
contracts are recorded at fair value in the Statement of Financial Position, being the market value as quoted in an active market.
As at 30 June 2015, 95% (2014: 62%) of the interest bearing liabilities of the Group were hedged. The average hedged percentage for the
financial year was 76% (2014: 60%).
Interest rate swaps require settlement of net interest receivable or payable each 90 or 180 days. The settlement dates coincide with the dates on
which the interest is payable on the underlying debt. The receivable and payable legs on interest rate swap contracts are settled on a net basis.
The net notional amount of average fixed rate debt and interest rate swaps in place in each year and the weighted average effective hedge rate is
set out below:
Fixed rate debt1
A$ fixed rate debt
Interest rate swaps
A$ hedged1
Combined fixed debt and
swaps (A$ equivalent)
Hedge rate (%)
June 2016
$m
June 2017
$m
June 2018
$m
June 2019
$m
June 2020
$m
> June 2021
$m
515.0
462.5
275.8
84.2
45.8
–
1,700.4
1,687.5
1,569.6
1,298.3
600.8
12.1
2,215.4
3.86%
2,150.0
1,845.4
1,382.5
3.79%
3.97%
4.21%
646.7
3.96%
12.1
2.69%
1 Amounts do not include fixed rate debt that has been swapped to floating rate debt through cross currency swaps.
2015 dexus annual rePOrT 74
notes to the Financial Statements
Capital and Financial Risk Management and Working Capital (continued)
NOTE 12. CAPiTAL AND FiNANCiAL RiSk MANAgEMENT (CONTINUED)
(b) Financial risk management (continued)
(i) Market risk (continued)
INTEREST RATE RISK (CONTINUED)
Sensitivity analysis on interest expense
The table below shows the impact on the Group’s net interest expense of a 50 basis point increase or decrease in market interest rates.
The sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Group’s floating rate debt and derivative
cash flows on average during the financial year. Net interest expense is only sensitive to movements in market rates to the extent that floating
rate debt is not hedged.
+/- 0.50% (50 basis points)
+/- 0.50% (50 basis points)
Total A$ equivalent
A$
NZ$
2015
(+/-) $m
2014
(+/-) $m
3.6
–
3.6
5.0
0.6
5.6
The increase or decrease in interest expense is proportional to the increase or decrease in interest rates.
Sensitivity analysis on fair value of interest rate swaps
The sensitivity analysis on interest rate swaps below shows the effect on net profit or loss for changes in the fair value of interest rate swaps for
a 50 basis point increase or decrease in short-term and long-term market interest rates. The sensitivity on fair value arises from the impact that
changes in market rates will have on the valuation of the interest rate swaps.
The fair value of interest rate swaps is calculated as the present value of estimated future cash flows on the instruments. Although interest rate
swaps are transacted for the purpose of providing the Group with an economic hedge, the Group has elected not to apply hedge accounting
to these instruments. Accordingly, gains or losses arising from changes in the fair value are reflected in the profit or loss.
+/- 0.50% (50 basis points)
+/- 0.50% (50 basis points)
Total A$ equivalent
A$
US$
2015
(+/-) $m
2014
(+/-) $m
33.3
(0.3)
33.0
38.0
(0.7)
37.3
Sensitivity analysis on fair value of cross currency swaps
The sensitivity analysis on cross currency interest rates swaps below shows the effect on net profit or loss for changes in the fair value for
a 50 basis points increase and decrease in market rates. The sensitivity on fair value arises from the impact that changes in short-term and
long-term market rates will have on the valuation of the cross currency swaps.
+/- 0.50% (50 basis points)
Total A$ equivalent
FOREIGN CuRRENCY RISK
US$ (A$ equivalent)
2015
(+/-) $m
2014
(+/-) $m
9.7
9.7
8.9
8.9
Foreign currency risk refers to the risk that the value or the cash flows arising from a financial commitment, or recognised asset or liability will
fluctuate due to changes in foreign currency rates. The Group’s foreign currency exchange risk arises primarily from:
§ Highly probable forecast transactions denominated in foreign currency, and
§ Borrowings denominated in foreign currency
The objective of the Group’s foreign exchange risk management policy is to ensure that movements in exchange rates have minimal adverse
impact on the Group’s foreign currency assets and liabilities. Refer to note 13 for the USD foreign currency exposures and management thereof
via cross currency interest rate swaps.
Foreign currency assets and liabilities
Where foreign currency borrowings are used to fund Australian investments, the Group transacts cross currency swaps to reduce the risk that
movements in foreign exchange rates will have an impact on security holders’ equity and net tangible assets.
75
(ii) Liquidity risk
Liquidity risk is associated with ensuring that there are sufficient funds available to meet the Group’s financial commitments as and when
they fall due and planning for any unforeseen events which may curtail cash flows. The Group identifies and manages liquidity risk across the
following categories:
§ Short-term liquidity management covering the month ahead on a rolling basis with continuous monitoring of forecast and actual cash flows
§ Medium-term liquidity management of liquid assets, working capital and standby facilities to cover Group cash requirements over the
next 1-24 month period. The Group maintains a level of committed borrowing facilities above the forecast committed debt requirements
(liquidity headroom buffer). Committed debt includes future expenditure that has been approved by the Board or Investment Committee
(as required within delegated limits) and
§ Long-term liquidity management through ensuring an adequate spread of maturities of borrowing facilities so that refinancing risk
is not concentrated in certain time periods, and ensuring an adequate diversification of funding sources where possible, subject
to market conditions
REFINANCING RISK
Refinancing risk is the risk that the Group:
§ Will be unable to refinance its debt facilities as they mature, and/or
§ Will only be able to refinance its debt facilities at unfavourable interest rates and credit market conditions (margin price risk)
The Group’s key risk management strategy for margin price risk on refinancing is to spread the maturities of debt facilities over different time
periods to reduce the volume of facilities to be refinanced and the exposure to market conditions in any one period. An analysis of the contractual
maturities of the Group’s interest bearing liabilities and derivative financial instruments is shown in the table below. The amounts in the table
represent undiscounted cash flows.
2015
2014
Within
one
year
$m
Between
one and
two
years
$m
Between
two and
five
years
$m
After
five
years
$m
13.0
55.5
(110.7)
(42.2)
–
–
–
–
–
–
–
–
–
–
–
–
Within
one
year
$m
14.1
111.6
Total
$m
13.0
55.5
(110.7)
(111.1)
(42.2)
14.6
Between
one and
two
years
$m
Between
two and
five
years
$m
After
five
years
$m
–
–
–
–
–
–
–
–
–
–
–
–
Total
$m
14.1
111.6
(111.1)
14.6
Cash
Receivables
Payables
Interest bearing liabilities
& interest
Fixed interest rate liabilities
(95.1)
(355.4)
(500.2)
(1,550.7) (2,501.4)
(168.3)
(71.2)
(667.1)
(970.7)
(1,877.3)
Floating interest rate
liabilities
Total interest bearing
liabilities & interest1
Derivative financial
instruments
Derivative assets
(163.0)
(203.1)
(579.7)
–
(945.8)
(114.7)
(156.6)
(1,370.5)
(117.0)
(1,758.8)
(258.1)
(558.5)
(1,079.9)
(1,550.7) (3,447.2)
(283.0)
(227.8)
(2,037.6)
(1,087.7)
(3,636.1)
82.5
117.3
142.9
1,466.9
1,809.6
131.3
31.3
119.8
772.5
1,054.9
Derivative liabilities
(66.8)
(88.0)
(103.7) (1,043.3)
(1,301.8)
(139.6)
(51.2)
(167.9)
(661.9)
(1,020.6)
Total net derivative financial
instruments2
15.7
29.3
39.2
423.6
507.8
(8.3)
(19.9)
(48.1)
110.6
34.3
1 Refer to note 13. Excludes deferred borrowing costs but includes estimated fees and interest.
2 The notional maturities on derivatives are shown for cross currency interest rate swaps (refer to interest rate risk) as they are the only instruments where a principal amount is exchanged. For
interest rate swaps, only the net interest cash flows (not the notional principal) are included. Refer to note 12(c) for fair value of derivatives. Refer to note 14(b) for financial guarantees.
2015 dexus annual rePOrT
76
notes to the Financial Statements
Capital and Financial Risk Management and Working Capital (continued)
NOTE 12. CAPiTAL AND FiNANCiAL RiSk MANAgEMENT (CONTINUED)
(b) Financial risk management (continued)
(iii) Credit risk
Credit risk is the risk that the counterparty will not fulfil its obligations under the terms of a financial instrument and will cause financial loss to the
Group. The Group has exposure to credit risk on all financial assets included in the Group’s Statement of Financial Position.
The Group manages this risk by:
§ Adopting a process for determining an approved counterparty, with consideration of qualitative factors as well as the counterparty’s
credit rating
§ Regularly monitoring counterparty exposure within approved credit limits that are based on the lower of a S&P, Moody’s and Fitch credit
rating. The exposure includes the current market value of in-the-money contracts and the potential exposure, which is measured with
reference to credit conversion factors as per APRA guidelines
§ Entering into ISDA Master Agreements once a financial institution counterparty is approved
§ Monitoring tenants exposure within approved credit limits
§ For some trade receivables, obtaining collateral where necessary in the form of bank guarantees and tenant bonds, and
§ Regularly monitoring loans and receivables on an ongoing basis
A minimum S&P rating of A– (or Moody’s or Fitch equivalent) is required to become or remain an approved counterparty unless otherwise
approved by the DEXUS Board.
The Group is exposed to credit risk on cash balances and on derivative financial instruments with financial institutions. The Group has a policy
that sets limits as to the amount of credit exposure to each financial institution. New derivatives and cash transactions are limited to financial
institutions that meet minimum credit rating criteria in accordance with the Group’s policy requirements.
Financial instrument transactions are spread among a number of approved financial institutions within specified credit limits to minimise the
Group’s exposure to any counterparty. As a result, there is no significant concentration of credit risk for financial instruments. The maximum
exposure to credit risk at 30 June 2015 is the carrying amounts of financial assets recognised on the Statement of Financial Position.
As at 30 June 2015, there were no significant concentrations of credit risk for trade receivables. Trade receivable balances and the credit quality of
trade debtors are monitored on an ongoing basis. The tables below show the ageing analysis of loans and receivables net of provisions of the Group.
0-30 days
31-60 days
61-90 days
Over 91 days
2015
$m
47.6
3.5
0.3
4.1
2014
$m
106.4
3.1
0.6
1.5
Total loans and receivables net of provisions
55.5
111.6
Amounts over 31 days are past due; however, no receivables are impaired. The credit quality of financial assets that are neither past due nor
impaired is monitored to make sure there are no adverse changes in credit quality.
(iv) Fair value
The Group has classified its financial assets and liabilities as follows:
Financial asset/liability
Classification
Valuation basis
Reference
Receivables1
Payables1
Loans and receivables
Amortised cost
Refer to note 17(b)
Financial liability at amortised cost
Amortised cost
Refer to note 17(d)
Interest bearing liabilities
Financial liability at amortised cost
Amortised cost
Refer to note 13
Non-interest bearing loans from related party
Loans and receivables
Amortised cost
Refer to note 22
Derivatives
Fair value through profit or loss
Fair value
Refer to note 12(c)
1 The face value of these is approximately equal to their fair value; these amounts are unsecured and are usually paid within 30 days of recognition.
77
Financial assets and liabilities are classified in accordance with the purpose for which they were acquired. As noted in section (c) below,
derivative financial instruments are initially recognised in the Statement of Financial Position at fair value on the date on which the derivative
contract is entered into and subsequently remeasured to fair value.
The valuation techniques applied by the Group are consistent with those applied in prior year financial reports. The valuation technique used
to measure the various financial instruments, namely foreign currency contracts and interest rate contracts is based on market observable spot
exchange rates and interest rate yield curves. This method records any change in fair value of a derivative, in the Financial Statements.
The carrying amounts and estimated fair value of all the Group’s financial assets and liabilities recognised in the Financial Statements are
as follows:
Financial assets
Cash and cash equivalents
Loans and receivables (current)
Derivative assets
Total financial assets
Financial liabilities
Trade payables
Non-interest bearing loan from related party3
Derivative liabilities
Interest bearing liabilities
Fixed interest bearing liabilities
Floating interest bearing liabilities
Total financial liabilities
2015
Carrying
amount 1
$m
2015
Fair value 2
$m
2014
Carrying
amount 1
$m
2014
Fair value 2
$m
13.0
55.5
384.9
453.4
110.7
–
170.0
13.0
55.5
384.9
453.4
110.7
–
170.0
14.1
111.6
80.2
205.9
111.1
338.4
88.1
14.1
111.6
80.2
205.9
111.1
338.4
88.1
1,877.1
911.0
3,068.8
1,984.7
911.0
3,176.4
1,402.4
1,555.7
3,495.7
1,491.0
1,550.7
3,579.3
1 Carrying value is equal to the value of the financial instruments on the Statement of Financial Position.
2 Fair value is the price that would be received to transfer the asset or liability in an orderly transaction between market participants at the measurement date. Where there is a difference
between the carrying amount and fair value, the difference is not recognised in the Statement of Financial Position.
3 Relates to the loan from DEXUS Office Trust Australia.
Key assumptions: fair value of borrowings
The fair value of interest bearing liabilities has been determined based on a discounted cash flow analysis using observable market inputs
(interest rates, exchange rates and currency basis) and applying a credit or debit value adjustment based on the current credit worthiness of
counterparties and the Group.
The Group uses the following methods in the determination and disclosure of the fair value of financial instruments:
Level 1: the fair value is calculated using quoted prices in active markets.
Level 2: the fair value is determined using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable data.
All financial instruments were measured at Level 2 for the periods presented in this report. During the year, there were no transfers between
Level 1, 2 and 3 fair value measurements.
2015 dexus annual rePOrT 78
notes to the Financial Statements
Capital and Financial Risk Management and Working Capital (continued)
NOTE 12. CAPiTAL AND FiNANCiAL RiSk MANAgEMENT (CONTINUED)
(b) Financial risk management (continued)
(v) Offsetting financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position where there is a legally enforceable
right to set-off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
The Group has also entered into arrangements that do not meet the criteria for offsetting except in certain circumstances, such as bankruptcy or
the termination of the underlying contract.
The following table presents the gross amounts of recognised financial instruments in the Statement of Financial Position as the Group does not
apply the right of set-off that exists in master netting arrangements. The column ‘net amount’ shows the impact on the Group’s Statement of
Financial Position if all legal rights of set-off available under the applicable master netting arrangements were exercised at 30 June 2015 and 30
June 2014.
2015
Financial assets
Derivative financial instruments
Total
Financial liabilities
Derivative financial instruments
Total
2014
Financial assets
Derivative financial instruments
Total
Financial liabilities
Derivative financial instruments
Total
Gross amounts
offset in the
Statement
of Financial
Position
$m
net amounts
presented in
the Statement
of Financial
Position
$m
Amounts
subject to
master netting
arrangements
$m
Gross
amounts
$m
Financial
instrument
collateral
$m
net amount
$m
384.9
384.9
170.0
170.0
80.2
80.2
88.1
88.1
–
–
–
–
–
–
–
–
384.9
384.9
170.0
170.0
80.2
80.2
88.1
88.1
(46.0)
(46.0)
(46.0)
(46.0)
(6.5)
(6.5)
(6.5)
(6.5)
–
–
–
–
–
–
–
–
338.9
338.9
124.0
124.0
73.7
73.7
81.6
81.6
Master netting arrangements – not currently enforceable
Agreements with derivative counterparties are based on an ISDA Master Agreement. Under the terms of these arrangements, where certain credit
events occur (such as default), the net position owing/receivable to a single counterparty in the same currency will be taken as owing and all the
relevant arrangements terminated. As the Group does not presently have a legally enforceable right of set-off, these amounts have not been offset
in the Statement of Financial Position, but have been presented separately in the table above.
(c) Derivative financial instruments
A derivative is a type of financial instrument typically used to manage risk. A derivative’s value changes over time in response to underlying
variables including interest rates or exchange rates and is entered into for a fixed period. A hedge is where a derivative is used to manage an
underlying exposure and the Group uses derivatives to manage its exposure to interest rates and foreign exchange risk accordingly.
Written policies and limits are approved by the Board of Directors of the Responsible Entity, in relation to the use of financial instruments
to manage financial risks. The Responsible Entity continually reviews the Group’s exposures and updates its treasury policies and procedures.
The Group does not trade in derivative instruments for speculative purposes.
Derivatives including interest rate swaps, the interest rate component of cross currency swaps, and foreign exchange contracts, are measured
at fair value with any changes in fair value recognised in the Statement of Comprehensive Income.
At inception the Group can elect to formally designate and document the relationship between certain hedge derivative instruments (cross
currency interest rate swaps only) and the associated hedged items (foreign currency bonds only). The Group also documents its assessment,
both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue
to be highly effective in offsetting changes in fair values or cash flows of hedged items.
79
Fair value hedge
A fair value hedge is a hedge of the exposure to changes in fair value of an asset or liability that is attributable to a particular risk and could affect
the Statement of Comprehensive Income. Changes in the fair value of derivatives (hedging instruments) that are designated as fair value hedges
are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk
(hedged item).
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective
interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate.
Cash flow hedge
A cash flow hedge is a hedge of the exposure to variability in cash flows attributable to a particular risk to a highly probable forecast transaction
pertaining to an asset or liability. The effective portion of changes in the fair value of derivatives that are designated as cash flow hedges is recognised
in other comprehensive income in equity via the cash flow hedge reserve. Amounts accumulated in equity are reclassified to profit or loss in the
periods when the hedged item affects profit or loss. Any gain or loss related to ineffectiveness is recognised in profit or loss immediately.
Hedge accounting is discontinued when the hedging instrument expires, is terminated, is no longer in an effective hedge relationship, is
de-designated, or the forecast transaction is no longer expected to occur. The fair value gain or loss of derivatives recorded in equity is recognised
in profit or loss over the period that the forecast transaction is recorded in profit or loss. If the forecast transaction is no longer expected to occur,
the cumulative gain or loss in equity is recognised in profit or loss immediately.
Current assets
Interest rate swap contracts
Cross currency swap contracts
Total current assets – derivative financial instruments
Non-current assets
Interest rate swap contracts
Cross currency swap contracts
Other
Total non-current assets – derivative financial instruments
Current liabilities
Interest rate swap contracts
Cross currency swap contracts
Total current liabilities – derivative financial instruments
Non-current liabilities
Interest rate swap contracts
Cross currency swap contracts
Total non-current liabilities – derivative financial instruments
Net derivative financial instruments
2015
$m
2.6
15.1
17.7
17.5
349.7
–
367.2
8.3
2.5
10.8
108.1
51.1
159.2
214.9
2014
$m
2.3
6.4
8.7
22.5
45.1
3.9
71.5
2.4
–
2.4
79.3
6.4
85.7
(7.9)
Key assumptions: fair value of derivatives
The fair value of derivative financial instruments has been determined based on a discounted cash flow analysis using observable market inputs
(interest rates, exchange rates and currency basis) and applying a credit or debit valuation adjustment based on the current credit worthiness of
counterparties and the Group.
Refer to note 12(b)(iv) Capital and Financial Risk Management for further detail.
2015 dexus annual rePOrT 80
notes to the Financial Statements
Capital and Financial Risk Management and Working Capital (continued)
NOTE 13. iNTEREST bEARiNg LiAbiLiTiES
Borrowings are initially recognised at fair value net of transaction costs and subsequently measured at amortised cost using the effective interest
rate method. Under the effective interest rate method, any transaction fees, costs, discounts and premiums directly related to the borrowings are
capitalised to borrowings and amortised in profit or loss over the expected life of the borrowings.
If there is an effective fair value hedge of borrowings, a fair value adjustment will be applied based on the mark to market movement in the
benchmark component of the borrowings. This movement is recognised in the profit or loss. Refer note 12(b)(iv) Capital and financial risk
management for further detail.
All borrowings with contractual maturities greater than 12 months after reporting date are classified as non-current liabilities.
Current
Unsecured
US senior notes
Bank loans
Medium term notes
Total unsecured
Total current liabilities – interest bearing liabilities
Non-current
Unsecured
US senior notes
Bank loans
Commercial paper
Medium term notes
Total unsecured
Deferred borrowing costs
Total non-current liabilities – interest bearing liabilities
Total interest bearing liabilities
Financing arrangements
The following table summarises the maturity profile of the Group’s financing arrangements:
note
2015
$m
2014
$m
(b)
(c)
(e)
–
150.0
–
150.0
150.0
(a), (b )
1,359.4
(c)
(d)
(e)
761.0
100.0
417.7
2,638.1
(14.1)
2,624.0
2,774.0
94.5
–
55.0
149.5
149.5
827.8
1,450.7
100.0
418.9
2,797.4
(15.3)
2,782.1
2,931.6
Type of facility
notes
Currency
Security
Maturity Date
US senior notes (144A)
US Senior notes (USPP)
Medium term notes
Commercial paper
(a)
(b)
(e)
(d)
US$
US$
A$
A$
Unsecured
Mar-21
Unsecured
Dec-16 to Jul-28
Unsecured
Apr-17 to Sept-18
Unsecured
Aug-16
Multi-option revolving credit facilities
(c) Multi currency
Unsecured
Mar-16 to Jun-20
Total
Bank guarantee in place
Unused at balance date
2015
$m
utilised 1
2015
$m
Facility limit
324.8
1,029.9
417.7
100.0
1,700.0
3,572.4
324.8
1,029.9
417.7
100.0
911.0
2,783.4
30.9
758.1
1
Includes drawn amounts and excludes fair value adjustments recorded in interest bearing liabilities in relation to effective fair value hedges.
Each of the Group’s unsecured borrowing facilities are supported by guarantee arrangements, and have negative pledge provisions which limit the
amount and type of encumbrances that the Group can have over their assets and ensures that all senior unsecured debt ranks pari passu.
(a) US senior notes (144A)
This includes a total of US$250.0 million (A$324.8 million) of US senior notes with a maturity of March 2021. The USD exposure is economically
hedged using cross currency interest rate swaps with a notional value of US$250.0 million.
81
(b) US senior notes (USPP)
This includes a total of US$791.0 million (A$1,029.9 million) of US senior notes with a weighted average maturity of December 2025.
The majority of the USD balance is designated as an accounting hedge using cross currency interest rate swaps with a notional value of
US$750 million. The remaining US$41 million is economically hedged using cross currency interest rate swaps with the same notional value.
(c) Multi-option revolving credit facilities
This includes 18 facilities maturing between March 2016 and June 2020 with a weighted average maturity of February 2018. A$30.9 million is
utilised as bank guarantees for developments and AFSL requirements.
(d) Commercial Paper
This includes a total of A$100.0 million of Commercial Paper which is supported by a standby facility of A$100.0 million with a weighted average
maturity of August 2016. The standby facility has same day availability.
(e) Medium Term Notes
This includes a total of A$415.0 million of Medium Term Notes with a weighted average maturity of December 2017.
Additional information
The Group also has commitments totaling A$100.0 million that are available for three months out of every six months.
NOTE 14. COMMiTMENTS AND CONTiNgENCiES
(a) Commitments
(i) Capital commitments
The following amounts represent remaining capital expenditure on investment properties and inventories contracted at the end of each reporting
period but not recognised as liabilities payable:
Investment properties
Inventories
Investments accounted for using the equity method
Total capital commitments
(ii) Lease payable commitments
The future minimum lease payments payable by the Group are:
Within one year
Later than one year but not later than five years
Later than five years
Total lease payable commitments
2015
$m
59.2
17.8
183.9
260.9
2015
$m
4.0
11.6
5.9
21.5
2014
$m
58.2
0.8
284.8
343.8
2014
$m
3.6
12.7
6.5
22.8
Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is more
representative of the pattern of benefits to be derived from the leased property.
No provisions have been recognised in respect of non-cancellable operating leases.
(iii) Lease receivable commitments
The future minimum lease payments receivable by the Group are:
Within one year
Later than one year but not later than five years
Later than five years
Total lease receivable commitments
2015
$m
387.5
996.0
391.9
2014
$m
383.4
992.9
353.4
1,775.4
1,729.7
2015 dexus annual rePOrT 82
notes to the Financial Statements
Capital and Financial Risk Management and Working Capital (continued)
NOTE 14. COMMiTMENTS AND CONTiNgENCiES (CONTINUED)
(b) Contingencies
DDF, together with DIT, DOT and DXO, is a guarantor of A$3,572.4 million of interest bearing liabilities (refer note 13). The guarantees have been given
in support of debt outstanding and drawn against these facilities, and may be called upon in the event that a borrowing entity has not complied with
certain requirements such as failure to pay interest or repay a borrowing, whichever is earlier. During the period no guarantees were called.
The Group has bank guarantees of $30.9 million, comprising $30.2 million held to comply with the terms of the Australian Financial Services
Licenses (AFSL) and $0.7 million in respect of developments.
The above guarantees are issued in respect of the Group and do not constitute an additional liability to those already existing in interest bearing
liabilities on the Statement of Financial Position.
The Directors of the Responsible Entity are not aware of any other contingent liabilities in relation to the Group, other than those disclosed in the
Financial Statements, which should be brought to the attention of security holders as at the date of completion of this report.
NOTE 15. CONTRibUTED EqUiTy
(a) Contributed equity of unitholders of the parent entity
Opening balance at the beginning of the year
Issue of additional equity, net of transaction costs
Buy-back of contributed equity, net of transaction costs
Closing balance at the end of the year
(b) Contributed equity of unitholders of other stapled entities
Opening balance at the beginning of the year
Issue of additional equity, net of transaction costs
Buy-back of contributed equity, net of transaction costs
Closing balance at the end of the year
(c) Number of securities on issue
Opening balance at the beginning of the year
Issue of additional equity
One-for-six security consolidation
Buy-back of contributed equity
Closing balance at the end of the year
2015
$m
1,833.4
157.2
–
2014
$m
1,577.7
281.2
(25.5)
1,990.6
1,833.4
2015
$m
3,625.7
314.2
–
2014
$m
3,106.3
569.2
(49.8)
3,939.9
3,625.7
2015
no. of
securities
2014
no. of
securities
5,433,110,810
4,701,957,390
65,274,552
804,882,384
(4,527,579,013)
–
–
(73,728,964)
970,806,349
5,433,110,810
Each stapled security ranks equally with all other stapled securities for the purposes of distributions and on termination of the Group.
Each stapled security entitles the holder to vote in accordance with the provisions of the Constitutions and the Corporations Act 2001.
Transaction costs arising on the issue of equity instruments are recognised directly in equity (net of tax) as a reduction of the proceeds of the
equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity
instruments and which would not have been incurred had those instruments not been issued.
On 29 October 2014, the Group announced a one-for-six consolidation of DEXUS Property Group stapled securities. The consolidation was
completed on 14 November 2014. Where the number of securities held by a security holder following the consolidation resulted in a fraction
of a security, the fraction was rounded up to the nearest whole number.
83
2014
$m
(1.8)
42.7
(9.3)
5.6
(5.3)
31.9
(6.3)
5.3
(0.8)
(1.8)
42.7
42.7
–
(9.3)
(9.3)
2.4
–
3.2
5.6
(2.2)
–
(3.1)
(5.3)
2015
$m
–
42.7
8.6
8.1
(8.0)
51.4
(1.8)
(0.3)
2.1
–
42.7
42.7
(9.3)
17.9
8.6
5.6
(1.3)
3.8
8.1
(5.3)
1.3
(4.0)
(8.0)
NOTE 16. RESERvES AND RETAiNED PROFiTS
(a) Reserves
Foreign currency translation reserve
Asset revaluation reserve
Cash flow hedge reserve
Security-based payments reserve
Treasury securities reserve
Total reserves
Foreign currency translation reserve
Opening balance at the beginning of the year
Exchange differences on translating foreign operations
Foreign currency translation reserve transfer on disposal of foreign operations
Closing balance at the end of the year
Asset revaluation reserve
Opening balance at the beginning of the year
Closing balance at the end of the year
Cash flow hedge reserve
Opening balance at the beginning of the year
Changes in the fair value of cash flow hedges
Closing balance at the end of the year
Security-based payments reserve
Opening balance at the beginning of the year
Issue of securities to employees
Security-based payments expense
Closing balance at the end of the year
Treasury securities reserve
Opening balance at the beginning of the year
Issue of securities to employees
Purchase of securities
Closing balance at the end of the year
(b) Nature and purpose of reserves
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the Financial Statements
of foreign operations.
Asset revaluation reserve
The asset revaluation reserve is used to record the fair value adjustment arising on a business combination.
Cash flow hedge reserve
The cash flow hedge reserve is used to record the effective portion of changes in the fair value of derivatives that are designated as cash flow hedges.
2015 dexus annual rePOrT 84
notes to the Financial Statements
Capital and Financial Risk Management and Working Capital (continued)
NOTE 16. RESERvES AND RETAiNED PROFiTS (CONTINUED)
(b) Nature and purpose of reserves (continued)
Security-based payments reserve
The security-based payments reserve is used to recognise the fair value of performance rights to be issued under the 2012 Transitional Performance
Rights Plan, the Deferred Short Term Incentive Plans (DSTI) and the Long Term Incentive Plans (LTI). Refer to note 21 for further details.
Treasury securities reserve
The treasury securities reserve is used to record the acquisition of securities purchased to fulfil the obligations of the 2012 Transitional
Performance Rights Plan, the Deferred Short Term Incentive Plans (DSTI) and the Long Term Incentive Plans (LTI). As at 30 June 2015,
DXS held 1,170,525 stapled securities (2014: 847,825, restated to reflect the one-for-six security consolidation).
(c) Retained profits
Opening balance at the beginning of the year
Net profit/(loss) attributable to security holders
Distributions provided for or paid
Closing balance at the end of the year
NOTE 17. wORkiNg CAPiTAL
2015
$m
562.3
618.7
(385.6)
795.4
2014
$m
471.1
406.6
(315.4)
562.3
(a) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short-term, highly liquid investments
with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk
of changes in value.
(b) Receivables
Rental, management fees and interest revenue are brought to account on an accruals basis. Dividends and distributions are recognised when
declared and, if not received at the end of the reporting period, reflected in the Statement of Financial Position as a receivable.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate
method, less provision for doubtful debts. Trade receivables are required to be settled within 30 days and are assessed on an ongoing basis for
impairment. Receivables which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for doubtful
debts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms
of the receivables.
Rent receivable
Less: provision for doubtful debts
Total rental receivables
Distributions receivable
Fee receivable
Other receivables
Total other receivables
Total receivables
(c) Other current assets
Prepayments
Deposit for the acquisition of investment property
Total other current assets
2015
$m
13.9
(0.2)
13.7
12.9
18.9
10.0
41.8
55.5
2015
$m
12.5
14.8
27.3
2014
$m
13.5
(0.1)
13.4
68.8
13.9
15.5
98.2
111.6
2014
$m
8.1
–
8.1
85
(d) Payables
Expenses are brought to account on an accruals basis and, if not paid at the end of the reporting period, are reflected in the Statement of
Financial Position as a payable.
These amounts represent liabilities for amounts owing at the end of the reporting period. The amounts are unsecured and are usually paid within
30 days of recognition.
Trade creditors
Accruals
Accrued capital expenditure
Prepaid income
Accrued interest
Other payables
Total payables
2015
$m
36.7
15.7
15.6
10.8
28.5
3.4
110.7
2014
$m
37.2
15.0
10.7
17.9
25.6
4.7
111.1
(e) Provisions
A provision is recognised when an obligation exists as a result of a past event and it is probable that a future outflow of cash or other benefit will
be required to settle the obligation.
In accordance with the Trust’s Constitution, the Group distributes its distributable income to unitholders by cash or reinvestment. Distributions are
provided for when they are approved by the Board of Directors and declared.
Provision for employee benefits relates to the liabilities for wages, salaries, annual leave and long service leave.
Liabilities for employee benefits for wages, salaries and annual leave expected to be settled within 12 months represent present obligations resulting
from employees’ services provided to the end of the reporting period. They are measured based on remuneration wage and salary rates that the
Group expects to pay at the end of the reporting period including related on-costs, such as workers compensation, insurance and payroll tax.
The provision for employee benefits for long service leave represents the present value of the estimated future cash outflows, to be made resulting
from employees’ services provided to the end of the reporting period.
The provision is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates
based on turnover history and is discounted using the Australian Corporate Bond Index rates at the end of the reporting period that most closely
matches the term of the maturity of the related liabilities. The provision for employee benefits also includes the employee incentives schemes
which are shown separately in note 21.
Provision for distribution
Provision for employee benefits
Total current provisions
Movements in each class of provision during the financial year, other than employee benefits, are set out below:
Provision for distribution
Opening balance at the beginning of the year
Additional provisions
Payment of distributions
Closing balance at the end of the year
2015
$m
207.4
23.7
231.1
2015
$m
173.3
385.6
(351.5)
207.4
2014
$m
173.3
23.9
197.2
2014
$m
146.2
315.4
(288.3)
173.3
A provision for distribution has been raised for the period ended 30 June 2015. This distribution is to be paid on 31 August 2015.
2015 dexus annual rePOrT 86
notes to the Financial statements
Other disclosures
iN ThiS SECTiON
This section includes other information that must be disclosed to comply with the Accounting Standards, the Corporations Act 2001 or the
Corporations Regulations, but which are not considered critical in understanding the financial performance or position of the Group.
NOTE 18. iNTANgibLE ASSETS
Management rights represent the asset management rights owned by DEXUS Holdings Pty Limited, a wholly owned subsidiary of DXO, which entitle
it to management fee revenue from both finite life trusts and indefinite life trusts. Those rights that are deemed to have a finite useful life (held at a
value of $4.8 million (2014: $5.1 million)) are measured at cost and amortised using the straight-line method over their estimated remaining useful
lives of 17 years. Management rights that are deemed to have an indefinite life are held at a value of $286.0 million (2014: $286.0 million).
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired
subsidiary at the date of acquisition.
Goodwill and management rights with an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more
frequently if events or changes in circumstances indicate that they might be impaired. An impairment loss is recognised in the Statement of
Comprehensive Income for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash inflows, which are largely independent of the cash inflows from other assets or groups of assets
(cash-generating units).
Management rights
Opening balance at the beginning of the year
Acquisition of management rights
Amortisation charge
Reversal of previous impairment of management rights
Closing balance at the end of the year
Cost
Accumulated amortisation
Total management rights
Goodwill
Opening balance at the beginning of the year
Impairment
Closing balance at the end of the year
Cost
Accumulated impairment
Total goodwill
Total intangible assets
2015
$m
291.1
–
(0.3)
–
290.8
294.4
(3.6)
290.8
1.5
(0.1)
1.4
3.0
(1.6)
1.4
2014
$m
242.1
42.0
(0.3)
7.3
291.1
294.4
(3.3)
291.1
1.6
(0.1)
1.5
3.0
(1.5)
1.5
292.2
292.6
87
During the current year, management carried out a review of the recoverable amount of its management rights. There was no change in the
carrying value of the management rights in the current year. In the prior year, there was a recognition of a reversal of previous impairments of
$7.3 million in the Statement of Comprehensive Income.
The value in use has been determined using Board approved long-term forecasts in a five year discounted cash flow model. Forecasts were based
on projected returns of the business in light of current market conditions. The performance in year five has been used as a terminal value.
Key assumptions: value in use of management rights
Judgement is required in determining the following key assumptions used to calculate the value in use:
§ Terminal capitalisation rate range between 10.0% – 16.7% (2014: 12.5% – 16.7%) was used incorporating an appropriate risk
premium for a management business
§ Cash flows have been discounted at 9.0% (2014: 9.5%) based on externally published weighted average cost of capital for an
appropriate peer group plus an appropriate premium for risk. A 1.0% (2014: 1.0%) decrease in the discount rate would increase the
valuation by $17.1 million (2014: $18.7 million)
NOTE 19. AUDiT, TAXATiON AND TRANSACTiON SERviCES FEES
During the year, the Auditor and its related practices earned the following remuneration:
Audit fees
PwC Australia – audit and review of Financial Statements
PwC fees paid in relation to outgoings audits
PwC Australia – regulatory audit and compliance services
PwC Australia – audit of DOTA
PwC Australia – sustainability assurance
Audit fees paid to PwC
Taxation fees
Fees paid to PwC Australia and New Zealand
Fees paid to PwC Australia in respect of the CPA acquisition
Taxation fees paid to PwC
Total audit and taxation fees paid to PwC
Transaction services fees
Fees paid to PwC Australia in respect of the CPA acquisition
Fees paid to PwC Australia – other
Total transaction services fees paid to PwC
Total audit, taxation and transaction services fees paid to PwC
2015
$’000
2014
$’000
1,370
1,150
111
216
95
97
145
211
213
75
1,889
1,794
147
–
147
33
200
233
2,036
2,027
–
67
67
225
–
225
2,103
2,252
2015 dexus annual rePOrT 88
notes to the Financial Statements
Other disclosures (continued)
NOTE 20. RECONCiLiATiON OF NET PROFiT TO NET CASh FLOwS FROM OPERATiNg ACTiviTiES
(a) Reconciliation
Net profit/(loss) for the year
Capitalised interest
Depreciation and amortisation
Impairment of goodwill
Net fair value (gain)/loss of investment properties
Share of net (profit)/loss of investments accounted for using the equity method
Net fair value (gain)/loss of derivatives
Net fair value (gain)/loss of interest rate swaps
Amortisation of deferred borrowing costs
Net (gain)/loss on sale of investment properties
Net fair value (gain)/loss of interest bearing liabilities
Foreign currency translation reserve transfer on disposal of foreign operations
Reversal of previous impairment of management rights
Impairment of investments accounted for using the equity method
Transaction costs
Provision for doubtful debts
Distributions from investments accounted for using the equity method
Change in operating assets and liabilities
(Increase)/decrease in receivables
(Increase)/decrease in prepaid expenses
(Increase)/decrease in inventories
(Increase)/decrease in other current assets
(Increase)/decrease in other non-current assets
Increase/(decrease) in payables
Increase/(decrease) in current liabilities
Increase/(decrease) in other non-current liabilities
(Increase)/decrease in deferred tax assets
Net cash inflow/(outflow) from operating activities
2015
$m
618.7
(6.0)
2.8
0.1
(130.4)
(252.1)
(17.4)
48.5
3.6
3.0
15.9
2.1
–
–
–
0.1
217.6
–
(4.5)
118.9
(0.9)
15.8
5.9
(0.2)
(1.3)
21.2
2014
$m
406.6
(6.1)
2.3
0.1
(145.7)
(58.3)
2.1
50.8
3.7
7.7
(12.3)
(0.8)
(7.3)
3.3
23.9
(0.5)
79.0
(70.9)
2.8
42.2
(5.6)
58.6
12.8
0.6
16.8
12.5
661.4
418.3
(b) Capital expenditure on investment properties
Payments for capital expenditure on investment properties include $118.3 million (2014: $94.8 million) of maintenance and incentive capital expenditure.
89
NOTE 21. SECURiTy-bASED PAyMENTS
The DXFM Board has approved a grant of performance rights to DXS stapled securities to eligible participants. Awards, via the 2012 Transitional
Performance Rights Plan, Deferred Short Term Incentive Plans (DSTI) and Long Term Incentive Plans (LTI), will be in the form of performance
rights awarded to eligible participants which convert to DXS stapled securities for nil consideration subject to satisfying specific service and
performance conditions.
For each Plan, the eligible participants will be granted performance rights, based on performance against agreed key performance indicators, as
a percentage of their remuneration mix. Participants must remain in employment for the vesting period in order for the performance rights to vest.
Non-market vesting conditions, including Funds from Operations (FFO), Return on Equity (ROE) and employment status at vesting, are included
in assumptions about the number of performance rights that are expected to vest. When performance rights vest, the Group will arrange for the
allocation and delivery of the appropriate number of securities to the participant.
The fair value of performance rights granted is recognised as an employee benefit expense with a corresponding increase in the security-based
payments reserve in equity. The total amount to be expensed is determined by reference to the fair value of the performance rights granted.
Key assumptions: fair value of performance rights granted
Judgement is required in determining the fair value of performance rights granted. In accordance with AASB 2 Share-based Payments,
fair value is determined independently using Black-Scholes and Monte Carlo pricing models with reference to:
§ The expected life of the rights
§ The security price at grant date
§ The expected price volatility of the underlying security
§ The expected distribution yield and
§ The risk free interest rate for the term of the rights and expected total security-holder returns (where applicable)
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.
At the end of each period, the Group revises its estimates of the number of performance rights that are expected to vest based on the non-market
vesting conditions. The impact of the revised estimates, if any, is recognised in profit or loss with a corresponding adjustment to equity.
(a) 2012 Transitional Performance Rights Plan
Subject to satisfying employment service conditions, the award has vested over a four year period ending 30 June 2015. No performance rights
were granted in respect of the year ended 30 June 2015 (2014: nil). The fair value of the 2012 performance rights is $nil per performance right
and the total security-based payment expense recognised during the year ended 30 June 2015 was $243,033 (2014: $457,863).
(b) Deferred Short Term Incentive Plan
25% of any award under the Short Term Incentive Plan (STI) for certain participants will be deferred and awarded in the form of performance
rights to DXS securities.
50% of the performance rights awards will vest one year after grant and 50% of the awards will vest two years after grant, subject to participants
satisfying employment service conditions. In accordance with AASB 2 Share-based Payments, the year of employment in which participants
become eligible for the DSTI, the year preceding the grant, is included in the vesting period over which the fair value of the performance rights
is amortised. Consequently, 50% of the fair value of the performance rights is amortised over two years and 50% of the award is amortised over
three years.
The number of performance rights granted in respect of the year ended 30 June 2015 was 356,412 (2014: 374,4481) and the fair value of these
performance rights is $7.30 (2014: $6.661) per performance right. The total security-based payment expense recognised during the year ended
30 June 2015 was $1,974,287 (2014: $1,727,708).
(c) Long Term Incentive Plan
50% of the awards will vest three years after grant and 50% of the awards will vest four years after grant, subject to participants satisfying
employment service conditions and performance hurdles. In accordance with AASB 2 Share-based Payments, the year of employment in
which participants become eligible for the LTI, the year preceding the grant, is included in the vesting period over which the fair value of the
performance rights is amortised. Consequently, 50% of the fair value of the performance rights is amortised over four years and 50% of the award
is amortised over five years.
The number of performance rights granted in respect of the year ended 30 June 2015 was 533,328 (2014: 473,3741). The fair value of these
performance rights is $5.43 (2014: $4.981) per performance right. The total security-based payment expense recognised during the year ended
30 June 2015 was $1,302,660 (2014: $726,312).
1
Restated to reflect the one-for-six security consolidation.
2015 dexus annual rePOrT 90
notes to the Financial Statements
Other disclosures (continued)
NOTE 22. RELATED PARTiES
Responsible Entity and Investment Manager
DXH is the parent entity of DXFM, the Responsible Entity of DDF, DIT, DOT and DXO and the Trustee of DOTA.
DXH is also the parent entity of DWPL, the Responsible Entity of DWPF.
DXH is the Investment Manager of DOTA.
Management fees
Under the terms of the Constitutions of the entities within the Group, the Responsible Entity and Investment Manager are entitled to receive fees
in relation to the management of the Group. DXFM’s parent entity, DXH, is entitled to be reimbursed for administration expenses incurred on
behalf of the Group. DEXUS Property Services Pty Limited (DXPS), a wholly owned subsidiary of DXH, is entitled to property management fees
from the Group.
Related party transactions
Responsible Entity fees in relation to Group assets are on a cost recovery basis. All agreements with third party funds are conducted on normal
commercial terms and conditions.
A loan of $338.4 million from DOTA was repaid during the year.
DEXUS Wholesale Property Fund
Responsible Entity fee income
Property management fee income
Rent paid
Responsible Entity fees receivable at the end of each reporting period (included above)
Property management fees receivable at the end of each reporting period (included above)
Administration expenses receivable at the end of each reporting period (included above)
Investments accounted for using the equity method
Asset management fee income
Property management fee income
Rent paid
Responsible Entity fees receivable at the end of each reporting period (included above)
Property management fees receivable at the end of each reporting period (included above)
Administration expenses receivable at the end of each reporting period (included above)
2015
$’000
28,050
12,405
63
2,453
1,742
89
2015
$’000
10,214
15,156
1,235
2,594
2,915
511
2014
$’000
24,115
7,397
7
2,150
817
125
2014
$’000
2,331
2,004
–
2,558
906
63
91
Directors
The following persons were Directors of DXFM at all times during the year and to the date of this report, unless otherwise stated:
C T Beare, BSc, BE (Hons), MBA, PhD, FAICD 1,2,3,5,6,7
E A Alexander, AM, BComm, FCA, FAICD, FCPA 1,3,8
P Bingham-Hall, BA (Industrial Design), FAICD, SF (Fin) 1,7,9
J C Conde, AO, BSc, BE (Hons), MBA 1,2,6,7
T Dwyer, BJuris (Hons), LLB (Hons) 1,2,4,8,9
C D Mitchell, BComm, MBA (Exec), FCPA, HBS (AMP)
W R Sheppard, BEc (Hons) 1,3,5,6,8,9
D J Steinberg, BEc, FAICD, FRICS, FAPI
P B St George, CA(SA), MBA 1,5,8,9
1
Independent Director.
2 Board Nomination, Remuneration & Governance Committee Member until 31 August 2014.
3 Board Audit, Risk & Sustainability Committee Member until 31 August 2014.
4 Board Compliance Committee Member until 31 August 2014.
5 Board Finance Committee Member until 31 August 2014.
6 Board Nomination Committee Member from 1 September 2014.
7 Board People & Remuneration Committee Member from 1 September 2014.
8 Board Audit Committee Member from 1 September 2014.
9 Board Risk Committee Member from 1 September 2014.
Other key management personnel
In addition to the Directors listed above, the following persons were deemed by the Board Nomination Committee to be key management
personnel during all or part of the financial year:
name
Ross Du Vernet
Kevin George
Title
Executive General Manager, Strategy, Transactions & Research
Executive General Manager, Office & Industrial
Key management personnel compensation
Compensation
Short-term employee benefits
Post employment benefits
Other long-term benefits
Security-based payments
2015
$’000
2014
$’000
7,453
220
–
2,595
10,268
7,428
189
48
1,995
9,660
Equity instrument disclosures relating to key management personnel
The relevant interest in DXS stapled securities held during the financial year by each key management personnel, including their personally
related parties, are set out below:
Directors
Opening
Balance
1 July 2014
One-for-six
security
consolidation
3,993,960
(3,328,298)
Other key management personnel
1,324,458
(1,103,715)
Performance
rights
granted
Other
change
Closing
Balance
30 June 2015
Purchases
8,334
–
394,191
127,653
–
–
–
1,068,187
348,396
1,416,583
Total
5,318,418
(4,432,013)
8,334
521,844
The DXFM Board has approved a grant of performance rights to DXS stapled securities to eligible participants (refer to note 21). Details of the
number of performance rights issued to each of the key management personnel are set out in section 3 of the Directors’ Report.
There were no loans or other transactions with key management personnel or their related parties during the years ended 30 June 2015 and
30 June 2014.
2015 dexus annual rePOrT 92
notes to the Financial Statements
Other disclosures (continued)
NOTE 23. PARENT ENTiTy DiSCLOSURES
The financial information for the parent entity of DEXUS Diversified Trust has been prepared on the same basis as the consolidated
Financial Statements except as set out below:
Distributions received from associates are recognised in the parent entity’s Statement of Comprehensive Income, rather than being deducted
from the carrying amount of these investments.
Interests held by the parent entity in controlled entities are measured at fair value through profit and loss to reduce a measurement
or recognition inconsistency.
(a) Summary financial information
The individual Financial Statements for the parent entity show the following aggregate amounts:
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Contributed equity
Reserves
Retained profits
Total equity
Net profit/(loss) for the year
Total comprehensive income/(loss) for the year
(b) Guarantees entered into by the parent entity
Refer to note 14(b) for details of guarantees entered into by the parent entity.
(c) Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2015 (2014: nil).
2015
$m
105.6
3,724.6
183.4
1,535.0
2014
$m
950.1
2,581.9
982.8
564.8
1,990.6
1,833.4
8.6
190.4
(9.4)
193.1
2,189.6
2,017.1
174.7
192.6
141.4
132.1
(d) Capital commitments
The following amounts represent capital expenditure of the parent entity on investment properties contracted at the end of the reporting period
but not recognised as liabilities payable:
Investment properties
Total capital commitments
2015
$m
3.0
3.0
2014
$m
6.5
6.5
NOTE 24. SUbSEqUENT EvENTS
On 1 July 2015, the Group and DWPF exchanged contracts to jointly acquire Waterfront Place at 1 Eagle Street and Eagle Street Pier at
45 Eagle Street Brisbane, QLD, for $635.0 million excluding acquisition costs.
On 31 July 2015, settlement occurred on the sale of 154 O’Riordan Street, Mascot, NSW for gross proceeds of $32.0 million.
On 21 July 2015, settlement occurred on the sale of 5-13 Rosebery Avenue and 25-55 Rothschild Avenue, Rosebery, NSW for gross proceeds
of $171.0 million.
On 4 August 2015, settlement occurred on the sale of Units 10/11, 108 Silverwater Road, Silverwater, NSW for gross proceeds of $5.5 million.
Since the end of the year, other than the matters disclosed above, the Directors are not aware of any matter or circumstance not otherwise dealt
within their Directors’ Report or the Financial Statements that has significantly or may significantly affect the operations of the Group, the results
of those operations, or state of the Group’s affairs in future financial periods.
Directors’ Declaration
93
The Directors of DEXUS Funds Management Limited as Responsible Entity of DEXUS Diversified Trust declare that the Financial Statements and
notes set out on pages 48 to 92:
(i) Comply with Australian Accounting Standards, the Corporations Act 2001 and other mandatory professional reporting requirements; and
(ii) Give a true and fair view of the Group’s financial position as at 30 June 2015 and of their performance, as represented by the results of
their operations and their cash flows, for the year ended on that date
In the Directors’ opinion:
(a) The Financial Statements and notes are in accordance with the Corporations Act 2001
(b) There are reasonable grounds to believe that the Group and its consolidated entities will be able to pay their debts as and when they
become due and payable; and
(c) The Group has operated in accordance with the provisions of the Constitution dated 15 August 1984 (as amended) during the year ended
30 June 2015
The Financial Statements also comply with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the
Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Christopher T Beare
Chair
11 August 2015
2015 dexus annual rePOrT 94
Independent auditor’s report
Independent auditor’s report to the stapled security holders of
DEXUS Diversified Trust
Report on the financial report
We have audited the accompanying financial report of DEXUS Diversified Trust (the registered
scheme), which comprises the consolidated statement of financial position as at 30 June 2015, the
consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year ended on that date, a summary of significant
accounting policies, other explanatory notes and the directors’ declaration for DEXUS Property Group
(the consolidated entity). DEXUS Property Group comprises the registered scheme and the entities it
controlled at year’s end or from time to time during the financial year as disclosed in the Basis of
preparation.
Directors’ responsibility for the financial report
The directors of DEXUS Funds Management Limited (the responsible entity) are responsible for the
preparation of the financial report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that is free from material
misstatement, whether due to fraud or error. In the Basis of preparation, the directors also state, in
accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the
financial statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the consolidated
entity’s preparation and fair presentation of the financial report in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
95
Auditor’s opinion
In our opinion:
(a)
the financial report of DEXUS Diversified Trust is in accordance with the Corporations Act
2001, including:
(i)
(ii)
giving a true and fair view of the consolidated entity's financial position as at 30 June
2015 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting
Interpretations) and the Corporations Regulations 2001.
(b)
the financial report and notes also comply with International Financial Reporting Standards as
disclosed in the Basis of preparation.
Report on the Remuneration Report
We have audited the remuneration report included in pages 3 to 22 of the directors’ report for the year
ended 30 June 2015. The directors of the registered scheme are responsible for the preparation and
presentation of the remuneration report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the remuneration report, based on our audit
conducted in accordance with Australian Auditing Standards.
19 to 33
Auditor’s opinion
In our opinion, the remuneration report of DEXUS Diversified Trust for the year ended 30 June 2015
complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
E A Barron
Partner
Sydney
11 August 2015
2015 dexus annual rePOrT 96
additional Information
TOP 20 SECURiTy hOLDERS AT 31 JULy 2015
Rank
name
no. of units
% of issued capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
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