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ASX release
16 August 2017
2017 Annual Report
Dexus provides its 2017 Annual Report which will be mailed to Security holders who have elected to
receive a copy on 29 August 2017.
For further information please contact:
Investor Relations
Melanie Bourke
+61 2 9017 1168
+61 405 130 824
melanie.bourke@dexus.com
Media Relations
Louise Murray
+61 2 9017 1446
+61 403 260 754
louise.murray@dexus.com
About Dexus
Dexus is one of Australia’s leading real estate groups, proudly managing a high quality Australian property portfolio
valued at $24.9 billion. We believe that the strength and quality of our relationships will always be central to our
success, and are deeply committed to working with our customers to provide spaces that engage and inspire. We invest
only in Australia, and directly own $12.2 billion of office and industrial properties. We manage a further $12.7 billion of
office, retail, industrial and healthcare properties for third party clients. The group’s $4.3 billion development pipeline
provides the opportunity to grow both portfolios and enhance future returns. With 1.8 million square metres of office
workspace across 54 properties, we are Australia’s preferred office partner. Dexus is a Top 50 entity by market
capitalisation listed on the Australian Securities Exchange (trading code: DXS) and is supported by 28,000 investors
from 20 countries. With more than 30 years of expertise in property investment, development and asset management,
we have a proven track record in capital and risk management, providing service excellence to tenants and delivering
superior risk-adjusted returns for investors. www.dexus.com
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Dexus Funds Management Ltd ABN 24 060 920 783, AFSL 238163, as Responsible Entity for Dexus (ASX: DXS)
Annual
Report
2017
Thinking ahead
A
n
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u
a
l
R
e
p
o
r
t
2
0
1
7
Thinking ahead
In a constantly evolving investment and
business environment, we are keeping a
close eye on the future and have identified
the key areas of cities, customer, sustainability
and workplace culture where Dexus has an
opportunity to differentiate itself.
2017 Annual Reporting Suite
Dexus presents its 2017 Annual Reporting Suite
for the year ended 30 June 2017.
1. 2017 Annual Report
An integrated report providing Dexus’s
Consolidated Financial Report,
Operating and Financial Review and
Corporate Responsibility and Sustainability
(CR&S) performance.
2. 2017 Combined Financial Statements
Comprises the Financial Statements for
Dexus Industrial Trust, Dexus Office Trust
and Dexus Operations Trust. This report
should be read in conjunction with the
2017 Annual Report.
3. 2017 Performance Pack
Provides data and detailed information
supporting the results outlined in the
2017 Annual Report available in the
online 2017 Annual Reporting Suite at
www.dexus.com
4. 2017 Annual Results Presentation
Provides an overview of Dexus‘s
operational and financial
performance available in the online
2017 Annual Reporting Suite at
www.dexus.com
5. 2017 Property Synopsis and Debt Summary
Provides an overview of the Dexus
property portfolio and capital
management position available in the
online 2017 Annual Reporting Suite at
www.dexus.com.
The 2017 Annual Reporting Suite is available in
hard copy by email request to ir@dexus.com
or by calling +61 1800 819 675.
www.
dexus2017.
reportonline.
com.au
Combined
Financial
Statements
2017
Performance
Pack
2017
Annual
Results
Presentation
2017
Property
Synopsis
and Debt
Summary
2017
Overview
FY17 highlights
About Dexus
Chair and CEO review
Our strategy
Our new-look brand
Creating value
Page
1
2
3
6
7
8
This section outlines our strategy,
key achievements and how we created
value in line with our strategic objectives.
Performance
Property portfolio
Funds management
Trading
Page
10
11
11
This section summarises the performance
of our three key earnings drivers.
FY17 Highlights
Growth in distribution
per security
4.5%
Realised trading profits
post-tax
$47.2m
Achieved return
on equity
18.2%
Office portfolio like-for-like
income growth
2.6%
Record level of
industrial leasing
Achieved female representation
at senior levels
432,105sqm
33%
Achieved 5 star NABERS Energy ratings
or above over 634,594sqm across
Launched an unlisted
healthcare property fund
63.4%
of the office portfolio progressing
the 1,000,000sqm target by 2020
Thinking ahead
Cities of the future
Responding to
the evolving customer
Transitioning to a low
carbon future
Fostering a high
performing culture
Page
12
13
14
15
This section identifies four key areas
where there is an opportunity for
Dexus to differentiate itself.
Governance
Page
Board of Directors
16
Active governance statement
17
Dexus’s Sydney CBD footprint 20
Financial report
Operating & financial review
22
Directors’ report
30
Financial statements
52
Notes to financial statements 58
Investor information
Additional information
Investor information
Key ASX announcements
Directory
About this report
103
105
107
108
109
11
PB
Dexus Annual Report 2017 Overview
About Dexus
Dexus is one of Australia’s leading
real estate groups, proudly managing
a high quality Australian property portfolio
valued at $24.9 billion.
We believe that the strength and quality
of our relationships will always be central
to our success, and are deeply committed
to working with our customers to provide
spaces that engage and inspire.
We invest only in Australia, and directly own
$12.2 billion of office and industrial properties.
We manage a further $12.7 billion of office,
retail, industrial and healthcare properties
for third party clients. The Group’s
$4.3 billion development pipeline provides
the opportunity to grow both portfolios
and enhance future returns.
With 1.8 million square metres of office
workspace across 54 properties, we are
focused on being Australia’s preferred
office partner. Our portfolio also includes
73 industrial properties and 16 shopping
centres under management across Australia.
Dexus is a Top 50 entity by market
capitalisation listed on the Australian
Securities Exchange (trading code: DXS)
and is supported by 28,000 investors from
20 countries. With more than 30 years
of expertise in property, investment,
development and asset management,
we have a proven track record in providing
service excellence to our customers, capital
and risk management and delivering superior
risk adjusted returns for our investors.
Industrial
16%
$24.9bn
Total funds under management1
Dexus portfolio1
$12.2bn
143
Properties
Office
84%
Dexus Wholesale
Property Fund
$8.2bn
Australian Mandate
$1.9bn
Australian
Industrial Partnership
$0.3bn
Dexus Industrial
Partnership
$0.1bn
Dexus Office
Partnership
$2.1bn
Healthcare Wholesale
Property Fund
$0.1bn
Funds
management
portfolio1
$12.7bn
4.5m
Square metres across the group
425
Property professionals
$9.6bn
Market capitalisation
Top 50
Entity on ASX
Portfolio metrics for 30 June 2017, including portfolio value, area, occupancy and WALE
are adjusted for the transactions settled up to 16 August 2017.
1.
2
2
3
Section HeadingVolorum Sit, aut plaborporem laccum ut prestet as aliquo tem voluptatur. toriam, corestet abore proremp erumet alique odit id quodia cusantem sequiam est omnihic Chair and CEO review
Dear Security holder
Property is a long dated asset class and successful
property companies focus on the long term.
Five years ago we updated our strategy, building
on our foundational strengths of office ownership
and funds management to enhance our position in
the Australian property market. In that time we have
provided an average total security holder return of
17.4% per annum and grown our total funds under
management from $12.9 billion to $24.9 billion, and
we are well positioned to continue the momentum
we see in our business today.
We continue to focus our investment strategy on
Australia’s major cities, with management of 1.8 million
square metres of office space across 54 properties.
Our portfolio also includes Australian industrial, retail
and healthcare properties under management,
providing the opportunity for us to offer our customers
flexible workspace solutions and great customer
experiences. Our model enables us to leverage our
multi-sector capabilities and scale to access diverse
pools of capital and be a wholesale partner of choice.
In FY17 we delivered on what we set out to achieve,
ensuring both a strong financial and operational
result, while continuing to create long term value
for our investors.
Achieved strong financial result
Dexus’s net profit increased 0.3% to $1,264.2 million
supported by strong valuation increases. Our full
year distribution of 45.47 cents per security was at
the upper end of guidance and an increase of 4.5%
on the prior year. Underlying Funds From Operations
per security, which excludes trading profits, increased
4.2%, highlighting the strong contribution from the
property portfolio and funds management business.
At 30 June 2017, Dexus’s gearing1 (look-through) was
26.7%2, below the 30-40% target range.
Dexus delivered a Return on Contributed Equity3 of 7.6%
and a Return on Equity 4 of 18.2%.
2
Dexus Annual Report 2017
3
3
Dexus Annual Report 2017 Overview
Chair and CEO review continued
Continued strong outperformance
Dexus outperformed the S&P/ASX 200
Property Accumulation (A-REIT) Index by
164 basis points, delivering a 10.1% total return
for the year.
industrial facilities in New South Wales and
Victoria. We progressed our office and
industrial development pipeline and are
creating city retail opportunities to deliver
future growth. (refer to pages 10-11)
We actively review our portfolio in line
with market conditions to decide the
best outcome for our investors, and seek
to acquire properties where we can add
value to our platform over the long term
while ensuring alignment with strategy.
Transaction activity totalled
$2.6 billion, including the acquisition
of the Mill, Alexandria and
divestment of Southgate Complex,
Melbourne, 39 Martin Place, Sydney,
30-68 Taras Avenue, Altona North, and
$222 million of trading properties.
In late June 2017, Dexus announced the
acquisition of a 25% interest in Sydney’s
MLC Centre (with DWPF also acquiring
a 25% interest) and a 100% interest in
100 Harris Street, Pyrmont, along with a
core industrial property at 90 Mills Road,
Braeside in Melbourne. We undertook an
equity raising, which included a $500 million
institutional placement (and associated
Security Purchase Plan) to partly fund these
acquisitions, while ensuring we maintain our
balance sheet strength.
The office acquisitions expand our exposure
to Sydney, Australia’s largest office market,
and added more than 65 new customers
to our platform. Our positioning across
Australia’s major cities continues to grow
and reinforces our belief that Sydney will
benefit from the global trend of urbanisation
and enhanced infrastructure links over the
coming years.
Sustained value
Our sustainability approach is aligned with
Dexus’s strategy through the overarching
goal of delivering ‘Sustained Value’ to
our stakeholders: our people, customers,
communities, cities and the environment.
Each year we set ourselves measurable
Corporate Responsibility & Sustainability
commitments and in FY17 recorded some
notable achievements. We encourage
you to view these achievements in our
2017 Online Reporting Suite.
This year we gained a leading position
in the Global Real Estate Sustainability
Benchmark (GRESB). Dexus’s listed office
portfolio ranked first in Australia and
fifth globally, while DWPF ranked first in
Australia in the diversified retail/office
non-listed category. CDP recognised
Dexus as a climate change leader for the
fourth consecutive year, acknowledging
our focus on energy efficiency and
reducing carbon emissions.
Dexus total return performance as at 30 June 2017
20
18.4%
17.4%
4.6%
10.1%
10
0
1 year
3 years
5 years
10 years
DXS
S&P/ASX 200 A-REIT Index
S&P/ASX 200 Index
Source: UBS Australia.
Committed to strategy and
delivering results
Our business model has been designed
to deliver results through the cycle and in
FY17, all of our earnings drivers contributed
positively to the result. (refer to page 8)
Across our property portfolio, we achieved
strong valuation increases of $704.7 million,
up 6.5% on prior book values. Our office and
industrial portfolios delivered 2.6% and 3.6%
like-for-like income growth respectively.
Strong returns were driven by active
leasing, most notably at our properties
in the buoyant Sydney and Melbourne
markets. (refer to page 10)
In our funds management business we
continued to deliver performance for our
clients through transactions, the completion
of developments and valuation growth.
Delivering on our strategic objective to be a
wholesale partner of choice, we established
a joint venture with Commercial & General
and launched a new unlisted healthcare
property fund in FY18, which will be
focused on creating a scalable portfolio of
healthcare properties. (refer to page 11)
Our trading portfolio delivered $47.2 million
in trading profits net of tax by leveraging our
capabilities across the entire Dexus platform.
In addition, further opportunities were added
to the pipeline. (refer to page 11)
Creating value for the future
Our $4.3 billion development pipeline
provides opportunity to enhance future
returns and grow our own portfolio and the
portfolios of our third party clients. We have
been active in development, commencing
the construction of 100 Mount Street,
North Sydney, and activating seven
4
Fostering a high performing culture
We see people and culture as a key
enabler to the delivery of our strategic
objectives, and have invested time
in building a diverse and inclusive
workforce which we believe drives strong
performance. This year we modernised
our approach to reward and recognition
which included the implementation of
a company-wide Employee Securities
Ownership Plan, strengthening the
alignment of interests of our people with
the performance of the company.
“As a founding member of the Property
Male Champions of Change initiative,
I am personally committed alongside
other property CEOs to drive gender
equality and improve female
representation at senior levels.”
Darren Steinberg, CEO
Of our total workforce, 53% are female
and during the year we improved gender
diversity at senior levels, achieving our
initial target of 33% female representation
for Senior Managers and above (FY16: 31%).
We also have strong diversity at the Board
level with 43% female non-executive
directors. Making further progress, for the
first time we reached gender pay equity
for like-for-like roles across the business
from 1 July 2017. (refer to page 15 )
Active approach to governance and
changes to the Board
We continually seek ways to improve how
we report to our investors, and this year
have introduced a section in this report that
summarises the key activities of the Board
and its respective committees over the past
12 months. (refer to pages 17-19)
Our Board comprises seven non-executive
directors and one executive director,
following the appointment of Mark Ford as
a new independent non-executive director.
Mark has extensive property industry
experience and holds non-executive roles
on a number of boards in Australasia.
He also has a long-standing connection
with Dexus, previously having been
the Managing Director and Head of
DB Real Estate Australia.
Post 30 June 2017, we announced the
appointment of The Hon. Nicola Roxon
to the Board as an independent director,
effective from 1 September 2017. Nicola
has significant experience in the health,
government and professional services
sector, and we welcome her to the Board
as part of our ongoing renewal process.
Further details relating to our Corporate
Governance practices and the Board are
included on pages 16-19. Our Corporate
Governance Statement is available at
www dexus.com/governance
FY18 guidance5
Deliver
4.0-4.5%
growth in distribution per security
Outlook
Dexus has performed well in FY17, and we look
forward to continuing to deliver results in the year
ahead.
With the majority of our office portfolio located
in the strongly performing Sydney market, we
are encouraged by the rental and value growth
forecast as supply tightens and incentives reduce.
In our other markets, we remain committed to
providing spaces that meet customer needs and
will continue to actively manage our portfolio
to maintain performance.
We expect to see further support for real estate
values in FY18 as a result of the strength of
property fundamentals in Sydney and Melbourne
combined with persistent investment demand
from global and local players attracted to the
stable returns from quality well leased properties.
We remain committed to our strategy which is
delivering long term value. (refer pages 6-7)
We are delivering on all of the key earnings drivers
while prioritising risk mitigation through a long
term, diversified and sustainable approach.
On behalf of the Board and management,
we extend our thanks to our high performing
team across Australia for their commitment
and significant contribution in delivering these
results. We thank our third party clients and
capital partners as well as our customers for
their continued and valued support.
Finally, we express our appreciation to you,
our investors, for your ongoing investment in Dexus.
Richard Sheppard
Chair
Darren Steinberg
Chief Executive Officer
1.
2.
3.
4.
5.
Adjusted for cash and for debt in equity accounted investments.
Pro forma gearing is adjusted for the acquisitions of MLC Centre, Sydney,
100 Harris Street, Pyrmont, 90 Mills Road, Braeside and the sales of
30-68 Taras Avenue, Altona North and 46 Colin Street, Perth, including
the impact of transactions costs. Actual gearing (look-through) is 22.1%
at 30 June 2017.
Return on Contributed Equity is calculated as AFFO plus the net tangible
asset impact from completed developments divided by the average
contributed equity during the period.
Return on Equity is calculated as the growth in net tangible assets (NTA)
per security plus the distribution paid/payable per security divided by the
opening NTA per security.
Barring unforeseen circumstances guidance is supported by the following
assumptions: Impacts of announced divestments and acquisitions;
underlying FFO per security growth of 2.0-2.5% underpinned by Dexus
office portfolio like for like growth of 4-5%, Dexus industrial portfolio like for
like income growth of 3-4%, management operations FFO of c.$50 million
and cost of debt in line with FY17; trading profits of $35-40 million net
of tax; maintenance capex, cash incentives, leasing costs and rent free
incentives of $165-170 million; and excluding any further transactions.
Thinking ahead
Property and investment markets are constantly
evolving. To see clearly into the future we regularly
assess the impacts of change on property markets
and have identified four key areas where there is
an opportunity for Dexus to differentiate itself.
Cities of the future
Urbanisation is changing our cities. The underlying
growth in our population and the value of CBDs
as employment and economic drivers will provide
considerable opportunities for Dexus in the future,
given our portfolio is heavily concentrated in the
major CBDs of Australia. (refer to page 12)
Responding to the evolving customer
Flexibility is becoming increasingly valuable
to our customers. We continue to assess the
needs of customers of the future and how this
will affect the way we do business. Through our
customer centric approach we are constantly
rethinking our product offering and finding
different ways to engage. (refer to page 13)
Transitioning to a low carbon future
Since 2009 we have continually set strong
targets on sustainability. Our sustainability
approach has achieved significant operational
improvements and efficiencies that have
reduced costs and environmental impacts.
Looking beyond 2020, we are investigating
other opportunities to capitalise on and are
setting longer term targets that will continue
to lower our emissions towards net-zero.
(refer to page 14)
Fostering a high performing culture
We believe building expertise and fostering a high
performing culture delivers results. We are preparing
our people and leaders for the future, while focusing
on productivity and how we can do things better.
At the same time we are working to understand how
we manage a multi-generational workforce, so we
can attract and retain the best and brightest talent
of every generation. (refer to page 15)
Dexus Annual Report 2017
5
Overview
Our strategy
Our strategy is to deliver superior risk adjusted returns for
investors from high quality real estate in Australia’s major cities.
We have two strategic objectives
that underpin this strategy:
- Leadership in office: being the leading
owner and manager of Australian
office property
- Funds management partner of choice:
being the wholesale partner of choice
in Australian property
Delivering superior risk adjusted returns
means outperforming the relevant three
and five year benchmarks in each market
in which Dexus owns or manages properties,
and providing Dexus investors with
sustainable and growing distributions.
Our strategy is underpinned by the core
capabilities of expertise in:
- asset and property management
- development
- trading and transactions
We have a number of enablers that support
the delivery of our strategy including:
- Customer and marketing
- Technology
- People and communities
- Sustainability
- Risk and governance
- Capital management
We believe in the benefits of scale in core
CBD office markets. Scale provides us
with valuable customer insights and the
opportunity to invest in people, systems
and technologies that enhance our
customers’ experience, and improves our
ability to find the ideal workspace solution
for customers in more than one location.
We consider corporate responsibility
and sustainability an integral part of our
business operations. Our sustainability
approach supports our strategy with an
overarching goal of delivering sustained
value for all stakeholders across the key
objectives of future enabled customers,
strong communities, leading cities,
enriched environment and thriving people.
Refer to the online 2017 Annual
Reporting Suite at www.dexus.com
n
V i s i o
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t i v
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b ili t i e
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To be globally recognised as Australia’s leading real estate company
To deliver superior risk-adjusted returns for investors from
high quality real estate in Australia’s major cities
Leadership in offi ce
Funds management partner of choice
Being the leading owner and manager
of Australian offi ce property
Being the wholesale partner of choice
in Australian property
Asset and property management | Development | Trading and transactions
Customer &
Marketing
Technology
People &
Communities
Sustainability
Risk &
Governance
Capital
Management
s
r
b l e
a
n
E
Strengthen
brand and apply
customer centric
approach
Utilise the
most effi cient
technology and
systems
Best people and
highly engaged
workforce
Building and
managing assets
with sustainability
in mind
Managing risk
in a prudent
and disciplined
manner
Conservative
management of
our capital
6
6
7
7
FY17 strategic achievements
We outline our key achievements for
FY17 against our strategic objectives
Leadership in office
- Leveraged our asset management
and leasing capability to increase
office portfolio occupancy to 97.2%
and reduce incentives to 14.5%
- Implemented forward leasing
strategies to reduce FY19 expiries to
12.0% and improve weighted average
lease expiry to 4.8 years
- Achieved IPD outperformance1 over
1, 3 and 5 years across the group’s
office portfolio
- Acquired $1 billion of office property
across the group in Sydney, Australia’s
largest office market
- Continued to expand our customer
proposition with the launch of
Childspace, a fourth Dexus Place
located in Sydney and the
implementation of 35 Workspace
portals across our platform. Dexus
now has over 25,000 customers and
community members engaged with
our services
- Made progress towards our 2020
target of 1 million square metres rated
5 star NABERS energy rating and
4 star NABERS water rating
Funds management
partner of choice
- Delivered strong fund performance
with DWPF outperforming its
benchmark over one, three, five, seven
and ten years
- Expanded our funds management
platform with the launch of an unlisted
healthcare property fund
- Delivered a one year unlevered total
property return of 14.7% for the Dexus
Office Partnership, and an annualised
unlevered property return of 14.6%
since inception
- Acquired $532 million of properties for
DWPF including MLC Centre, Sydney
(25%), Carillon City, Perth and 5 Inglis
Road, Ingleburn in line with DWPF’s
investment strategy
- Raised $550 million2 of new equity
in DWPF
Our new-look brand
Over the past year, we took
the opportunity to refresh our
brand which further establishes
our connection with our
customers, ensuring we
continually evolve the products
and services we offer.
Our new brand represents who we are today
and where we’re headed and articulates our
difference in a meaningful way.
We’re an innovative company that is
redefining the workplace through our
customer offering. We are working alongside
our customers to understand their needs,
making things simple and easy, and
providing products and services that
genuinely add value such as car sharing
and parking solutions, childcare, and the
flexible meeting and training facilities at
Dexus Place.
View our new brand video at
www.dexus.com/brand
6
6
1. As at 31 March 2017.
2.
Includes $300m of equity raised subsequent
to 30 June 2017.
7
7
Dexus Annual Report 2017 Overview
About
Creating value
Our strategy is supported by our business
model which is set up to create value from our
key earnings drivers. The Property Portfolio is
the largest driver of value and contains the
Dexus office and industrial portfolios.
Creating value from earnings drivers
Driver
How Dexus creates value
FY17 contribution
FY18 outlook
Property
Portfolio
Maximising cashflow from
the Dexus owned office and
industrial portfolio through
leasing, asset and property
management
$ 682.2m
88% of FFO
Target 4-5% like-for-like
income growth in office
Target 3-4% like-for-like
income growth in industrial
Funds
Management
Leveraging core capabilities
to drive performance for third
party clients
$ 46.3m
6% of FFO
Target c.$50 million
of FFO
Trading
Acquiring properties to
reposition through development
and leasing, or unlocking the
highest and best use of existing
properties, and selling for a profit
$ 47.2m
6% of FFO
Target $35-40 million
of trading profits net
of tax
8
8
9
9
FY13-
FY17Over the past five years Dexus has
Five-year journey
of creating value
created value while maintaining
a conservative capital structure.
113%
Increase in market capitalisation
from $4.5 billion to $9.6 billion
33Reduction in Management Expense Ratio
basis
points
from 67 basis points to 34 basis points
93%
Increase in total funds under
management from $12.9 billion
to $24.9 billion
5 year Total Security
holder Return1 (%)
20
127%
Increase in Funds Management platform
from $5.6 billion to $12.7 billion
Return on equity2 (%)
20
15
Impacted by CPA
transaction costs
19.3%
18.2%
11.8%
10
11.2%
11.5%
13.4%
5yr avg
17.4%
14.1%
15
10
5
0
DXS
S&P
ASX 200
Property
Index
S&P
ASX 200
Accumulation
Index
Source: UBS Australia as at 30 June 2017.
6.7%
5
0
FY13
FY14
FY15
FY16
FY17
Distributions3 (cents per security)
50
CAG R 7. 2%
36.00
37.56
41.04
43.51
45.47
40
30
20
10
0
FY13
FY14
FY15
FY16
FY17
Gearing Ratio (%)
50
29.0%
25
FY13
33.7%
28.5%
30.7%
26.7%4
FY14
FY15
FY16
FY17
8
8
3.
4.
1. Annualised compound return.
2.
Return on Equity is calculated as the growth in net tangible assets (NTA) per security plus the
distribution paid/payable per security divided by the opening NTA per security.
Adjusted for 1-for-6 securities consolidation completed in FY15. Compound annual growth rate
(CAGR) is calculated over 5 years.
Pro forma gearing is adjusted for the acquisitions of MLC Centre, Sydney, 100 Harris Street,
Pyrmont, 90 Mills Road, Braeside and the sales of 30-68 Taras Avenue, Altona North and
46 Colin Street, Perth, including the impact of transactions costs. Actual gearing (look-through)
is 22.1% at 30 June 2017.
9
9
Dexus Annual Report 2017 Property portfolio
The strength of property fundamentals in Sydney and
Melbourne combined with persistent investment demand
should see further support for real estate valuations into FY18.
Property values continued to grow in
FY17, with our office portfolio recording
a $625.8 million or 7.0% increase on prior
book values driven by comparable market
evidence and reflecting rental growth
at properties in Sydney and Melbourne.
Our industrial portfolio also achieved an
uplift of $78.9 million or 4.2% on prior book
values driven by completed developments
and leasing success. The strength of
property fundamentals in Sydney and
Melbourne combined with persistent
investment demand should see further
support for real estate valuations into FY18.
Leasing success across the office portfolio
resulted in occupancy of 97.2%. In Sydney
we are experiencing strong effective rental
growth as a result of the supply shortage
and increased demand which we expect to
continue for the next 18 months. With 66%
of the office portfolio located in NSW and
64% of office expiries in Sydney in the next
three years, we are well positioned to take
advantage of favourable market conditions.
Our exposure to the Woodside expiry at
240 St Georges Terrace in Perth in FY19
represents 3.2% of total property portfolio
income. We are committed to repositioning
and leasing this property, and are pleased
with the current level of enquiry.
“Our focus on improving our industrial
portfolio metrics resulted in a record
year of leasing.”
Kevin George, Executive General Manager,
Office and Industrial
In the industrial portfolio we leased a record
432,105 square metres of space, improving
occupancy to 96.5% from 90.4% at end of
FY16 and increasing weighted average
lease expiry (WALE) by 1.0 years to 5.1 years.
We targeted industry groups where we
could establish direct relationships and
those groups seeking specific locational
requirements, while at the same time
capitalising on the improving demand in
West Melbourne.
Progressing our development pipeline
Continuing to build on our established track
record in development, we made good
progress across the group’s $4.3 billion
development pipeline, of which $2.1 billion
relates to Dexus.
At 100 Mount Street, North Sydney, the
core of the building is under construction
with completion expected in early 2019.
Development works at 105 Phillip Street,
Parramatta progressed with construction
now at level 11 of the 12 level building.
From an industrial development perspective,
we had an active year, completing three
industrial facilities at Dexus Industrial Estate,
Laverton North and Quarrywest, Greystanes,
leasing 125,600 square metres of space and
activating seven new developments.
FY18 focus
- Continue selective forward
leasing to manage
expiry risk
- Target $165-170 million of
capital expenditure2
- Target like-for-like
income growth in office
of 4-5%
- Target like-for-like
income growth in
industrial of 3-4%
Occupancy1
97.2%
Office portfolio
WALE1
96.5%
Industrial portfolio
4.8years
Office portfolio
5.1years
Industrial portfolio
1.
2.
Includes transactions settled up to 16 August 2017.
Includes maintenance capital expenditure, cash incentives, leasing costs
and rent free incentives.
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10
Case Study
Creating value
through industrial
development
Dexus has been able to satisfy the
needs of its customers nationally
by building strong relationships
and leveraging portfolio scale and
platform capability.
- Reece relocated to Pound Road
West in Dandenong South, Victoria
in June 2014
- Dexus worked closely with Reece on
their plans for interstate expansion
and pre-empting their requirements
early in the process
- Dexus secured a pre-commitment
with Reece for the development of a
20,000 square metre facility at Quarry,
Greystanes in New South Wales
- In FY17 Dexus’s industrial activity
included:
• 125,600sqm of industrial
pre-leasing secured across group
• 177,700sqm of industrial
developments completed or
under construction
• 13 Development Applications
lodged and approved
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11
OverviewPerformancePerformance Funds
management
Our funds management business grew $1.5 billion to
$12.7 billion1 since June 2016 through transactions,
developments and positive revaluations.
During the year, DWPF acquired Carillion City retail
centre in Perth, an industrial property at 5 Inglis Road,
Ingleburn and announced the acquisition of a 25%
interest in MLC Centre Sydney alongside Dexus,
following the divestment of 324 Queen Street, Brisbane
and 39 Martin Place, Sydney which was compulsorily
acquired for the new Sydney metro.
We completed city retail developments at Gateway and
Grosvenor Place in Sydney, and at 360 Collins Street
in Melbourne, improving the customer amenity and
experience while enhancing investor returns. Progress
has been made on the remaining $2.2 billion third party
development pipeline which includes DWPF’s interest in
100 Mount Street, North Sydney.
“We delivered strong performance for all of our clients
through transactions, the completion of developments
and valuation growth.”
Graham Pearson, Executive General Manager,
Funds Management
In June 2017, we established a joint venture with
Commercial & General for the purpose of launching the
unlisted Healthcare Wholesale Property Fund which will
be seeded with approximately $370 million of properties.
The joint venture combines the complementary
capabilities of Dexus and Commercial & General to
build scale in the growing healthcare property sector
which will benefit from population growth and an
ageing demographic.
FY18 focus
- Finalise new Healthcare
Wholesale Property Fund
- Deliver continued unlisted
fund outperformance
Trading
In FY17 we achieved our FY17 target of $45-50 million
trading profits, delivering $47.2 million of trading
profits from the sale of three properties, including
105 Phillip Street, Parramatta which also secured
approximately 60% of FY18 trading profits.
Planning approvals were received for 32 Flinders Street,
Melbourne and progressed at 12 Frederick Street,
St Leonards. Five projects have been earmarked to
deliver trading profits in future years, including potential
opportunities at Parramatta and Gladesville.
FY18 focus
- Target trading profits of $35-40 million net of tax
“Our trading portfolio delivered $47.2 million in trading
profits by leveraging our capabilities across the entire
Dexus platform.”
Ross Du Vernet, Chief Investment Officer
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11
Case Study
Delivering trading profits –
105 Phillip St, Parramatta
Dexus identified an opportunity in late 2014
to create value and generate trading profits
by developing underutilised land adjoining its
property at 130 George Street in Parramatta.
Identifying the potential to capitalise and respond
to an emerging Parramatta commercial office
market, Dexus worked with Property NSW to design
a 25,000 square metre workspace customised to
their needs.
As a result, a 12 year lease was secured,
fully pre-committing the development at
105 Phillip Street and enabling construction to
commence in September 2016.
Dexus sold the property in May 2017 for $229 million,
reflecting a 5.3% implied capitalisation rate, with the
sale delivering trading profits in both FY17 and FY18.
Dexus remains responsible for developing the
property and secured a property management
contract for five years post completion, enabling
its relationship with Property NSW to continue.
10
10
Dexus Annual Report 2017 Thinking
ahead
Thinking ahead
Cities of the future
Australia’s major cities are set to benefit from
urbanisation and the globalisation of the workforce.
As a major owner of CBD real estate, Dexus is well
positioned to capitalise on the opportunities this
presents over the long term.
Dexus is invested in the future of Australian
cities. We own $10.2 billion of high quality
Australian CBD office, which comprises 84%
of the Dexus property portfolio. We manage
1.8 million square metres of office space,
with the portfolio concentrated in Sydney,
Australia’s key economic centre and largest
office market.
“We continue to focus our investment
strategy on Australia’s major cities and
the acquisition of 100 Harris Street and a
25% interest in the MLC Centre in Sydney
reinforces our belief that cities will benefit
from the global trend of urbanisation.”
Darren Steinberg, Chief Executive Officer
The incremental growth of office demand
in recent years has been driven by global
companies. With its close proximity to Asia,
a highly skilled workforce, and an appealing
urban lifestyle brand, Australia is a magnet
for multinational firms looking to attract
global talent.
Over the past 10 years, the majority of
Australia’s population growth has occurred
in the four major cities. With the population
forecast to increase by 25% over the
next 15 years, the underlying growth in
Australian cities should provide considerable
opportunities for Dexus given our portfolio is
heavily concentrated in the major CBDs.
Governments are realising the importance
of continued investment in infrastructure
and spatial planning to accommodate
growth, and we expect that an increasing
intensification of land use will underpin
strong values for CBD real estate for
decades to come.
“We are one third of the way through
a 100 year cycle of urbanisation.”
Professor Greg Clark Global Advisor, Chairman
and Board member, The Business of Cities Limited
Shaping the cities of the future
Waterfront Precinct, Brisbane
The Waterfront Precinct has the
potential to be the best riverfront
precinct in Queensland, Australia
and globally.
With ownership in five assets
across a 3.4 hectare footprint,
together with our capital partners
Dexus has a unique opportunity
to consolidate and connect the
riverfront precinct to the CBD.
Our idea is to create a vibrant
commercial and lifestyle hub
on the banks of the Brisbane
River that would energise and
transform Brisbane into a thriving
world-class city.
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13
Responding to the evolving customer
Our customers’ operating environments are rapidly
evolving, and it has become important to get closer
to our customers, understand their business, and be
more agile in how we respond to their needs.
The relationship between the physical
space and business outcomes is driving our
delivery of an experience that goes beyond
vacant space. Flexibility is highly valued,
and our ability to lease space from one hour
to ten years, or provide turn-key solutions,
enables our customers to scale up or down
in line with their business needs.
The ‘product’ of workspace is extending
beyond the physical space to additional
services. Workspace Dexus offers products
and services that genuinely add value to our
customers’ experiences, such as car sharing
and parking solutions, childcare services,
Dexus Place’s flexible meeting and training
facilities, our buildings’ community portals,
in-building health and wellbeing activities,
and technologically smart buildings.
“The customer as a tenant is fast becoming
an outdated concept. Our customer
centric approach has been designed to
build strong longer term relationships and
broaden the discussion.”
Deborah Coakley, Executive General Manager,
Customer and Marketing
For Dexus, the relationship starts long before
the signing of a lease with direct access to
our in-house leasing team.
Strategic insights and analytics is a new
capability within Dexus that is providing a
better understanding of our customers and
their marketplace. By utilising feedback and
data more effectively we can improve the
products and services we offer and enhance
the experience.
Continuing to develop our customer
centric approach has the potential to
drive a competitive advantage for Dexus.
Done well, strong customer relationships will
grow loyalty to the Dexus brand, improve
retention and attract new customers, and
ultimately drive value over the long term.
Customer of the future
In a rapidly changing world, globalisation and technology are
having an impact on the way businesses and people use space.
Understanding what the customer of the future may look like has
helped us identify ways that we can respond.
The customer of the future will put a value on flexibility, whether in
lease agreements or on the physical space they occupy. To be most
productive, they will expect seamless technological connectivity
and other services that go beyond space. They will ultimately judge
our spaces on the experiences they provide to their employees.
Dexus has an opportunity to respond to the changing customer
needs by future-proofing properties and creating great
customer experiences.
Case study
Connecting our customers through technology
100 Mount Street, North Sydney will be a part of the move towards the future of
‘plug and play’ premium office towers when it is finished in early 2019.
The site was acquired by Dexus and Dexus Wholesale Property Fund in April 2016,
and commenced construction on the 34 level premium office development in mid-2016.
Dexus is implementing its smart building blueprint at 100 Mount Street providing
customers with the opportunity to ‘plug and play’ via secure internet connectivity
throughout the building.
Connectivity will extend to car parks, the ground floor lobby, cafes and informal meeting
areas to facilitate flexible working via a secure device. Ultimately, 100 Mount Street will
integrate with an individual tenancy, a home office, the local precinct and the city itself
to create one seamlessly connected workplace.
Embedding smart technology into the backbone of 100 Mount Street will future-proof the
workplace while providing customers with greater flexibility and choice in their workspaces.
12
1313
Dexus Annual Report 2017 Transitioning to a low
carbon future
As Australia continues its search for secure,
affordable, and environmentally conscious energy,
we are transitioning to a low carbon future.
Looking beyond 2020, we are working
towards an approach which sets longer
term targets that will further lower our
emissions. Our next round of operational
portfolio improvements require innovative
thinking and we are leveraging big data
and the Internet of Things to enhance
building performance.
Our application of predictive building
data analytics is further improving energy
efficiency and reducing maintenance costs.
We are also establishing broader initiatives
which focus on our customers’ wellbeing,
including using advanced technologies
to deliver services that monitor wellness
aspects and better inform occupiers about
their workspace environments.
For further information on
Dexus’s FY17 achievements
and FY18 commitments visit
www.dexus2017.reportonline.com.au
For our energy supplies, this means taking
an open approach to generation and
supply technologies. We need to identify
opportunities to accelerate our take up
of renewable energy sources, and invest
in emerging technologies that will deliver
energy efficiencies to improve our portfolio
performance and lower our emissions
toward a future net zero position.
Through the adoption of a portfolio wide
approach we have made significant
investments in energy efficiency initiatives
which have delivered an improved
indoor environment for our customers
while decreasing energy usage and
occupancy costs.
Since we began setting environmental
targets in 2009, our average office NABERS
energy rating has increased to 4.8 stars,
we have reduced office emission intensity
by over 40% and are on track to deliver
on our current 2020 target of having
1,000,000 square metres of office space
with a 5-star NABERS energy rating.
Waste management strategies are also
being actively rolled out across our portfolio
to reduce the harmful effects of waste
to landfill on the environment and drive
down costs.
Case Study
Virtual engineering smartens
up Dexus properties
Seeking to build on energy efficiency improvements across its office
portfolio, Dexus has implemented a ‘virtual engineering’ program,
the latest innovation in its building operations.
The virtual engineer program uses smart data to perform around
the clock monitoring of each building’s performance. Real-time
information about building management operations enables targeted
maintenance, allowing buildings to be run more efficiently.
Commencing in 2015, Dexus has rolled out the virtual engineering
program across 44 office properties, centralising 240,000 data points
into a single platform.
Since its introduction, the virtual engineering program has:
- Reduced energy use resulting in cost savings
- Increased NABERS energy ratings
- Improved tenant amenity and comfort
- Reduced time and cost of maintenance
- Optimised performance of heating, ventilation and
air conditioning (HVAC) equipment and systems
- Improved equipment life cycle reports and capital
expenditure planning
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15
15
Thinking aheadThinking ahead Fostering a
high performing culture
At Dexus we believe a high performing culture
drives business performance. For us, this involves
creating a diverse and inclusive environment,
giving people the flexibility to work at their best.
“90% of staff believe that
Dexus supports flexible
working.”
Dexus 2016 Culture Survey
We believe that diversity improves
decision-making, drives innovation and
delivers business results. Considering the
issue of gender equity we continue to make
progress. In addition to achieving our initial
gender participation targets, for the first time
we reached pay gender equity for like-for-like
roles across the business, from 1 July 2017.
We will continue to look at other diversity and
inclusion strategies that go beyond gender
and broaden the diversity of our workforce.
We are embedding an agile decision-making
culture in our teams, influenced by a customer
mindset. We want our people to be able to
shift their focus to the relevant priorities at
any given time. We will also ensure our people
continue to work in the most productive
way through the ongoing development of
innovative technology systems and processes.
As we bring a new wave of talent into our
organisation, we are working on how we
manage a multi-generational workforce that
combines emerging younger talent and our
experienced professionals. As a result we are
modernising our approach to how we engage
and recognise our people. A comprehensive
package of wellbeing benefits is designed to
help our people work in an agile way which
we believe will drive a more energised and
productive workforce (refer to case study).
The future of recognition
and benefits at Dexus
Recognising what its people value, Dexus has
modernised the approach it takes to engage
and recognise its people.
Dexus’s Employee Benefits and Recognition
Community conducted a series of employee
surveys to find out what its people value and
what motivates them.
Our employees said they valued time, flexibility
and wellbeing. In June 2017, Dexus launched a new
benefits package which includes access to time
and workplace flexibility, continuous payment of
superannuation entitlements throughout parental
leave, and access to priority childcare spaces
through Dexus’s partnership with Guardian Early
Learning Group.
With a focus on wellbeing, Dexus’s employee
benefits are helping its people work in an agile
way that will lead to more productive outcomes.
14
14
15
15
Dexus Annual Report 2017Case Study Board of Directors
Elizabeth A Alexander AM
Independent Director
BComm, FCA, FAICD, FCPA
Elizabeth Alexander joined Dexus
Funds Management Limited’s
Board in January 2005 as an
Independent Director. Elizabeth
is also the Chair of Dexus
Wholesale Property Limited and
a member of the Board Audit
Committee. Elizabeth brings to
the Board extensive experience
in accounting, finance, corporate
governance and risk management
and was formerly a partner with
PricewaterhouseCoopers.
Mark Ford
Independent Director
Dip. Tech (Commerce), CA,
FAICD
Mark Ford joined Dexus Funds
Management Limited’s Board
in November 2016 as an
Independent Director. Mark is also
a member of the Dexus’s Board
Audit Committee and Board Risk
Committee. Mark has extensive
property industry experience
and has been involved in real
estate funds management for
over 25 years. Mark was previously
the Managing Director, Head
of DB Real Estate Australia
managing more than $10 billion
in property funds.
Penny Bingham-Hall
Independent Director
BA (Industrial Design), FAICD,
SF (Fin)
Penny Bingham-Hall joined
Dexus Funds Management
Limited’s Board in June 2014 as
an Independent Director. Penny
is also a member of the Board
Risk Committee, Board People &
Remuneration Committee and
Board Nomination Committee.
Penny has broad industry
experience including business
strategy and planning, corporate
affairs, investor relations and
governance across construction,
property and infrastructure
development. Penny was
formerly Executive General
Manager Strategy of Leighton
Holdings Limited.
Darren J Steinberg
Chief Executive Officer and
Executive Director
BEc, FAICD, FRICS, FAPI
Darren Steinberg is the CEO
of Dexus and joined Dexus Funds
Management Limited’s Board
in March 2012 as an Executive
Director. 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 is a Director and former
National President of the Property
Council of Australia and a
founding member of Property
Male Champions of Change.
John C Conde AO
Independent Director
BSc, BE (Hons), MBA, FAICD
John Conde joined Dexus Funds
Management Limited’s Board in
April 2009 as an Independent
Director. John is also the Chair of
the Board People & Remuneration
Committee and a member of the
Board Nomination Committee.
John brings to the Board extensive
experience across diverse sectors
including commerce, industry and
government and was previously
Chairman of Ausgrid (formerly
EnergyAustralia).
Peter B St George
Independent Director
CA(SA), MBA
Peter St George joined Dexus
Funds Management Limited’s
Board in April 2009 as an
Independent Director. Peter is also
the Chair of the Dexus Board Audit
Committee and a member of the
Board Risk Committee. Peter has
more than 20 years experience
in senior corporate advisory and
finance roles within NatWest
Markets and Hill Samuel & Co
in London.
Richard Sheppard
Chair and Independent Director
BEc Hons, FAICD
Richard Sheppard joined Dexus
Funds Management Limited’s
Board in January 2012 as the
Chair and an Independent
Director of Dexus Funds
Management Limited. Richard
is also the Chair of the Board
Nomination Committee and a
member of the Board People
& Remuneration Committee.
Richard brings to the Dexus
Board extensive experience in
banking and finance and as a
director and Chairman of listed
and unlisted property trusts
and was formerly the Managing
Director and Chief Executive
Office of Macquarie Bank Limited.
Tonianne Dwyer
Independent Director
BJuris (Hons), LLB (Hons)
Tonianne joined Dexus Funds
Management Limited’s Board in
August 2011 as an Independent
Director. Tonianne is also an
Independent Director of Dexus
Wholesale Property Limited, Chair
of the Board Risk Committee
and a member of the Board
Audit Committee. 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 previously a
Director of Quintain Estates and
Development, a listed United
Kingdom property company.
16
16
17
17
GovernanceGovernanceTop L to R: Richard Sheppard, Elizabeth A Alexander, Penny Bingham-Hall, John C Conde. Bottom L to R: Tonianne Dwyer, Mark Ford, Darren J Steinberg, Peter B St George Active Governance Statement
The Board believes that corporate governance is the
foundation for the long term success of the group and
the achievement of Dexus’s strategy is underpinned by
a strong governance platform.
The Board is committed to excellence in corporate governance and aspires to the highest standards having embedded
a set of well-defined policies and processes to enhance corporate performance and protect the interests of key stakeholders.
The Board regularly reviews its corporate governance policies and processes to ensure they are appropriate and meet governance
standards and regulatory requirements. For the 2017 financial year the group’s governance practices complied with the latest ASX
Corporate Governance Principles and Recommendations. The full Corporate Governance Statement, which outlines key aspects of
Dexus’s corporate governance framework and practices, in addition to the Appendix 4G, are available at www.dexus.com
Board of Directors
The Board comprises a majority of Independent Directors with all directors other than the CEO being Independent Non-Executive Directors.
The Board currently comprises seven Independent Non-Executive Directors and one Executive Director. The Board renewal process over
the past few years has produced a strong Board of Directors with a broad and diverse skill set. The Board has determined that, along with
individual director performance, diversity is integral to a well-functioning board.
Each Director brings a mix of relevant business and management experience to the Board as outlined on page 16.
The Board has reviewed the skills of the current directors against the skill categories in the table below and determined that the current
composition of the Board meets or exceeds the minimum requirements in each category.
Areas of Skills & Expertise
Experience
Leadership
- Directorship experience (past and present)
- Senior management experience (past and present)
Capital & Funds Management
- Experience in the dynamics of raising capital and investment banking
- Experience in the management of third party funds
Finance & Accounting
Governance
- Experience in analysing accounting material and financial statements and assessing financial viability
- Experience in understanding financial drivers/funding and business models
- 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 and acquisitions activities
- Ability to guide and review strategy through constructive questioning and suggestions
- Experience in development and successful implementation of strategy
Role of the Board
The Board’s responsibilities include (but are not limited to):
- Determining strategy, including reviewing and approving Dexus’s 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, periodic market guidance and 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
Dexus’s risk policies
- Ensuring that Dexus’s fiduciary and statutory obligations to stakeholders (including third party clients, and capital partners) are met
- Appointing and monitoring the Chief Executive Officer and Company Secretaries and monitoring the performance of the Group
Management Committee
16
16
17
17
Dexus Annual Report 2017 Activities across the year
Our Board plays an active role in key decisions that
impact the implementation of Dexus’s strategy.
The following outlines the key activities the
Board and Board Committees undertook
during the year ending 30 June 2017:
The Mill,
Alexandria
16
November 2016
- Appointed Mark Ford
as an Independent
Non-Executive Director
- Took part in an external
Board evaluation
process
- Approved the sale of
39 Martin Place, Sydney
for $332 million
- Approved the acquisition
of The Mill, Alexandria for
$110 million
- Revised Dexus’s Top 10
Key Risks to include
climate risk
- Participated in the
Technology Strategic
Review 2016
- Participated in
strategy updates with
management
- Reviewed succession
planning and pay parity
July 2016
- Approved the
revised LTI grant
hurdles
- Approved the
change in the
Board Nomination
Committee
membership
September 2016
- Approved the Risk
Management Framework
including the implementation
of the Risk Appetite
Statement
August 2016
October 2016
December 2016
- Attended and took part in
- Approved the
the Annual General Meeting
- Reviewed the 2016 Investor
Day materials
distribution for the
six months ending
31 December 2016
- Approved
the release of
valuations for HY17
- Approved the
sale of 79-99
St Hilliers Road,
Auburn for
$65 million
- Approved
Dexus’s market
guidance for
FY17
- Reviewed the
Audit Report
for 2016
- Approved the
FY16 results
materials
including the
2016 financial
statements,
2016 Annual
Report and
Corporate
Governance
Statement
- Considered
cybersecurity
in real estate
10 Eagle Street,
Brisbane
18
18
19
19
GovernanceGovernance 17
March 2017
- Endorsed the
New Dexus
brand
- Participated
in strategy
updates with
management
- Reviewed
succession
planning and key
talent leadership
- Discussed and
considered a
presentation
on market
remuneration
May 2017
- Reviewed the results of the external Board
evaluation process
- Attended and took part in the two-day
Board strategy workshop
- Approved the Three Year Financial
Business Plan
- Met with Sydney proxy adviser and investors
- Approved the revised FY18 Staff Total Reward
framework
- Approved the sale of 105 Phillip Street,
Parramatta for $229 million
- Discussed and considered presentations
on real estate investment flows and trends,
customers of the future and market outlook
January 2017
- Approved the
changes in
the Board Risk
Committee and
Board Audit
Committee
memberships
February 2017
April 2017
June 2017
- Reviewed the Board
succession and
renewal planning
- Approved the Dexus
Investment Plan
- Review of the Audit
Review for HY17
- Approved the HY17
results materials
including the half year
financial statements
and market guidance
- Discussed and
considered a
presentation on the US
Economic and Political
Outlook
- Met with Sydney
and Melbourne
proxy advisers
and key investors
- Approved the distribution for the six
months ending 30 June 2017
- Approved the $500 million
Institutional Placement and up to
$50 million Security Purchase Plan
- Approved the acquisition of
a 25% interest in MLC Centre,
Sydney for $361.3 million
- Approved the acquisition of
100 Harris Street Pyrmont for
$327.5 million
- Approved the acquisition of
90 Mills Road, Braeside for
$50.6 million
- Approved the release of
valuations for FY17
- Established new healthcare
JV with Commercial & General
- Approved the amendment
of the Dexus Constitutions
for the Attribution Managed
Investment Trust regime
- Discussed the monitoring
of disruptors in Dexus’s
operating environment
MLC Cente,
Sydney
18
18
19
19
Dexus Annual Report 2017 Dexus’s Sydney CBD footprint
1 Gateway
8 83 Clarence Street
15 5 Martin Place
100% DWPF owned, 100% managed
Mandate owned, 100% managed
2 30 The Bond & 36 Hickson Road
100% DXS owned, 100% managed
3 225 George Street
37.5% DXS owned, externally managed,
12.5% Dexus Office Partner owned
4 Australia Square
50% DXS owned, jointly managed
5 45 Clarence Street
100% DXS owned, 100% managed
6 One Margaret Street
100% DXS owned, 100% managed
7
100 Harris Street
100% DXS owned, 100% managed
25% DXS owned, 100% managed,
25% Dexus Office Partner owned
9 309-321 Kent Street
50% DXS owned, 100% managed
16 175 Pitt Street
10 383-395 Kent Street
100% DXS owned, 100% managed
11 44 Market Street
100% DXS owned, 100% managed
12 56 Pitt Street
50% DXS owned, 100% managed,
50% Dexus Office Partner owned
13 1 Bligh Street
33% DXS owned, 100% managed,
33% DWPF owned
14 GMT/GPT, 1 Farrer Place
50% DXS owned, 100% managed
50% DXS owned, 100% managed,
50% Dexus Office Partner owned
17 60 Castlereagh Street
50% DXS owned, 100% managed,
50% Dexus Office Partner owned
18 201 Elizabeth Street
50% DXS owned, externally managed
19 MLC Centre, 19 Martin Place
25% DXS owned, externally managed,
25% DWPF owned
20 14 Lee Street
50% DXS owned, 100% managed,
50% Dexus Office Partner owned
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30 June 2017
Financial Report
Contents
Operating and Financial Review
Directors’ Report
Remuneration Report
Auditor’s Independence Declaration
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
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Contents
About This Report
Notes to the Financial Statements
Group performance
Note 1
Operating segments
Note 2
Property revenue and expenses
Note 3
Management operations, corporate and
administration expenses
Note 4
Finance costs
Note 5
Taxation
Note 6
Earnings per unit
Note 7
Distributions paid and payable
Property portfolio assets
Note 8
Investment properties
Note 9
Investments accounted for using the
equity method
Note 10
Inventories
Note 11
Non-current assets classified as held for sale
Capital and financial risk management and working capital
Note 12
Capital and financial risk management
Note 13
Interest bearing liabilities
Note 14
Loans with related parties
Note 15
Commitments and contingencies
Note 16
Contributed equity
Note 17
Reserves
Note 18 Working capital
Other disclosures
Note 19
Intangible assets
Note 20
Audit, taxation and transaction service fees
Note 21
Reconciliation of cash flows from
operating activities
Note 22
Security-based payment
Note 23
Related parties
Note 24
Parent entity disclosures
Note 25 Change in accounting policy
Note 26
Subsequent events
Directors’ Declaration
Independent Auditor’s Report
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Dexus Annual Report 2017 Operating and Financial Review
The Group’s financial performance for the year ended 30 June 2017 is summarised in the following section. In order to fully
understand the results, the Annual Report and full Financial Statements included in this Financial Report should be read in conjunction
with this section.
Review of Operations
Dexus has adopted Funds from Operations (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 financial measure of real estate operating performance and is determined by adjusting
net profit after finance costs and taxes 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 properties
Net fair value loss of derivatives and interest bearing liabilities
Net gain on sale of investment properties
Incentive amortisation and rent straight-line 1
Coupon income, rental guarantees received and other
Amortisation of intangible assets
Transaction costs
Non-FFO tax
Funds from Operations (FFO) 2
Retained FFO 3
Distributions
FFO per security (cents)
Distribution per security (cents)
Net tangible asset backing per security ($)
30 June 2017
($m)
30 June 2016
($m)
1,264.2
(704.7)
3.6
(70.7)
100.1
12.7
4.5
–
8.0
617.7
166.0
451.7
63.8
45.47
8.45
1,259.8
(814.4)
40.3
(15.0)
92.9
23.7
3.3
7.1
13.1
610.8
189.3
421.1
63.1
43.51
7.53
Including cash, rent free and fit-out incentives amortisation.
Including Dexus’s share of equity accounted investments.
1.
2.
3. Based on Dexus’s distribution policy to payout in line with free cash flow. The distribution payout ratio equated to 73.1% of FFO in FY17 and 69.0% of FFO
in FY16.
Operating result
Performance of the Group
Dexus’s net profit after tax was $1,264.2 million, an increase of $4.4 million from the prior year (FY16: $1,259.8 million). The key drivers of this
movement included:
- FFO, which increased by $6.9 million resulting in FFO per security of 63.8 cents, an increase of 1.1%.
- Net revaluation gains of investment properties of $704.7 million, representing a 6.5% uplift across the portfolio, were $109.7 million lower
than the prior year (FY16: $814.4 million). This was largely offset by the change in fair value movements in derivatives and interest bearing
liabilities and gains from the sale of investment properties compared to FY16.
Valuation gains achieved across Dexus’s property portfolio primarily drove the 92 cent increase in net tangible assets (NTA) per security
to $8.45 over the year. The valuation reflected tightening capitalisation rates supported by market sales evidence, in addition to leasing
success and rental growth achieved at office properties, and completed industrial developments. At 240 St Georges Terrace in Perth, the
impending lease expiry of Woodside in FY19 and the current Perth market conditions contributed to a 17.5% devaluation at this property.
22
23
Financial Report The following table provides a summary of the key components of FFO and Adjusted Funds from Operations (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 1
Group corporate
Net finance costs
Other (including tax)
Underlying FFO
Trading profits (net of tax)
Total FFO
Maintenance capex, lease incentives and leasing costs paid
Total AFFO 2
1. Management operations’ income includes development management fees.
2. AFFO is in line with the Property Council of Australia definition.
Operationally, FFO increased 1.1% to $617.7 million (FY16: $610.8 million).
The key drivers of the $6.9 million increase include:
30 June 2017
$m
30 June 2016
$m
567.4
114.8
682.2
46.3
(23.7)
(121.8)
(12.5)
570.5
47.2
617.7
(178.0)
439.7
567.2
106.1
673.3
44.8
(25.4)
(142.0)
(3.2)
547.5
63.3
610.8
(196.9)
413.9
- Office Property FFO of $567.4 million in line with FY16 as a result of like-for-like income growth of 2.6% offset by asset sales including:
The Zenith, Chatswood (settled July 2016); 108 North Terrace, Adelaide (settled September 2016); Southgate Complex, Melbourne
(initial 50% tranche settled November 2016); and 39 Martin Place Sydney (settled November 2016).
- Industrial Property FFO increased by $8.7 million to $114.8 million due to like-for-like growth of 3.6% following a record year of leasing which
significantly improved portfolio occupancy and income from completed developments.
- Finance costs net of interest revenue reduced by $20.2 million, with proceeds from asset sales used to repay debt and a reduction in the
average cost of debt.
This was partially offset by:
- Additional tax expense of $9.4 million incurred with remaining tax losses fully utilised in FY16
- The realisation of $47.2 million of trading profits (net of tax) representing a decrease of $16.1 million on the prior year.
The underlying business, excluding trading profits, delivered FFO per security of 58.9 cents, and grew by 4.2% on the prior year.
Distributions
Distributions per security for the 12 months ended 30 June 2017 were 45.47 cents per security, up 4.5% on the prior year (FY16: 43.51 cents),
with the distribution payout remaining in line with free cash flow, in accordance with Dexus’s distribution policy. The distribution for the
six months ended 30 June 2017 of 23.76 cents per security will be paid to Dexus Security holders on Tuesday, 29 August 2017.
Return on contributed equity and return on equity
Dexus achieved a Return on Contributed Equity 1 (ROCE) for FY17 of 7.6%, driven largely by AFFO.
Dexus delivered a Return on Equity 2 (ROE) of 18.2% in FY17, driven by property revaluations and a $500 million Institutional Placement,
resulting in a five year average ROE of 13.4%.
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23
1. ROCE is calculated as AFFO plus the net tangible asset impact from completed developments divided by the average contributed equity during the period.
2. ROE is calculated as the growth in net tangible assets per security plus the distribution paid/payable per security divided by the opening net tangible
assets per security.
Dexus Annual Report 2017 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)
1. Actual closing funds under management at 30 June 2017.
30 June 2017
$m
30 June 2016
$m
23.7
15.6
39.3
11,463 1
34bps
25.4
12.6
38.0
10,987
35bps
Group corporate costs reduced to $23.7 million as a result of continued operational efficiencies while asset management costs
increased to $15.6 million as a result of investment in platform initiatives and completed developments. Dexus’s MER 1 reduced to 34 basis
points due to growth in funds under management largely driven by revaluation gains of $704.7 million.
Property transactions
Dexus executed on its strategy to divest non-core assets including The Zenith, Chatswood in July 2016 for a 7% premium to book
value, 108 North Terrace, Adelaide in September 2016 and 30-68 Taras Avenue, Altona North which settled in July 2017. The NSW State
Government compulsorily acquired 39 Martin Place, Sydney in November 2016 for the new Sydney Metro rail project achieving a strong
premium to book value for Dexus and Dexus Wholesale Property Fund (DWPF). In addition, the initial 50% tranche of Southgate Complex
Melbourne settled in November with the remaining 50% due to settle in the last quarter of FY18. Dexus also settled on the sale of trading
properties at 57-65 Templar Road, Erskine Park, 79-99 St Hilliers Road, Auburn and 105 Phillip Street, Parramatta, which also secured
approximately 60% of trading profits for FY18. Post 30 June 2017, Dexus and the Dexus Office Partner sold 46 Colin Street, West Perth for
$33.6 million (100%) with settlement occurring 1 August 2017.
In January 2017, Dexus acquired The Mill, Alexandria for $110.2 million, diversifying its customer offering and demonstrating the Group’s
leasing capability by improving occupancy from 83% of acquisition to 100% in May 2017. On 21 June 2017, Dexus announced the
acquisition of a 25% interest in the MLC Centre, Sydney for $361.3 million (with DWPF acquiring a further 25% interest) and 100 Harris Street,
Pyrmont for $327.5 million. MLC Centre, Sydney and 100 Harris Street, Pyrmont were funded by debt, a $500 million Institutional Placement
and an associated Security Purchase Plan (SPP). MLC Centre, Sydney, which settled on 19 July 2017, provides Dexus with significant
growth opportunities through market rent reversion and retail repositioning as well as long term development potential. 100 Harris
Street, Pyrmont, which settled on 18 July 2017, is located in Sydney’s fastest growing CBD fringe market, increasing Dexus’s exposure to
customers in the technology sector. In addition, Dexus announced the acquisition of 90 Mills Road, Braeside for $50.6 million in June 2017,
a flexible high quality industrial logistics asset which settled on 25 July 2017.
Dexus performance
The following sections review the FY17 performance of the Group’s key financial drivers: Property Portfolio, Funds Management and Trading.
i) 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 88% 2 of FFO in FY17.
Dexus increased the size of its direct portfolio to $12.2 billion 3 from $11.0 billion at FY16. This movement was driven by revaluation gains of
$704.7 million and acquisitions of $866.7 million, which was partially offset by $889.7 million of divestments.
Office portfolio 5
Portfolio value:
Total area:
$10.2 billion 3
1,5814,646 square metres
Area leased during the year:
197,122 square metres 4
Key metrics
Occupancy by income
Occupancy by area
WALE by incomewww
Average incentive
Retention rate
Total return – 1 year
30 June 2017
30 June 2016
97.2%
97.0%
96.3%
96.3%
4.8 years
4.7 years
14.5%
46%
14.1%
17.7%
62%
16.0%
1. Management Expense Ratio.
2. FFO contribution is calculated before finance costs, group corporate costs and tax.
3. Funds under management at 30 June 2017 adjusted for transactions settled up to 16 August 2017.
4.
5. Office portfolio metrics for 30 June 2017, including portfolio value, area, occupancy, and WALE adjusted for transactions settled up to 16 August 2017.
Including Heads of Agreement.
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Operating and Financial Review continuedFinancial Report
During the year, Dexus leased 197,122 square metres1 of office space across 317 transactions. Leasing performance across the office
portfolio resulted in occupancy of 97.2%3 at 30 June 2017 (FY16: 96.3%), delivering on the ‘above 96%’ target set at the start of the year.
In Sydney, Dexus continues to experience strong effective rental growth and declining incentives as a result of the supply shortage and
increased demand. Forward lease expiries were significantly de-risked, with FY19 expiries reducing from 14.2% (at the end of FY16) to
12.0%, in line with the target set at the start of the year. Dexus has an opportunity to capitalise on the strength of the market through
negotiating favourable terms on its Sydney lease expiries, which represent 64% of expiries over the next three years.
In FY19, Dexus has exposure to the expiry of Woodside at 240 St Georges Terrace, which represents 3.2% of total property portfolio
income. Dexus is committed to repositioning and leasing up 240 St Georges Terrace, and is pleased with the current level of enquiry.
Office portfolio tenant retention of 46% reflected the departures of Lend Lease across 16,200 square metres at 30 The Bond, Sydney and
the departure of Carnival across 6,600 square metres at 60 Miller Street, North Sydney. Both properties were leased during the year with
minimal downtime and capital expenditure resulting in the spaces being 100% leased at 30 June 2017 and underpinning strong total returns.
Office like-for-like income increased by 2.6% compared to FY16. Dexus’s office portfolio delivered a one-year unlevered total return
of 14.1% (FY16: 16.0%) driven by a strong revaluation uplift from active leasing, most notably at properties in the buoyant Sydney and
Melbourne markets, partially offset by a reduction in the value of 240 St Georges Terrace in Perth.
Industrial portfolio4
Portfolio value:
Total area:
$2.0 billion 2
1,284,712 square metres
Area leased during the year:
432,105 square metres 1
Key metrics
Occupancy by income
Occupancy by area
WALE by income
Average incentive
Retention rate
Total return – 1 year
30 June 2017
30 June 2016
96.5%
96.6%
90.4%
89.3%
5.1 years
4.1 years
14.5%
74%
12.6%
9.5%
32%
16.0%
During the year, Dexus leased a record 432,105 square metres 1 of industrial space across 117 transactions including 51 leases with
new customers. As a result of this activity, all key metrics have improved for the portfolio including occupancy by income of 96.5%4
(FY16: 90.4%) and like-for-like income growth of 3.6% (FY16: -7.1%).
Portfolio weighted average lease expiry (WALE) improved to 5.1 years4. Average incentives increased to 14.5% (FY16: 9.5%) as a result of
leasing in the competitive Melbourne market.
Industrial portfolio retention of 74% significantly improved during the year from 32% at 30 June 2016. This was driven by the renewal of
Fosters at Dexus Industrial Estate, Laverton, IBM at Norwest Business Park, Baulkham Hills and Visy at Kings Park Industrial Estate.
Dexus’s industrial portfolio delivered a one-year unlevered total return of 12.6% (FY16: 16.0%).
FY18 Focus (Office and Industrial)
In FY18 Dexus will continue its forward leasing approach to proactively manage expiry risk, target $165-170 million of capital expenditure
(including rent free incentives) and target like-for-like income growth for the office portfolio of 4-5% and for the industrial portfolio of 3-4%.
Development
Dexus utilises its development expertise to deliver best-in-class office buildings, city retail amenity and prime industrial facilities.
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 continued to enhance future investor returns through its development pipeline. In office, construction of 100 Mount Street, North
Sydney and 105 Phillip Street, Parramatta have progressed during the year and Dexus completed 125,600 square metres of industrial
development leasing and activated seven industrial facilities in New South Wales and Victoria. The Group and Funds Management
development pipeline now stands at $4.3 billion, of which Dexus’s balance sheet pipeline accounts for $2.1 billion.
Dexus allocates up to 15% of funds under management (FUM) across its listed portfolio to development and trading/value-add activities.
Currently circa 3.8% of FUM is allocated to these activities providing earnings accretion and enhancing total return.
Including Heads of Agreement.
1.
2. Funds under management at 30 June 2017 adjusted for transactions settled up to 16 August 2017.
3. Office portfolio metrics for 30 June 2017, including portfolio value, area, occupancy and WALE adjusted for transactions settled up to 16 August 2017.
Industrial portfolio metrics for 30 June 2017, including portfolio value, area, occupancy and WALE adjusted for transactions settled up to 16 August 2017.
4.
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Dexus Annual Report 2017
FY18 Focus
In FY18 Dexus will continue to progress construction of its office development at 100 Mount Street, North Sydney; complete the
development of 105 Phillip Street, Parramatta; advance pre-commitments to enable activation of identified developments for Dexus
and its third party clients and continue to progress master planning for uncommitted developments.
ii) Funds management
Dexus’s Funds Management business represents over half of the Group’s $24.9 billion1 funds under management and its $2.2 billion
development pipeline will drive organic growth across the platform. Third party funds under management increased to $12.7 billion,
up 13.4% from 30 June 2016, driven by acquisitions, developments and revaluations. Dexus continued to deliver performance for its
clients with DWPF outperforming its benchmark over one, three, five, seven and ten years, and the Dexus Office Partnership delivering
strong returns.
The activities undertaken by the 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.
The Dexus Office Partnership delivered a one year unlevered total property return of 14.7% and an annualised unlevered total property
return of 14.6% since inception. DWPF was also successful in raising $550 million2 of new equity from both existing and new DWPF unitholders.
In June 2017, Dexus announced a joint venture with Commercial & General for the purpose of launching an unlisted Healthcare
Wholesale Property Fund which will be seeded with approximately $370 million of properties. The joint venture combines the
complementary capabilities of Dexus and Commercial & General to build scale in the growing healthcare sector, which will benefit from
population growth and an ageing demographic.
The healthcare property fund will diversify and expand Dexus’s funds management platform in a scalable sector that is attractive to investors,
due to the low volatility of returns. Demand for healthcare is also non-discretionary, which insulates the sector from economic cycles.
FY18 Focus
In FY18, Dexus will continue to drive strong performance across all its third party funds and complete the launch of the new healthcare
property fund.
iii) Trading
Trading is a capability that involves the identification of opportunities, repositioning to enhance value, and realising value through divestment.
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 subsequently transferred into the trading trust to be repositioned, and then sold.
Since 2010, Dexus has been undertaking trading activities and recognising trading profits in its FFO. Over the past five years, Dexus has
established a track record of delivering trading profits.
Trading profits of $47.2 million net of tax were achieved in FY17 following the sale of 57-75 Templar Road, Erskine Park, 79-99 St Hilliers
Road, Auburn and 105 Phillip Street, Parramatta which also secured approximately 60% of trading profits for FY18.
Planning approvals were received for 32 Flinders Street, Melbourne and progressed at 12 Frederick Street, St Leonards. Five projects have
been earmarked to deliver trading profits in future years, including potential opportunities at Parramatta and Gladesville.
FY18 Focus
In FY18, Dexus will target trading profits of $35-40 million, net of tax, and will advance future opportunities.
iv) Financial position (look-through)
Office investment properties
Industrial investment properties
Other
Total assets
Borrowings
Other liabilities
Net tangible assets
Total number of securities on issue
NTA ($)
30 June 2017
$m
30 June 2016
$m
9,511
1,952
490
11,953
2,783
582
8,588
9,238
1,749
653
11,640
3,772
579
7,289
1,016,967,300
967,947,692
8.45
7.53
1. Proforma funds under management adjusted for the acquisitions of MLC Centre, Sydney, 100 Harris Street, Pyrmont, 90 Mills Road, Braeside and the sales of
30-68 Tarras Avenue, Altona North and 46 Colin street, West Perth.
Includes $300 million of equity raised subsequent to 30 June 2017.
2.
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Operating and Financial Review continuedFinancial Report Total look-through assets increased by $313 million primarily due to $183.4 million of acquisitions, development capital expenditures
and $704.7 million of property valuation increases, partially offset by $698.8 million of divestments.
Total look-through borrowings decreased by $989 million due to proceeds from asset sales and the $500 million Institutional Placement
offset by funding required for the acquisitions and development capital expenditure mentioned above. Assets and borrowings increased
in July 2017 as a result of the acquisition of MLC Centre, Sydney, 100 Harris Street, Pyrmont and 90 Mills Road Braeside.
Capital Management
Cost of debt:
Duration of debt:
Gearing (look through) 2:
S&P/Moody’s credit rating:
4.1%
5.6 years 1
26.7% 3
A-/A3
Dexus continued to maintain a strong and conservative balance sheet. Gearing 2 decreased to 26.7% 3 as a result of the receipt of sale
proceeds from sold properties, $500 million Institutional Placement and property valuation gains offset by development costs and
property acquisitions. Dexus also raised $315 million of new capital markets debt on average terms of 8.2 years, which resulted in the
duration of debt remaining stable at 5.6 years1.
Dexus has minimal short term refinancing requirements and remains within all of its debt covenant limits and target ranges.
FY18 Focus
In FY18, Dexus will focus on maintaining a strong balance sheet supported by diverse sources of debt.
Outlook
The majority (80-90%) of Dexus’s earnings are derived from rental income from its direct property portfolio, with the remainder derived
from the funds management and trading businesses. Key lead indicators and factors affecting the outlook of each of these areas of the
business are outlined below.
Overall, the economic growth outlook for Australia is positive heading into FY18, albeit variable by region. Growth in New South Wales
and Victoria is expected to continue, buoyed by population growth and infrastructure spending. The Queensland economy is forecast to
continue to improve. While growth in Western Australia remains slow, there are positive signs emerging in the office market.
Occupier demand across the east coast is firming, driven by positive business conditions and resilient employment growth. Service
industry activity like education, tourism, IT, health and business services are growing relatively strongly. The housing sector appears to be
slowing, which may help keep interest rates flat and stable.
Demand for commercial real estate remains strong as investors seek investments with a secure income yield in the context of a
structurally lower-for-longer interest rate environment in Australia.
i) 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.
Positive demand across the nation’s major office markets is steadily absorbing the remaining pockets of available space, leading to
falling vacancy rates. Below average vacancy rates in the Sydney CBD, North Sydney, Parramatta and Melbourne CBD are leading to
significant growth in rents, which is in turn leading to increasing valuations.
In addition, a significant level of withdrawals of older stock is driving a pronounced flight to quality resulting in rapid take-up of Prime
space. While larger firms are seeking to consolidate their office space requirements using mobile technology and more collaborative
office designs, the overall growth in employment, particularly in smaller firms continues to drive the expansion of total office demand.
The outlook over the next year or two is positive given limited levels of new supply currently under construction in the major markets.
Industrial:
Industrial occupier demand is expected to remain positive in the short term due to continued growth in retail and wholesale activity
combined with ongoing investment in more efficient supply chains by the major retailers and logistics firms. Both Sydney and Melbourne
are recording strong take-up on the back of strong economic growth.
Rents remain largely stable in the outer metropolitan areas of the capital cities due to buoyant supply level; however, there has been
some mild upward pressure in land constrained markets including South Sydney and Inner West Sydney.
Investment demand remains strong for quality industrial assets; however, prime investment stock remains tightly held.
Includes $60 million of Medium Term Notes issued in July 2017 and three bank facilities for $325 million that commenced in July 2017.
1.
2. Adjusted for cash and for debt in equity accounted investments.
3. Pro forma gearing is adjusted for the acquisitions of MLC Centre, Sydney, 100 Harris Street, Pyrmont, 90 Mills Road, Braeside and the sales of 30-68 Taras
Avenue, Altona North and 46 Colin Street, West Perth, including the impact of transactions costs. Actual gearing (look-through) is 22.1% at 30 June 2017.
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Dexus Annual Report 2017
ii) Funds management
Dexus’s funds management platform’s current exposure is 51% to office properties, 11% to industrial properties, 37% to retail properties
and 1% to healthcare properties. Its office and industrial property performance will be influenced by the key lead indicators described
above.
The outlook for retail is subdued in the short term with weak wages growth constraining spending growth. The sector is constantly
evolving with retailers expanding their online sales channels and shopping centres remixing their offerings to include more food,
service, leisure and experience based offerings. Longer term performance in Australia will be underpinned by population growth and an
extended period of relatively low interest rates.
For healthcare properties, demand for healthcare property will benefit from ageing demographics, longer life expectancy and
population growth.
Dexus will continue to satisfy the investment objectives of its third party clients and funds through growing existing funds via acquisitions
and progressing the $2.2 billion third party development pipeline. Dexus will maximise the performance of properties managed on their
behalf of its third party clients.
iii) Trading
Dexus’s 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 for the future trading pipeline.
Dexus has already secured approximately 60% of its targeted FY18 trading profits of $35-40 million, net of tax, and is progressing its
remaining pipeline projects.
FY18 Guidance
Taking into account recently announced transactions Dexus’s guidance 1 for the 12 months ending 30 June 2018 is 4.0-4.5% growth in
distribution per security.
Risks
There are various risks that could impact Dexus’s strategy and outlook and 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
available at www.dexus.com. Dexus actively reviews and manages risks faced by its business over the short, medium and long term,
overseen by the Board Risk Committee. A number of key 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
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
- Dexus has a high quality, diversified
backing per security
- Deterioration of key credit
metrics
- Increased cost of financing and/
portfolio which is less sensitive to changes
in investment demand
- Dexus has a low level of gearing, with a
stated target range of 30-40%
or need to refinance
- Dexus tracks and reports on the drivers of
- Reduction in market price of
Dexus securities
- Reduction in management fee
revenue
Funds from
operations (FFO)
decline
FFO is lower than that assumed
in management forecasts
- Reduction in distributions to
investors
- Reduction in market price of
Dexus securities
property valuations, including market evidence
and forecast data, on a monthly basis
- 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 1,632 customers. In
addition, Dexus derives income from funds
management and trading activities
- A high proportion of Dexus’s near term
income is secured via contractual lease
obligation, with WALE of 4.8 years and
5.1 years on the office and industrial
portfolios respectively
- Dexus adopts a conservative approach
to interest rate hedging, with 59% of debt
currently hedged (excluding caps)
- Dexus tracks and reports actual and
forecast performance through monthly
monitoring of the drivers of FFO (including
leasing outcomes and capital markets),
revenue and expenditures
1. Barring unforeseen circumstances, guidance is supported by the following assumptions: Impacts of announced divestments and acquisitions; underlying
FFO per security growth of 2.0-2.5% underpinned by Dexus office portfolio like for like growth of 4-5%, Dexus industrial portfolio like-for-like income growth of
3-4%, management operations FFO of c.$50 million and cost of debt in line with FY17; trading profits of $35-40 million net of tax; maintenance capex, cash
incentives, leasing costs and rent free incentives of $165-170 million; and excluding any further transactions.
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Operating and Financial Review continuedFinancial Report Risk
Description
Potential impact
How Dexus is equipped to manage and
monitor this risk
- Death or serious injury
- Dexus maintains comprehensive work
Workplace
health and
safety
Failure to maintain the highest
standards of health and safety
in order to minimise the risk
of accidents and incidents to
customers, contractors, visitors
and employees
- Financial loss arising from an
event claim
- Reputational damage
- Legal proceedings
Security &
emergency
management
An event occurs that places
customers, contractors,
visitors and employees in
physical danger
- Death or injury on site
- Sabotage of building
management systems
- Reputational damage
- Legal proceedings
health and safety programs
- Dexus requires compliance by site
contactors and employees
- Dexus maintains ongoing independent
certification against OHSAS 18001
Occupational Health and Safety
Management Systems
- Dexus has a Crisis Management Plan and
Business Continuity Plans in place that are
reviewed and tested on a regular basis
- Emergency Management Plans are in
place for all assets and are tested on
a regular basis
- External independent review of Dexus’s
policies and procedures relating to security
risk management. Recommendations for
enhancement are implemented.
IT systems,
data, cyber
and business
continuity
planning
Key person risk
Failure to maintain IT
infrastructure that meets the
needs of the business during an
unexpected event or disruption
e.g. cyber attack, fire and
flooding
- Interruption to business and
customers resulting in loss of
productivity
- Unauthorised access to sensitive
data for malicious or fraudulent
purposes
- Annual review of IT strategy including
annual testing of disaster recovery plans
- External penetration testing of corporate
and asset management systems
- Use and testing of anti-virus and malware
protection software
Inability to attract and retain
the talent required to execute
the strategy
- Loss of property and platform
expertise
- Increased operating costs via
staff churn and wage impacts
- Succession plans are in place for key staff
and are reviewed on an annual basis
- External mapping is undertaken for key roles
- Employees have appropriate resignation
periods allowing time for replacement
Climate
change risk
Assets are impacted by climate
change either through loss of
value, through damage caused
by increased severe weather
events, or sea level change
- Assets are damaged
- Climate change risk assessments are
- Difficulty or inability to lease
asset(s) at heightened risk of
climate change impacts
- Building systems are unable
to cope with an increase in
temperature
conducted for all new acquisitions as part
of the Initial Status Audit
- Portfolio wide climate change risk
assessments have been conducted, with
properties ranked according to their
overall level of risk. Higher risk properties
undergo further assessment and
adaptation planning
- New developments are designed and
constructed in line with long-term
environmental performance benchmarks
and targets incorporating life-cycle analysis
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29
Dexus Annual Report 2017 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 2017. The consolidated Financial
Statements represents DDF and its consolidated entities, Dexus (DXS or the Group).
The Trust together with Dexus Industrial Trust (DIT), Dexus Office Trust (DOT) and Dexus Operations Trust (DXO) form the Dexus stapled security.
Directors and Secretaries
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
W Richard Sheppard, BEc (Hons), FAICD
Elizabeth A Alexander, AM, BComm, FCA, FAICD, FCPA
Penny Bingham-Hall, BA (Industrial Design), FAICD, SF (Fin)
John C Conde, AO, BSc, BE (Hons), MBA, FAICD
Tonianne Dwyer, BJuris (Hons), LLB (Hons)
Mark Ford, Dip. Tech (Commerce), CA, FAICD
Darren J Steinberg, BEc, FRICS, FAPI, FAICD
Peter B St George, CA(SA), MBA
Appointed
1 January 2012
1 January 2005
10 June 2014
29 April 2009
24 August 2011
1 November 2016
1 March 2012
29 April 2009
Company Secretaries
The names and details of the Company Secretaries of DXFM as at 30 June 2017 are as follows:
Brett D Cameron LLB/BA (Science and Technology), GAICD
Appointed: 31 October 2014
Brett is the General Counsel and Company Secretary of Dexus 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 20 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.
Rachel Caralis LLB/B Com (Acc), M Com (Property Development), Grad Dip (Applied Corporate Governance) AGIA, AAPI
Appointed: 17 February 2016
Rachel is Senior Legal Counsel and Company Secretary of Dexus.
Rachel joined Dexus in 2008 after five years at King and Wood Mallesons where she worked in the real estate and projects team.
Rachel has 14 years’ experience as in-house counsel and in private practice working on real estate and corporate transactions,
funds management and corporate finance for wholesale and listed clients.
Rachel graduated from the University of Canberra with a Bachelor of Laws and Bachelor of Commerce (Accounting), has completed
a Masters of Commerce (Property Development) at the University of Western Sydney and a Graduate Diploma in Applied Corporate
Governance at the Governance Institute of Australia. Rachel is a member of the Law Society of New South Wales, an associate of the
Australian Property Institute and an associate of the Governance Institute of Australia.
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31
Financial Report 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 are 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.
W Richard Sheppard
Elizabeth A Alexander, AM
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Mark Ford 1
Darren J Steinberg
Peter B St George
Main meetings
held
Main meetings
attended
Specific meetings
held
Specific meetings
attended
10
10
10
10
10
6
10
10
10
10
10
10
10
6
10
10
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1. Commenced directorship on 1 November 2016 and attended the Annual General Meeting (AGM) as a guest.
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.
The table below shows non-executive Directors’ attendances at Board Committee meetings, of which they were a member during the
year ended 30 June 2017.
W Richard Sheppard1
Elizabeth A Alexander, AM
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Mark Ford1
Peter B St George
Board Audit
Committee
Board Risk
Committee
Board Nomination
Committee
Board People and
Remuneration
Committee
Held Attended
Held Attended
Held Attended
Held Attended
2
4
–
–
4
2
4
2
4
–
–
4
2
4
2
–
4
–
4
2
4
2
–
4
–
4
2
4
2
–
2
2
–
–
–
2
–
2
2
–
–
–
5
–
5
5
–
–
–
5
–
5
5
–
–
–
1. Mr Sheppard was a member of the Board Audit Committee and Board Risk Committee until 31 December 2016 and Mr Ford became a member of the Board
Audit Committee and Board Risk Committee effective 1 January 2017.
Elizabeth A Alexander and Tonianne Dwyer were also Directors of Dexus Wholesale Property Limited (DWPL) and attended DWPL Board
meetings during the year ended 30 June 2017.
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31
Dexus Annual Report 2017 Remuneration Report
Introduction and Contents
This Remuneration Report details the approach to remuneration frameworks, outcomes and performance for Dexus. The Remuneration
Report forms part of the Directors’ Report and provides Security holders with an understanding of the remuneration principles in place
for key management personnel (KMP) for the year ended 30 June 2017.
The Remuneration Report has been prepared in accordance with section 300A of the Corporations Act 2001 and AASB 124 Related Party
Disclosures. 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 Security holders.
The information provided in this Report has been audited in accordance with the provisions of section 308 (3C) of the Corporations Act 2001.
Contents
1. Executive summary
2. Key changes
3. Key Management Personnel
4. Remuneration governance
5. Actual executive remuneration received
6. Group performance and executive remuneration outcomes
7. Executive statutory remuneration
8. Executive service agreements
9. Non-Executive Director fees
Page number
32
33
34
35
40
40
43
47
48
1. Executive Summary
For the year ended 30 June 2017, Dexus has delivered strong financial performance across key financial metrics. Dexus has increased net
profit by 0.3% to $1,264.2 million, delivered a 4.5% increase in distribution per security, 6.3% increase in AFFO per security and achieved a
10.1% one-year total security holder return. Dexus also achieved Return on Contributed Equity (ROCE) of 7.6% and Return on Equity (ROE)
of 18.2% for FY17.
Our remuneration strategy is aligned to our business strategy, where performance and Security holder returns are paramount.
Our remuneration approach consists of a framework and policy that governs how Executives are remunerated and supports the overall
achievement of Dexus’s strategy. We believe that our approach to Executive reward is a key factor in driving our success. To have the
right people to lead the business over the long term, Dexus has developed and embedded a competitive remuneration strategy to
deliver long term performance.
Our Executives are paid a market based fixed salary which is reasonable, not excessive, and are eligible for a short-term incentive (STI)
bonus based on an individual scorecard requiring exceptional performance to be rewarded at scheme target. In order to align to long
term shareholder value, Executives are also granted long-term incentive (LTI) rights based on stretch hurdles and conditions tested three
and four years in the future. We believe this mix provides the right level of performance focus and retention incentive for our Executives
that will deliver sustainable outperformance for our Security holders.
More broadly, the Dexus remuneration structure is focused on increased equity and ownership amongst Executives and staff to align
better the interests of our employees with our Security holders and to strengthen engagement with the organisation.
In this year’s Remuneration Report, we have included additional information about LTI Plan testing. The various tranches have 1 July
vesting dates, and the results of testing for some prior year grants are therefore known at the time this report is published. We have
therefore increased the information available to Security holders by forward disclosing in this report the results of LTI tranche tests
conducted after the close of the fiscal year.
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32
33
33
Directors’ ReportFinancial Report 2. Key Changes
The table below summarises changes that occurred for the year ending 30 June 2017 (FY17) and changes planned for the year
commencing 1 July 2017 (FY18). The fixed remuneration changes for the CEO and the LTI quantum and measures were disclosed
previously in the FY16 Remuneration Report.
Changes from the Previous Year (FY17)
KMP changes
- Mr Mark H Ford was appointed as a Non-Executive Director of the DXFM Board on 1 November 2016.
- Mr Craig D Mitchell ceased employment on 19 July 2016 following his resignation as Executive Director and
Chief Operating Officer.
Fixed remuneration
increases
- The Board approved an increase to the CEO’s fixed remuneration to $1,600,000 per annum (+$100,000 from FY16).
This represented only the second increase Mr Steinberg has received since joining the Group in March 2012.
Short-term incentive
(STI) awards
Long-term incentive
(LTI) awards
Board Chair and
Non-Executive
Director base fees
- The Board also approved increases to some Executive KMP members following the reorganisation of the Group’s
senior leadership team and the expanded roles and responsibilities of a number of executives following the
resignation of Mr Mitchell, the Group’s Executive Director and Chief Operating Officer.
- The CEO received an STI award for the year ending 30 June 2017 equal to 88% of his maximum STI potential.
- The average STI awarded to other Executive KMP was 83% of the maximum potential.
As set out in the FY16 Remuneration Report, the Board updated the LTI plan to ensure the design was achieving
the program’s objectives, i.e. aligning, rewarding and retaining Executive KMP and other Executives. The updates
may be summarised as:
- In order to address the difference between property industry market practice (many peers use fair value) and the
Dexus plan (face value), the Board approved an increase to the maximum LTI grant opportunity. The maximum
LTI grant value (expressed as a percentage of fixed remuneration) increased by 20% for all participants. Dexus will
continue to use face value methodology for calculating the number of securities to be granted; and
- The LTI plan was simplified to comprise two equally weighted performance hurdles, being Return on Contributed
Equity (ROCE) and growth in Adjusted Funds From Operations (AFFO) per security.
As set out in the FY16 Remuneration Report, Non-Executive Director fees were reviewed relative to comparable
companies, and following independent advice the following changes were made effective from 1 July 2016:
- The Board Chair’s base fee increased from $375,000 to $400,000 per annum
- Board member base fees increased from $160,000 to $170,000 per annum
- There were no changes to Committee fees
Changes to the Coming Year (FY18)
Changes to
executive
remuneration for the
year commencing
1 July 2017
Changes to Non-
Executive Director
(NED) remuneration for
the year commencing
1 July 2017
Fixed remuneration
- Informed by industry peer analysis and the increased scope of the Chief Financial Officer role, the Board
approved an increase to Ms Harrop’s fixed remuneration to $675,000 per annum (+$50,000).
- There were no other increases approved for Executive KMP.
- Total increases across the most senior executives’ fixed remuneration including CEO and KMPs was less than 1%
(0.86%) compared to FY17 totals.
Incentive plans
- There are no material changes to the STI or LTI plans for the coming year.
Board base fees and Committee fees
- No increase to Board base fees or Committee fees
Non-Executive Director minimum security holding
- There are no changes to the Non-Executive Director minimum security holding policy for the coming year.
Change to Fee Pool Non-executive Board and Committee fees
- Increase from $2.2 million to $2.5 million for NED Fee Pool, subject to security holder approval at the 2017 AGM.
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Dexus Annual Report 2017 3. 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
- Other Executives considered KMP
Executive Directors and other Executives considered KMP are referred to collectively as “Executive KMP” in this report. The table below
shows KMPs of the Group during FY16 and FY17.
Name
Position title
Independent Non-Executive Directors
W Richard Sheppard
Non-Executive Chair
Elizabeth A Alexander AM
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Penny Bingham-Hall
John C Conde AO
Tonianne Dwyer
Peter B St George
Mark H Ford
Christopher T Beare
Executive Directors
Darren J Steinberg
Craig D Mitchell
Other Executives
Alison C Harrop
Ross G Du Vernet
Kevin L George
Executive Director and Chief Executive Officer
Executive Director and Chief Operating Officer
Chief Financial Officer
Chief Investment Officer
Executive General Manager, Office & Industrial
Deborah C Coakley
Executive General Manager, Customer & Marketing
KMP
FY16
KMP
FY17
✔
✔
✔
✔
✔
✔
5
✔
✔
Part-year
✔
✔
✔
✔
✔
✔
✔
✔
✔
Part-year
5
✔
Part-year
✔
✔
✔
✔
Former Non-Executive Chair
Part-year
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Remuneration Report continuedDirectors’ ReportFinancial Report 4. Remuneration Governance
The Board People & Remuneration Committee is responsible for overseeing all aspects of Non-Executive Director and Executive KMP
remuneration and performance. The diagram below illustrates the roles and responsibilities of the Group Board, People & Remuneration
Committee, management and external advisors.
Board
Has oversight of Non-Executive Director and Executive KMP remuneration at Dexus
People & Remuneration Committee
The objective of the People & Remuneration Committee (Committee)
is to assist the Board in fulfilling its responsibilities by overseeing all
aspects of Non-Executive Director and Executive KMP remuneration.
The Committee also oversees aspects of People & Culture strategy
and management.
Executive KMP succession planning
Executive KMP terms of appointment
The primary accountabilities of the Committee are to review and
recommend to the Board:
-
-
- Performance and remuneration outcomes for Executive KMP
The Group’s approach to employee remuneration, including
-
employee incentive plans
- Non-Executive Director fees, including the aggregate fee pool
- Diversity and Inclusion Principles and objectives
- People & Culture policies
The Committee comprises three independent Non-Executive Directors.
External advisors
The Committee may at its discretion appoint external advisors or
instruct management to compile information for its consideration.
During the year, the Committee appointed Egan Associates to provide
remuneration advisory services. Egan Associates was paid $10,511 (GST
inclusive) for remuneration advisory services, including the review of
documents, attendance at meetings and general advice.
The Committee is satisfied that the advice received from Egan
Associates is free from undue influence from the KMP to whom the
remuneration recommendations relate. Egan Associates also confirmed
in writing that the remuneration recommendations were made free from
undue influence by KMP.
Management
Make recommendations to the Committee regarding the Group’s remuneration and People & Culture policies
Remuneration Mix & Framework
The remuneration mix is structured so that a substantial portion of the remuneration is delivered as Dexus securities through either
Deferred STI or LTI.
The following diagram (which is not to scale) sets out the remuneration structure for Executive KMP.
Remuneration Component
Year 1
Year 2
Year 3
Year 4
1. Fixed Remuneration
100%
Base Salary &
Superannuation
2. STI
(100% of Fixed
Remuneration
@ target)
3. LTI
(120% or 60% of Fixed
Remuneration @ target)
75% of STI
Cash STI
12.5% of STI
Half of 25% of STI deferred for 1 year delivered as Rights
12.5% of STI
Half of 25% of STI deferred for 2 years delivered as Rights
50% of LTI
LTI 3 year performance period delivered as Performance Rights (subject to
performance)
50% of LTI
LTI 4 year performance period delivered as Performance Rights (subject to performance)
The remuneration framework consists of three different components – fixed remuneration, short term incentives and long term incentives.
The relative weighting of each component is referred to as the remuneration ‘mix’.
The mix of remuneration components varies according to the individual’s position and is determined based on the Group’s
remuneration principles.
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35
34
34
Dexus Annual Report 2017
The chart below shows the remuneration mix for each participant in the LTI Plan at target and outperformance (stretch) levels and is
expressed as a percentage of total remuneration.
120%
31%
94%
120%
25%
75%
60%
31%
94%
60%
25%
75%
36%
17%
53%
36%
22%
66%
100%
100%
100%
100%
100%
100%
l
e
b
a
i
r
a
V
d
e
x
F
i
Fixed
STI (Cash)
STI Deferral
LTI
Target
Outperformance
Target
Outperformance
Target
Outperformance
CEO
Executive KMP
Other Executives
Fixed Remuneration
Fixed remuneration includes base salary (paid in cash) and statutory superannuation.
The Board believes that senior Executives should be rewarded at levels consistent with the responsibilities, accountabilities and
complexities of the respective roles.
The Group requires, and needs to retain, an Executive team with significant experience including, but not limited to:
- the office, industrial and retail property sectors
- corporate transactions, acquisitions, divestments
- 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
- building and maintaining a high performance culture
- human capital management
The comparator groups for senior management remuneration benchmarking are tailored appropriately to the particular executive’s role.
- For roles requiring an industry specialisation: The primary comparator group includes companies in a similar industry (Australian Real
Estate Investment Trusts). A secondary comparator group is used which includes companies (or business unit) of a similar size/complexity.
- For corporate roles: The primary comparator group is based on company (or business unit) size/complexity. A secondary comparator
group based on industry peers is used as an additional point of reference.
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37
Remuneration Report continuedDirectors’ ReportFinancial Report STI Plan
What is the purpose of
the STI plan?
The STI plan is designed to motivate and reward Executives for their contribution to the annual financial and
non-financial performance of the Group.
How does the STI plan
align with the interests
of Dexus’s Security
holders?
What is the target
and maximum STI
opportunity?
What are the
performance
measures?
The STI plan is aligned to Security holder interests in the following ways:
- Encourages Executives to achieve year-on-year growth in a balanced and sustainable manner (i.e. through
the mix of financial and non-financial performance measures).
- Mandatory deferral of 25% of each STI award into Rights aligns the interests of executives and Security
holders and acts as a retention mechanism.
The target STI opportunity for the CEO and Executive KMP is 100% of fixed remuneration. The target STI
opportunity for other Executives will be between 70% and 100% of fixed remuneration.
The maximum STI each Executive KMP can earn is 125% of target STI opportunity, and will only be awarded
when outperformance is achieved.
The 25% of the STI award which is deferred into Rights is subject to clawback and potential forfeiture.
The amount each Executive in the STI Plan can earn is dependent on how they perform against a balanced
scorecard of key performance indicators (KPIs) which are set at the beginning of the financial year.
Each Executive’s performance is measured relative to their personalised balanced scorecard. Both financial
and non-financial performance measures are used to assess performance. Performance is assessed relative
to seven components being Group financial performance, customer, business excellence, projects, people
and culture, corporate responsibility and sustainability and values and behaviour.
KPIs are set with an element of stretch, which ensures that it is difficult to achieve target. To achieve above
target performance would require exceptional performance.
When are STI payments
made?
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.
How much of the STI
award is deferred?
Are distributions paid
on unvested Rights
awarded under the STI
plan?
25% of any award under the STI plan is deferred in the form of Rights to DXS securities.
The Rights vest in two equal tranches, 12 and 24 months after being granted. Rights deferred under the STI
plan are subject to clawback and continued employment during the vesting period.
The number of Rights awarded is based on 25% of the awarded STI value divided by the volume weighted
average price (VWAP) of DXS securities 10 trading days either side of the first trading day of the new
financial year.
For the portion of STI deferred as Rights, Executives are entitled to the benefit of distributions paid on the
underlying DXS securities prior to vesting, through the issue of additional Rights.
When are STI awards
forfeited?
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 People & Remuneration
Committee may recommend to the Board that the Executive should remain in the plan as a ‘good leaver’.
Who has oversight of
the STI plan?
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 People & Remuneration Committee, which
makes a recommendation to the Board for approval.
The CEO’s own performance is assessed by the Board Chair, and is discussed by the People & Remuneration
Committee, which makes an STI recommendation to the Board.
The Board retains the right to amend, suspend or cancel the STI plan at any time.
What is changing for
the FY18 STI plan?
In FY18, the manner in which financial and non-financial objectives are categorised within Executive
balanced scorecards has been refreshed to continue to support the execution of the Board-approved
strategy of the Group. Safety is now a separately highlighted measure to recognise our commitment to the
safety of people.
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36
37
37
Dexus Annual Report 2017 LTI Plan
What is the purpose of
the LTI plan?
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.
How is the LTI plan
aligned to security
holder interests?
Who participates in the
LTI plan?
The LTI plan is aligned to Security holders’ interests in the following ways:
- Encourages Executives to make sustainable business decisions within the Board-approved strategy of
the Group.
- Aligns the financial interests of Executives participating in the LTI Plan to security holders through exposure to
DXS securities.
The CEO, all Executive KMP and other selected Senior Executives participate in the LTI plan.
What is the quantum of
LTI grants?
The maximum LTI opportunities for 2016 (granted in FY17) were 120% of fixed remuneration for the CEO and
between 36% and 60% of fixed remuneration for other Executives.
How is the number of
Performance Rights
determined?
The number of Performance Rights granted is the Executive’s LTI grant value (based on a percentage of fixed
remuneration) divided by the VWAP of securities ten trading days either side of the first trading day of the
new financial year. The methodology computes grants based on ‘face value’ rather than ‘fair value’.
How long is the LTI
performance period?
Each grant is split into two equal tranches, with vesting periods of three and four years respectively after the
grant date.
What are the
LTI performance
conditions?
The Board sets the performance conditions for the LTI plan on an annual basis. The two performance
conditions under the LTI plan are Adjusted Funds From Operations (AFFO) growth per security and Return on
Contributed Equity (ROCE):
- 50% is based on the group’s performance against an AFFO Growth per security hurdle.
AFFO is a key measure of growth and is calculated in line with the Property Council of Australia (PCA)
definition. AFFO is Funds From Operations (FFO) as per the PCA’s definition adjusted for maintenance capex,
incentives (including rent free incentives) given to tenants during the period and other one-off items.
AFFO Growth is measured as the implied compound annual growth rate (CAGR) of the aggregate AFFO
earnings per security over both the three and four year vesting periods.
- 50% is based on the Group’s performance against an Average ROCE performance hurdle.
ROCE represents the annualised composite rate of return to Security holders, calculated as a percentage,
comprising AFFO together with the net tangible asset impact from completed developments, divided by
the average contributed equity during the period.
ROCE is measured as the per annum average at the respective conclusion of the three and four year
vesting periods.
Vesting under both the AFFO Growth and Average ROCE measures will be on a sliding scale reflecting
performance against 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
Actual AFFO Growth and Average ROCE performance hurdles are set by the Board and are in line with
Dexus’s target range through the cycle.
Both the AFFO Growth and Average ROCE performance targets will be disclosed retrospectively at the end of
the performance period.
What level of
performance is required
for LTI awards to vest
for past grants?
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Remuneration Report continuedDirectors’ ReportFinancial Report
What are the changes
to the LTI Plan design
from previous years?
As disclosed in the FY16 Remuneration Report, the Board conducted a review of external practices in the
market and sought independent advice on what measures would better align the LTI plan with Security
holders’ interests. The Board subsequently resolved to simplify the LTI Plan from four hurdles to two, both of
which are based on absolute (as opposed to relative) performance measures.
This decision focusses the LTI plan on commercial performance that is within an executive’s ability to control
and influence. Commencing with the 2016 LTI grant, LTI performance hurdles were the existing AFFO Growth per
security hurdle and a new ROCE measure which replaced Return on Equity (ROE). Each performance condition is
weighted 50% and there were no changes to the three and four year testing and vesting schedule.
The Board believes this simplification to two performance hurdles provides greater focus on the fundamentals
of Dexus’s business and on the performance of the executive team in meeting the targets which the Board
sets. If these conditions are met, the Board’s view is that Security holders will be rewarded, over time, by
superior market performance.
Additionally, with greater clarity on the long-term performance of the Group, the simplification also removes
the potential favourable or unfavourable impact of macro-economic variables impacting asset valuations,
as well as the composition vagaries of listed and unlisted peer groups.
It is noted that the Group is currently performing well against both Relative TSR and Relative ROE
performance conditions within prior year LTI plans.
What are the changes
to the LTI Plan grant
quantum from previous
years?
As disclosed in the FY16 Remuneration Report, the Board reviewed external benchmarking and market
practices on the prevalence of the use of fair value as distinct from face value for the purpose of allocating
equity (noting Dexus continued use of the face value methodology which awards fewer securities than fair
value methodology and the overall quantum granted versus realized). The Board subsequently approved an
increase to the maximum LTI grant value for Executives in the LTI Plan.
The maximum LTI opportunity for all participants increased by 20% for the 2016 LTI grants, with the CEO
maximum set at 120% of fixed remuneration and 60% for other Executive KMP and 36% for other participants.
There are no increases or further changes proposed for the upcoming 2017 LTI grant.
Executives are not entitled to distributions paid on underlying DXS securities during the performance period
prior to Performance Rights being tested for vesting.
Do executives receive
distributions on
unvested LTI awards?
When are LTI awards
forfeited?
If the performance conditions are not met Performance Rights relating to that tranche will be forfeited. There
is no retesting of forfeited Rights.
How is the LTI plan
administered?
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 People & Remuneration
Committee may recommend for approval by the Board that the executive remain in the plan as a ‘good
leaver’.
The administration of the LTI plan is supported by the LTI plan rules.
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.
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Dexus Annual Report 2017 5. Actual Executive Remuneration Received
The table below sets out cash paid as remuneration to Executive KMP and the cash value of equity awards which vested during FY17.
The values in the table below differ from the values in the executive statutory remuneration table (see Section 7 of this Remuneration
Report) which has been prepared in accordance with statutory requirements and accounting standards and includes the accounting
value of all unvested Rights and Performance Rights which have been awarded, but which may or may not vest.
The total benefits actually paid and received during the period (1 July 2016 to 30 June 2017) comprise several elements, including:
- Cash Salary;
- Pension and Superannuation Benefits;
- STI Cash Payment made in August 2016, being 75% of the STI awarded for performance during the prior period (FY16), with the remaining
25% being deferred; and
- The Market Value of vested rights from deferred plans including FY15 Deferred STI Tranche 1, FY14 Deferred STI Tranche 2 & FY13 LTI
Tranche 1.
More information on the Executive remuneration granted in FY17, but paid in future financial years, can be found in STI Awards for FY17
Performance and the Deferred STI and LTI Grants for FY17 Performance sections of this report.
Executive KMP
Darren J Steinberg
Craig D Mitchell 1
Ross G Du Vernet
Kevin L George
Alison C Harrop
Deborah C Coakley
Cash
Salary
($)
1,580,384
37,679
680,384
675,584
600,728
545,900
Pension &
Super
Benefits
($)
19,616
1,608
19,616
24,416
19,616
29,100
Earned in prior Financial Years
Termination
Benefits
($)
STI Cash
Payment
($)
Market
Value of
Vested
Rights
($)
Total
($)
-
1,068,750
1,187,668
3,856,419
477,301
-
-
-
-
-
405,000
408,000
286,500
315,000
-
351,654
359,393
19,332
186,678
516,588
1,456,654
1,467,393
926,175
1,076,678
1. Mr Mitchell left employment on 15 July 2016 and received terminations benefits totalling of $477,301.
This amount included the payout of unused statutory annual leave and long service leave entitlements and cash settlement of Deferred STI awards that
vested on 1 July 2016 prior to his notice period completion.
It is noted that Mr Mitchell forfeited all his unvested Deferred STI and LTI Rights on 15 July 2016 with a potential market value of $2,310,037.
6. Group Performance and Executive Remuneration Outcomes
FY17 Highlights
Group
Property Portfolio
Funds Management
Trading
Capital Management
Delivered a 4.5% increase
in distribution per security
and 6.3% increase in
AFFO per security
Delivered a strong
one-year office total
return of 14.1%. Increased
occupancy to 97.2%
and reduced FY19
expiries to 12.0%
Delivered strong
performance for clients.
DWPF outperformed over
1, 3, 5, 7 and 10 year periods
Delivered FY17 trading
profits of $47.2 million
post tax
Maintained balance sheet
strength with gearing of
26.7%1 and completed a
$500 million institutional
placement
Achieved a 10.1%
one-year total security
holder return, 7.6% ROCE
and ROE of 18.2%
Completed over
430,000sqm of industrial
leasing, driving an
increase in all key metrics
Launched a new unlisted
healthcare property fund
to be finalised in FY18
Secured the sale of
105 Phillip Street, which
contributed to trading
profits in both FY17 & FY18
Reduced cost of debt to
4.1% (FY16: 4.8%). Secured
$315 million of capital
markets debt
1. Proforma gearing is adjusted for the acquisitions of MLC Centre, Sydney, 100 Harris Street, Pyrmont, 90 Mills Road, Braeside and the sales of 30-68 Taras Avenue,
Altona North and 46 Colin Street, West Perth, including the impact of transaction costs. Actual gearing (look-through) is 22.1% at 30 June 2017.
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Remuneration Report continuedDirectors’ ReportFinancial Report Total Return of Dexus Securities
The chart below illustrates Dexus’s performance against the S&P/ASX200 Property Accumulation Index since listing in 2004.
350
300
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200
150
100
50
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J
Dexus
Total
Return
S&P/ASX 200
Property
Accumulation
Index
Total Return Analysis
The table below sets out Dexus’s total Security holder return over a one, three and five year time horizon, relative to the S&P/ASX 200
Property Accumulation Index.
Year Ended 30 June 2017
Dexus
S&P/ASX 200 Property Accumulation Index
Source: UBS Australia. *Annual compound returns.
1 Year
(% per annum)
3 Years*
(% per annum)
5 years*
(% per annum)
10.1%
-6.3%
18.4%
12.0%
17.4%
14.1%
Dexus achieved a 10.1% total Security holder return for the year ended 30 June 2017. Dexus has outperformed the S&P/ASX 200 Property
Accumulation index over one, three and five years.
Individual Performance Assessment – Balanced Scorecard
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 financial and non-financial KPIs. Each Executive KMP’s Balanced Scorecard is agreed based on
these indicators.
The CEO’s Scorecard was divided into seven components – Group financial performance, customer, business excellence, projects,
people and culture, corporate responsibility and sustainability and values and behaviour. For each of the components the CEO has
objectives and specific initiatives set for that year. The Scorecards are agreed with the Executive KMP at the beginning of the year, using
the same scorecard approach, but with different weightings based on the individual’s role and responsibilities within the Group. Progress
is reviewed at the half year and assessed for performance awards at the end of the year.
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41
Dexus Annual Report 2017 The table below summarises the CEO’s performance relative to his Balanced Scorecard for the year ended 30 June 2017:
Category & Principal KPIs
CEO
weighting
Result
Performance Detail
Group Financial Performance
50%
Above Target
Adjusted Funds from Operations (AFFO)
and Return on Equity (ROE)
Customer
Launch new Dexus brand, implement
customer strategy focused on attraction
and retention
10%
At Stretch
Target
Business Excellence
15%
Above Target
The Board has determined the Group financial
performance is above target given upgraded guidance
was provided in February 2017 and the upper end of that
guidance was achieved. Distribution growth of 4.5% and a
ROE of 18.2% was achieved.
Successful launch of Dexus’s new-look brand in
March 2017, reflecting Dexus’s progressive, innovative and
customer focused approach. Dexus’s customer offering
was expanded to include a fourth Dexus Place, Prism
thought leadership website, and Childspace. Achieved
increase in combined office and industrial customer NPS
scores and satisfaction scores.
Key targets for each business unit were achieved. This
included: total return outperformance for Dexus’s office
portfolio and DWPF over 3 and 5 years; delivering
growth in third party funds management including
establishing new healthcare joint venture; and progressing
development and trading pipelines.
Completed strategic projects that contributed to
improved business efficiencies, simplification and
innovation for the future. This included simplified leasing
management system and an integrated platform,
Workday, for human capital management.
Improvement in culture indicators and all constructive
styles above 50th percentile. Achieved 33.0% female
senior leader population and gender pay equity in
like-for-like roles. Succession plans in place for all key roles
with 100% retention of key talent participants.
5%
At Stretch
Target
10%
At Stretch
Target
5%
At Stretch
Target
Achieved or progressed all CR&S commitments for 2017 and
progressed Dexus’s 2020 sustainability targets. Maintained
global leadership ranking in GRESB and UNPRI.
5%
At Stretch
Target
CEO is Chair of the Corporate Responsibility, Inclusion
and Diversity Committee leading change in workplace
flexibility, gender equity and inclusion awareness
throughout the organisation. Member of the Property Male
Champions of Change initiative to drive gender equality
within the industry. Led internal initiatives on leadership
development and high performance culture programs.
Lead overall business unit performance,
continuous improvement and process
simplification
Projects
Define and implement projects and
initiatives to support overall business
strategy
People & Culture
Develop a diverse and inclusive culture,
enhance performance management
processes with a focus on succession
planning and retention of key talent
Corporate Responsibility and
Sustainability (CR&S)
Deliver sustained value to Dexus’s
stakeholders through the achievements of
annual CR&S commitments
Values and Behaviours
Role model on values, leadership
behaviours, collaboration and inclusiveness
STI Awards for FY17 Performance
The following table summarises the STI awards made to each Executive KMP with respect to their performance during the year ended
30 June 2017. The 75% cash component is paid in August 2017, and will form a part of the FY18 cash earnings for Executive KMP.
Application of the KPIs against the Balanced Scorecards resulted in no executive achieving the maximum possible STI.
STI award
($)
1,760,000
735,000
735,000
656,250
575,000
% of maximum
STI awarded
% of maximum
STI forfeited
% of STI
award deferred
88%
84%
84%
84%
80%
12%
16%
16%
16%
20%
25%
25%
25%
25%
25%
Executive KMP
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop
Deborah C Coakley
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Remuneration Report continuedDirectors’ ReportFinancial Report Deferred STI and LTI Grants for FY17 Performance
The number of Rights granted to Executive KMP is determined by dividing the Deferred STI value and LTI grant value by the VWAP of DXS
securities ten trading days either side of 1 July 2017, which was $9.7535.
The table below shows the number of Rights granted to Executive KMP under the Deferred STI and LTI plans (details of which are
provided earlier in this report).
Executive KMP
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop
Deborah C Coakley
Plan
name
Number
of Rights
granted
Grant
date
1st Vesting
Date
50%
2nd Vesting
Date
50%
Deferred STI
45,112
1 July 2017
1 July 2018
1 July 2019
LTI
196,852
1 July 2017
1 July 2020
1 July 2021
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
18,839
43,061
18,839
43,061
16,821
38,448
14,738
35,372
1 July 2017
1 July 2018
1 July 2019
1 July 2017
1 July 2020
1 July 2021
1 July 2017
1 July 2018
1 July 2019
1 July 2017
1 July 2020
1 July 2021
1 July 2017
1 July 2018
1 July 2019
1 July 2017
1 July 2020
1 July 2021
1 July 2017
1 July 2018
1 July 2019
1 July 2017
1 July 2020
1 July 2021
DXS securities relating to Deferred STI and 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 required after a scheduled vesting date.
7. Executive Statutory Remuneration
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 which is outlined in the Actual Executive Remuneration Received table. Amounts shown under Long
Term Benefits reflect the accounting expense 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 2017, refer to the
Group Performance and Executive Remuneration Outcomes section of this report.
Short Term
Benefits
Post-Employment
Benefits
Share Based &
Long Term Benefits
Year
Cash
Salary
STI
Cash
Award
Other
Short-
Term
Benefits
FY17
1,580,384
1,320,000
FY16
1,480,692
1,068,750
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
37,679
866,472
-
-
680,384
551,250
580,692
405,000
675,584
551,250
620,692
408,000
600,728
492,188
398,019
214,875
545,900
431,250
505,692
315,000
4,120,659
3,345,938
FY16
4,452,260
2,411,625
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Pension
& Super
Benefits
19,616
19,308
Termination
Benefits
Deferred
STI Plan
Accrual
LTI
Plan
Accrual
Total
-
-
385,964
1,305,851
4,611,815
370,221
1,075,601
4,014,572
1,608
477,301
-
-
516,588
33,528
19,616
19,308
24,416
19,308
19,616
14,481
29,100
19,308
113,971
-
-
-
-
-
-
-
-
-
(180,807)
(519,617)
199,576
151,423
259,260
1,661,934
139,730
207,889
1,352,619
154,968
291,071
1,697,289
135,543
250,329
1,433,872
106,065
131,401
1,349,997
30,158
101,912
44,210
44,963
702,496
123,019
1,231,181
57,226
941,436
477,301
900,333
2,110,602 11,068,804
125,240
-
539,055
1,116,391
8,644,571
Executive
Darren J Steinberg
Craig D Mitchell 1
Ross G Du Vernet
Kevin L George
Alison C Harrop 2
Deborah C Coakley
Total
1. Craig Mitchell’s remuneration for FY16 includes the reversal of prior year expenses relating to forfeited Deferred STI and LTI awards.
2. Alison Harrop’s remuneration for FY16 is reflective of nine months as a KMP in that year.
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43
Dexus Annual Report 2017
Deferred STI & LTI Awards Which Vested During FY17
The table below shows the number of Rights which vested under the Deferred STI and LTI plans during FY17. The vesting date for all
Rights was 1 July 2016.
Executive KMP
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop*
Deborah C Coakley
Plan name
Deferred STI
LTI
Deferred STI
LTI
Grant
Date
1/07/2014
1/07/2015
1/07/2013
1/07/2014
1/07/2015
1/07/2013
Deferred STI
1/07/2014
LTI
Deferred STI
LTI
Deferred STI
LTI
1/07/2015
1/07/2013
1/07/2014
1/07/2015
1/07/2013
1/07/2014
1/07/2015
1/07/2013
Number of
Rights which
vested
Market Value
at vesting 1
($)
Tranche
2
1
1
2
1
1
2
1
1
2
1
1
2
1
1
35,288
25,352
70,511
15,124
8,895
14,813
9,074
10,230
20,383
0
2,135
0
8,167
5,337
7,110
319,558
229,582
638,529
136,958
80,552
134,144
82,171
92,642
184,580
0
19,332
0
73,958
48,335
64,386
1. Market Value at vesting is the VWAP of DXS securities for the five day period before the vesting date.
* Alison Harrop was not employed at the time of grant.
Performance of LTI Awards Which Vested During FY17
As detailed in the table above, the first tranche of the 2013 LTI plan vested to participating Executive KMP on 1 July 2016. The vesting
outcome of 75% was determined by the Board, referencing the previously approved performance hurdles set and communicated to
participants upon the original Grant Date of 1 July 2013.
The table below shows the result of each performance condition within tranche 1 of the 2013 LTI plan:
Performance Condition
Weighting
Hurdle Range
Group Result
Funds From Operations Growth 1
Average Return on Equity 2
Relative Total Security Holder Return 3
Relative Return on Equity 4
25%
25%
25%
25%
3.0% to 5.5%
9.0% to 11.0%
Median to 75th Percentile
Median to 75th Percentile
9.2%
12.5%
5th out of 6
2nd out of 8
Overall result
Vesting
Outcome
25%
25%
Nil
25%
75%
1. Funds From Operations (FFO) Growth hurdle was measured on a linear scale for testing, with a 3.0% Compound Annual Growth Rate set as the Target (where
50% would vest) and 5.5% set as the Outperformance hurdle (where 100% would vest). The Dexus FFO Growth result over the three year performance period
was 9.2% resulting in the full vesting of this performance condition.
2. Average Return on Equity (ROE) hurdle was measured on a linear scale for testing, with a 9.0% simple ROE average set as the Target (where 50% would vest)
and 11.0% set as the Outperformance hurdle (where 100% would vest). The Dexus Average ROE result was 12.5% over the three year performance period,
resulting in the full vesting of this performance condition.
3. Relative Total Security Holder Return (TSR) was measured with reference to the TSR percentile rank of DXS against a comparator group including listed
A-REIT peers Investa Office Fund, SCA Property Group, Vicinity Centres, The GPT Group and Cromwell Property Group. A Median rank was set as the Target
(where 50% would vest) and a 75th Percentile or better rank was set as the Outperformance hurdle (where 100% would vest). The Dexus Relative TSR rank of
fifth out of six listed A-REIT peers over the three year performance period, resulted in the forfeiture of this performance condition.
4. Relative Return on Equity (ROE) was measured with reference to the Average ROE result achieved by DXS against a comparator group including unlisted
property funds GPT Wholesale Office Fund, AMP Capital Wholesale Office Fund, ISPT Core Fund, Australian Prime Property Commercial Fund, QIC Property
Fund and Australian Prime Property Retail Fund. A Median rank was set as the Target (where 50% would vest) and a 75th Percentile or better rank was set
as the Outperformance hurdle (where 100% would vest). The Dexus Relative ROE rank of second out of eight unlisted property peers over the three year
performance period, resulted in the full vesting of this performance condition.
For more information on the 2013 LTI plan, refer to the FY13 Remuneration Report.
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Remuneration Report continuedDirectors’ ReportFinancial Report Performance of LTI Awards Which Vested Post Year-end
On 1 July 2017, the second tranche of the 2013 LTI plan and the first tranche in the 2014 LTI plan also vested for participating Executive
KMP. These details are being provided as a forward disclosure.
The vesting outcome of 100% for both tranches was determined by the Board, referencing the previously approved performance hurdles
set and communicated to participants upon the original Grant Dates of 1 July 2013 and 1 July 2014 respectively.
The table below shows the result of each performance condition within tranche 2 of the 2013 LTI plan:
Performance Condition
Weighting
Hurdle Range
Group Result
Funds From Operations Growth
Average Return on Equity
Relative Total Security Holder Return
Relative Return on Equity
25%
25%
25%
25%
3.0% to 5.5%
9.0% to 11.0%
Median to 75th Percentile
Median to 75th Percentile
8.1%
13.2%
2nd out of 6
2nd out of 7
Vesting
Outcome
25%
25%
25%
25%
Overall Result
100%
The table below shows the result of each performance condition within tranche 1 of the 2014 LTI plan:
Performance Condition
Weighting
Hurdle Range
Group Result
Funds From Operations Growth
Average Return on Equity
Relative Total Security Holder Return
Relative Return on Equity
25%
25%
25%
25%
4.0% to 6.0%
9.0% to 10.0%
6.8%
15.3%
Median to 75th Percentile
Median to 75th Percentile
2nd out of 17
2nd out of 14
Vesting
Outcome
25%
25%
25%
25%
Overall Result
100%
The full details and quantification in dollars of these vesting tranches will be provided in the FY18 Remuneration Report.
Unvested Deferred STI Awards
The table below shows the number of unvested Rights held by Executive KMP as at 30 June 2017 under the Deferred STI plan. The STI
awards in respect of which the elements below are deferred elements were disclosed in prior year remuneration reports.
Executive KMP
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop
Deborah C Coakley
Grant
Date
Vesting
Date
Tranche
Number
of Rights
1/07/2015
1/07/2017
1/07/2016
1/07/2017
1/07/2016
1/07/2018
1/07/2015
1/07/2017
1/07/2016
1/07/2017
1/07/2016
1/07/2018
1/07/2015
1/07/2017
1/07/2016
1/07/2017
1/07/2016
1/07/2018
1/07/2015
1/07/2017
1/07/2016
1/07/2017
1/07/2016
1/07/2018
1/07/2015
1/07/2017
1/07/2016
1/07/2017
1/07/2016
1/07/2018
2
1
2
2
1
2
2
1
2
2
1
2
2
1
2
24,151
19,488
19,488
8,474
7,385
7,385
9,745
7,440
7,440
2,034
5,224
5,224
5,084
5,744
5,744
45
45
44
44
Dexus Annual Report 2017 Unvested LTI Awards
The table below shows the number of unvested Performance Rights held by Executive KMP as at 30 June 2017 under the LTI plan. The LTI
awards in respect of which the elements below are the variously deferred tranches were disclosed in prior year remuneration reports.
Executive KMP
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop
Deborah C Coakley
Grant
date
1/07/2013
1/07/2014
1/07/2014
1/07/2015
1/07/2015
1/07/2016
Vesting
Date
1/07/2017
1/07/2017
1/07/2018
1/07/2018
1/07/2019
1/07/2019
1/07/2016
1/07/2020
1/07/2013
1/07/2014
1/07/2014
1/07/2015
1/07/2015
1/07/2016
1/07/2017
1/07/2017
1/07/2018
1/07/2018
1/07/2019
1/07/2019
1/07/2016
1/07/2020
1/07/2013
1/07/2014
1/07/2014
1/07/2015
1/07/2015
1/07/2016
1/07/2017
1/07/2017
1/07/2018
1/07/2018
1/07/2019
1/07/2019
1/07/2016
1/07/2020
1/07/2013
1/07/2014
1/07/2014
1/07/2015
1/07/2015
1/07/2016
1/07/2017
1/07/2017
1/07/2018
1/07/2018
1/07/2019
1/07/2019
1/07/2016
1/07/2020
1/07/2013
1/07/2014
1/07/2014
1/07/2015
1/07/2015
1/07/2016
1/07/2017
1/07/2017
1/07/2018
1/07/2018
1/07/2019
1/07/2019
1/07/2016
1/07/2020
Tranche
Number
of Rights
2
1
2
1
2
1
2
2
1
2
1
2
1
2
2
1
2
1
2
1
2
2
1
2
1
2
1
2
2
1
2
1
2
1
2
94,015
102,971
102,971
101,689
101,689
98,466
98,466
19,751
18,388
18,388
18,643
18,643
19,693
19,693
27,177
22,985
22,985
21,694
21,694
21,006
21,006
N/A
N/A
N/A
11,186
11,186
18,052
18,052
9,480
8,826
8,826
9,660
9,660
17,232
17,232
46
46
47
47
Remuneration Report continuedDirectors’ ReportFinancial Report 8. Executive Service Agreements
Executive service agreements detail the individual terms and conditions of employment applying to the Executive KMP 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
Terms
Employment agreement
An ongoing Executive Service Agreement.
Termination by the CEO
Termination by Mr Steinberg requires a 6 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’s 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.
All Other Executive KMP
Terms
Employment agreement
An ongoing Executive Service Agreement or Individual Contract.
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.
Termination Payments
Mr Mitchell’s resignation was effective on 15 July 2016. Mr Mitchell received a termination payment of $477,301 ($262,640 net) at the time
his employment ceased which included accrued statutory leave entitlements and cash compensation for Deferred STI Rights which
vested on 1 July 2016.
All other unvested Rights, Performance Rights and STI awards for Mr Mitchell were forfeited in accordance with the STI and LTI plan rules
and the terms of his employment contract. This forfeiture had a potential market value of $2,310,037 upon Mr Mitchell’s termination date.
46
46
47
47
Dexus Annual Report 2017 9. Non-Executive Director Fees
Non-Executive Directors’ fees are reviewed annually by the Committee using information from a variety of sources, including:
- Publicly available remuneration data from ASX listed companies with similar market capitalisation and complexity
- Publicly available remuneration data from A-REITs
- Information supplied by external remuneration advisors, including Egan Associates
Other than the Chair who receives a single base fee, Non-Executive Directors receive a base fee plus additional fees for membership of
Board Committees. Non-Executive Directors do not participate in incentive plans or receive any retirement benefits other than statutory
superannuation contributions.
As disclosed in the 2016 Remuneration Report, Non-Executive Director fees were reviewed and increased effective 1 July 2016. The Board
Chair’s base fee was increased to $400,000 (+$25,000) and Board members base fee was increased to $170,000 (+$10,000). There were
no changes to Committee Chair or Member fees.
The table below outlines the Board fee structure (inclusive of statutory superannuation contributions) for the year ended 30 June 2017.
Committee
Director’s Base Fee (DXFM)
Board Risk Committee
Board Audit Committee
Board Nomination Committee
Board People & Remuneration Committee
DWPL Board
* The Board Chair receives a single fee for his service, including service on Board Committees.
Year
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
Chair
($)
400,000 *
375,000 *
30,000
30,000
30,000
30,000
15,000
15,000
30,000
30,000
45,000
45,000
Member
($)
170,000
160,000
15,000
15,000
15,000
15,000
7,500
7,500
15,000
15,000
22,500
22,500
48
48
49
49
Remuneration Report continuedDirectors’ ReportFinancial Report Total fees paid to Non-Executive Directors for the year ended 30 June 2017 remained within the aggregate fee pool of $2,200,000 per
annum which was approved by Security holders at the AGM in October 2014. The Board is seeking approval to increase the aggregate
Non-Executive Director fee pool to $2,500,000 at the 2017 AGM.
Non-Executive Director Minimum Security Holding
Non-Executive Directors are expected to hold a minimum of 16,500 DXS securities. Newly appointed Directors are expected to acquire
the minimum security holding within three years of their appointment.
Securities held by Non-Executive Directors are subject to the Group’s security and insider trading policies. No additional remuneration
is provided to Directors to purchase these securities.
As at 30 June 2017, all Directors met the minimum security holding requirement, except for Mr Ford who has until October 2019 to satisfy
this requirement. The relevant interests of each Non-Executive Director in DXS stapled securities are shown below.
Non-Executive Director
W Richard Sheppard
Elizabeth A Alexander AM
Penelope Bingham-Hall
John C Conde AO
Tonianne Dwyer
Peter B St George
Mark H Ford
Number of
securities
held at
30 June 2017
70,090
16,667
16,534
16,667
16,667
17,333
1,667
Non-Executive Directors Statutory Remuneration Table
The amounts shown in this table are prepared in accordance with AASB 124 Related Party Disclosures. The table is a summary of the
actual cash and benefits received by each Non-Executive Directors for the year ended 30 June 2017.
Non-Executive Director
W Richard Sheppard
Elizabeth A Alexander AM
Penelope Bingham-Hall
John C Conde AO
Tonianne Dwyer
Peter B St George
Mark H Ford
Christopher T Beare
Total
Short Term
Benefits
(S)
Post
Employment
Benefits
($)
Other
Long Term
Benefits
($)
380,384
303,653
210,384
200,913
189,008
173,516
189,498
180,365
217,884
208,192
196,347
182,804
117,199
-
-
116,283
1,500,706
1,365,727
19,616
18,945
21,206
17,496
17,956
16,484
18,002
17,135
19,616
19,308
18,653
17,366
11,134
-
-
6,436
126,183
113,170
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Year
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
Total
($)
400,000
322,598
231,591
218,409
206,964
190,000
207,500
197,500
237,500
227,500
215,000
200,170
128,333
-
-
122,719
1,626,888
1,478,897
49
49
48
48
Dexus Annual Report 2017 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
W Richard Sheppard
Elizabeth A Alexander, AM
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Mark Ford
Darren J Steinberg 1
Peter B St George
No. of securities
70,090
16,667
16,534
16,667
16,667
1,667
977,604
17,333
1.
Includes interests held directly and through performance rights (refer note 22).
Operating and financial review
Information on the operations and financial position of the Group and its business strategies and prospects is set out in the operating
and financial review on pages 22 – 29 of this financial report.
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
W Richard Sheppard
Elizabeth A Alexander, AM
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Company
Star Entertainment Group
Medibank Private Limited 1
BlueScope Steel Limited
Fortescue Metals Group Ltd
Whitehaven Coal Limited
Cooper Energy Limited
Metcash Limited
ALS Limited
Oz Minerals Limited
Date Appointed
21 November 2012
31 October 2008
29 March 2011
16 November 2016
3 May 2007
25 February 2013
24 June 2014
1 July 2016
21 March 2017
Peter B St George
First Quantum Minerals Limited 2
20 October 2003
1. Listed for trading on the Australian Securities Exchange since 24 November 2014.
2. Listed for trading on the Toronto Stock Exchange in Canada and the London Stock Exchange in the United Kingdom.
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.
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.
Total value of Trust assets
The total value of the assets of the Group as at 30 June 2017 was
$12,270.1 million (2016: $11,782.8 million). Details of the basis of this
valuation are outlined in the Notes to the Financial Statements
and form part of this Directors’ Report.
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.
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.
Distributions
Distributions paid or payable by the Group for the year ended
30 June 2017 were 45.47 cents per security (2016: 43.51 cents
per security) as outlined in note 7 of the Notes to the
Financial Statements.
50
50
51
51
Directors’ ReportFinancial Report 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:
- all non-audit services have been reviewed by the Board Audit
Committee to ensure that they do not impact the impartiality
and objectivity of the auditor
- none of the services undermine the general principles relating to
auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants.
The above Directors’ statements are in accordance with the
advice received from the Board Audit Committee.
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 52 and forms part of this Directors’ Report.
Corporate governance
DXFM’s Corporate Governance Statement is available at:
www.dexus.com/who-we-are/our-business/corporate-
governance
Rounding of amounts and currency
As the Group is an entity of the kind referred to in ASIC
Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191, the Directors have chosen to round amounts in this
Directors’ Report and the accompanying Financial Report to
the nearest tenth of a million dollars, unless otherwise indicated.
The Group is an entity to which the Instrument applies. All figures in
this Directors’ Report and the Financial Statements, except where
otherwise stated, are expressed in Australian dollars.
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 15 August 2017.
W Richard Sheppard
Chair
15 August 2017
Darren J Steinberg
Chief Executive Officer
15 August 2017
DXFM fees
Details of fees paid or payable by the Group to DXFM are
eliminated on consolidation for the year ended 30 June 2017.
Details are outlined in note 23 of the Notes to the Financial
Statements and form part of this Directors’ Report.
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 2017 are
detailed in note 16 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 23 of the Notes to the Financial Statements and form part
of this Directors’ Report.
The DXFM Board has approved a grant of performance rights
of DXS stapled securities to eligible participants. Details of the
performance rights awarded during the financial year are detailed
in note 22. The Group did not have any options on issue as at
30 June 2017 (2016: nil).
Environmental regulation
The Group’s senior management, through its Board Risk Committee,
oversees 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.
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.
Audit
Auditor
PricewaterhouseCoopers continues in office in accordance with
section 327 of the Corporations Act 2001. In accordance with section
324DAA of the Corporations Act 2001, the Group’s lead auditor and
review auditor must be rotated every five years unless the Board
grants approval to extend the term for up to a further two years.
During the year ended June 2016, the Board granted approval to
extend the term of the current lead auditor for one year, to include
the audit for the year ended 30 June 2017.
Non-audit services
The Group may decide to employ the Auditor on assignments, in
addition to its 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 20 of the Notes to the Financial Statements.
50
50
51
51
Dexus Annual Report 2017
Auditor’s Independence Declaration
52
53
Financial Report For the year ended 30 June 2017
Consolidated Statement of Comprehensive Income
Revenue from ordinary activities
Property revenue
Development revenue
Interest revenue
Management fees and other 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 gain on sale of investment properties
Net fair value gain of interest bearing liabilities
Net fair value gain of derivatives
Total income
Expenses
Property expenses
Development costs
Finance costs
Net fair value loss of derivatives
Net fair value loss of interest bearing liabilities
Transaction costs
Management operations, corporate and administration expenses
Total expenses
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year
Other comprehensive income/(loss):
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
2
10
4
3
5(a)
2017
$m
540.6
224.3
0.6
116.2
881.7
457.6
470.4
23.4
87.5
–
1,920.6
(150.7)
(156.9)
(108.1)
(101.0)
–
–
(98.9)
(615.6)
1,305.0
(40.8)
1,264.2
2016
$m
554.9
204.7
0.6
105.3
865.5
452.1
525.5
1.0
–
106.4
1,950.5
(152.7)
(114.3)
(171.3)
–
(110.8)
(7.1)
(91.1)
(647.3)
1,303.2
(43.4)
1,259.8
17
(2.2)
0.5
1,262.0
1,260.3
217.4
1,046.8
1,264.2
215.2
1,046.8
1,262.0
259.5
1,000.3
1,259.8
260.0
1,000.3
1,260.3
Cents
Cents
Earnings per unit on profit/(loss) attributable to unitholders of the Trust (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
6
6
6
6
22.45
22.45
130.53
130.53
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
26.79
26.79
130.06
130.06
53
52
Dexus Annual Report 2017 As at 30 June 2017
Consolidated Statement of Financial Position
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
Intangible assets
Other
Total non-current assets
Total assets
Current liabilities
Payables
Current tax liabilities
Interest bearing liabilities
Loans with related parties
Provisions
Derivative financial instruments
Total current liabilities
Non-current liabilities
Interest bearing liabilities
Derivative financial instruments
Deferred tax liabilities
Provisions
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Equity attributable to unitholders of the Trust (parent entity)
Contributed equity
Reserves
Retained profits
Parent entity unitholders' interest
Equity attributable to unitholders of other stapled entities
Contributed equity
Reserves
Retained profits
Other stapled unitholders' interest
Total equity
Note
18(a)
18(b)
11
10
12(c)
18(c)
8
10
9
12(c)
19
18(d)
13
14
18(e)
12(c)
13
12(c)
5(d)
16
17
16
17
2017
$m
21.2
81.7
296.8
–
15.5
13.3
428.5
7,169.1
16.4
211.3
3,823.8
306.7
309.5
4.8
11,841.6
12,270.1
162.1
21.8
–
149.0
266.1
7.8
606.8
2016
$m
18.1
81.9
651.2
74.2
38.6
11.1
875.1
6,419.5
16.5
201.8
3,520.2
438.5
307.1
4.1
10,907.7
11,782.8
116.8
40.1
316.0
–
220.8
4.4
698.1
2,697.8
3,370.8
49.1
85.9
1.9
4.1
2,838.8
3,445.6
8,824.5
2,126.7
6.9
427.2
2,560.8
4,275.7
41.8
1,946.2
6,263.7
8,824.5
106.3
79.7
1.7
3.1
3,561.6
4,259.7
7,523.1
1,984.0
9.1
321.7
2,314.8
3,926.1
43.0
1,239.2
5,208.3
7,523.1
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
54
55
Financial Report For the year ended 30 June 2017
Consolidated Statement of Changes in Equity
Attributable to unitholders of the Trust
(parent entity)
Attributable to unitholders of other
stapled entities
Note
Contri-
buted
equity
$m
1,990.6
–
–
–
16
(6.6)
–
–
–
Opening balance as at
1 July 2015
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
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
7
Total transactions with
owners in their capacity
as owners
Closing balance as at
30 June 2016
8.6
–
0.5
–
–
–
–
Reserves
$m
Retained
profits
$m
Total
$m
Contri-
buted
equity
$m
Reserves
$m
Retained
profits
$m
Total
$m
Total
equity
$m
190.3
2,189.5
3,939.9
42.8
531.9
4,514.6
6,704.1
259.5
259.5
–
0.5
0.5
259.5
260.0
–
–
–
–
1,000.3
1,000.3
1,259.8
–
–
–
0.5
–
1,000.3
1,000.3
1,260.3
(6.6)
(13.8)
–
–
–
–
–
–
(4.6)
4.8
–
–
–
–
–
–
(13.8)
(20.4)
(4.6)
(4.6)
4.8
4.8
(128.1)
(128.1)
–
(293.0)
(293.0)
(421.1)
(6.6)
–
(128.1)
(134.7)
(13.8)
0.2
(293.0)
(306.6)
(441.3)
1,984.0
9.1
321.7
2,314.8
3,926.1
43.0
1,239.2
5,208.3
7,523.1
Opening balance as at
1 July 2016
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,
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 2017
1,984.0
–
–
–
142.7
–
–
–
16
7
321.7
2,314.8
3,926.1
43.0
1,239.2
5,208.3
7,523.1
9.1
–
217.4
217.4
(2.2)
–
(2.2)
(2.2)
217.4
215.2
–
–
–
–
1,046.8
1,046.8
1,264.2
–
–
–
(2.2)
–
1,046.8
1,046.8
1,262.0
–
–
–
–
–
–
–
142.7
349.6
–
–
–
(7.4)
6.2
–
–
–
–
–
–
349.6
492.3
(7.4)
(7.4)
6.2
6.2
(111.9)
(111.9)
–
(339.8)
(339.8)
(451.7)
142.7
–
(111.9)
30.8
349.6
(1.2)
(339.8)
8.6
39.4
2,126.7
6.9
427.2
2,560.8
4,275.7
41.8
1,946.2
6,263.7
8,824.5
54
55
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Dexus Annual Report 2017 For the year ended 30 June 2017
Consolidated Statement of Cash Flows
Note
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 inventories
Payments for inventory
Net cash inflow/(outflow) from operating activities
21
Cash flows from investing activities
Proceeds from sale of investment properties
Payments for capital expenditure on investment properties
Payments for investments accounted for using the equity method
Transaction costs paid
Payments for acquisition of investment properties
Payments for plant and equipment
Payments for intangibles
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Proceeds from loan with related party
Repayment of 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
Cash and cash equivalents at the end of the year
2017
$m
751.9
(298.9)
0.6
(129.9)
237.6
(53.1)
222.0
(73.1)
657.1
423.9
(139.1)
(69.8)
–
(187.0)
(3.0)
(7.1)
17.9
2016
$m
747.2
(315.8)
0.6
(137.3)
213.2
(8.4)
198.0
(33.8)
663.7
6.5
(158.0)
(418.1)
(5.9)
(329.7)
(7.6)
(9.1)
(921.9)
3,155.1
(4,052.7)
3,082.8
(2,364.0)
167.1
(18.1)
–
492.3
(7.4)
(408.2)
(671.9)
3.1
18.1
21.2
–
–
(20.4)
–
(4.6)
(430.5)
263.3
5.1
13.0
18.1
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
56
57
Financial Report About This Report
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.
Basis of preparation
These General Purpose Financial Statements have been prepared:
- for a for-profit entity;
- in accordance with the requirements of the Constitutions of the
entities within the Group, the Corporations Act 2001, Australian
Accounting Standards and other authoritative pronouncements
of the Australian Accounting Standards Board and International
Financial Reporting Standards (IFRS);
- in Australian dollars with all values rounded in the nearest
tenth of a million dollars in accordance with ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191,
unless otherwise stated.
- on a going concern basis;
- using historical cost conventions except for investment
properties, investment properties within equity accounted
investments, 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; and
- using consistent accounting policies in line with those of the
previous financial year and corresponding interim reporting
period, unless otherwise stated.
Dexus 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. DDF is the parent entity and deemed
acquirer of DIT, DOT and DXO. 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.
The Group has unutilised facilities of $1,060.5 million
(2016: $411.9 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 2017 of $181.2 million
(2016 surplus: $177.0 million). The deficiency is primarily driven by the
provision for distribution and the related parties loan (refer to note 14).
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
Investment properties
Note 10
Inventories
Note 12 (b)
Interest bearing liabilities
Note 12 (c)
Derivative financial instruments
Note 19
Intangible assets
Note 22
Security-based payment
Page 69
Page 76
Page 79
Page 83
Page 89
Page 92
Principles of consolidation
These consolidated Financial Statements incorporate the assets,
liabilities and results of all subsidiaries as at 30 June 2017.
(a) 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.
(b) 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.
(c) Employee share trust
The Group has formed a trust to administer the Group’s
security-based employee benefits. The employee share trust is
consolidated as the substance of the relationship is that the trust
is controlled by the Group.
56
57
Dexus Annual Report 2017 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.
As at 30 June 2017, the Group had no investments in
foreign operations.
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.
New accounting standards and interpretations
Certain new accounting standards and interpretations have been
published that are not mandatory for the 30 June 2017 reporting
period. The Group’s assessment of the impact of these new
standards and interpretations is set out below:
AASB 9 Financial Instruments (effective application for the
Group is 1 July 2018).
AASB 9 addresses the classification, measurement and de-
recognition of financial assets and financial liabilities and
introduces new rules for hedge accounting and impairment of
financial assets. The Group intends to apply the standard from 1
July 2018. It is not expected that the application of this standard
will have an impact on any of the amounts recognised in the
Financial Statements but will require the disclosure of additional
information.
The notes are organised into the following sections:
AASB 15 Revenue from Contracts with Customers (effective
application for the Group is 1 July 2018).
AASB 15 is based on the principle that revenue is recognised
when control of a good or service is transferred to a customer. It
contains a single model that applies to contracts with customers
and two approaches to recognising revenue: at a point in time or
over time. The model features a contract–based five-step analysis
of transactions to determine whether, how much and when
revenue is recognised. The Group’s revenue is largely comprised
of income under leases (see below), sales of property inventory,
management fees and construction services.
- In situations where the Group sells property on completion of
construction, it is expected that revenue will continue to be
recognised on settlement.
- In situations where the Group constructs property on customer
owned land, it is expected that revenue recognition using
percentage of completion will continue to be applied.
- Where the Group earns responsible entity and asset
management fees, the fees are typically based and calculated
on percentage of total tangible assets of the Fund and will
continue to be recognised monthly over the duration of the
management agreements. No performance fees are typically
earned by the Group.
The Group intends to apply the standard from 1 July 2018 and is in
the process of assessing any implication of this new standard to its
operations and financial results.
AASB 16 Leases (effective application for the Group is 1 July 2019).
AASB 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases. This standard will
predominantly affect lessees, bringing all major leases on balance
sheet. AASB 16 will not significantly affect the accounting by
lessor. In 2017, revenue recognised from leases was approximately
$533.2 million. The accounting for this lease income is not
expected to change with the adoption of the new standard. The
Group intends to apply the standard from 1 July 2019.
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.
Group performance
Property portfolio assets
Capital and financial
risk management and
working capital
Other disclosures
1. Operating segments
2. Property revenue and
expenses
8.
9.
Investment properties
12. Capital and financial risk
19.
Intangible assets
Investments accounted for
using the equity method
management
20. Audit, taxation and
13. Interest bearing liabilities
transaction service fees
3. Management operations,
10. Inventories
14. Loans with related parties
11. Non-current assets
classified as held for sale
15. Commitments and
contingencies
21. Reconciliation of cash flows
from operating activities
22. Security-based payment
corporate and
administration expenses
4. Finance costs
5. Taxation
6. Earnings per unit
7. Distributions paid and
payable
58
58
16. Contributed equity
23. Related parties
17. Reserves
18. Working capital
24. Parent entity disclosures
25. Change in
accounting policy
26. Subsequent events
59
59
About This ReportFinancial Report Group Performance
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.
Note 1 Operating segments
Description of segments
The Group’s operating segments have been identified based on the sectors analysed within the management reports reviewed 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
Domestic office space with any associated retail space; as well as car parks and office developments.
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.
58
58
59
59
Dexus Annual Report 2017 Group Performance
Note 1 Operating segments continued
30 June 2017
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses & property management salaries
Management operations expenses
Corporate and administration expenses
Development costs
Interest revenue
Finance costs
Incentive amortisation and rent straight-line
FFO tax expense
Rental guarantee and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Net fair value gain/(loss) of derivatives
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Amortisation of intangible assets
Non FFO deferred tax expense
Rental guarantee and other
Net profit/(loss) attributable to stapled security holders
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
60
Office
$m
Industrial
$m
639.4
137.6
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
–
–
639.4
(161.5)
–
(12.5)
–
–
–
91.3
–
10.7
567.4
625.8
–
70.7
–
(91.3)
–
–
(12.7)
1,159.9
5,539.8
283.7
–
3,653.7
9,477.2
–
–
–
137.6
(28.5)
–
(3.1)
–
–
–
8.8
–
–
114.8
78.9
–
–
–
(8.8)
–
–
–
184.9
1,629.3
13.1
–
131.7
1,774.1
–
24.9
–
36.2
61.1
(17.8)
(30.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
52.7
52.7
–
(20.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
224.3
6.7
231.0
–
(5.9)
–
(156.9)
(20.2)
48.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
211.3
211.3
–
–
–
–
–
–
–
(23.7)
–
1.1
(123.0)
–
(12.6)
0.2
(158.0)
–
(91.1)
–
87.5
–
(4.5)
(8.0)
–
–
–
–
–
–
12.9
32.6
48.0
(174.1)
12.9
32.6
(2.6)
(2.6)
2.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$m
774.4
24.9
224.3
95.6
1,119.2
(207.8)
(56.4)
(36.7)
(156.9)
1.1
(123.0)
100.1
(32.8)
10.9
617.7
704.7
(91.1)
70.7
87.5
(100.1)
(4.5)
(8.0)
(12.7)
1,264.2
7,169.1
296.8
211.3
3,785.4
11,462.6
61
Financial Report Note 1 Operating segments continued
30 June 2017
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses & property management salaries
Management operations expenses
Corporate and administration expenses
Development costs
Interest revenue
Finance costs
Incentive amortisation and rent straight-line
FFO tax expense
Rental guarantee and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Net fair value gain/(loss) of derivatives
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Amortisation of intangible assets
Non FFO deferred tax expense
Rental guarantee and other
Net profit/(loss) attributable to stapled security holders
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
60
Office
$m
Industrial
$m
639.4
137.6
639.4
(161.5)
(12.5)
–
–
–
–
–
–
–
91.3
–
10.7
567.4
625.8
–
70.7
–
(91.3)
–
–
(12.7)
1,159.9
5,539.8
283.7
–
3,653.7
9,477.2
–
–
–
137.6
(28.5)
–
(3.1)
–
–
–
–
–
8.8
114.8
78.9
(8.8)
–
–
–
–
–
–
184.9
1,629.3
13.1
–
131.7
1,774.1
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
24.9
–
36.2
61.1
(17.8)
(30.4)
–
–
–
–
–
–
–
–
–
–
52.7
52.7
–
(20.1)
–
–
–
–
–
–
–
12.9
32.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12.9
32.6
–
–
–
–
–
–
–
–
–
–
–
–
224.3
6.7
231.0
–
(5.9)
–
(156.9)
–
–
–
(20.2)
–
48.0
–
–
–
–
–
–
–
–
48.0
–
–
211.3
–
211.3
–
–
–
–
–
–
–
(23.7)
–
1.1
(123.0)
–
(12.6)
0.2
(158.0)
–
(91.1)
–
87.5
–
(4.5)
(8.0)
–
(174.1)
–
–
–
–
–
(2.6)
–
–
–
(2.6)
–
–
2.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$m
774.4
24.9
224.3
95.6
1,119.2
(207.8)
(56.4)
(36.7)
(156.9)
1.1
(123.0)
100.1
(32.8)
10.9
617.7
704.7
(91.1)
70.7
87.5
(100.1)
(4.5)
(8.0)
(12.7)
1,264.2
7,169.1
296.8
211.3
3,785.4
11,462.6
61
Dexus Annual Report 2017 Note 1 Operating segments continued
30 June 2016
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses & property management salaries
Management operations expenses
Corporate and administration expenses
Development costs
Interest revenue
Finance costs
Incentive amortisation and rent straight-line
FFO tax expense
Coupon income, rental guarantees and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Net fair value gain/(loss) of derivatives
Transcation costs
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Amortisation of intangible assets
Non FFO deferred tax expense
Coupon income, rental guarantees and other
Net profit/(loss) attributable to stapled security holders
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
62
Office
$m
Industrial
$m
632.2
126.6
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
–
–
632.2
(161.1)
–
(10.5)
–
–
–
84.0
–
22.6
567.2
769.1
–
–
15.0
–
(84.0)
–
–
(23.7)
1,243.6
4,997.4
651.2
–
3,539.7
9,188.3
–
–
–
126.6
(27.3)
–
(2.1)
–
–
–
8.9
–
–
106.1
45.3
–
–
–
–
(8.9)
–
–
–
142.5
1,422.1
–
–
101.0
1,523.1
14.3
29.3
–
24.1
–
33.5
57.6
(17.0)
(26.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46.1
46.1
–
(16.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
204.7
6.7
211.4
–
(5.5)
–
(114.3)
(27.1)
–
64.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
276.0
276.0
–
–
–
–
–
–
–
(25.4)
–
1.1
(143.1)
–
(3.2)
–
(170.6)
–
70.5
(7.1)
–
(110.8)
–
(3.3)
(13.1)
–
–
–
–
–
–
14.3
29.3
64.5
(234.4)
(1.7)
–
–
–
(1.7)
–
–
1.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$m
757.1
24.1
204.7
86.3
1,072.2
(205.4)
(48.6)
(36.3)
(114.3)
1.1
(143.1)
92.9
(30.3)
22.6
610.8
814.4
70.5
(7.1)
15.0
(110.8)
(92.9)
(3.3)
(13.1)
(23.7)
1,259.8
6,419.5
651.2
276.0
3,640.7
10,987.4
63
Group Performance continuedFinancial Report Note 1 Operating segments continued
30 June 2016
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses & property management salaries
Management operations expenses
Corporate and administration expenses
Development costs
Interest revenue
Finance costs
FFO tax expense
Incentive amortisation and rent straight-line
Coupon income, rental guarantees and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Net fair value gain/(loss) of derivatives
Transcation costs
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Amortisation of intangible assets
Non FFO deferred tax expense
Coupon income, rental guarantees and other
Net profit/(loss) attributable to stapled security holders
Investment properties
Non-current assets held for sale
Inventories
Equity accounted investment properties
Direct property portfolio
62
Office
$m
Industrial
$m
632.2
126.6
632.2
(161.1)
(10.5)
–
–
–
–
–
–
–
–
84.0
22.6
567.2
769.1
–
–
15.0
–
(84.0)
–
–
(23.7)
1,243.6
4,997.4
651.2
–
3,539.7
9,188.3
–
–
–
126.6
(27.3)
–
(2.1)
–
–
–
–
–
8.9
106.1
45.3
(8.9)
–
–
–
–
–
–
–
–
–
142.5
1,422.1
101.0
1,523.1
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
24.1
–
33.5
57.6
(17.0)
(26.3)
–
–
–
–
–
–
–
–
–
–
46.1
46.1
–
(16.8)
–
–
–
–
–
–
–
14.3
29.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14.3
29.3
–
–
–
–
–
–
–
–
–
–
–
–
204.7
6.7
211.4
–
(5.5)
–
(114.3)
–
–
–
(27.1)
–
64.5
–
–
–
–
–
–
–
–
–
64.5
–
–
276.0
–
276.0
–
–
–
–
–
–
–
(25.4)
–
1.1
(143.1)
–
(3.2)
–
(170.6)
–
70.5
(7.1)
–
(110.8)
–
(3.3)
(13.1)
–
(234.4)
–
–
–
–
–
(1.7)
–
–
–
(1.7)
–
–
1.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$m
757.1
24.1
204.7
86.3
1,072.2
(205.4)
(48.6)
(36.3)
(114.3)
1.1
(143.1)
92.9
(30.3)
22.6
610.8
814.4
70.5
(7.1)
15.0
(110.8)
(92.9)
(3.3)
(13.1)
(23.7)
1,259.8
6,419.5
651.2
276.0
3,640.7
10,987.4
63
Dexus Annual Report 2017 Note 1 Operating segments continued
Other segment information
Funds from Operations (FFO)
The Directors consider the Property Council of Australia’s (PCA) definition of FFO to be a measure that reflects the underlying
performance of the Group. FFO 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 foreign exchange (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, transaction costs, amortisation of intangible assets, rental
guarantees and coupon income.
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
Reconciliation of segment assets to the Statement of Financial Position
Direct property portfolio 1
Cash and cash equivalents
Receivables
Intangible assets
Derivative financial instruments
Plant and equipment
Prepayments and other assets 2
Total assets
2017
$m
1,119.2
(258.6)
20.5
0.6
881.7
2016
$m
1,072.2
(226.3)
19.0
0.6
865.5
2017
$m
2016
$m
11,462.6
10,987.4
21.2
81.7
309.5
322.2
16.4
56.5
12,270.1
18.1
81.9
307.1
477.1
16.5
(105.3)
11,782.8
Includes the Group’s portion of investment properties accounted for using the equity method.
1.
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.
Note 2 Property revenue and expenses
The Group’s main revenue stream is property rental revenue and is derived from holding properties as investment properties and earning
rental yields over time. 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. 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.
Property, development and fund management fee revenue is recognised as the service is delivered, in accordance with the terms of the
relevant contracts.
Rent and recoverable outgoings
Incentive amortisation
Other revenue
Total property revenue
2017
$m
533.2
(73.9)
81.3
540.6
2016
$m
555.8
(70.5)
69.6
554.9
Property expenses of $150.7 million (2016: $152.7 million) includes rates, taxes and other property outgoings incurred in relation to
investment properties.
64
65
Group Performance continuedFinancial Report 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
Total management operations, corporate and administration expenses
2017
$m
5.8
7.8
72.9
12.4
98.9
2016
$m
6.0
5.8
71.8
7.5
91.1
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.
A qualifying asset is an asset under development which takes a substantial period of time, where the works being carried out to bring
it to its intended use or sale is expected to exceed 12 months in duration. Finance costs incurred for the acquisition and construction
of a qualifying asset are capitalised to the cost of the asset for the period of time that is required to complete the asset. 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 an appropriate capitalisation rate.
Interest paid/payable
Net fair value (gain)/loss of interest rate swaps
Amount capitalised
Other finance costs
Total finance costs
2017
$m
114.0
(0.8)
(9.8)
4.7
108.1
2016
$m
127.2
47.3
(9.3)
6.1
171.3
The average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 6.25% (2016: 6.75%).
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 that 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.
Attribution managed investment trust regime
Dexus has made an election for DDF, DOT and DIT to be attribution managed investment trusts (AMITs) for the year ended 30 June 2017
and future years. The AMIT regime is intended to reduce complexity, increase certainty and minimise compliance costs for AMITs and
their investors.
64
65
Dexus Annual Report 2017 Note 5 Taxation continued
a) Income tax (expense)/benefit
Current income tax (expense)/benefit
Deferred income tax (expense)/benefit
Total income tax expense
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 before income tax
Less: profit attributed to entities not subject to tax
Profit subject to income tax
Prima facie tax expense at the Australian tax rate of 30% (2016: 30%)
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
(Non-assessable)/non-deductible items
Income tax expense
(c) Deferred tax assets
The balance comprises temporary differences attributable to:
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
2017
$m
(34.6)
(6.2)
(40.8)
1.8
(8.0)
(6.2)
2017
$m
1,305.0
(1,171.9)
133.1
(39.9)
(0.9)
(40.8)
2017
$m
11.4
1.9
13.3
11.5
–
1.8
1.8
13.3
2016
$m
(43.3)
(0.1)
(43.4)
0.7
(0.8)
(0.1)
2016
$m
1,303.2
(1,151.0)
152.2
(45.7)
2.3
(43.4)
2016
$m
9.8
1.7
11.5
10.8
(1.0)
1.7
0.7
11.5
66
67
Group Performance continuedFinancial Report (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
Charged/(credited) to the Statement of Comprehensive Income
Closing balance at the end of the year
Net deferred tax liabilities
Deferred tax assets
Deferred tax liabilities
Net deferred tax liabilities
2017
$m
–
74.9
20.9
3.4
99.2
91.2
8.0
8.0
99.2
2017
$m
13.3
99.2
85.9
2016
$m
0.3
75.0
15.5
0.4
91.2
90.4
0.8
0.8
91.2
2016
$m
11.5
91.2
79.7
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.
a) Net profit used in calculating basic and diluted earnings per unit
Profit attributable to unitholders of the Trust (parent entity)
Profit attributable to stapled security holders
b) Weighted average number of units used as a denominator
Weighted average number of units outstanding used in calculation
of basic and diluted earnings per unit
2017
$m
217.4
1,264.2
2016
$m
259.5
1,259.8
2017
No. of
securities
2016
No. of
securities
968,484,893
968,639,060
66
67
Dexus Annual Report 2017 Note 7 Distributions paid and payable
Distributions are recognised when declared.
a) Distribution to security holders
31 December (paid 28 February 2017)
30 June (payable 29 August 2017)
Total distribution to security holders
b) Distribution rate
31 December (paid 28 February 2017)
30 June (payable 29 August 2017)
Total distributions
c) Franked dividends
Opening balance at the beginning of the year
Income tax paid during the year
Franking credits utilised for payment of distribution
Closing balance at the end of the year
2017
$m
210.1
241.6
451.7
2016
$m
223.1
198.0
421.1
2017
Cents per
security
2016
Cents per
security
21.71
23.76
45.47
2017
$m
2.0
52.8
(21.4)
33.4
23.05
20.46
43.51
2016
$m
9.8
2.9
(10.7)
2.0
As at 30 June 2017, the Group had a current tax liability of $21.8 million, which will be added to the franking account balance once
payment is made.
68
68
69
69
Group Performance continuedFinancial Report Property Portfolio Assets
In this section
The following table summarises the property portfolio assets detailed in this section.
30 June 2017
Investment properties
Equity accounted investments
Inventories
Assets held for sale
Total
Note
8
9
10
11
Office
$m
5,539.8
3,653.7
33.3
283.7
Industrial
$m
1,629.3
131.7
178.0
13.1
Total
$m
7,169.1
3,785.4
211.3
296.8
9,510.5
1,952.1
11,462.6
Property portfolio 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 http://www.dexus.com/investors/investor-information
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.
68
68
69
69
Dexus Annual Report 2017 Note 8 Investment properties continued
a) Reconciliation
Note
Office
$m
Industrial
$m
Development
$m
2017
$m
2016
$m
Opening balance at the beginning of the year
4,947.8
1,398.2
6,419.5
6,207.3
Additions
Acquisitions
Lease incentives
Amortisation of lease incentives
Rent straightlining
Disposals
Transfer to non-current assets classified
as held for sale
Transfer to inventories
10
Net fair value gain/(loss) of investment
properties
Closing balance at the end of the year
63.9
62.1
63.0
(59.0)
4.9
–
–
–
18.6
116.5
17.2
(10.4)
2.7
–
(13.0)
–
73.5
34.6
–
–
–
–
(0.8)
–
–
117.1
178.6
80.2
(69.4)
7.6
(0.8)
(13.0)
–
377.1
70.7
5,459.8
1,600.5
1.5
108.8
449.3
7,169.1
121.9
344.4
89.6
(69.4)
4.5
–
(651.2)
(79.7)
452.1
6,419.5
Acquisitions
On 19 January 2017, settlement occurred on the acquisition of The Mill, located at 41-43 Bourke Road, Alexandria, NSW, for $110.2 million
excluding acquisition costs.
On 5 September 2016, settlement occurred on the acquisition of 36 Hickson Road, Sydney for $17.1 million excluding acquisition costs.
b) Valuations 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 change in the fair value of the property being the greater of 5% of the asset value, or $5.0 million.
The Group’s investment properties are required to be internally valued at least every six months at each reporting period (interim and
full-year) unless they have been independently externally valued. Internal valuations are compared to the carrying value of investment
properties at the reporting date. Where the Directors determine that 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.
70
71
Property Portfolio Assets continuedFinancial Report 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.
Class of property
Fair value hierarchy
Inputs used to measure fair value
2017
2016
Range of unobservable inputs
Office 1
Level 3
Adopted capitalisation rate
Adopted discount rate
Adopted terminal yield
Current net market rental (per sqm)
4.75% – 9.50%
6.63% – 10.50%
5.25% – 9.50%
$307 – $1,319
5.25% – 7.50%
7.00% – 8.25%
5.50% – 7.75%
$320 – $1,269
Adopted capitalisation rate
5.75% – 11.00%
6.25% – 11.00%
Industrial
Level 3
Adopted discount rate
Adopted terminal yield
Current net market rental (per sqm)
Development – Office
Level 3
Land rate (per sqm)
Development – Industrial
Level 3
Land rate (per sqm)
1. Excludes car parks, retail and other.
7.00% – 11.25%
7.75% – 12.00%
6.00% – 11.25%
6.50% – 11.25%
$38 – $431
$23,335
$35 – $445
$36 – $311
$23,335
$35 – $300
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.
- Land rate (per sqm): The land rate is the market land value per sqm.
70
71
Dexus Annual Report 2017 Note 8 Investment properties continued
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)
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
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 cash flow 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.
72
73
Property Portfolio Assets continuedFinancial Report 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 1
Grosvenor Place Holding Trust 2,3
Site 6 Homebush Bay Trust 2
Site 7 Homebush Bay Trust 2
Dexus 480 Q Holding Trust
Dexus Kings Square Trust
Dexus Office Trust Australia 5 (DOTA)
Dexus Industrial Trust Australia (DITA)
Dexus Eagle Street Pier Trust
Total assets – investments accounted for using the equity method 4
Ownership interest
2017
%
33.3
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
2016
%
33.3
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
2017
$m
319.1
143.9
166.3
385.5
33.3
44.9
366.7
214.0
2016
$m
308.1
137.9
111.2
352.9
30.7
43.1
344.1
216.1
1,985.0
1,844.8
133.2
31.9
101.7
29.6
3,823.8
3,520.2
1. The Group has exchanged and settled on the sale of its 50% interest in the office tower at 39 Martin Place, Sydney, NSW on 11 November 2016 for gross
proceeds of $160 million. These proceeds were provided to the co-owners as a non-interest bearing loan payable on demand. This loan was subsequently
repaid on 19 July 2017 upon Dexus Martin Place Trust’s settlement of MLC Centre (refer to note 14).
2. 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 are accounted for using the equity method as a result of contractual arrangements
requiring unanimous decisions on all relevant matters.
3. Grosvenor Place Holding Trust owns 50% of Grosvenor Place, at 225 George Street, Sydney, NSW. The Group’s economic interest in this property is therefore 37.5%.
4. The Group’s share of investment properties in the investments accounted for using the equity method were $3,785.4 million (2016: $3,640.7 million).
5. On 7 September 2016 DOTA disposed of 108 North Terrace, Adelaide for gross proceeds of $43.3 million, reflecting the Group’s 50% interest.
The above entities were formed in Australia and their principal activity is property investment in Australia.
72
73
Dexus Annual Report 2017 Note 9 Investments accounted for using the equity method (continued)
Dexus Office
Trust Australia
Grosvenor Place
Holding Trust
Dexus 480Q
Holding Trust
Other joint
ventures
Total
Summarised Statement of Financial Position
Current assets
Cash and cash equivalents
Non-current assets classified as held for sale
Loans with related parties
Other current assets
Total current assets
Non-current assets
Investment properties
Investments accounted for using the equity method
Other non-current assets
Total non-current assets
Current liabilities
Provision for distribution
Borrowings
Other current liabilities
Total current liabilities
Non-current liabilities
Borrowings
Total non-current liabilities
Net assets
Reconciliation of carrying amounts:
Opening balance at the beginning of the year
Additions
Share of net profit/(loss) after tax
Distributions received/receivable
Closing balance at the end of the year
Summarised Statement of Comprehensive Income
Property revenue
Property revaluations
Interest income
Gain on sale of investment properties
Finance costs
Other expenses
Net profit/(loss) for the year
74
2017
$m
15.9
–
–
4.4
20.3
2016
$m
21.8
41.8
–
5.6
69.2
1,865.8
1,695.4
231.9
0.3
213.4
0.2
2,098.0
1,909.0
21.3
74.5
26.5
122.3
11.0
11.0
22.5
74.0
25.8
122.3
11.1
11.1
1,985.0
1,844.8
385.5
352.9
366.7
344.1
1,086.6
978.4
3,823.8
3,520.2
1,844.8
1,546.3
24.3
264.7
(148.8)
158.0
287.3
(146.8)
1,985.0
1,844.8
151.9
166.6
0.4
–
(5.0)
(49.2)
264.7
147.0
181.1
0.4
14.0
(7.7)
(47.5)
287.3
385.0
353.7
366.5
343.8
930.5
992.4
3,547.8
3,385.3
385.0
353.7
366.6
343.8
930.6
992.5
3,780.2
3,599.0
2017
$m
2.1
–
–
0.7
2.8
–
–
–
–
2.3
2.3
–
–
352.9
9.9
40.5
(17.8)
385.5
21.0
24.6
0.1
–
–
(5.2)
40.5
2016
$m
0.9
–
–
1.0
1.9
–
–
–
–
2.7
2.7
–
–
303.3
13.0
51.7
(15.1)
352.9
18.9
37.5
–
–
–
(4.7)
51.7
2017
$m
0.2
–
–
1.1
1.3
–
0.1
–
–
1.2
1.2
–
–
344.1
5.2
34.6
(17.2)
366.7
24.1
17.8
–
–
–
(7.3)
34.6
2016
$m
1.0
–
–
2.0
3.0
–
–
–
–
2.7
2.7
–
–
149.7
139.6
68.9
(14.1)
344.1
2.8
68.2
–
–
–
(2.1)
68.9
2017
$m
10.0
6.0
149.0
20.5
185.5
–
0.1
4.8
–
24.7
29.5
–
–
978.4
33.9
130.6
(56.3)
1,086.6
61.6
38.1
0.1
48.4
–
(17.6)
130.6
2016
$m
6.2
–
–
5.1
11.3
–
0.1
3.0
–
22.4
25.4
–
–
796.6
111.8
117.6
(47.6)
978.4
57.6
75.5
0.1
–
–
(15.6)
117.6
2017
$m
28.2
6.0
149.0
26.7
209.9
231.9
0.5
26.1
74.5
54.7
155.3
11.0
11.0
258.6
247.1
0.6
48.4
(5.0)
(79.3)
470.4
3,520.2
2,795.9
73.3
470.4
(240.1)
422.4
525.5
(223.6)
3,823.8
3,520.2
2016
$m
29.9
41.8
–
13.7
85.4
213.4
0.3
25.5
74.0
53.6
153.1
11.1
11.1
226.3
362.3
0.5
14.0
(7.7)
(69.9)
525.5
75
Property Portfolio Assets continuedFinancial Report Note 9 Investments accounted for using the equity method (continued)
Dexus Office
Trust Australia
Grosvenor Place
Holding Trust
Dexus 480Q
Holding Trust
Other joint
ventures
Total
Investments accounted for using the equity method
Summarised Statement of Financial Position
Non-current assets classified as held for sale
Current assets
Cash and cash equivalents
Loans with related parties
Other current assets
Total current assets
Non-current assets
Investment properties
Other non-current assets
Total non-current assets
Current liabilities
Provision for distribution
Borrowings
Other current liabilities
Total current liabilities
Non-current liabilities
Borrowings
Total non-current liabilities
Net assets
Reconciliation of carrying amounts:
Opening balance at the beginning of the year
Additions
Share of net profit/(loss) after tax
Distributions received/receivable
Closing balance at the end of the year
Summarised Statement of Comprehensive Income
Property revenue
Property revaluations
Interest income
Gain on sale of investment properties
Finance costs
Other expenses
Net profit/(loss) for the year
2017
$m
2.1
–
–
0.7
2.8
2016
$m
0.9
–
–
1.0
1.9
2017
$m
0.2
–
–
1.1
1.3
2016
$m
1.0
–
–
2.0
3.0
2017
$m
10.0
6.0
149.0
20.5
185.5
2016
$m
6.2
–
–
5.1
11.3
2017
$m
28.2
6.0
149.0
26.7
209.9
2016
$m
29.9
41.8
–
13.7
85.4
1,865.8
1,695.4
385.0
353.7
366.5
343.8
930.5
992.4
3,547.8
3,385.3
–
–
–
–
–
0.1
–
–
–
0.1
–
0.1
231.9
0.5
213.4
0.3
2,098.0
1,909.0
385.0
353.7
366.6
343.8
930.6
992.5
3,780.2
3,599.0
–
–
2.3
2.3
–
–
–
–
2.7
2.7
–
–
–
–
1.2
1.2
–
–
–
–
2.7
2.7
–
–
4.8
–
24.7
29.5
–
–
3.0
–
22.4
25.4
–
–
26.1
74.5
54.7
155.3
11.0
11.0
25.5
74.0
53.6
153.1
11.1
11.1
1,985.0
1,844.8
385.5
352.9
366.7
344.1
1,086.6
978.4
3,823.8
3,520.2
352.9
9.9
40.5
(17.8)
385.5
21.0
24.6
0.1
–
–
(5.2)
40.5
303.3
13.0
51.7
(15.1)
352.9
18.9
37.5
–
–
–
(4.7)
51.7
344.1
5.2
34.6
(17.2)
366.7
24.1
17.8
–
–
–
(7.3)
34.6
149.7
139.6
68.9
(14.1)
344.1
2.8
68.2
–
–
–
(2.1)
68.9
978.4
33.9
130.6
(56.3)
1,086.6
61.6
38.1
0.1
48.4
–
(17.6)
130.6
796.6
111.8
117.6
(47.6)
978.4
57.6
75.5
0.1
–
–
(15.6)
117.6
3,520.2
2,795.9
73.3
470.4
(240.1)
422.4
525.5
(223.6)
3,823.8
3,520.2
258.6
247.1
0.6
48.4
(5.0)
(79.3)
470.4
226.3
362.3
0.5
14.0
(7.7)
(69.9)
525.5
2017
$m
15.9
–
–
4.4
20.3
231.9
0.3
21.3
74.5
26.5
122.3
11.0
11.0
151.9
166.6
0.4
–
(5.0)
(49.2)
264.7
2016
$m
21.8
41.8
–
5.6
69.2
213.4
0.2
22.5
74.0
25.8
122.3
11.1
11.1
147.0
181.1
0.4
14.0
(7.7)
(47.5)
287.3
1,844.8
1,546.3
24.3
264.7
(148.8)
158.0
287.3
(146.8)
1,985.0
1,844.8
74
75
Dexus Annual Report 2017 Note 10 Inventories
Development properties held for repositioning, construction and sale are recorded at the lower of cost or 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.
Development revenue includes proceeds on the sale of inventory and revenue earned through the provision of development services
on assets sold as inventory. Revenue earned on the provision of development services is recognised using the percentage complete
method. The stage of completion is measured by reference to costs incurred to date as a percentage of estimated total costs for each
contract. Where the project result can be reliably estimated, development services revenue and associated expenses are recognised
in profit or loss. Where the project result cannot be reliably estimated, profits are deferred and the difference between consideration
received and expenses incurred is carried forward as either a receivable or payable. Development services revenue and expenses are
recognised immediately when the project result can be reliably estimated.
Transfers from investment properties to inventories occur when there is a change in intention regarding the use of the property from an
intention to hold for rental income or capital appreciation purposes to an intention to develop and sell. The transfer price is recorded as
the fair value of the property as at the date of transfer. Development activities will commence immediately after they transfer.
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) Development properties held for sale
Current assets
Development properties held for sale
Total current assets – inventories
Non-current assets
Development properties held for sale
Total non-current assets – inventories
Total assets – inventories
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
2017
$m
–
–
211.3
211.3
211.3
2017
$m
276.0
–
(148.3)
83.6
211.3
2016
$m
74.2
74.2
201.8
201.8
276.0
2016
$m
274.8
79.7
(114.3)
35.8
276.0
Note
8
Disposals
On 1 July 2016, settlement occurred on the sale of 57-65 Templar Road, Erskine Park, NSW for gross proceeds of $50.0 million.
On 31 January 2017, settlement occurred on the sale of 79-99 St Hilliers Road, Auburn, NSW for gross proceeds of $65.0 million.
On 31 May 2017, settlement occurred on the sale of 105 Phillip Street, Parramatta, NSW for gross proceeds of $229.0 million. The proceeds
are to be received between two tranches, with $107.0 million having been received in FY17 and the balance expected to be received in
FY18. The FY17 proceeds includes $100.0 million of proceeds on sale of inventory and $7.0 million of development services revenue.
76
77
Property Portfolio Assets continuedFinancial Report 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 2017, the balance relates to:
- 30-68, Tarras Road, Altona North with a carrying value of $13.1 million; and
- the Group’s remaining 50% share of Southgate Complex at 3 Southgate Avenue, Melbourne. The carrying value of $283.7 million
represents the cash price equivalent at 30 June 2017 of the deferred gross proceeds of $289.0 million.
Disposals
On 29 July 2016, settlement occurred on the sale of The Zenith, 821 Pacific Highway, Chatswood, NSW for gross proceeds of $139.5 million.
On 4 November 2016, the Group sold 50% of its interest in Southgate Complex at 3 Southgate Avenue, Melbourne for gross proceeds of
$289.0 million.
76
77
Dexus Annual Report 2017 Capital and financial risk management and working capital
In this section
The Group’s overall risk management program focuses on reducing volatility from impacts of movements in 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 security holders (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, loans with related parties in note 14 and Commitments and contingencies in note 15;
- Equity: Contributed equity in note 16 and Reserves and retained profits in note 17.
Note 18 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. 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 liabilities 1
Total tangible assets 2
Gearing ratio
Gearing ratio (look-through) 3
2017
$m
2,486.8
11,638.5
21.4%
22.1%
2016
$m
3,327.9
10,998.6
30.3%
30.7%
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 2017 and 2016 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.
78
79
Financial Report DWPL, a wholly owned entity, has been issued with an AFSL as it is the Responsible Entity for 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. Dexus Wholesale Funds Limited (DWFL), a wholly owned entity, has been
issued with an AFSL as it is the Responsible Entity for Dexus Wholesale Investment Fund (DWIF). 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 and interest rate options (together interest rate derivatives);
- cross currency interest rate swaps; and
- foreign exchange contracts.
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 due to movements in variable interest rates.
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 derivatives and cross currency interest rate swap agreements to manage the
associated interest rate risk. The Group hedges the interest rate and currency risk on 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 2017, 81% (2016: 71%) of the interest bearing liabilities of the Group were hedged. The average hedged percentage for the
financial year was 65% (2016: 71%).
Interest rate derivatives require settlement of net interest receivable or payable generally 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
derivatives contracts are settled on a net basis. The net notional amount of average fixed rate debt and interest rate derivatives 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 rate debt and swaps
(A$ equivalent)
Hedge rate (%)
June 2018
$m
June 2019
$m
June 2020
$m
June 2021
$m
June 2022
$m
1,066.3
895.5
788.5
736.5
674.0
1,368.3
1,521.6
1,287.5
730.0
273.3
2,434.6
2.97%
2,417.1
2.96%
2,076.0
2.81%
1,466.5
2.67%
947.3
2.56%
1. Amounts do not include fixed rate debt that has been swapped to floating rate debt through cross currency swaps.
78
79
Dexus Annual Report 2017 Note 12 Capital and financial risk management continued
b) Financial risk management continued
i) Market risk continued
Interest rate risk continued
Sensitivity analysis on interest expense
The table below shows the impact on the Group’s net interest expense of a 50 basis point movement in market interest rates.
The sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Group’s floating rate debt and
derivative cash flows on average during the financial year. Net interest expense is only sensitive to movements in market rates to the
extent that floating rate debt is not hedged.
+/- 0.50% (50 basis points)
Total A$ equivalent
2017
(+/-)
$m
6.5
6.5
2016
(+/-)
$m
4.6
4.6
The movement in interest expense is proportional to the movement in interest rates.
Sensitivity analysis on fair value of interest rate derivatives
The sensitivity analysis on interest rate derivatives below shows the effect on net profit or loss of changes in the fair value of interest rate
derivatives for a 50 basis point movement in short-term and long-term market interest rates. The sensitivity on fair value arises from the
impact that changes in market rates will have on the valuation of the interest rate derivatives.
The fair value of interest rate derivatives is calculated as the present value of estimated future cash flows on the instruments. Although
interest rate derivatives are transacted for the purpose of providing the Group with an economic hedge, the Group has elected not
to apply hedge accounting to these instruments. Accordingly, gains or losses arising from changes in the fair value are reflected in the
profit or loss.
+/- 0.50% (50 basis points)
Total A$ equivalent
2017
(+/-)
$m
16.2
16.2
2016
(+/-)
$m
(24.3)
(24.3)
Sensitivity analysis on fair value of cross currency swaps
The sensitivity analysis on cross currency interest rate swaps below shows the effect on net profit or loss of changes in the fair value of
a 50 basis point increase and decrease in market rates. The sensitivity on fair value arises from the impact that changes in short-term
and long-term market rates will have on the valuation of the cross currency swaps. The sensitivity analysis excludes the impact of hedge
accounted cross currency swaps.
+/- 0.50% (50 basis points)
Total A$ equivalent
US$ (A$ equivalent)
2017
(+/-)
$m
6.4
6.4
2016
(+/-)
$m
12.4
12.4
Foreign currency risk
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 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.
80
81
Capital and financial risk management and working capital continuedFinancial Report 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.
2017
2016
Within
one
year
$m
Between
one and
two years
$m
Between
two and
five years
$m
After
five
years
$m
Within
one
year
$m
Between
one and
two years
$m
Between
two and
five years
$m
Payables
(162.1)
–
–
–
(116.8)
–
–
Interest bearing liabilities & interest
After
five
years
$m
–
Fixed interest rate liabilities
(111.1)
(304.1)
(725.6)
(1,732.8)
(373.4)
(140.3)
(818.3)
(1,631.3)
Floating interest rate liabilities
(195.6)
(526.5)
(1,095.3)
(259.0)
(80.4)
(449.3)
(865.9)
–
Total interest bearing liabilities
& interest 1
Derivative financial instruments
Derivative assets
Derivative liabilities
Total net derivative financial
instruments 2
(306.7)
(830.6)
(1,820.9)
(1,991.8)
(453.8)
(589.6)
(1,684.2)
(1,631.3)
58.1
58.1
486.3
1,130.5
(44.5)
(45.6)
(444.5)
(1,082.0)
51.1
(85.6)
41.7
(42.7)
758.9
1,016.0
(338.9)
(1,834.4)
13.6
12.5
41.8
48.5
(34.5)
(1.0)
420.0
(818.4)
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 15(b) for financial guarantees.
80
81
Dexus Annual Report 2017 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 an 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 International Swaps and Derivatives Association (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 one counterparty. As a result, there is no significant concentration of credit risk for financial instruments. The maximum
exposure to credit risk at 30 June 2017 is the carrying amounts of financial assets recognised on the Statement of Financial Position.
The Group is exposed to credit risk on trade receivable balances. The Group has a policy to continuously assess and monitor the
credit quality of trade debtors on an ongoing basis. Given the historical profile and exposure of the trade receivables, it has been is
determined that no significant concentrations of credit risk exists for trade receivables balances. The maximum exposure to credit risk
at 30 June 2017 is the carrying amounts of the trade receivables recognised on the Statement of Financial Position.
iv) Fair value
As at 30 June 2017 and 30 June 2016, the carrying amounts of financial assets and liabilities are held at fair value excluding interest
bearing liabilities which have a carrying amount of $2,708.2 million and a fair value of $2,799.4 million. 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, excluding cash, 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.
Key assumptions: fair value of derivatives and interest bearing liabilities
The fair value of derivatives and interest bearing liabilities has been determined based on 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.
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. No financial assets and liabilities are currently held under netting arrangements.
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.
82
83
Capital and financial risk management and working capital continuedFinancial Report 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 regularly 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 derivatives, 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.
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 derivative contracts
Cross currency swap contracts
Total current assets – derivative financial instruments
Non-current assets
Interest rate derivative contracts
Cross currency swap contracts
Total non-current assets – derivative financial instruments
Current liabilities
Interest rate derivative contracts
Total current liabilities – derivative financial instruments
Non-current liabilities
Interest rate derivative contracts
Cross currency swap contracts
Total non-current liabilities – derivative financial instruments
Net derivative financial instruments
2017
$m
2.2
13.3
15.5
9.7
297.0
306.7
7.8
7.8
37.8
11.3
49.1
265.3
2016
$m
9.4
29.2
38.6
2.7
435.8
438.5
4.4
4.4
106.3
–
106.3
366.4
83
82
Dexus Annual Report 2017 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(c) 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
2017
$m
2016
$m
–
–
–
–
–
(a), (b )
1,427.5
(c)
(d)
(e)
556.0
100.0
624.7
2,708.2
(10.4)
2,697.8
2,697.8
55.2
50.0
210.8
316.0
316.0
1,561.5
1,356.0
100.0
365.9
3,383.4
(12.6)
3,370.8
3,686.8
Type of facility
Notes
Currency
Security
Maturity Date
Utilised 1
$m
Facility Limit
$m
US senior notes (144A)
US Senior notes (USPP) 1
US Senior notes (USPP)
Medium term notes
Commercial paper
(a)
(b)
(b)
(e)
(d)
US$
US$
A$
A$
A$
Unsecured
Unsecured
Unsecured
Mar-21
Jul-23 to Jul-28
Jun-28
Unsecured
Sep-18 to May-27
Unsecured
Sep-18
Multi-option revolving credit facilities
(c) Multi Currency
Unsecured
Jan-18 to Jun-24
Total
Bank guarantee in place
Unused at balance date
324.5
975.0
100.0
624.7
100.0
1,650.0
3,774.2
324.5
975.0
100.0
624.7
100.0
556.0
2,680.2
33.5
1,060.5
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 its 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$325.0 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.
84
85
Capital and financial risk management and working capital continuedFinancial Report b) US senior notes (USPP)
This includes a total of US$750.0 million and A$100.0 million (A$1,075.0 million) of US senior notes with a weighted average maturity of August
2026. US$750.0 million is designated as an accounting hedge using cross currency interest rate swaps with the same notional value.
c) Multi-option revolving credit facilities
This includes 20 facilities maturing between January 2018 and June 2024 with a weighted average maturity of August 2020.
A$33.5 million is utilised as bank guarantees for AFSL requirements and other business requirements including developments. A further
A$325.0 million of revolving credit facilities were executed in July 2017, resulting in no change to the weighted average maturity.
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 September 2018. The standby facility has same day availability.
e) Medium term notes
This includes a total of A$620.0 million of Medium Term Notes with a weighted average maturity of April 2023. The remaining A$4.7 million
is the net premium on the issue of these instruments. A further $60.0 million of Medium Term Notes were issued in July 2017 with a maturity
of November 2022, resulting in no change to the weighted average maturity.
Note 14 Loans with related parties
This is a non-interest bearing loan provided by Dexus Martin Place Trust, which is co-owned by the Group and DWPF. The balance of this
loan represents the Group’s share of the proceeds from the disposal of 39 Martin Place, Sydney less the deposit paid for MLC Centre,
19 Martin Place, Sydney. This loan was subsequently repaid on 19 July 2017 upon Dexus Martin Place Trust’s settlement of MLC Centre.
Note 15 Commitments and contingencies
a) Commitments
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
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
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
2017
$m
122.8
24.6
55.4
202.8
2017
$m
5.8
20.0
1.6
27.4
2016
$m
179.4
2.0
13.7
195.1
2016
$m
4.4
18.5
3.4
26.3
2017
$m
487.8
1,400.4
716.6
2,604.8
2016
$m
471.6
1,432.0
751.9
2,655.5
85
84
Dexus Annual Report 2017 Note 15 Commitments and contingencies continued
b) Contingencies
DDF, together with DIT, DOT and DXO, is a guarantor of A$3,774.2 million of interest bearing liabilities (refer to 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 $33.5 million, comprising $32.1 million held to comply with the terms of the Australian Financial
Services Licences (AFSL) and $1.4 million largely 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 16 Contributed equity
Number of securities on issue
Opening balance at the beginning of the year
Issue of additional equity
Buy-back of contributed equity
Closing balance at the end of the year
2017
No. of
securities
2016
No. of
securities
967,947,692
970,806,349
49,019,608
–
–
(2,858,657)
1,016,967,300
967,947,692
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.
Note 17 Reserves
Asset revaluation reserve
Cash flow hedge reserve
Security-based payments reserve
Treasury securities reserve
Total reserves
Movements:
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
2017
$m
42.7
6.9
10.8
(11.7)
48.7
42.7
42.7
9.1
(2.2)
6.9
2016
$m
42.7
9.1
7.4
(7.1)
52.1
42.7
42.7
8.6
0.5
9.1
86
87
Capital and financial risk management and working capital continuedFinancial Report 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
2017
$m
7.4
(2.8)
6.2
10.8
(7.1)
2.8
(7.4)
(11.7)
2016
$m
8.1
(5.5)
4.8
7.4
(8.0)
5.5
(4.6)
(7.1)
Nature and purpose of reserves
Asset revaluation reserve
The asset revaluation reserve is used to record the fair value adjustment arisiwng 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.
Security-based payment reserve
The security-based payment reserve is used to recognise the fair value of performance rights to be issued under the Deferred Short
Term Incentive Plans (DSTI) and the Long Term Incentive Plans (LTI). Refer to note 22 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 Deferred Short Term
Incentive Plans (DSTI) and the Long Term Incentive Plans (LTI). As at 30 June 2017, DXS held 1,509,142 stapled securities which includes
acquisitions of 802,052 and unit vesting of 423,961 (2016: 1,129,557).
Note 18 Working capital
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
2017
$m
19.4
–
19.4
26.3
22.0
14.0
62.3
81.7
2016
$m
19.2
(0.5)
18.7
25.5
22.3
15.4
63.2
81.9
87
86
Dexus Annual Report 2017 Note 18 Working capital continued
c) Other current assets
Prepayments
Other
Total other current assets
d) Payables
Trade creditors
Accruals
Accrued capital expenditure
Prepaid income
Accrued interest
Other payables
Total payables
2017
$m
12.6
0.7
13.3
2017
$m
32.3
12.6
70.0
15.7
26.9
4.6
162.1
2016
$m
11.1
–
11.1
2016
$m
34.5
12.5
20.1
15.6
33.0
1.1
116.8
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 22.
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
2017
$m
241.6
24.5
266.1
2017
$m
198.0
451.7
(408.1)
241.6
2016
$m
198.0
22.8
220.8
2016
$m
207.4
421.1
(430.5)
198.0
A provision for distribution has been raised for the period ended 30 June 2017. This distribution is to be paid on 29 August 2017.
88
88
89
89
Capital and financial risk management and working capital continuedFinancial Report 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 19 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 $4.1 million (2016: $4.6 million)) are measured at cost and amortised using the straight-line method over
their estimated remaining useful lives of 16 years. Management rights that are deemed to have an indefinite life are held at a value of
$286.0 million (2016: $286.0 million).
Software is measured at cost and amortised using the straight-line method over its estimated useful life, expected to be three to five
years.
Management rights
Opening balance at the beginning of the year
Amortisation charge
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
Software
Opening balance at the beginning of the year
Additions
Amortisation charge
Closing balance at the end of the year
Cost
Accumulated amortisation
Cost – Fully amortised assets written off
Accumulated amortisation – Fully amortised assets written off
Total software
Total non-current intangible assets
2017
$m
290.6
(0.5)
290.1
294.4
(4.3)
290.1
1.3
(0.1)
1.2
3.0
(1.8)
1.2
15.2
7.3
(4.3)
18.2
36.8
(18.6)
(10.2)
10.2
18.2
309.5
2016
$m
290.8
(0.2)
290.6
294.4
(3.8)
290.6
1.4
(0.1)
1.3
3.0
(1.7)
1.3
9.2
9.1
(3.1)
15.2
29.5
(14.3)
–
–
15.2
307.1
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).
88
88
89
89
Dexus Annual Report 2017 Note 19 Intangible assets continued
During the 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.
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%–20.0% (2016: 10.0%–16.7%) was used incorporating an appropriate risk premium for
a management business.
- Cash flows have been discounted at 9.0% (2016: 9.0%) based on externally published weighted average cost of capital for an
appropriate peer group plus an appropriate premium for risk. A 1.0% (2016: 1.0%) decrease in the discount rate would increase the
valuation by $18.6 million (2016: $15.3 million).
Note 20 Audit, taxation and transaction service 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 – sustainability assurance
Audit fees paid to PwC
Taxation fees
Fees paid to PwC Australia and New Zealand
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 IOF transaction
Fees paid to PwC Australia – other
Total transaction services fees paid to PwC
Total audit, taxation and transaction services fees paid to PwC
2017
$'000
2016
$'000
1,357
105
209
85
1,756
20
20
1,776
–
25
25
1,801
1,381
91
233
68
1,773
298
298
2,071
239
105
344
2,415
90
91
Other disclosures continuedFinancial Report Note 21 Reconciliation of cash flows from operating activities
Reconciliation of net profit after income tax to net cash inflows from operating activities:
Net profit/(loss) for the year
Capitalised interest
Depreciation and amortisation
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
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
2017
$m
2016
$m
1,264.2
1,259.8
(9.8)
7.8
(457.6)
(470.4)
101.0
(9.8)
3.9
(23.4)
(87.5)
–
(0.5)
237.6
11.4
(1.6)
67.3
(0.4)
20.4
9.2
(15.5)
7.5
3.3
657.1
(9.3)
5.8
(452.1)
(525.5)
(106.4)
35.8
4.3
(1.0)
110.8
7.1
0.3
213.2
–
1.5
80.5
(7.4)
7.3
1.2
34.7
3.2
(0.1)
663.7
91
90
Dexus Annual Report 2017
Note 22 Security-based payment
The DXFM Board has approved a grant of performance rights to DXS stapled securities to eligible participants. Awards, via the 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. The fair value of the performance rights is adjusted to reflect market vesting conditions. 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 payment 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
Payment, fair value is determined independently using Binomial 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) 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 Payment, 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 2017 was 274,801 (2016: 292,995) and the fair value of
these performance rights is $10.00 (2016: $9.14) per performance right. The total security-based payment expense recognised during the
year ended 30 June 2017 was $2,655,472 (2016: $1,976,361).
b) 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 Payment, 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 2017 was 480,660 (2016: 380,963). The weighted average
fair value of these performance rights is $8.04 (2016: $6.69) per performance right. The total security-based payment expense recognised
during the year ended 30 June 2017 was $3,390,504 (2016: $1,116,895).
92
93
Other disclosures continuedFinancial Report Note 23 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 and the investment manager
for DITA.
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.
The Group received Responsible Entity and other Management Fees from the unlisted property funds managed by DXS during the
financial year.
Related party transactions
Transactions between the consolidated entity and related parties were made on commercial terms and conditions. All agreements with
third party funds and joint ventures are conducted on normal commercial terms and conditions.
Transactions with related parties
Responsible Entity & Asset management fee income
Property management fee income
Rent paid
Responsible Entity fees receivable at the end of each reporting year (included above)
Property management fees receivable at the end of each reporting year (included above)
Administration expenses receivable at the end of each reporting year (included above)
Key management personnel compensation
Compensation
Short-term employee benefits
Post employment benefits
Security-based payments
Total key management personnel compensation
2017
$'000
62,772
22,446
2,627
5,631
98
5,641
2017
$'000
8,967
717
3,011
12,695
2016
$'000
44,359
31,603
2,097
6,537
1,710
295
2016
$'000
8,130
235
2,456
10,821
Information regarding individual Directors’ and Senior Executives’ remuneration is provided in the Remuneration Report on
pages 32 to 48 of the Directors’ Report.
There have been no other transactions with key management personnel during the year.
92
93
Dexus Annual Report 2017 Note 24 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 – payables
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 15(b) for details of guarantees entered into by the parent entity.
c) Contingent liabilities
Refer to note 15(b) for details of the parent entity’s contingent liabilities.
2017
$m
47.7
4,079.0
84.1
1,518.4
2016
$m
609.1
3,989.7
118.7
1,674.8
2,126.6
1,984.0
6.9
427.2
2,560.7
217.4
215.2
9.1
321.8
2,314.9
259.5
260.0
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
2017
$m
1.8
1.8
2016
$m
6.2
6.2
e) Going concern
The parent entity is a going concern and its net current asset deficiency has been addressed in ‘About this Report’.
94
95
Other disclosures continuedFinancial Report Note 25 Change in accounting policy
IFRS Interpretations Committee (IFRIC) and change in accounting policy for Income Taxes
In November 2016, the IFRS Interpretations Committee (IFRIC) published a summary of its discussions following a request to clarify how
an entity determines the expected manner of recovery of an intangible asset with an indefinite useful life for measuring deferred taxes
in accordance with IAS 12 – Income Taxes. The IFRIC noted that the fact that an entity does not amortise an intangible asset with an
indefinite useful life does not mean that it has an infinite life and that the entity will recover the carrying amount of that asset only
through sale and not through use.
The benefits of the management rights with an indefinite useful life will flow to the Group on an annual basis; therefore, the carrying
amount will be recovered through use.
In response to this clarification, the Group has retrospectively changed its accounting policy for the full deferred tax liabilities recorded in
relation to its management rights.
The following table summarises the impact of this change in accounting policy on the Statement of Financial Position. This change
did not have an impact on the 2016 comparative figures reported in the Statement of Comprehensive Income and Statement of Cash
Flows. As the management rights were acquired as part of business combinations in prior years and there were prior year impairments,
corresponding adjustments have been made in retained earnings.
Impact of change in accounting policy
Increase⁄(decrease) of previously reported balances
Goodwill
Deferred income tax liabilities
Retained earnings 1
1.
Included in Security holders’ equity.
Note 26 Subsequent events
$m
–
73.2
(73.2)
Acquisitions
On 18 July 2017, settlement occurred for the acquisition of 100 Harris Street, Pyrmont for $327.5 million excluding acquisition costs.
On 19 July 2017, settlement occurred for the acquisition of MLC Centre, 19 Martin Place, Sydney for $361.3 million excluding acquisition
costs. This represents the Group’s 25% interest held through Dexus Martin Place Trust which is jointly owned by the Group and Dexus
Wholesale Property Fund (DWPF).
On 25 July 2017, the Group settled on the acquisition of 90 Mills Road, Braeside for $50.6 million excluding acquisition costs.
Disposals
On 1 August 2017, settlement occurred on the disposal of 46 Colin Street, West Perth for $16.8 million excluding disposal costs,
representing the Group’s 50% interest held through Dexus Office Trust Australia.
On 7 July 2017, the Group disposed of 30-68, Tarras Road, Altona North for $13.1 million excluding disposal costs.
On 8 August 2017, Dexus completed the Security Purchase Plan (SPP) announced on 21 June 2017 in connection with Dexus’s $500 million
institutional placement (Institutional Placement). A total of approximately $4.4 million was raised under the SPP and accordingly 439,405
new securities (New Securities) will be issued to eligible applicants on Thursday, 17 August 2017. Given that the amount raised did not exceed
the $50 million maximum, all applications will be satisfied in full. The New Securities will not be entitled to the distribution for the six months
ended 30 June 2017, but will rank equally and have full entitlement to the distribution for the six months ended 31 December 2017.
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 with in 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.
94
95
Dexus Annual Report 2017 Financial Report
Directors’ Declaration
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 53 to 95:
(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 2017 and of its performance, as represented by the results
of its operations and its 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 2017.
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 the Chief Financial Officer required by section 295A
of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
W Richard Sheppard
Chair
15 August 2017
96
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Additional Information
Top 20 security holders at 31 July 2017
Rank Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
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