Dexus (ASX:DXS)
ASX release
14 August 2019
2019 Annual Report
Dexus provides its 2019 Annual Report which will be mailed to Security holders who have elected to
receive a hard copy on 29 August 2019.
For further information please contact:
Investor Relations
Rowena Causley
+61 2 9017 1390
+61 416 122 383
rowena.causley@dexus.com
About Dexus
Media Relations
Louise Murray
+61 2 9017 1446
+61 403 260 754
louise.murray@dexus.com
Dexus is one of Australia’s leading real estate groups, proudly managing a high quality Australian property portfolio
valued at $31.8 billion. We believe that the strength and quality of our relationships is 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 $15.6 billion of office and industrial properties. We manage a further $16.2 billion of office, retail,
industrial and healthcare properties for third party clients. The group’s circa $9.3 billion development and concept
pipeline provides the opportunity to grow both portfolios and enhance future returns. With 1.7 million square metres of
office workspace across 53 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 26,000 investors
from 19 countries. With 35 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
2019
Securing opportunities.
Adding value.
Securing opportunities.
Adding value.
The 2019 financial year was an active
one for Dexus, where we have leveraged
our capabilities to secure opportunities with
embedded value that will enhance returns
for Dexus Security holders into the future.
Through our day-to-day operational
focus on leasing, funds management,
development management, customer
and sustainability we have continued
to create sustained value for our
stakeholders.
About this
report
We are in the process of redesigning our reporting
to better articulate how we deliver long-term value
for Dexus Security holders, our third party capital
partners and other key stakeholders. This report
refers to the International Integrated Reporting
Council Framework to outline our strategy, key
resources and business activities undertaken to
create sustained value. We also explore the external
factors, or key megatrends, influencing our business
model as well as identify the key risks and material
issues that could impact our business.
+
Our people are inspired and
motivated to create spaces
where people thrive, supported
by a culture that delivers
sustained value for our investors
and other stakeholders.
Dexus 2019 Annual Report
1
In this
report
Overview
FY19 highlights
About Dexus
Our purpose
Chair and CEO review
Approach
How we create value
Megatrends
Strategy
Key business activities
Key resources
Material issues and risks
Material issues
Key risks
Performance
Financial
Properties
People and capabilities
Customers and communities
Environment
Governance
Board of Directors
Directors’ report
Remuneration report
Directors’ report
Financial report
Investor information
2019 Annual
Reporting Suite
2
4
5
6
12
14
16
18
20
22
24
28
38
50
54
58
62
64
68
68
90
95
157
Dexus presents its 2019 Annual Reporting Suite
for the year ended 30 June 2019, available at
www.dexus.com/investor-centre
Annual
Report
2019
Securing opportunities.
Adding value.
Financial
Statements
2019
The Financial Statements
for Dexus Industrial Trust,
Dexus Office Trust and
Dexus Operations Trust.
2019 Annual Report
An integrated summary of the value created
across Dexus’s key resources and the
Consolidated Financial report.
2019 Financial Statements
The Financial Statements for Dexus Industrial
Trust, Dexus Office Trust and Dexus Operations
Trust, which should be read in conjunction
with the 2019 Annual Report.
2019 Sustainability Performance Pack
Comprehensive sustainability reporting that
supports the results outlined in the 2019
Annual Report.
Annual
Results
Presentation
2019
A summary of Dexus’s
operational and
financial performance.
2019 Annual Results Presentation
A summary of Dexus’s operational and
financial performance.
2019 Property Synopsis
An overview of Dexus’s property portfolio.
The 2019 Annual Reporting Suite is available in
hard copy by email request to ir@dexus.com or
by calling +61 1800 819 675.
www.dexus2019.reportonline.com.au
2
Overview / FY19 highlights
FY19 highlights
Throughout this report we detail the key
resources and relationships we rely on
to create value now and into the future.
Financial
Maintaining strong financial
performance by delivering
on our strategy
p.28
Properties
Our strategy is underpinned
by our business activities of
developing, managing and
transacting properties
p.38
5.0% 5.5%
Growth in
distribution per security
Growth in
AFFO per security
FY18: 5.1% growth
FY18: 5.1% growth
10.1%
Return on Contributed Equity
FY18: 7.6%
$1.6bn
Gross Value Added to the Australian
economy from developments completed
in FY19 and currently underway
10,149
Construction jobs supported from
developments completed in FY19
and currently underway
People and
capabilities
Attracting, retaining and
developing an engaged
workforce that delivers on
our strategy
p.50
Customers and
communities
Supporting the success of our
customers, the wellbeing of building
occupants, the strength of our local
communities and the capabilities
of our suppliers
p.54
Environment
Advancing the efficiency and
resilience of our portfolio to minimise
its environmental footprint and
mitigate climate risk
Dexus 2019 Annual Report
3
+40Employee Net Promoter Score
37%
Females in senior and
executive management roles
Progressing the 2021 target
of a minimum of 40%
FY18: 34%
+46
Customer Net Promoter Score
FY18: +32
>$1.2m
Community contribution value
FY18: $1.0m
46GWh
Contracted renewable energy to
power 50% of the base building
load for over 40 properties across
our NSW group portfolio
950,351sqm
Rated 5 star NABERS Energy or
above across our group office
portfolio (1m sqm target by 2020)
p.58
FY18: 892,000sqm
4
Overview / About Dexus
About
Dexus
$31.8bn
Total funds under
management
157
Properties
4.7m
square metres
across the group
$14bn
Market capitalisation
as at 30 June 2019
Top 50
Entity on ASX
539
Employees
Dexus is a Top 50 entity by market
capitalisation listed on the Australian
Securities Exchange (trading code: DXS)
and is supported by more than
26,000 investors from 19 countries.
With 35 years of expertise in property,
investment, development and asset
management, we have a proven track
record in managing capital and risk to
deliver superior risk-adjusted returns for
our investors.
We invest only in Australia, and directly
own $15.6 billion of office and industrial
properties. We manage a further
$16.2 billion of office, retail, industrial
and healthcare properties for our third
party capital partners. The group’s circa
$9.3 billion development and concept
pipeline provides the opportunity to grow
both portfolios and enhance future returns.
We consider sustainability to be an
integral part of our business with the
objectives of leading cities, future-
enabled customers, strong communities,
thriving people and an enriched
environment supporting our overarching
goal of sustained value.
We believe the strength and quality of
our relationships will always be central
to our success and we are deeply
committed to working with our customers
to provide spaces that engage and
inspire.
Dexus group
portfolio
Dexus $15.6bn
$31.8bn
Dexus Wholesale
Property Fund $10.4bn
Funds under
management
Dexus Industrial
Partner $0.2bn
Australian Mandate $2.1bn
Dexus $15.6bn
Dexus Office Partner $2.5bn
Australian Industrial
Partner $0.4bn
Healthcare Wholesale
Property Fund $0.1bn
Dexus Australian
Logistics Partner $0.5bn
Dexus Wholesale
Property Fund $10.4bn
Dexus Industrial
Partner $0.2bn
Australian Mandate $2.1bn
Dexus Office Partner $2.5bn
Australian Industrial
Partner $0.4bn
Healthcare Wholesale
Property Fund $0.1bn
Dexus Australian
Logistics Partner $0.5bn
Dexus $15.6bn
Dexus Office Partner $2.5bn
Dexus Wholesale
Property Fund $10.4bn
Dexus Industrial
Partner $0.2bn
Australian Mandate $2.1bn
Australian Industrial
Partner $0.4bn
Healthcare Wholesale
Property Fund $0.1bn
Dexus Australian
Logistics Partner $0.5bn
Dexus 2019 Annual Report
5
Our
Purpose
Our purpose is an affirmation of our reason for
being in business and supports our strategy
and business model. It is the driving force
behind our brand and desired culture.
Who we are
We are a passionate and
agile team who want to make
a difference
Why we come
to work
We create spaces where
people thrive
What we
believe in
We are here to create value for:
– Our customers
– Our investors
– Our communities
– Our people
How we behave
and what we value
– Openness and trust
– Empowerment
– Integrity
Cairns
Townsville
Brisbane
Perth
Adelaide
Sydney
Canberra
Melbourne
Group portfolio composition
$21.8bn
$4.6bn
Office
Industrial
$5.1bn
Retail
$0.2bn
Healthcare
6
Overview / Chair and CEO review
Chair and
CEO review
We entered the year
with a clear strategy and
readiness to respond to
both market opportunities
and challenges.
Richard Sheppard
Chair
Darren Steinberg
Chief Executive Officer
– The remaining 50% interest
in MLC Centre, Sydney
(25% Dexus, 25% DWPF),
enabling the commencement
of a project to transform the
precinct into a true mixed-use
destination, which involved securing
a long-term lease with the
NSW Government to enable the
reactivation of the Theatre Royal
– Three properties located adjacent
to 56 Pitt Street, Sydney (50% Dexus,
50% Dexus Office Partner), two
of which have exchanged to be
acquired on delayed settlement
terms post 30 June 2019, providing
a compelling opportunity to
consolidate the site and create a
potential super site (Pitt and Bridge
precinct) to deliver a significant
office development located in the
financial core of the Sydney CBD
in a future supply cycle.
Our ability to deliver on these
opportunities is in part due to the
conservative management of our
balance sheet and recycling capital
from divestments.
Our focus on maintaining a leading
position in the Australian property
market has been achieved through
delivering strong financial results
underpinned by the performance
of our portfolio, selective acquisitions
where we could add value, growth in
our funds management business and
the delivery of trading profits.
Our strategic objectives of leadership in
office and being the funds management
partner of choice are underpinned by
two megatrends, urbanisation and
the growth in global pension capital
fund flows. Urbanisation will drive long
term value creation from our properties
located in key economic hubs around
Australia, while the growth in global
pension capital fund flows is contributing
to the attraction of like-minded partners
and investors to invest alongside us over
the long term.
Total funds under management
increased to $31.8 billion, with $15.6 billion
directly invested in office and industrial
assets. Dexus remains Australia’s largest
owner and manager of office property,
with $21.8 billion invested in the Central
Business Districts (CBDs) of key office
markets around Australia. Our scale
provides us with the ability to produce
solutions that meet the evolving needs of
our customers.
In our funds management business, we
now manage $16.2 billion of properties
across the office, industrial, retail
and healthcare sectors, providing an
important source of income and assisting
us in obtaining scale in our core markets.
This year we have adopted elements
of integrated reporting to enhance
the way we report to our investors and
demonstrate our focus on long-term
value creation. We also defined our
organisational purpose, which reinforces
our reason for being in business. It is a
key anchor for employee engagement
and attracting talent, and will align our
decision making to values and principles
beyond financial outcomes.
Securing opportunities.
Adding value.
A consequence of our scale means that
we are continually reviewing acquisition
opportunities and seeking properties
where we can add value.
This approach resulted in the group
securing $3.1 billion of properties this year
while increasing our exposure in a tightly
held precinct of the Melbourne CBD.
These included:
– A future development site at 60 and
52 Collins Street, Melbourne (100%
Dexus) to create the latest generation
of prime office space in the ‘Paris end’
of the Melbourne CBD
– A large-scale mixed-use development
at 80 Collins Street, Melbourne
(75% Dexus, 25% Dexus Wholesale
Property Fund (DWPF)) further
expanding our presence in the ‘Paris
end’ of the Melbourne CBD
Dexus 2019 Annual Report
7
Delivering
sustained value
This year we again delivered strong
financial performance for investors.
The full year distribution of 50.2 cents
per security reflects a 5.0% increase on
the prior year, in line with our guidance
of circa 5% growth. This achievement
demonstrates our track record of
delivering consistent distribution growth,
resulting in a 6.6% compound annual
growth rate since FY12.
Dexus’s net profit after tax was
$1.28 billion, down 25.9% primarily
due to revaluation gains which were
$428.7 million lower than in FY18.
Underlying Funds from Operations
per security of 62.9 cents, which
excludes trading profits, grew by
3.8%, highlighting the contribution
from the property portfolio and funds
management business.
Adjusted Funds From Operations
(AFFO) per security growth and Return
on Contributed Equity (ROCE) through
the cycle are key measures that drive
long-term value creation for security
holders. In FY19, we delivered AFFO per
security growth of 5.5% and a ROCE
of 10.1%.
History of Dexus distribution per security1 (cents)
6.6%
CAGR
since FY12
36.00
37.56
32.10
43.51
45.47
41.04
47.8
50.2
55
45
35
25
15
5
y
t
i
r
u
c
e
s
r
e
p
s
t
n
e
c
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
1. Adjusted for the one-for-six security consolidation completed in FY15. Compound
annual growth rate (CAGR) is calculated over seven years.
8
Overview / Chair and CEO review
Chair and
CEO review
In a year of significant transaction
activity, we maintained a strong and
conservative balance sheet. We
funded the acquisition of Dexus’s
additional 25% interest in the MLC
Centre, Sydney with the issue of
$425 million of Exchangeable Notes.
Under this structure, we were able to
offer Exchangeable Note holders the
ability to own DXS securities in the
future combined with a return, while we
received competitively priced funding
that matched the income profile of
the property.
In May 2019 an equity raising, comprising
a $900 million institutional placement
and a $50 million Security Purchase
Plan (SPP), was used to partially fund
Dexus’s 75% interest in 80 Collins Street,
Melbourne. In response to strong interest
for the SPP from eligible Security holders,
we decided to increase the $50 million
cap to $63.9 million in June 2019, enabling
all eligible applications to be accepted.
We continued to maintain a strong and
conservative balance sheet with gearing
at 24.0% at 30 June 2019, well below our
target range of 30-40%. This provides us
with the capacity to fund projects in our
development pipeline.
Total Security holder Return
In trading, we secured $34.7 million of
trading profits net of tax following the
sale of 32 Flinders Street in Melbourne.
Dexus progressed the sale of the North
Shore Health Hub, St Leonards2, and post
30 June 2019 exchanged contracts to
sell a 25% interest in 201 Elizabeth Street,
Sydney, while entering into a put and call
option to sell the remaining 25% interest
in late 2020. The sale of 201 Elizabeth
Street is expected to contribute circa
$34 million in trading profits pre-tax
in FY20 and a further circa $34 million
in FY21 in the event either option is
exercised.
Dexus delivered a 39.4% total Security
holder return for the year, outperforming
the S&P/ASX 200 Property Accumulation
(A-REIT) Index by 201 basis points.
This outperformance occurred in an
environment of reducing 10-year bond
yields where well managed A-REITs
with exposure to office and industrial
properties, generating an attractive
yield, were favoured by investors.
Dexus continues to outperform the
A-REIT index over three, five and
ten-year time horizons.
In FY19, each of our earnings drivers
positively contributed to the financial
result. Across our property portfolio,
we achieved valuation increases of
$773.1 million, and our office and industrial
portfolios delivered +3.4% and +8.0%1
like-for-like income growth respectively.
Our funds management business
continued to expand through the
launch of a new logistics fund called
the Dexus Australian Logistics Trust
(DALT), the introduction of other new
third party capital partners, acquisitions,
developments and valuation increases.
Importantly, our funds continued to
achieve strong performance while
delivering on our third party capital
partners’ objectives.
We now manage 129 properties on
behalf of 79 third party capital partners
and welcomed GIC (Government
Investment Corporation of Singapore)
as a foundation investor in DALT, which
will be a circa $2 billion portfolio on
completion, seeded with assets from
Dexus’s existing industrial portfolio.
We also welcomed M&G Real Estate as
a new investor in the Dexus Industrial
Partnership and Employees Provident
Fund (EPF) Malaysia as a new investor
in the Healthcare Wholesale Property
Fund (HWPF). DWPF attracted nine
new investors over the year, including
six investors which joined through an
equity raising to fund its acquisition
of an additional 25% interest in the
MLC Centre.
50%
40%
30%
20%
10%
0%
39.4%
19.3%
18.2%
11.5%
12.9%
8.1%
20.0%
13.6%
8.9%
17.4%
14.0%
10.0%
One year
Three years*
Five years*
10 years*
Dexus
S&P/ASX 200 A-REIT Index
S&P/ASX 200 Index
*Annualised compound return. Source: UBS Australia at 30 June 2019.
1. Excluding one-off income is 2.5%.
2. Subject to Responsible Entity and Advisory Committee approvals and securing debt financing.
We are focused on
creating sustained
value and making
decisions that
future-proof
the business.
Dexus 2019 Annual Report
9
Contributing to
leading cities
As a real estate company, our properties
are central to how we create value,
being concentrated in Australia’s major
cities which we help shape as leading
destinations to live, work and play.
The leasing success achieved across our
office and industrial portfolios this year
optimised cash flow and maintained high
occupancy levels, with our office portfolio
occupancy at 98.0% and industrial
portfolio occupancy at 97.0%.
The group’s circa $9.3 billion development
and concept pipeline provides Dexus
with the opportunity to enhance future
returns by growing the core property
portfolio and those managed on behalf
of our third party capital partners.
Development is an efficient use of our
capital at this time in the cycle when
access to quality properties on-market
is competitively bid. Our $7.1 billion
group development pipeline comprises
committed and uncommitted projects,
and our circa $2.2 billion pipeline of
potential concept development projects
across the group provides us with
embedded future growth.
In May 2019, our newest office
development at 100 Mount Street
in North Sydney was completed,
providing a showcase for smart
building technology and setting a new
benchmark for office in the North Sydney
CBD. Marking a significant milestone, the
development of our premium industrial
estate Quarry at Greystanes was
completed, delivering a key economic
hub to Western Sydney and enhancing
returns for Dexus Security holders
and our third party capital partners.
10 Overview / Chair and CEO review
Chair and
CEO review
Developing
thriving people
Our people are central to the success
of our strategy and their knowledge,
expertise and ability to innovate are
critical inputs to how we add value.
We are continuing to build an engaged
workforce which is committed to
delivering on our strategy. We are
proud of the high levels of engagement
demonstrated by our strong employee
Net Promoter Score of +40.
We believe the best thinking and
outcomes are realised through an
inclusive and diverse workforce, and
have made progress against our
gender diversity target. This year, we
achieved 37% female representation
across senior and executive
management roles, an improvement
from 34% at FY18.
We continued to build the capabilities
of our workforce, focusing on the
development of our leaders to lead high
performing teams to deliver our strategy.
We also provided training across the
workforce that both enhances business
capability and meets our people’s needs
for career development.
The safety of our employees,
contractors, customers and community
is of paramount importance and we
maintained our steadfast focus during
the year. Independent external safety
audits across our corporate and
management workspaces achieved
a strong score of 98%.
Enriching
the environment
This year we progressed our ambitious
long-term goal to achieve net zero
carbon emissions by 2030 by improving
energy efficiency and increasing
the adoption of renewable energy
sources. Importantly, we obtained
external certification that our
2030 target aligns with the global
ambitions of the Paris Agreement.
We progressed our 2020 NABERS
targets and secured one of Australia’s
first supply-linked renewable Energy
Supply Agreements, through which 50%
of base building power across 40 NSW
properties will be sourced from wind
and solar projects from 1 January 2020.
We completed a portfolio-wide review
of exposure to the physical impacts of
climate change, with the results informing
our strategy to enhance portfolio
resilience for the long term. Refer to
page 60 for our approach to climate
related issues disclosed in accordance
with the Taskforce on Climate-related
Financial Disclosures’ recommendations.
Going beyond managing our own
emissions, we are focused on bringing
our customers on the journey to reduce
total building energy consumption.
We continue to see the benefits of our
energy, water and waste management
initiatives, both in terms of portfolio
efficiency and customer satisfaction.
Building strong
partnerships
We build strong partnerships with our
customers, local communities and
suppliers to create value across our
properties.
Our customers are at the heart of what
we do and we spend time understanding
their needs and delivering solutions
to help them thrive in their workspace.
Our annual customer survey returned
a customer Net Promoter Score of +46,
a significant increase from +32 in FY18,
reflecting the strength of our customer
centric approach.
Our success depends on our
relationships with local communities
that interact with our assets and people
as part of their daily lives. This year
we delivered community contributions
valued at more than $1.2 million, helping
to extend our social impact.
We also supported employment
across the communities in which we
operate through the group’s spend on
operational suppliers, totalling over
$550 million during the year.
We are committed to ensuring our
operations provide quality jobs with the
right conditions. Recognising the global
challenge of addressing modern slavery
and the new Modern Slavery Act coming
into effect in Australia on 1 January 2019,
we signed up to the UN Global Compact,
signalling our continued commitment
to corporate sustainability principles.
We also updated our Human Rights
Policy and formed an internal Modern
Slavery Working Group involving broad
operational functions across the
business. We are collaborating with our
suppliers to understand how we can
support and contribute to upholding
human rights across our supply chain.
Dexus 2019 Annual Report
11
Outlook
We expect to continue to deliver on our
strategy and enhance our capabilities
while retaining our financial strength to
create value in the years ahead.
Australian office and industrial property
market fundamentals remain solid and
continue to support our business despite
increased economic uncertainty. We
remain attracted to Australian cities due
to their enduring appeal for commerce
and businesses, talent and investors
supported by population growth,
employment growth and considerable
infrastructure construction activity.
Our circa $9.3 billion group development
and concept pipeline is a source of
embedded long-term value, and the
diversification of our funds management
business sets us up for further expansion
as domestic and global pension
capital fund flows continue to grow.
Dexus’s market guidance for the
12 months ending 30 June 2020 is
to deliver distribution per security
growth of circa 5%.
On behalf of the Board and
management, we extend our
appreciation to our people across
Australia for their dedication and
significant contribution in delivering
this year’s strong result. We also thank
our third party capital partners for
entrusting us with the management
of their investments, and our customers
for their commitment across our
property portfolio.
Importantly, we thank our investors for
your continued investment in Dexus.
Richard Sheppard
Chair
Darren Steinberg
Chief Executive Officer
Focusing on strong
governance
We instil robust corporate governance
and sound risk management at all levels
of our business and we continually work
on maintaining a strong culture across
the group.
Together, the Board and senior
management are responsible for
creating a culture where everyone
has ownership and responsibility for
acting lawfully and responsibly. We are
reinforcing and sustaining this culture
across the business, ensuring that it
supports best practice norms and
behaviours. The right culture encourages
sound decision making by managing risk
and upholding business ethics.
To support this culture, we articulate
our core values of openness and
trust, empowerment and integrity,
and recognise the Board’s oversight
role to ensure that management instils
these values.
Recognising the importance of
managing environmental, social and
governance (ESG) issues, we are currently
finalising plans to establish a new Board
Committee in FY20, known as the Board
ESG Committee, which will oversee the
implementation of the group’s ESG
activities, including our Sustainability
Approach. We also created a Head of
Governance function within the business
with a core focus on ensuring the Board
and our people operate under leading
governance policies and procedures.
There were no changes to the
composition of our Board during the
year, with the structure comprising
seven non-executive directors and
one executive director, with female
gender representation at 38%.
Further details relating to the Board
and our governance practices are
included in the Governance and
Board of Directors section, as well as
the Corporate Governance Statement
available at www.dexus.com
12
Approach / How we create value
How we
create value
Our value creation roadmap outlines the process
through which we create value for our stakeholders.
Megatrends
p.14
t
n
e
m
n
o
r
i
v
n
e
l
a
n
r
e
t
x
E
URBANISATION
GROWTH IN
PENSION CAPITAL
FUND FLOWS
THE RISE OF
THE MILLENNIAL
WORKER
TECHNOLOGICAL
CHANGE
ENVIRONMENTAL
SUSTAINABILITY
Strategy
p.16
Key resources
p.20
Key business
activities
p.18
Our strategy is to
deliver superior
risk-adjusted returns
for investors from
high quality real
estate in Australia’s
major cities
Strategic
objectives
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
FINANCIAL
PROPERTIES
PEOPLE AND
CAPABILITIES
CUSTOMERS AND
COMMUNITIES
ENVIRONMENT
Material issues and risks
p.22-27
MANAGING
OUR
BUSINESS
MODEL
TRANSACTING
Dexus 2019 Annual Report
13
Our vision is to be globally
recognised as Australia’s leading
real estate company
p.16
Value created
from p.28
EARNINGS DRIVERS
Property
portfolio
Funds
management
Trading
SUSTAINED
VALUE
VALUE DRIVERS
Portfolio
scale &
occupancy
Economic
contribution
Development
pipeline
LEADING
CITIES
VALUE DRIVERS
Employee
engagement
Inclusion &
diversity
Succession
strength
THRIVING
PEOPLE
VALUE DRIVERS
Customer
experience
Community
contribution
Supply
chain focus
FUTURE ENABLED
CUSTOMERS
AND STRONG
COMMUNITIES
VALUE DRIVERS
Resource
efficiency
Climate
resilience
Performance
ratings
ENRICHED
ENVIRONMENT
DEVELOPING
OUR
BUSINESS
MODEL
TRANSACTING
Why we come to work: to create spaces where people thrive
Our values: Openness and trust | Empowerment | Integrity
14
Approach / Megatrends
Megatrends
We are in a period
of rapid change
and the context in
which we operate
our business, both
today and in the
future, is informed
by the disruption
and opportunity
created by global
megatrends.
There are various megatrends that could
impact Dexus’s strategy and outlook,
and the nature and potential of these
can change over time.
We actively review the megatrends our
business faces over the medium and long
term, which is a process overseen by
the Board. This section outlines the
key megatrends, the implications for
our business model and how we are
monitoring and responding to them.
Megatrend
Description
Implications for our business model and how
we are monitoring and responding to megatrends
Key resources
that the
megatrends
relate to
Urbanisation
Urbanisation in major cities both in
Australia and around the world is
increasing. This creates challenges
for social equity, the environment,
transport systems and city planning.
Growth in
pension capital
fund flows
Funds under management within
pension funds are expected to
increase significantly as populations
in developed nations continue to
age. Consequently, real estate is
expected to receive a higher share of
capital allocation.
The rise of the
millennial worker
Increased participation by millennials
in the workforce is changing how
people work.
Technological
change
Environmental
sustainability
Technology and connectivity is
driving mobility and collaboration
in workplaces. Artificial Intelligence,
automation and robotics is replacing
repetitive tasks, together with a new
focus on the value of big data and
analytics.
A growing global population
continues to place demands on the
world’s finite resources, while the
financial impacts of environmental
risks such as climate change are
becoming increasingly apparent.
An investment in Dexus is an investment in Australia’s cities. Our property portfolio is concentrated in the
CBDs of Australia’s major cities and we believe these locations are where our customers want and need to be.
In response to the megatrend of urbanisation, we are expanding our existing development capabilities so we
are optimally positioned to maximise value from our existing portfolio. In addition, we are investing in mixed-use
development capabilities so that our contribution towards the creation of vibrant ‘work, live, play’ communities
is maximised. We are working closely with our third party capital partners, public authorities, real estate
consultants, technology providers and the wider community in undertaking these activities.
We are conscious of the impacts that will arise from continued urbanisation on the environment. In response
we are embracing new initiatives and technologies to directly contribute toward the establishment of efficient,
reliable, and environmentally friendly energy sources while reducing the emissions and waste created from our
properties and business activities.
Dexus is a leading Australian real estate fund manager. Our funds management business provides wholesale
investors with exposure to quality sector specific and diversified real estate investment products. The property
funds within our unlisted funds management platform have a strong track record of performance and benefit
from leveraging the leasing, asset and property management capabilities provided by Dexus. For acquisition
and development opportunities, we often invest alongside our third party capital partners, enhancing alignment
to our strategy to generate superior risk-adjusted returns.
We expect that our funds management business will benefit from the megatrend of the growth in pension
fund capital flows through selectively expanding existing funds and launching new investment products where
we believe a competitive advantage can be obtained, as demonstrated by the recent establishment of the
Healthcare Wholesale Property Fund (HWPF) and Dexus Australian Logistics Trust (DALT).
Millennial workers are technology savvy and have different expectations regarding the workplace than previous
generations. Workplaces are now expected to provide a seamless experience, while enabling collaboration and
providing the flexibility to work anywhere at any time.
We are responding to the megatrend of the rise of the millennial worker and their growing demands for seamless
experiences by reducing pain points, enabling collaboration and developing communities within our properties.
Major initiatives include:
– Simple and easy lease
– Dexus Place
– SuiteX
– Online building portals
Wellness is an important priority for millennials. In response, we have developed Wellplace, catering for the
growing importance of wellbeing in the workplace by providing a suite of health and wellbeing services and
amenities to our customers through the online building portals.
We have enabled these factors for our own workforce through the adoption of a flexible working policy that
enables our employees to work anywhere, anytime, supporting personal wellbeing and productivity.
Technological advancement brings opportunities to further support our customers in their growth and
productivity goals, and we are implementing innovative technologies in new developments to deliver a better
customer experience and optimise workforce productivity.
In response to the technological change megatrend, we have established a smart building blueprint to provide
a benchmark for technology solutions across our properties that promotes both connectivity across different
spaces and flexibility in workplace locations.
To support our employees, we are investing in systems and processes that will define a foundation for
operational excellence. This includes the implementation of a new enterprise platform designed to enhance the
efficiency of our day-to-day operations and reduce the operational demands on our people, enabling us to
focus more time and energy on our customers.
For over a decade, we have reduced our environmental footprint by concentrating on improving energy and
water efficiency across our properties as well as reducing the group’s greenhouse gas emissions.
We have integrated risks and opportunities from climate change into our operations, through investing in the
physical resilience of the portfolio and supporting the transition to a low carbon economy by committing to
achieve net zero carbon emissions by 2030.
Megatrend
Description
Urbanisation
Urbanisation in major cities both in
Australia and around the world is
increasing. This creates challenges
for social equity, the environment,
transport systems and city planning.
Growth in
pension capital
fund flows
Funds under management within
pension funds are expected to
increase significantly as populations
in developed nations continue to
age. Consequently, real estate is
expected to receive a higher share of
capital allocation.
The rise of the
millennial worker
Increased participation by millennials
in the workforce is changing how
people work.
Technological
change
Environmental
sustainability
Technology and connectivity is
driving mobility and collaboration
in workplaces. Artificial Intelligence,
automation and robotics is replacing
repetitive tasks, together with a new
focus on the value of big data and
analytics.
A growing global population
continues to place demands on the
world’s finite resources, while the
financial impacts of environmental
risks such as climate change are
becoming increasingly apparent.
Implications for our business model and how
we are monitoring and responding to megatrends
Dexus 2019 Annual Report
15
Key resources
that the
megatrends
relate to
An investment in Dexus is an investment in Australia’s cities. Our property portfolio is concentrated in the
CBDs of Australia’s major cities and we believe these locations are where our customers want and need to be.
In response to the megatrend of urbanisation, we are expanding our existing development capabilities so we
are optimally positioned to maximise value from our existing portfolio. In addition, we are investing in mixed-use
development capabilities so that our contribution towards the creation of vibrant ‘work, live, play’ communities
is maximised. We are working closely with our third party capital partners, public authorities, real estate
consultants, technology providers and the wider community in undertaking these activities.
We are conscious of the impacts that will arise from continued urbanisation on the environment. In response
we are embracing new initiatives and technologies to directly contribute toward the establishment of efficient,
reliable, and environmentally friendly energy sources while reducing the emissions and waste created from our
properties and business activities.
Dexus is a leading Australian real estate fund manager. Our funds management business provides wholesale
investors with exposure to quality sector specific and diversified real estate investment products. The property
funds within our unlisted funds management platform have a strong track record of performance and benefit
from leveraging the leasing, asset and property management capabilities provided by Dexus. For acquisition
and development opportunities, we often invest alongside our third party capital partners, enhancing alignment
to our strategy to generate superior risk-adjusted returns.
We expect that our funds management business will benefit from the megatrend of the growth in pension
fund capital flows through selectively expanding existing funds and launching new investment products where
we believe a competitive advantage can be obtained, as demonstrated by the recent establishment of the
Healthcare Wholesale Property Fund (HWPF) and Dexus Australian Logistics Trust (DALT).
Millennial workers are technology savvy and have different expectations regarding the workplace than previous
generations. Workplaces are now expected to provide a seamless experience, while enabling collaboration and
providing the flexibility to work anywhere at any time.
We are responding to the megatrend of the rise of the millennial worker and their growing demands for seamless
experiences by reducing pain points, enabling collaboration and developing communities within our properties.
Major initiatives include:
– Simple and easy lease
– Dexus Place
– SuiteX
– Online building portals
Wellness is an important priority for millennials. In response, we have developed Wellplace, catering for the
growing importance of wellbeing in the workplace by providing a suite of health and wellbeing services and
amenities to our customers through the online building portals.
We have enabled these factors for our own workforce through the adoption of a flexible working policy that
enables our employees to work anywhere, anytime, supporting personal wellbeing and productivity.
Technological advancement brings opportunities to further support our customers in their growth and
productivity goals, and we are implementing innovative technologies in new developments to deliver a better
customer experience and optimise workforce productivity.
In response to the technological change megatrend, we have established a smart building blueprint to provide
a benchmark for technology solutions across our properties that promotes both connectivity across different
spaces and flexibility in workplace locations.
To support our employees, we are investing in systems and processes that will define a foundation for
operational excellence. This includes the implementation of a new enterprise platform designed to enhance the
efficiency of our day-to-day operations and reduce the operational demands on our people, enabling us to
focus more time and energy on our customers.
For over a decade, we have reduced our environmental footprint by concentrating on improving energy and
water efficiency across our properties as well as reducing the group’s greenhouse gas emissions.
We have integrated risks and opportunities from climate change into our operations, through investing in the
physical resilience of the portfolio and supporting the transition to a low carbon economy by committing to
achieve net zero carbon emissions by 2030.
16
Approach / Strategy
Strategy
Dexus’s strategy is to deliver superior
risk-adjusted returns for investors from
high-quality real estate in Australia’s
major cities.
Delivering superior risk-adjusted returns
means outperforming the relevant three
and five-year benchmarks in each
market in which Dexus owns or manages
properties while providing Dexus Security
holders with sustainable and growing
distributions.
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
Leadership in office is an aspiration that
is supported by our scale. As the largest
office owner and manager in Australia,
we have scale that provides many
advantages.
Our scale supports the generation of
investment outperformance through
providing valuable customer insights
and the opportunity to invest in people,
systems and technologies that enhance
our customers’ experience. It also
enhances our ability to find the ideal
workspace solution for customers and
generates cost efficiencies.
Our objectives of leadership in office and
funds management partner of choice
complement each other. Our success
in the office sector has enabled Dexus
to attract investment partners not just
in office, but also in the industrial and
healthcare sectors, in turn providing
the opportunity to drive investment
performance for those third party
capital partners.
To be globally
recognised as
Australia’s leading
real estate company
Vision
Our
Purpose
→ p.5
Strategic
objectives
Strategy
To deliver superior
risk‑adjusted returns
for investors from
high-quality real estate
in Australia’s major cities
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
Dexus 2019 Annual Report
17
What sets
Dexus apart?
A quality real estate
portfolio located across
key Australian cities
A scalable
customer offering
A development and
trading business that
unlocks value
A high performing funds
management business
with diverse sources
of capital
A talented, engaged,
inclusive and
diverse workforce
18
Approach / Key business activities
Key business
activities
We create value for all our
stakeholders through utilising our
asset management, development
and transaction capabilities.
Key business
activities
Value created
p.28–61
MANAGING
DEVELOPING
OUR
BUSINESS
MODEL
TRANSACTING
EARNINGS DRIVERS
Property
portfolio
Funds
management
Trading
SUSTAINED
VALUE
VALUE DRIVERS
Portfolio
scale &
occupancy
Economic
contribution
Development
pipeline
LEADING
CITIES
VALUE DRIVERS
Employee
engagement
Inclusion &
diversity
Succession
strength
THRIVING
PEOPLE
VALUE DRIVERS
Customer
experience
Community
contribution
Supply
chain focus
FUTURE ENABLED
CUSTOMERS
AND STRONG
COMMUNITIES
VALUE DRIVERS
Resource
efficiency
Climate
resilience
Performance
ratings
ENRICHED
ENVIRONMENT
Dexus 2019 Annual Report
19
Managing
The majority of our earnings are derived from the
rental income we receive from the properties we
own in our $15.6 billion Australian property portfolio.
In addition, we manage $16.2 billion of Australian
property investments on behalf of our third party
capital partners. We utilise our asset and property
management expertise to maximise cash flow
across the group portfolio. This active approach
seeks to add value through development or leasing
to diversify the customer mix and capitalise on the
stage that we are at in the property cycle. Our
in-house project delivery group assists in effectively
managing downtime and delivering capital works
projects in a timely manner.
Developing
Dexus has a circa $9.3 billion group development
and concept pipeline. We utilise our expertise to
access and manage development opportunities,
enhancing future returns and improving portfolio
quality and diversification. Development also
delivers on our third party capital partners’
strategies and provides organic growth in assets
under management, and therefore revenue
potential to Dexus.
Transacting
We utilise our multi-disciplinary expertise to identify,
evaluate, and execute acquisition and divestment
opportunities across a range of sectors and asset
types. We invest alongside our third party capital
partners to access product with the objectives
of improving portfolio quality and performance
and achieving scale in our core markets. We have
demonstrated our ability to invest capital at the
right time in the property cycle, acting quickly and
evolving our approach to secure opportunities while
adhering to our strict investment criteria.
20 Approach / Key resources
Key resources
We rely on our key resources or relationships
to create value now and into the future.
Key resources
How our key resources are linked to value creation
The value that is created
How we measure value
Financial
Properties
People
and capabilities
Customers and
communities
Environment
Our financial resources are the pool of funds available to us for deployment, which
includes debt and equity capital, as well as profits retained from our property
management, development and trading activities. This also includes the financial
capital from our third party capital partners which we deploy on their behalf.
Our prudent management of financial capital underpins the delivery of superior
risk-adjusted returns to Dexus Security holders with a through the cycle target for
Adjusted Funds From Operations (AFFO) per security growth of 3-5% and Return
on Contributed Equity (ROCE) of 7-10%. Our policy is to pay distributions to Security
holders in line with free cashflow for which AFFO is a proxy.
As a real estate company, our properties are central to how we create value.
We actively manage our property portfolio to enhance its potential, while unlocking
further value by developing our properties to further enhance quality in their current
use, or for higher and better uses.
Our portfolio is concentrated in Australia’s major cities, which we help shape as
leading destinations to live, work and play.
Sustained value
Superior long-term returns for our investors and third party capital partners.
Leading cities
A high-quality portfolio that contributes to economic prosperity and supports sustainable
urban development across Australia’s key cities.
Our people’s knowledge and expertise are critical inputs to how we create value.
Thriving people
We are a passionate and agile team who want to make a difference. We focus on
sustaining a high-performing workforce supported by an inclusive and diverse culture.
Our intellectual capital enables us to instil strong corporate governance, sound risk
management and maintain a focus on safety at all levels of our business.
An engaged and capable workforce that delivers on our strategy.
Our capacity to create value depends on strong relationships with our customers,
local communities and suppliers.
We work in partnership with our customers to provide engaging and productive
spaces that anticipate their evolving needs.
We support the communities in which we operate in recognition of their contribution
to the activity and vibrancy of our spaces.
We partner with our suppliers to deliver our development projects and manage our
properties more efficiently, while maintaining a proactive focus on safety.
The efficient use of natural resources and sound management of environmental
risks supports our creation of value through delivering cost efficiencies and
operational resilience.
We understand, monitor and manage our environmental impact, setting short-term
and long-term measurable environmental performance targets.
We prepare for the physical impacts of climate change, while harnessing
opportunities that support the transition to a low carbon economy.
Future enabled customers and strong communities
Satisfied and successful customers supported by high-performing workspaces and a
comprehensive customer product and service offering.
Well connected, prosperous and strong communities within and around our properties.
A network of capable and effective supplier relationships that ensures environmental,
social and governance standards are maintained throughout our supply chain.
p.54
Enriched environment
mitigates climate risk.
An efficient and resilient portfolio that minimises our environmental footprint and
Growth in distribution per security
Growth in Adjusted Funds From
Operations (AFFO) per security
–
Return on Contributed Equity
(ROCE)
p.28
–
–
–
–
Scale: value of portfolio
Customer demand and space use:
portfolio occupancy rates
–
Economic contribution: Construction
jobs supported and Gross Value
Added (GVA) to the economy from
development projects
–
Future value: value of development
and concept pipeline
p.38
p.50
–
Employee engagement: employee
Net Promoter Score
–
Gender diversity: female representation
in senior management roles
–
Succession strength: proportion of internal
candidates placed in available roles
–
Customer advocacy: customer
Net Promoter Score
–
Community contribution: total value
contributed
–
Supply chain economic contribution:
value of spend with suppliers
–
Resource efficiency – energy and water
reductions and waste management
–
Climate resilience: Greenhouse gas
emissions reductions
–
Performance ratings: NABERS Energy
and Water ratings
p.58
Dexus 2019 Annual Report
21
21
Key resources
How our key resources are linked to value creation
The value that is created
How we measure value
Financial
Properties
People
and capabilities
Customers and
communities
Our financial resources are the pool of funds available to us for deployment, which
includes debt and equity capital, as well as profits retained from our property
management, development and trading activities. This also includes the financial
capital from our third party capital partners which we deploy on their behalf.
Our prudent management of financial capital underpins the delivery of superior
risk-adjusted returns to Dexus Security holders with a through the cycle target for
Adjusted Funds From Operations (AFFO) per security growth of 3-5% and Return
on Contributed Equity (ROCE) of 7-10%. Our policy is to pay distributions to Security
holders in line with free cashflow for which AFFO is a proxy.
As a real estate company, our properties are central to how we create value.
We actively manage our property portfolio to enhance its potential, while unlocking
further value by developing our properties to further enhance quality in their current
use, or for higher and better uses.
Our portfolio is concentrated in Australia’s major cities, which we help shape as
leading destinations to live, work and play.
Sustained value
Superior long-term returns for our investors and third party capital partners.
Leading cities
A high-quality portfolio that contributes to economic prosperity and supports sustainable
urban development across Australia’s key cities.
Our people’s knowledge and expertise are critical inputs to how we create value.
Thriving people
An engaged and capable workforce that delivers on our strategy.
We are a passionate and agile team who want to make a difference. We focus on
sustaining a high-performing workforce supported by an inclusive and diverse culture.
Our intellectual capital enables us to instil strong corporate governance, sound risk
management and maintain a focus on safety at all levels of our business.
Our capacity to create value depends on strong relationships with our customers,
local communities and suppliers.
We work in partnership with our customers to provide engaging and productive
spaces that anticipate their evolving needs.
We support the communities in which we operate in recognition of their contribution
to the activity and vibrancy of our spaces.
We partner with our suppliers to deliver our development projects and manage our
properties more efficiently, while maintaining a proactive focus on safety.
Future enabled customers and strong communities
Satisfied and successful customers supported by high-performing workspaces and a
comprehensive customer product and service offering.
Well connected, prosperous and strong communities within and around our properties.
A network of capable and effective supplier relationships that ensures environmental,
social and governance standards are maintained throughout our supply chain.
Environment
The efficient use of natural resources and sound management of environmental
risks supports our creation of value through delivering cost efficiencies and
operational resilience.
Enriched environment
An efficient and resilient portfolio that minimises our environmental footprint and
mitigates climate risk.
We understand, monitor and manage our environmental impact, setting short-term
and long-term measurable environmental performance targets.
We prepare for the physical impacts of climate change, while harnessing
opportunities that support the transition to a low carbon economy.
–
–
–
–
–
–
Growth in distribution per security
Growth in Adjusted Funds From
Operations (AFFO) per security
Return on Contributed Equity
(ROCE)
p.28
Scale: value of portfolio
Customer demand and space use:
portfolio occupancy rates
Economic contribution: Construction
jobs supported and Gross Value
Added (GVA) to the economy from
development projects
–
Future value: value of development
and concept pipeline
p.38
–
–
–
–
–
–
–
–
–
Employee engagement: employee
Net Promoter Score
Gender diversity: female representation
in senior management roles
Succession strength: proportion of internal
candidates placed in available roles
p.50
Customer advocacy: customer
Net Promoter Score
Community contribution: total value
contributed
Supply chain economic contribution:
value of spend with suppliers
p.54
Resource efficiency – energy and water
reductions and waste management
Climate resilience: Greenhouse gas
emissions reductions
Performance ratings: NABERS Energy
and Water ratings
p.58
22
Material issues and risks / Material issues
Material issues
Our material issues are informed by our
knowledge of our business environment
and play a key role in business planning.
Dexus has used the materiality
definitions from the Integrated
Reporting Framework and the GRI
Standards, which consider material issues
to be those that are of high importance
to our stakeholders and that affect the
organisation’s ability to create value
over the short, medium and long term.
This year, we undertook a materiality
assessment to identify key topics
that impact our ability to create
value for our stakeholders.
We included issues that linked to
strategy, governance, performance or
opportunities, while considering what
was important to key stakeholders
and what we as a company can
have a material impact upon.
We have created a matrix to assist in
prioritising the top 20 material issues
as the basis for ongoing disclosure.
The matrix shows the importance that
Dexus and its stakeholders place on
these top 20 material issues in relation
to their impact on our ability to create
value. In the key risks section on page
24, we show how these material
issues relate to key business risks.
Further information on our
Materiality process is included in
our 2019 Sustainability Performance
Pack available on our website
at www.dexus.com
l
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k
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s
s
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x
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a
t
r
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p
m
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S
R
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D
L
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S
S
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D
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A
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R
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P
M
I
Dexus’s top 20 material issues matrix1
Energy
efficiency
Water use
Climate change
impacts
Corporate
governance
& transparency
Health,
safety and
security
Economic
performance
Market
volatility
Economic
impact on local
communities
Supply chain
management
Inclusion &
diversity
Risk & crisis
management
Emissions
Customer
engagement
Human rights
Customer
attraction
& retention
Biodiversity
Waste management
Talent attraction
& retention
Equal
remuneration
Human capital
development
1. Each of the listed material issues are considered of high importance to Dexus stakeholders and to Dexus’s business.
IMPORTANCE TO BUSINESS
Importance to Dexus
Dexus 2019 Annual Report
23
Our material issues
influence our ability
to create value by
impacting one or more
of the key resources
that Dexus relies on.
We have reviewed the impact that
each material issue has on our key
resources and have arranged these
into two main categories: a material
impact and an important connection.
The Financial key resource column in
the table below recognises that all
material issues ultimately impact our
ability to create financial value.
Further information on how
these material issues influence
our respective key resources
is provided on pages 28-61
and in the 2019 Sustainability
Performance Pack.
Financial
Properties
People and
capabilities
Customers
and
communities
Environment
Biodiversity
Climate change impacts
Corporate governance &
transparency
Customer attraction & retention
Customer engagement
Economic impact on local
communities
Economic performance
Emissions
Energy efficiency
Equal remuneration
Health, safety & security
Human capital development
Human rights
Inclusion & diversity
Market volatility
Risk & crisis management
Supply chain management
Talent attraction & retention
Waste management
Water use
Material impact
Important connections
Recognises influence on financial value creation
24 Material issues and risks / Key risks
Key risks
There are various
risks that could
impact Dexus’s
strategy and
outlook. We
understand
that effective
risk management
requires an
understanding
of risks during
all phases of
the investment
life cycle.
We actively review and manage
the risks facing our business
over the short, medium and
long-term, overseen by the
Board Risk Committee. Periodically,
we formally re-assess our key risks
through an extensive process,
facilitated by an independent
specialist. In the intervening years,
an annual management review of
the key risks is conducted in line with
reporting disclosure requirements.
This year, we undertook risk
assurance mapping which reviewed
the assurance program and the key
risks. We also reviewed risk ratings
and control processes. In this section
we outline our key risks and Dexus’s
approach to responding to them,
combined with how the key risks
link to our material issues and key
resources. For more information
on our material issues, refer to
page 22 or the 2019 Sustainability
Performance Pack.
Key risk
Performance
Ability to meet market guidance, deliver superior risk
adjusted performance relative to industry benchmarks
and complete developments in line with expectations.
Link to
material issues
– Economic
performance
– Economic
impact on local
communities
– Customer
attraction &
retention
Capital markets
Positioning the capital structure of the business to withstand
unexpected changes in equity and debt markets.
– Economic
performance
– Market volatility
Key client
Retention of existing wholesale third party
client or funds management partner.
Compliance and regulatory
Compliance with regulatory requirements including
continuous disclosure, ASX Listing Rules, REIT status
and Dexus policies and procedures.
Cyber/data and governance
Management and maintenance of data security.
– Economic
performance
– Corporate
governance &
transparency
– Corporate
governance &
transparency
– Risk & crisis
management
– Corporate
governance &
transparency
Potential impacts
How Dexus is responding
Link to key resources
– Reputational damage
The group’s risk appetite is reviewed and approved annually
– Reduced investor sentiment
(equity and debt)
– Loss of broader community
confidence
– Reduced credit ratings
and reduced availability
of debt financing
– Constrained capacity
to execute strategy
– Increased cost of funding
(equity and debt)
– Reduced investor sentiment
(equity and debt)
– Reduced credit ratings and
reduced availability of debt
financing
by the Board and reviewed by management on a quarterly
basis. The Board approved strategy is formally reviewed
throughout the year with processes in place to monitor and
manage risks that may impact on performance.
The Investment Committee is responsible for material
investment decisions, subject to delegated authority, and
detailed due diligence is undertaken for all acquisitions
and divestments. External experts are appointed to assist
in the design and costing process for developments.
These procedures are designed to mitigate against poor
performance outcomes by ensuring decisions are made
using relevant information and in the best interests of
Dexus’s Security holders.
Our prudent management of capital, including regular
sensitivity analysis and periodic independent reviews of
hedging policy, assists in protecting Dexus’s balance sheet
from unexpected changes in capital markets.
Further information relating to financial risk management
is detailed in Note 12 of the Financial Statements.
– Inability to attract new third
Our funds management model includes strong governance
party capital partners or loss
principles and processes designed to build and strengthen
of existing third party capital
relationships with existing and new third party capital
partners
– Reduced funds
management income
partners. Our active approach to engagement across the
business enables employees to understand the interests
of third party capital partners and design strategies to
maintain partner satisfaction. Our funds management team
also undertakes a periodic client survey to understand
perceptions and identify areas for improvement.
– Reputational damage
We maintain comprehensive compliance policies
– Loss of broader community
confidence
– Increased compliance costs
– Sanctions impacting on
business operations
and procedures that are regularly updated to ensure
the business operates in accordance with regulatory
expectations. Our employees and service providers
receive training on their compliance obligations and are
encouraged to raise concerns as appropriate. Independent
industry experts are appointed to undertake reviews
– Reduced investor sentiment
where appropriate.
(equity and debt)
– Lost productivity following
We conduct regular training, testing and disaster recovery
activities, along with the employment of data security
software, to assist in reducing the risk of a breach of data
security. We regularly review policies and procedures on
information security and provide training to all employees.
cyber disruption
– Reputational and/
or financial damage
– Negative impact on customer
and/or funds management
partner relationships
Key risk
Potential impacts
How Dexus is responding
Link to key resources
Dexus 2019 Annual Report
25
– Reputational damage
– Reduced investor sentiment
(equity and debt)
– Loss of broader community
confidence
– Reduced credit ratings
and reduced availability
of debt financing
– Constrained capacity
to execute strategy
– Increased cost of funding
(equity and debt)
– Reduced investor sentiment
(equity and debt)
– Reduced credit ratings and
reduced availability of debt
financing
– Inability to attract new third
party capital partners or loss
of existing third party capital
partners
– Reduced funds
management income
– Reputational damage
– Loss of broader community
confidence
– Increased compliance costs
– Sanctions impacting on
business operations
– Reduced investor sentiment
(equity and debt)
– Lost productivity following
cyber disruption
– Reputational and/
or financial damage
– Negative impact on customer
and/or funds management
partner relationships
The group’s risk appetite is reviewed and approved annually
by the Board and reviewed by management on a quarterly
basis. The Board approved strategy is formally reviewed
throughout the year with processes in place to monitor and
manage risks that may impact on performance.
The Investment Committee is responsible for material
investment decisions, subject to delegated authority, and
detailed due diligence is undertaken for all acquisitions
and divestments. External experts are appointed to assist
in the design and costing process for developments.
These procedures are designed to mitigate against poor
performance outcomes by ensuring decisions are made
using relevant information and in the best interests of
Dexus’s Security holders.
Our prudent management of capital, including regular
sensitivity analysis and periodic independent reviews of
hedging policy, assists in protecting Dexus’s balance sheet
from unexpected changes in capital markets.
Further information relating to financial risk management
is detailed in Note 12 of the Financial Statements.
Our funds management model includes strong governance
principles and processes designed to build and strengthen
relationships with existing and new third party capital
partners. Our active approach to engagement across the
business enables employees to understand the interests
of third party capital partners and design strategies to
maintain partner satisfaction. Our funds management team
also undertakes a periodic client survey to understand
perceptions and identify areas for improvement.
We maintain comprehensive compliance policies
and procedures that are regularly updated to ensure
the business operates in accordance with regulatory
expectations. Our employees and service providers
receive training on their compliance obligations and are
encouraged to raise concerns as appropriate. Independent
industry experts are appointed to undertake reviews
where appropriate.
We conduct regular training, testing and disaster recovery
activities, along with the employment of data security
software, to assist in reducing the risk of a breach of data
security. We regularly review policies and procedures on
information security and provide training to all employees.
Performance
Ability to meet market guidance, deliver superior risk
adjusted performance relative to industry benchmarks
and complete developments in line with expectations.
Capital markets
Positioning the capital structure of the business to withstand
unexpected changes in equity and debt markets.
– Economic
performance
– Market volatility
Key client
Retention of existing wholesale third party
client or funds management partner.
Compliance and regulatory
Compliance with regulatory requirements including
continuous disclosure, ASX Listing Rules, REIT status
and Dexus policies and procedures.
Cyber/data and governance
Management and maintenance of data security.
Link to
material issues
– Economic
performance
– Economic
impact on local
communities
– Customer
attraction &
retention
– Economic
performance
– Corporate
governance &
transparency
– Corporate
governance &
transparency
– Risk & crisis
management
– Corporate
governance &
transparency
26 Material issues and risks / Key risks
Key risks
Key risk
Security and emergency management
Ensuring the safety of employees, customers and the
public at Dexus sites.
Talent and capability
Retention of key talent within Dexus.
Link to
material issues
– Risk & crisis
management
– Health safety &
security
– Supply chain
management
– Customer
engagement
– Talent attraction
& retention
– Human capital
development
– Equal remuneration
– Equal development
Board focus
The Board Risk Committee is
responsible for reviewing the
Risk Management framework
and risk appetite for the
group. In FY19 the Board Risk
Committee was involved in:
– Considering and reviewing
the top key risks, their
controls and mitigants
– Reviewing cyber risk
and ongoing resilience
– Overseeing Dexus’s
preparedness to respond
to a crisis
Corporate culture
Maintaining a respectful, open and transparent culture which
supports diversity of opinion and values including acting
honestly, ethically and with integrity.
The nature and
potential of our
risks can change
over time.
Climate change
Mitigation against the impact of climate change.
Building and workplace health & safety
Identification and remediation of health and safety issues
relating to the fabric of properties across the portfolio
including facades. Prevention of death or serious injury at a
Dexus owned or controlled site due to unsafe work practices.
– Inclusion & diversity
– Excessive regrettable employee
Our Board and Group Management Committee focus on
– Corporate
governance &
transparency
– Equal remuneration
– Human rights
– Climate change
impacts
– Energy efficiency
– Emissions
– Water use
– Biodiversity
– Waste
management
– Health, safety
& security
– Customer
engagement
Potential impacts
How Dexus is responding
Link to key resources
– Death or injury to individuals
We maintain a business continuity management framework
at Dexus properties
– Reputational damage
– Loss of broader community
confidence
– Costs associated with criminal/
civil proceedings
– Costs associated with
remediation and/or restoration
to mitigate against safety threats, including the adoption
of plans relating to crisis management, business continuity
and emergency management. Responsiveness at each
property is regularly tested through scenario exercises.
Key performance indicators for reporting and resolution of
security issues are embedded into contractor agreements
at Dexus-managed sites.
– Disruption/impact to customer
We aim to maintain an engaged and high-performing
relationships and/or revenue
workforce that is aligned with our corporate objectives
– Increased workforce costs
– Reduced workforce productivity
– Loss of corporate knowledge
and is inspired to stay with the business. We focus on
professional development at all levels to enhance employee
capabilities and support continued employee engagement.
We develop succession plans for key employees and
undertake external mapping for key roles to assist in the
retention of key talent.
turnover and associated
fostering a culture that supports employees to deliver on
increased costs
the group’s purpose of creating spaces where people thrive.
– Inability to attract talent
– Reduced investor sentiment
(equity and debt)
– Inappropriate conduct leading
to investigation, potential costs
and reputational damage
We regularly survey employees and gather data through
other reports to understand organisational culture and
identify potential challenges that may require additional
focus. We strive to invest in our employees’ development
and reward their achievement of sustainable business
outcomes that add value to our stakeholder.
– Increased costs associated with
We focus on enhancing the resilience of our properties
physical risks (e.g. asset damage
to physical climate risks, implementing energy efficiency
from extreme weather)
initiatives and deploying renewable energy projects. Dexus’s
– Increased costs associated
with transition risks (e.g. carbon
regulation, requirements for
building efficiency)
approach to climate change risk management is disclosed
in accordance with the recommendations of the Task Force
on Climate-related Financial Disclosures on page 60 and in
the 2019 Sustainability Performance Pack.
– Death or injury
– Reputational damage
– Loss of broader community
confidence
– Costs or sanctions associated
with regulatory response
– Costs associated with criminal/
civil proceedings
– Costs associated with
remediation and/or restoration
We adopt a series of measures to ensure building
and workplace health and safety is maintained in and
around our properties, including:
– Adoption of comprehensive work health and safety
programs and compliance by site contractors and
employees, including independent certification
against OHSAS 18001 Occupational Health and Safety
Management Systems
– Engagement of external consultants for facade audits
– Ongoing monitoring and testing of existing sites
– Regular training for both employees and
service providers.
Dexus 2019 Annual Report
27
Link to
material issues
– Risk & crisis
management
– Health safety &
security
– Supply chain
management
– Customer
engagement
– Talent attraction
& retention
– Human capital
development
– Equal remuneration
– Equal development
– Corporate
governance &
transparency
– Equal remuneration
– Human rights
– Climate change
impacts
– Energy efficiency
– Emissions
– Water use
– Biodiversity
– Waste
management
– Health, safety
& security
– Customer
engagement
Key risk
Potential impacts
How Dexus is responding
Link to key resources
Security and emergency management
Ensuring the safety of employees, customers and the
public at Dexus sites.
Talent and capability
Retention of key talent within Dexus.
– Death or injury to individuals
at Dexus properties
– Reputational damage
– Loss of broader community
confidence
– Costs associated with criminal/
civil proceedings
– Costs associated with
remediation and/or restoration
– Disruption/impact to customer
relationships and/or revenue
– Increased workforce costs
– Reduced workforce productivity
– Loss of corporate knowledge
Corporate culture
Maintaining a respectful, open and transparent culture which
supports diversity of opinion and values including acting
honestly, ethically and with integrity.
– Inclusion & diversity
– Excessive regrettable employee
turnover and associated
increased costs
– Inability to attract talent
– Reduced investor sentiment
(equity and debt)
– Inappropriate conduct leading
to investigation, potential costs
and reputational damage
We maintain a business continuity management framework
to mitigate against safety threats, including the adoption
of plans relating to crisis management, business continuity
and emergency management. Responsiveness at each
property is regularly tested through scenario exercises.
Key performance indicators for reporting and resolution of
security issues are embedded into contractor agreements
at Dexus-managed sites.
We aim to maintain an engaged and high-performing
workforce that is aligned with our corporate objectives
and is inspired to stay with the business. We focus on
professional development at all levels to enhance employee
capabilities and support continued employee engagement.
We develop succession plans for key employees and
undertake external mapping for key roles to assist in the
retention of key talent.
Our Board and Group Management Committee focus on
fostering a culture that supports employees to deliver on
the group’s purpose of creating spaces where people thrive.
We regularly survey employees and gather data through
other reports to understand organisational culture and
identify potential challenges that may require additional
focus. We strive to invest in our employees’ development
and reward their achievement of sustainable business
outcomes that add value to our stakeholder.
Climate change
Mitigation against the impact of climate change.
Building and workplace health & safety
Identification and remediation of health and safety issues
relating to the fabric of properties across the portfolio
including facades. Prevention of death or serious injury at a
Dexus owned or controlled site due to unsafe work practices.
– Increased costs associated with
physical risks (e.g. asset damage
from extreme weather)
– Increased costs associated
with transition risks (e.g. carbon
regulation, requirements for
building efficiency)
We focus on enhancing the resilience of our properties
to physical climate risks, implementing energy efficiency
initiatives and deploying renewable energy projects. Dexus’s
approach to climate change risk management is disclosed
in accordance with the recommendations of the Task Force
on Climate-related Financial Disclosures on page 60 and in
the 2019 Sustainability Performance Pack.
– Death or injury
– Reputational damage
– Loss of broader community
confidence
– Costs or sanctions associated
with regulatory response
– Costs associated with criminal/
civil proceedings
– Costs associated with
remediation and/or restoration
We adopt a series of measures to ensure building
and workplace health and safety is maintained in and
around our properties, including:
– Adoption of comprehensive work health and safety
programs and compliance by site contractors and
employees, including independent certification
against OHSAS 18001 Occupational Health and Safety
Management Systems
– Engagement of external consultants for facade audits
– Ongoing monitoring and testing of existing sites
– Regular training for both employees and
service providers.
28
Performance / Financial
Financial
Dexus’s quality portfolio, development pipeline and growing
funds platform are underpinned by a strong balance sheet,
facilitating a secure earnings stream with growth potential.
Strategy
Our strategy contributes to the generation
of long-term and sustainable returns. The
balance sheet investment strategy remains
focused on:
– Activating and investing in the
development pipeline
– Supporting growth in the funds
management business
– Selective core asset acquisitions which
provide potential to unlock additional
value in the future, and
– Divesting non-core assets to continue
improving the quality of the portfolio
In addition, we maintain diverse sources of
capital as well as conservative gearing to
provide capacity to fund the committed
development pipeline and optionality to fund
the uncommitted development pipeline.
Earnings drivers
Our earnings drivers comprise three areas:
– Property portfolio: the largest driver of
financial value, containing the Dexus
owned office and industrial portfolio
– Funds management: providing access to
wholesale sources of financial capital and
a steady annuity-style income stream
– Trading: packaging of properties to
generate trading profits
How we measure
financial performance
When measuring financial performance,
we focus on growth in Adjusted Funds From
Operations (AFFO) and distributions per
security as well as Return on Contributed
Equity to measure the returns achieved for
our Security holders.
In addition to the investment characteristics
outlined above, Dexus targets 10-year
unlevered internal rate of returns of 7-8% for
new acquisitions.
Case study
Attracting new investors for
sustained performance
Dexus broadened its relationships with third
party capital partners, attracting and securing
stable long-term capital sources to invest
alongside it through the cycle.
During the year Dexus established a circa
$2 billion1 Dexus Australian Logistics Trust (DALT)
with sovereign fund, GIC as its foundation
investor. DALT was seeded with assets from
Dexus’s existing industrial portfolio and has an
active acquisition and development mandate.
New investors were also secured across other
managed funds, including:
– M&G Real Estate purchased Future
Fund’s 50% interest in the Dexus Industrial
Partnership, which has achieved strong
performance since inception and now has a
revitalised growth mandate
– Healthcare Wholesale Property Fund (HWPF)
secured a major equity commitment of $100
million from Employees Provident Fund (EPF)
Malaysia. The investment enables HWPF to
progress the acquisition of a large scale,
high-quality healthcare asset for the fund’s
portfolio2
– DWPF undertook an equity raising to
fund the acquisition of an additional
25% interest in the MLC Centre. The offer
raised approximately $340 million of equity,
attracting six new investors
These new investor relationships have further
diversified Dexus’s unlisted investor base,
enabling it to pursue value accretive acquisition
and development opportunities both within the
funds management business and directly on
balance sheet.
To learn more about our progress
against our FY19 Sustained Value
commitments, refer to the 2019
Sustainability Performance Pack
available at www.dexus.com
1. On completion.
2. Subject to Responsible Entity and Advisory
Committee approvals and securing
debt financing.
Dexus 2019 Annual Report
29
Sustained
Value
5.0%
Growth in distribution per security
5.5%
Growth in AFFO per security
10.1%
Return on contributed equity
Board focus
Financial performance is a key focus area for the
Board and the Board Audit Committee. In FY19,
the Board and Board Audit Committee were
involved in:
– Considering and approving Dexus’s financial
reports, audit reports, market guidance,
distribution details, funding requirements
and liquidity, as well as property portfolio
valuation movements
– Approving the group’s Financial KPIs and
scorecard, in addition to annual and half year
results materials
– Approving the group’s capital management
activities including a $425 million
Exchangeable Note offering and an equity
raising, comprising a $900 million institutional
placement and a $63.9 million SPP, which was
increased from its original $50 million cap
Future focus
– Deliver circa 5% growth in
distribution per security for FY20
– Extend Weighted Average Lease
Expiry (WALE) and maximise
AFFO across the property portfolio
– Maintain a strong balance sheet
and further diversify debt
30 Performance / Financial
Financial
Group performance and outlook
This year we again delivered strong financial
performance for our investors.
Group performance
Our net profit after tax was $1.28 billion,
down 25.9% on the prior year. The key
driver of this movement was $773.1
million net revaluation gains, which were
$428.7 million lower than the prior year.
These revaluation gains alongside an
equity raising, comprising an institutional
placement and Security Purchase Plan
(SPP) also contributed to the 84 cent
increase in Net Tangible Assets (NTA)
per security to $10.48. Operationally,
Funds From Operations (FFO) increased
$28.2 million or 4.3% to $681.5 million.
The key drivers of the increase include:
– Office Property FFO increased as
a result of lease commencements
across the portfolio and acquisitions,
partly offset by divestments, vacancy
at 240 St Georges Terrace and a
delayed tenant payment
– Industrial Property FFO increased
due to lease commencements,
development completions and
one-off income, which was offset
by divestments
– Net finance costs reduced by
$17.3 million driven by capitalised
interest on development affected
properties and a lower cost of debt
This was partially offset by:
– A slight decrease in the quantum
of trading profits recognised
year-on-year
Dexus’s management expense ratio
(MER) reduced to 30 basis points due
to growth in funds under management
largely driven by acquisitions alongside
$773.1 million of revaluation gains.
Our underlying business, excluding
trading profits, delivered FFO per security
of 62.9 cents and grew by 3.8% on the
prior year. AFFO per security of 50.3 cents
grew 5.5%, driven by FFO growth and
slightly lower maintenance capital
expenditure.
Distributions per security were 50.2 cents,
up 5.0% on the prior year, with our
distribution payout remaining in line
with free cash flow in accordance with
Dexus’s distribution policy.
We achieved a ROCE of 10.1% driven
largely by the strong AFFO result as well
as revaluation gains from the recently
completed development at 100 Mount
Street in North Sydney.
We continued to maintain a strong
and conservative balance sheet with
gearing at 24.0% at 30 June 2019, well
below Dexus’s target range of 30–40%.
In May 2019, we raised $900 million
through an institutional placement and
a further $63.9 million through an SPP in
June 2019, enabling us to partially fund
80 Collins Street, Melbourne.
Total debt duration remained high at
6.7 years and we further diversified our
funding sources through the issue of
$425 million of Exchangeable Notes to
fund Dexus’s share of the acquisition of the
remaining stake in MLC Centre, Sydney.
Key financials
Funds From Operations (FFO) ($m)
Net profit after tax ($m)
AFFO per security (cents)
Distribution per security (cents)
ROCE (%)
Net tangible asset backing per security ($)
Gearing (look-through) (%)
FY19
681.5
1,281.0
50.3
50.2
10.1%
10.48
24.0%
FY18
Change
653.3
1,728.9
47.7
47.8
7.6%
9.64
24.1%
4.3%
(25.9)%
5.5%
5.0%
2.5ppt
8.7%
(10)bp
AFFO is a financial
measure of real estate
operating performance
and is determined by
adjusting Statutory
net profit after tax
for certain items
which are non-
cash, unrealised or
capital in nature,
then adjusting for
maintenance capex
and incentives.
The Directors
consider AFFO
to be a measure
that reflects
the underlying
performance
of the Group.
Dexus 2019 Annual Report
31
Total Property FFO 89%
Office property FFO 73%
Industrial property FFO 16%
Management operations 7%
Trading profits (net of tax) 4%
89% of FFO from Property portfolio
Total Property FFO 89%
Office property FFO 73%
Industrial property FFO 16%
Management operations 7%
Trading profits (net of tax) 4%
We expect financing costs to remain low
after two cuts to official interest rates.
10-year government bond yields are
forecast to remain below 2% for the next
couple of years, supporting investment
demand for the office, industrial and
alternative sectors.
Statutory profit reconciliation
Statutory AIFRS Net profit after tax
(Gains)/losses from sales of investment property
Fair value gain on investment property
Fair value loss on the mark-to-market of derivatives
Incentives amortisation and rent straight-line1
Non-FFO tax expense
Other unrealised or one-off items
Funds From Operations (FFO)2
Maintenance capital expenditure
Cash incentives and leasing costs paid
Rent free incentives
Adjusted Funds From Operations (AFFO)3
Distribution
AFFO payout ratio
FFO composition
Office property FFO
Industrial property FFO
Total property FFO
Management operations5
Group corporate
Net Finance costs
Other (including tax)
Underlying FFO
Trading profits (net of tax)
FFO
FY19
$m
610.5
137.3
747.8
54.6
(30.2)
(117.1)
(8.3)
646.8
34.7
681.5
FY19
($m)
FY18
($m)
1,281.0
1,728.9
(1.8)
(773.1)
(109.4)
116.8
15.7
152.3
681.5
(63.2)
(37.6)
(63.5)
517.2
529.0
98.7%4
FY18
$m
603.8
132.7
736.5
52.5
(27.4)
(134.4)
(10.5)
616.7
36.6
653.3
0.9
(1,201.8)
77.5
101.4
7.3
(60.9)
653.3
(72.9)
(33.2)
(61.7)
485.5
486.4
100.2%
Change
%
1.1%
3.5%
1.5%
4.0%
10.2%
(12.9)%
(21.0)%
4.9%
(5.2)%
4.3%
Including cash, rent free and fit out incentives amortisation.
1.
2. Including Dexus’s share of equity accounted investments.
3. AFFO is in line with the Property Council of Australia definition.
4. FY19 distribution payout ratio has been adjusted to exclude the $18.3 million of distributions
paid on new securities issued through the Institutional Placement and Security Purchase
Plan announced on 2 May 2019, which were fully entitled to the distribution for the six months
ending 30 June 2019. The distribution payout ratio was 102.3% including this amount.
5. Management operations income includes development management fees and in FY19
includes bidding costs for a development opportunity.
Group outlook
Moderating economy to benefit from stimulus
Australian economic growth is
moderating as the housing market
rebalances. However, the medium-term
outlook should benefit from reductions
in official cash rates and fiscal stimulus
from tax rebates.
The economy continues to benefit
from population growth of 1.6% and
a substantial infrastructure pipeline.
Australia’s Q1 2019 GDP growth rate of 1.8%
per annum is approximately equal to the
average rate of growth across the OECD.
Business confidence is below average
given uncertainty regarding the US and
China trade war, Brexit and a slowing in
Japan and Europe. However, confidence
is likely to benefit from residential prices
which are beginning to stabilise.
32
Performance / Financial
Financial
Property portfolio performance
We remain focused on maximising the performance of the property portfolio through leasing
and asset management activities, with the property portfolio contributing to 89% of FFO in FY19.
Office portfolio
performance
During the year, we leased
189,459 square metres of office space
across 267 transactions as well as
52,815 square metres of space across
office developments, locking in future
income streams.
It has been an excellent year in which
robust enquiry has converted to
significant leasing success, including
at our key office developments at
100 Mount Street in North Sydney
and 240 St Georges Terrace in Perth.
100 Mount Street is now 96% committed
after completing in May 2019, while
240 St Georges Terrace is now 93%
committed.
Our office portfolio delivered 3.4%
like-for-like income growth which was
affected by vacancy at Sydney Olympic
Park as well as a tenant dispute in
Queensland, with timing for receipt of
proceeds uncertain. The Queensland
space has already been leased to a new
tenant that is now in occupation. The
portfolio achieved a 10.6% total return
for the year to 30 June 2019 which was
driven by valuation uplifts and leasing.
Sydney office properties continued to
experience strong effective rental growth.
Occupancy increased to 98.0% at
30 June 2019 (FY18: 96.0%) driven by
leasing in our largest core market,
Sydney, as well as Brisbane.
Industrial portfolio
performance
During the year, we leased
324,765 square metres of industrial
space across 87 transactions, with the
portfolio continuing to benefit from an
uptick in logistics and e-commerce
demand. Portfolio occupancy
remained high at 97.0% (FY18: 98.3%)
and like-for-like income growth was
8.0%1 (FY18: 3.0%), an elevated result
due to one-off income achieved
above forecast.
Our industrial portfolio delivered a
total return of 12.9% for the year to
30 June 2019 (FY18: 13.6%).
Dexus office portfolio vs MSCI at 31 March 20192
Dexus industrial portfolio vs MSCI at 31 March 20192
20%
18%
16%
14%
12%
10%
12.7% 13.1%
12.9%
14.0% 13.9%
13.0%
13.3% 13.5%
12.8%
One year
Three years
Five years
20%
18%
16%
14%
12%
10%
13.9% 13.8% 13.8%
13.2%
13.0%
12.7% 12.9% 13.2%
11.8%
One year
Three years
Five years
Dexus office portfolio
Dexus group office portfolio
MSCI
Dexus industrial portfolio
Dexus group industrial portfolio
MSCI
1. Excluding one-off income is 2.5%.
2. Period to 31 March 2019 which reflects the latest MSCI Australian Quarterly Digest for All Property benchmark (formerly IPD) data available.
Dexus 2019 Annual Report
33
Office
+3.4%
Effective LFL
income
FY18: +4.5%
13.4%
Average
incentives1
FY18: 13.9%
189,459sqm
Space leased1
98.0%
Occupancy
FY18: 96.0%
Industrial
+8.0%2
Effective LFL
income
FY18: +3.0%
4.4 years
WALE
FY18: 4.6 years
11.7%
Average
incentives
FY18: 12.6%
324,765sqm
Space leased
97.0%
Occupancy
FY18: 98.3%
4.7 years
WALE
FY18: 4.8 years
Property market outlook
Office markets well positioned.
Leading indicators such as job advertisements and
business confidence have eased. Net absorption is likely
to be subdued in FY20 given a lack of available space
in Sydney and Melbourne.
Australian office markets are well placed to handle a
period of softer demand. Vacancy rates are at historic
lows for Sydney (4.1%) and Melbourne (3.8%), and supply
growth is still moderate overall with the exception of
Melbourne (albeit 75% of the Melbourne supply up to the
end of FY22 is pre-committed).
The Brisbane and Perth markets are in recovery phase
with rising rents and falling vacancy rates. The fact that
Brisbane and Perth are at different points in the cycle to
Sydney and Melbourne provides useful diversification.
Inner city areas and CBDs benefit from faster
employment growth than other regions. Over the long
term, office properties in the CBD stand to benefit
from a virtuous cycle of employment growth and new
infrastructure investment.
The industrial sector is in a growth phase.
Demand is running at above average levels given
population growth and infrastructure investment
combined with investment in supply chains by retailers
and suppliers.
E-commerce is emerging as a significant driver
of demand as online sales expand at double digit
growth rates.
Rents continue to grow, particularly in land constrained
areas in Sydney and Melbourne. Conditions in Brisbane
are expected to continue to improve in the medium
term as the economy strengthens.
1. Excluding development leasing of 52,815 square metres.
2. Excluding one-off income is +2.5%.
34
Performance / Financial
Financial
Funds management performance
Our strategic objective of
being the wholesale partner
of choice in Australian
property and track record
of driving investment
performance enables Dexus
to attract third party capital
partners to invest alongside
through the cycle.
Third party funds under management
increased to $16.2 billion, up 16% from
30 June 2018, driven by the launch of a
new fund, acquisitions, developments
and revaluations, partially offset by
divestments.
We welcomed GIC as the foundation
investor in the Dexus Australian Logistics
Trust (DALT). DALT has been seeded with
assets from Dexus’s existing industrial
portfolio comprising $1.4 billion of core
logistics properties and a $138 million
development landbank (circa $0.5 billion
on completion).
The establishment of this new unlisted
logistics vehicle unlocks the growth
potential of the group’s industrial
platform, broadening relationships and
providing a stable long-term source of
capital to invest alongside us through
the cycle.
We also welcomed M&G Real Estate as
a new investor in the Dexus Industrial
Partnership. Since its establishment
in June 2014, we have achieved an
unlevered IRR of 14.5% on our investment
in the Partnership (post fees) and will
continue to deliver on the Partnership’s
growth mandate through acquisitions
and active management.
DWPF undertook an equity raising to
fund its acquisition of an additional 25%
interest in the MLC Centre acquisition,
raising $340 million of equity, attracting
six new investors and further diversifying
DWPF’s unitholder base. An additional
three investors joined the fund during
the year.
HWPF made significant progress in its
capital raising efforts, securing a major
equity commitment of $100 million
from Employees Provident Fund (EPF)
Malaysia. This commitment will enable
HWPF to acquire1 North Shore Health
Hub, Stage 1 of the development
at 12 Frederick Street, St Leonards
currently held in Dexus’s Trading portfolio.
All funds delivered strong performance,
with DWPF achieving a one-year total
return of 10.24% post fees, outperforming
its benchmark over one, three, five,
seven and ten years. The Dexus Office
Partnership has delivered an annualised
unlevered total property return of 14.3%
since inception.
Post 30 June 2019, Dexus reached
agreement to restructure the investment
management joint venture with
Commercial & General for HWPF,
resulting in a streamlined governance
structure and Dexus continuing as the
sole investment manager of the Fund.
Dexus has also agreed to purchase
Commercial & General’s units in HWPF.
Management operations FFO
$60m
$55m
$50m
$45m
$40m
$54.6m
$52.5m
FY18
FY19
Diversified Funds Management platform
Funds Management portfolio
189%
growth in FUM
since FY12
$16.2bn
on behalf of
79 clients from
10 countries
16
14
12
10
8
6
4
2
0
$5.6bn
FY12
FY19
$16.2bn
DWPF $10.4bn
Australian Industrial Partner $0.4bn
Australian Mandate $2.1bn
Dexus Office Partner $2.5bn
Dexus Industrial Partner $0.2bn
Dexus Australian Logistics Partner $0.5bn
HWPF $0.1bn
1. Subject to Responsible Entity and Advisory Committee approvals and securing debt financing.
Dexus 2019 Annual Report
35
Funds management
outlook
Trading performance
and outlook
Our funds management
business’s current exposure
is 53% to office properties,
14% to industrial properties,
32% to retail properties and
1% to healthcare properties.
Office and industrial property
performance is expected to be
influenced by the key lead indicators
described on page 33.
Australian retail turnover growth remains
positive at 3.1% per annum on a moving
annual basis. Going forward, spending
should benefit from the stimulatory effect
of recent cuts in bank mortgage rates
and Federal tax rebates.
Online retail sales grew at 4.8% per
annum in the year to May 2019. The
importance of quality shopping centres
is reinforced by a recent survey which
found that 60% of online sales captured
by domestic retailers are by players with
an omni-channel (physical) presence.
Demand for healthcare services
will continue to benefit from ageing
demographics, longer life expectancy
and population growth.
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.
Trading profits of $34.7 million net of tax were achieved in FY19
following the sale of 32 Flinders Street, Melbourne.
Construction is now underway at the North Shore Health
Hub at 12 Frederick Street in St Leonards, with the facility
approximately 50% leased ahead of expected completion in
late 2020. The multi-tenanted facility is located adjacent to the
existing North Shore hospital precinct, offering occupants a new
benchmark in medical workspace.
Dexus progressed the sale of the North Shore Health Hub,
St Leonards1, and post 30 June 2019 exchanged contracts to sell
a 25% interest in 201 Elizabeth Street, Sydney, while entering into a
put and call option to sell the remaining 25% interest in late 2020.
The sale of 201 Elizabeth Street is expected to contribute circa
$34 million in trading profits pre-tax in FY20 and a further circa
$34 million in FY21 in the event either option is exercised.
Five projects2 diversified across sectors and trading strategies
have been earmarked to deliver trading profits of $210-$300
million pre-tax in future years, including 201 Elizabeth Street and
North Shore Health Hub mentioned above.
Trading FFO
FY18
FY19
$36.6m
$34.7m
$20m
$25m
$30m
$35m
$40m
1. Subject to Responsible Entity
and Advisory Committee
approvals and securing
debt financing.
2. Includes North Shore Health
Hub, St Leonards and
201 Elizabeth Street, Sydney.
36
Performance / Financial
Financial
Financial position and capital management
Financial position
– Total look-through assets increased
by $2,567 million primarily due
to $1,726 million of acquisitions,
development capital expenditures
and $773.1 million of property
valuation increases, partially offset
by $682 million of divestments.
– Total look-through borrowings
increased by $786 million due to
funding required for the acquisition
of the remaining interest in the
MLC Centre, Sydney as well as
development capital expenditure
partly offset by divestments.
– Total number of securities on issue
increased by 79,660,788 following
the institutional placement and
SPP mentioned on page 30.
Capital management
We continued to maintain a strong
and conservative balance sheet, with
gearing at 24.0%.
A $963.9 million institutional placement
and SPP enabled us to partially fund
the acquisition of 80 Collins Street,
Melbourne.
Total debt duration remained high at
6.7 years and we further diversified our
funding sources through the issue of
$425 million of Exchangeable Notes
to fund Dexus’s 25% interest of the
acquisition of the remaining stake in
the MLC Centre, Sydney.
Our strong balance sheet provides the
capacity to fund projects in our current
and future development pipeline.
We have manageable short-term
refinancing requirements and remain
within all of our debt covenant limits
and target ranges.
To learn more about our
Sustained Value approach
visit www.dexus.com
Office investment properties
Industrial investment properties
Healthcare investment properties
Other1
Total tangible assets
Borrowings
Other liabilities
Net tangible assets
30 June
2019
$m
30 June
2018
$m
13,193
2,337
86
860
16,476
(4,231)
(751)
11,494
11,038
2,245
54
572
13,909
(3,445)
(658)
9,806
Total number of securities on issue
1,096,857,665
1,017,196,877
NTA ($)
10.48
9.64
1. Excludes the $73.2 million deferred tax liability on management rights in line with accounting
changes as disclosed in the FY17 financial statements.
Key metrics
Gearing (look-through)1
Cost of debt2
Duration of debt
Hedged debt (incl caps)3
S&P/Moody’s credit rating
30 June
2019
$m
30 June
2018
$m
24.0%
4.0%
24.1%
4.2%
6.7 years
7.0 years
74%
A-/A3
71%
A-/A3
1. Adjusted for cash and debt in equity accounted investments.
2. Weighted average for the year, inclusive of fees and margins on a drawn basis.
3. Average for the year. Hedged debt (excluding caps) was 58% for the 12 months to
30 June 2018 and 55% for the 12 months to 30 June 2019.
Diversified sources of debt
Debt capital
markets
64%
Bank debt
36%
Bank debt facilities 36%
Commercial Paper 2%
MTN 12%
Exchangeable Notes 9%
USPP 34%
144A 7%
Dexus 2019 Annual Report
37
38
38
Performance / Properties
Properties
As a real estate group, our properties are
central to our value creation framework.
Dexus owns and manages high-quality,
sustainable properties located in
the key CBDs around Australia.
Underpinned by our customer-centric
approach, we utilise our asset and
property management expertise to
optimise building functionality and
maintain high occupancy levels. Further
value is unlocked by capitalising on
development opportunities, in turn
enhancing portfolio quality and
increasingly meeting the growing
demands of our customers.
Our development
projects contribute to
creating Leading Cities
by adding to the fabric
and economic prosperity
of cities, and satisfying
the evolving needs of our
growing customer base.
Leading Cities
Cities around the world are just one
third of their way through a 100-year
cycle of urbanisation. In Australia,
this is supported by strong long-term
population growth forecasts in Sydney
and Melbourne and record levels of
infrastructure investment to support
their accessibility, liveability and
sustainability as they grow.
One of the key megatrends impacting
our business model is the continued
growth of cities and urbanisation. There
is a mutual relationship between these
growth drivers and the role that Dexus
can, and does, play in shaping our cities
for the future as desirable places to live,
work and play.
This is consistent with our strategy
which is centred on delivering superior
returns from high quality real estate
located in Australia’s major cities.
This city focus means that our value
creation potential is closely linked to the
success of Australia’s major cities which
are recognised for their amenity, ease
of access, and place to do business.
We are Australia’s preferred office
partner with 1.7 million square metres of
office space spanning across 53 office
properties, covering the central business
districts of Sydney, Melbourne, Brisbane
and Perth.
Our leasing efforts impact portfolio
occupancy which is a key driver
of cash flow optimisation. In FY19,
the Sydney and Brisbane office
markets drove strong leasing activity
resulting in an increase in Dexus’s
office portfolio occupancy to 98.0%
(FY18: 96.0%), with 52,815 square
metres (FY18: 52,589 square metres)
of development leasing undertaken,
securing future income streams.
Our experience in developing high
quality properties across Australian CBDs
has demonstrated the value of securing
opportunities and development sites
with a long-term focus on creating value.
Kings Square, Perth was acquired by
Dexus as a fund-through development
project with DWPF in 2013. The property
has performed well throughout a
challenging period in the Perth market,
due to income security being locked in
at the time of acquisition, and the office
complex is now 99% leased.
On the east coast, after years of
limited supply 100 Mount Street was the
catalyst for the next wave of quality
office accommodation coming online
in North Sydney that is appealing to
a more diverse range of tenants who
see North Sydney as a viable alternative
to the Sydney CBD. The premium tower
was completed in May 2019 and is now
96% leased.
Our approach
towards Leading
Cities involves:
– Developing world-class office
properties that deliver customer-
focused, sustainable workplaces
and which enhance the amenity
and vibrancy of CBDs
– Contributing to the long-term
viability of cities by integrating
sustainable outcomes into
developments
– Building mutual city partnerships
through collaboration with
industry associations
To learn more about our progress
against our FY19 Leading Cities
commitments, refer to the 2019
Sustainability Performance Pack
available at www.dexus.com
To learn more about our
Leading Cities approach
visit www.dexus.com
Dexus 2019 Annual Report
39
Leading
Cities
$31.8bn
Value of property
portfolio
98.0%
Dexus office
portfolio occupancy
10,149
Construction
jobs supported2
$1.6bn
Gross Value Added1
(GVA) to the
Australian economy
$7.1bn
Group
development
pipeline
Circa
$2.2bn
Future concept
development
opportunities
Board focus
From a property portfolio perspective, the Board approves any acquisitions, divestments
or developments. In FY19, the Board approved:
– Acquiring 52 and 60 Collins Street, Melbourne (a future development site)
– Acquiring the remaining interest in the MLC Centre, Sydney (Dexus 25%)
– Acquiring 80 Collins Street, Melbourne (Dexus 75%)
– Acquiring key Sydney properties, on a deferred settlement basis, to create a potential
super site incorporating 56 Pitt Street, Sydney
– Establishing DALT which involved the sale of end value circa $2 billion of industrial
properties into the trust
– Divesting 11 Talavera Road, Macquarie Park and Finlay Crisp Centre, Canberra
– Activating development projects at:
• North Shore Health Hub, Stage 1 of 12 Frederick Street, St Leonards an identified
trading property earmarked to become an asset of the HWPF
• 140 George Street, Parramatta owned within the Dexus Office Partnership, subject
to tenant pre-commitment
Future focus
– Maintain Dexus office portfolio occupancy
at or above 95%
– Create city retail precincts that improve the
amenity and vibrancy of our CBDs
– Contribute to economic growth through the
generation of employment and contribution
to GVA from development projects
1. Total Gross Value Added (GVA) includes estimated
direct GVA and indirect GVA generated to the
economy by developments completed in FY19 and
currently underway. Source: Urbis; Dexus.
2. Total construction jobs include direct and indirect
employment supported by developments completed
in FY19 and currently underway. Source: Urbis; Dexus.
40 Performance / Properties
4040
Properties
Securing opportunities.
Adding value.
The acquisition of the remaining 50%
interest in MLC Centre, Sydney during
FY19 enabled the commencement
of a project that will transform the
retail offering over four levels, create
a new lobby entrance, enhance
the street appeal and community
offering in the Sydney CBD.
The recent acquisition of properties
located adjacent to 56 Pitt Street,
Sydney provides a compelling
opportunity to consolidate the sites
and to create a potential super site
(Pitt and Bridge precinct) and deliver
a significant office development
located in the financial core of the
Sydney CBD for a future supply cycle.
In Melbourne, we secured 60 and
52 Collins Street, providing a unique
opportunity to consolidate the two sites
to create value by delivering the latest
generation of office space in the next
supply cycle in a prime location where
our customers want to be.
Our office properties are located where
our customers want and need to be.
Sydney
937,503
square metres
Melbourne
377,116
square metres
Brisbane
271,920
square metres
Perth
121,606
square metres
Dexus 2019 Annual Report
41
Our development pipeline includes
properties Dexus is developing to hold
directly or on behalf of our third party
capital partners (Core) and properties
that will be packaged and sold to
generate trading profits (Trading).
42
Performance / Properties
Properties
Committed development pipeline
Our committed development
pipeline includes properties that
have achieved relevant approvals
and have commenced or are set
to commence construction shortly.
180 Flinders Street,
Melbourne (Core)
A vibrant new office tower which
complements the refurbishment of the
existing heritage offices and building façade
fully restored to its former glory.
Project cost: $146 million
Ownership: 100% Dexus
Expected completion: Mid-2020
12 Creek Street – The Annex,
Brisbane (Core)
A new development featuring boutique office
space with a rooftop terrace, cascading gardens
that combine in a vertical village to provide access
to fresh air, and a casual dining precinct set in
a vibrant forecourt.
Project cost: $62 million
Ownership: 50% Dexus, 50% DWPF
Expected completion: Late 2019
240 St Georges Terrace,
Perth (Core)
A Premium office building redevelopment located in the
heart of the Perth CBD with new end-of-trip amenity,
refurbished office floors and the introduction of a Dexus
Place, along with a renewed street entry, improved retail
offering and a new childcare centre.
Project cost: $193 million
Ownership: 100% Dexus
Expected completion: Late 2019
Dexus 2019 Annual Report
4343
MLC Centre, 19 Martin Place,
Sydney (Core)
The MLC Centre precinct will be transformed into a
vibrant community offering retail, dining, cultural and
commercial spaces in the heart of the Sydney CBD.
Project cost: $170 million
Ownership: 50% Dexus, 50% DWPF
Expected completion: Late 2021
North Shore Health Hub
12 Frederick Street,
St Leonards (Stage 1): (Trading)
The North Shore Health Hub is a premium healthcare
facility for auxiliary medical services supporting existing
infrastructure in a growing healthcare precinct.
Ownership: 100% Dexus
Expected completion: Late 2020
Lot 15, 11-167 Palm Springs Road,
Ravenhall, Victoria (Core)
– A purpose built facility across 35,300 square metres
including manufacturing, warehousing and a corporate
head office for Scalzo foods
– First pre-commitment development lease secured for the
estate which was acquired in June 2018
– Speculative facility also being built
Project cost: $83 million
Ownership: 25.5% Dexus, 50% DWPF, 24.5% Dexus Australian
Logistics Partner
Expected completion: Late 2020
Clearwater Place and Dohertys Road,
Truganina, Victoria (Core)
– A purpose-built temperature controlled warehouse facility
across 7,300 square metres for Coles Supermarkets Australia to
service its Victorian market
– A 9,100 square metre multi-purpose facility designed to
accommodate Dunlop Flooring’s national distribution centre,
head office and showroom
Project cost: $44 million
Ownership: 100% Dexus
Expected completion: Mid-2020
44 Performance / Properties
Properties
80 Collins Street,
Melbourne (Core)
This property is a key precinct project
contributing to Leading Cities but not a part
of the group’s development pipeline as it
was acquired on a fund-through basis which
will deliver a completed project with the
leasing of vacant space being undertaken by
Dexus. The large-scale site is located at the
‘Paris end’ of Collins Street and comprises an
existing 47 level A-grade office tower (North
tower), and three components currently under
development including a new 35 level premium
office tower (South tower), a new retail podium
and a new 255 room boutique hotel.
Total acquisition price: $1.476 billion1
Ownership: 75% Dexus, 25% DWPF
Expected completion: Mid–late 2020
Calvary Adelaide Hospital,
Adelaide (Core)
Upon completion, the new Calvary Adelaide
Hospital will provide a high-quality
contemporary facility with 343 beds. The new
facility replaces the existing Calvary Wakefield
and Calvary Rehabilitation Hospitals.
An asset of HWPF, the project is located on the
corner of Angas and Pulteney Streets on the
edge of the Adelaide CBD.
Current valuation (as if complete): $338 million
Ownership: 100% HWPF
Expected completion: Late 2019
1.
Includes the existing North tower. The new components of the 80 Collins precinct
are currently being developed. Dexus and DWPF have joint ownership and their
contribution to the development is limited to the acquisition price.
Dexus 2019 Annual Report
45
46
Performance / Properties
Properties
Uncommitted development pipeline
Our uncommitted
development pipeline
includes properties identified
for future development
that are awaiting
various approvals before
commencing construction.
Carillon City,
Perth (Core)
A masterplanned transformation of
the Carillon City precinct into a vibrant
mixed-use lifestyle destination offering
retail, dining, entertainment and
commercial spaces in the heart of the
Perth CBD.
Project cost: Circa $100 million
Ownership: DWPF 100%
140 George Street,
Parramatta (Core)
A Prime grade office development
located in the heart of the Parramatta
CBD, providing an innovative workplace
environment and superior wellness
amenity, complemented by an enhanced
public domain.
Expected project cost: Circa $400 million
Ownership: 50% Dexus, 50% Dexus
Office Partner
60 and 52 Collins Street,
Melbourne (Core)
Consolidation of two adjacent sites to
create a Prime grade office space located
at the ‘Paris end’ of Collins Street.
Expected project cost: Circa $550 million
Ownership: 100% Dexus
12 Frederick Street,
St Leonards (Stage 2)
(Trading)
A world class health and education
precinct adjoining major health
infrastructure, the St Leonards Health
Precinct combines clinical care, research
facilities, a medi-hotel and key worker
housing that will expand the existing
medical precinct.
Ownership: 100% Dexus
Industrial development
landbanks (Core)
Three industrial sites in Melbourne,
Sydney and Brisbane with a
combined end value of $700 million.
– 11-167 Palm Springs Road, Ravenhall,
VIC is a 127-hectare industrial estate
in a core West Melbourne industrial
precinct, with development planned
over the next 5-7 years (Dexus
25.5%, DWPF 50%, Dexus Australian
Logistics Partner 24.5%)
– 54 Ferndell Street, South Granville,
NSW is a 10-hectare brownfield
opportunity in a tightly held
industrial market with constrained
land supply (Dexus 51%, Dexus
Australian Logistics Partner 49%)
(artist’s impression above)
– 425-479 Freeman Road, Richlands,
QLD is a 9-hectare brownfield
opportunity located in close
proximity to DWPF’s Drive Industrial
Estate (Dexus 51%, Dexus Australian
Logistics Partner 49%)
Dexus 2019 Annual Report
47
Waterfront Precinct
Masterplan,
Brisbane (Core)
A major redevelopment of the Eagle Street
Pier creating a precinct with an alternate
master plan under review.
Expected project cost: Circa $900 million
Ownership: 50% Dexus, 50% DWPF
Pitt and Bridge precinct,
Sydney (Core)
A potential office development for Dexus
and the Dexus Office Partner on a large
3,300 square metre site located in the
financial core of the Sydney CBD.
Expected project cost: Circa $2.6 billion
Ownership: 50% Dexus, 50% Dexus
Office Partner
Case study
100 Mount Street delivers a new
landmark for North Sydney
After years of limited supply, 100 Mount
Street has kicked off the next wave of
quality office accommodation coming
online in North Sydney, supporting the
revitalisation of the North Sydney CBD.
The tower adopts ‘smart’ building
technology solutions designed
to promote connectivity, comfort
and convenience for the building’s
occupants including:
100 Mount is a landmark 35-level
premium office tower spanning
approximately 41,900 square metres.
Occupying one of the best locations in
North Sydney, the site is set to benefit
from proximity to the new North Sydney
Metro Station currently under
construction.
The development was acquired by
Dexus (50%) and DWPF (50%) in April
2016 at a time when there was a lack
of quality space available in the North
Sydney office market. During the period
of construction, Dexus secured 12 new
customers including NBN Co, taking
leased space to 96% at practical
completion in May 2019.
Dexus created significant value at
100 Mount Street, at a total cost,
including acquisition and construction
costs, of $466 million.
The property was valued at $764 million
(100% interest) as at 30 June 2019 based
on a capitalisation rate of 4.88% and
has delivered an annualised unlevered
IRR of 39.6% to 30 June 2019, above the
target development IRR of 12-14%.
Contributing to leading
cities
100 Mount is an iconic centre for
commerce in North Sydney’s growing
CBD that sets a new benchmark for
workplace design, sustainability features
and public amenity.
– The ability to ‘plug and play’
technology as it becomes available
without impacting on operations
– Leading full cellular coverage
throughout the building and an
upgrade path to the impending
5G standard
– High performance, free WiFi in
common and public spaces
– A turnkey network-as-a-service
solution enabling new customers to
gain connectivity and leverage the
substantial IT infrastructure embedded
in the building from their first day of
occupation
At the ground level, the lobby comes to
life with digital artwork by internationally
renowned photographer, Tamara Dean.
The development offers new dining and
retail experiences and a pedestrian
pathway bisects the site to connect the
building to nearby public transport.
An exemplar of sustainable design,
100 Mount is targeting 5 Star Green Star
Design & As Built and 5 star NABERS
Energy ratings. The International WELL
Building Institute™ has awarded 100
Mount the WELL Core & Shell Gold
Pre-certification.
This new development supported
more than 1,800 construction jobs and
contributed approximately $300 million
in GVA during construction.
48
Performance / Properties
Properties
Concept development opportunities
We have identified circa
$2.2 billion of future concept
development opportunities
to continue to grow its
pipeline of value enhancing
projects and contribute to
Leading Cities.
Ward Street precinct,
North Sydney (Core)
A new masterplan for the Ward Street precinct
consolidates three existing properties to create
circa 70,000 square metres of office space in
close proximity to the future North Sydney Metro
station. (Dexus, Dexus Office Partner)
The confidence
we have in the
sustainability of
Australian cities puts
us in a great position
to actively seek
new development
opportunities.
Henry Deane Place,
Sydney (Core)
Dexus and Frasers Property are progressing
an exclusive position to integrate the NSW
Government’s plans to revitalise Sydney’s
Central Station through the redevelopment
of the Lee Street properties into a large scale,
mixed-use development integrating
a transport and pedestrian solution.
(Dexus, Dexus Office Partner)
Axxess Corporate Park,
Mount Waverley (Core)
A unique investment opportunity to
create a health, education and research
precinct underpinned by innovation
and critical infrastructure. (Dexus)
Dexus 2019 Annual Report
49
Case study
Quarry, Greystanes delivers a premium
industrial estate to Western Sydney
Quarry, Greystanes (Quarry) is the most
significant industrial estate developed
in the expanding Greater Western
Sydney area in recent years.
Dexus and its third party capital
partners acquired the 70-hectare
site over two tranches in 2007 and
2014 and Dexus has delivered more
than 310,000 square metres of premium
warehouse space and 30,000 square
metres of high-quality office space.
Dexus worked alongside its customers
to deliver highly efficient, state-of-
the-art facilities to meet their specific
requirements.
With a focus on sustainability, facilities
in the estate feature:
– Capacity for rooftop solar PV panels,
achieving energy and operational
cost savings through renewables
– Harvested rainwater from rooftops
combined with highly efficient water
fixtures in bathrooms and irrigation
– Intelligent LED lighting with sensors
combined with motion and smart
daylight harvesting
– Translucent roofs and wall sheeting
for improved natural daylight linked
to smart lighting
Contribution to leading
cities
More than 30 high calibre customers
across a range of sectors are located
at Quarry including Bunnings Trade,
Toshiba, HelloFresh, Symbion, Beaumont
Tiles and Coco Republic, providing
employment for around 3,000 people.
Quarry has established a key economic
hub for Greater Western Sydney,
supporting more than 1,400 construction
jobs and contributing approximately
$240 million in GVA during construction.
50 Performance / People and capabilities
People and capabilities
Our people and capabilities are central to how Dexus delivers
on its strategy. Our people are inspired and motivated
to create spaces where people thrive, supported by
a culture that delivers sustained value for our investors and
other stakeholders.
Sustained employee
engagement and
commitment
Our people are passionate, agile and
engaged in the purpose and direction of
Dexus. Our most recent employee survey
returned an employee Net Promoter
Score of +40, signalling high levels of
engagement and a strong connection
to Dexus. In the same survey, more than
95% of our people indicated they were
proud to work for Dexus. Our All People
Flex policy empowers our people to work
flexibly to achieve the work-life balance
that suits them, and more than 80%
of our employees participate in either
formal or informal flexible working
practices.
Our employee surveys also tell us that
most of our people feel that we have
a culture of openness and trust. We
continue to work with our people to
reinforce and sustain best practices
when it comes to embedding a strong
risk culture. We believe our risk culture
is a strength at Dexus, leading to
better decision making and fair and
ethical outcomes for our customers and
stakeholders.
539
Total Dexus
employees
Fostering an inclusive
and diverse workforce
Our approach to inclusion and
diversity allows us to harness different
perspectives for better decision-making,
as well as providing access to the
widest pool of available talent. Our
people identify with 16 different cultural
and ethnic backgrounds, and we are
also focused on other segments of
the Australian workforce to reflect
our customers and communities. We
recently signed up to the Veterans
Employment Commitment to support
and progress Australian Veterans
returning to the workforce.
Over the past year, we continued
our focus on gender equality, earning
an Employer of Choice for Gender
Equality citation by the Workplace
Gender Equality Agency for the second
consecutive year. We made progress
toward our gender diversity target of at
least 40% female representation in senior
and executive management roles by
2021, with 37% female representation at
30 June 2019.
More broadly, our people continued to
serve as mentors, sponsors, and mentees
within the Property Council of Australia’s
Women in Property program and we
have committed to programs such as
Pride in Diversity to benchmark our
inclusion efforts. We have also partnered
with Career Trackers to provide industry
experience for Indigenous students
through internships.
Investing in our people
We continue to focus on internal career
planning, development and new
opportunities for our people. Over the
past year, we placed internal candidates
in 27% of available roles.
We believe that investments in our
people and capabilities will create
meaningful and productive workplaces
for our teams and enable the right
culture and behaviours to deliver
sustained results.
During the year, senior leaders and
future leaders participated in the Dexus
Leadership Academy which focused
on the role that culture, purpose and
strategy plays in our organisation.
To help support continuous improvement,
Dexus launched the Business Excellence
Champion program, which will equip
people with the skills required to drive
efficiency, eliminate waste, and deliver
sustained value for the group into the
future.
Our commitment to building a diverse,
capable and engaged workforce
continues to support our strategy and
deliver sustained results. For our people,
coming to Dexus to create spaces where
people thrive will continue to underpin
our purpose, culture and values.
To learn more about our progress
against our FY19 Thriving People
commitments, refer to the 2019
Sustainability Performance Pack
available at www.dexus.com
Dexus 2019 Annual Report
515151
Thriving
People
+40
Employee Net Promoter Score
37%
Females in senior and
executive management roles
27%
Available roles filled by
internal applicants
Board focus
– The Board People and Remuneration
Committee oversees all aspects of human
resource management as well as Director
and Executive remuneration at Dexus. For
further details on the key focus areas during
FY19, refer to the Remuneration Report on
page 68 or the Corporate Governance
Statement available at www.dexus.com
Future focus
– Maintain an employee Net
Promoter Score at or above +40
– Place internal candidates in more
than 20% of available roles
– Achieve 40:40:20 gender mix in
senior and executive management
roles by FY21 (40% female, 40% male,
20% any gender)
52
Performance / People and capabilities
People and capabilities
The importance of
health and wellbeing
We support the health and wellbeing
of our people through a suite of
wellbeing benefits and a program of
activities throughout the year, including
Wellbeing Month which was held in
May 2019. Throughout the remainder
of the year, Dexus’s Give, Grow, and
Thrive wellbeing communities led
initiatives including blood donations,
first aid training, social events, and
mindfulness sessions.
We value the safety of our workplaces
across Australia. Our goal is a no harm,
safe work environment, and during the
year we recorded zero fatalities and
no lost time injuries. We also achieved
an average safety audit score of 98%
across our corporate and management
workspaces and continued to
successfully implement our work health
and safety system, which is certified
under OHSAS 18001.
Case study
Creating a workplace where
people thrive - Wellbeing Month
Dexus’s commitment to employee
health and wellbeing extends beyond
the activities of Wellbeing Month,
with a variety of ongoing initiatives
available including:
– a monthly Wellbeing subsidy to
put towards wellbeing activities
such as gym memberships,
massages or hobbies
– Dexus Days – five additional days
of annual leave intended to help
balance work and life
– Onsite health and fitness classes –
a range of boot camps, yoga and
Pilates classes
– Discounted membership to gyms,
nutritional programs and health
consultations
Dexus understands the importance
of supporting health and wellbeing
for its people and how it translates to
performance and will continue to invest
in programs that bring out the best in
its people.
As part of a commitment to creating
spaces where people thrive, Dexus
designed a suite of benefits and
programs focused on enhancing
employee wellbeing. A highlight of
Dexus’s offering included Wellbeing
Month, which featured a range
of activities designed to enhance
physical and mental health.
Wellbeing Month was held in May 2019
across Dexus offices around the country.
Activities were organised by Dexus’s
Thrive, Grow and Give Communities
and supported by weekly social
events aimed at promoting a positive
workplace culture.
The month attracted high participation
rates in activities including:
201
flu vaccines
73
skin checks
164
massages
38
posture checks
65
employees
participating
in mindfulness
training
18
employees
completing
first aid training
To learn more about our
Thriving People approach,
visit www.dexus.com
Dexus 2019 Annual Report
53
54
Performance / Customers and communities
Customers and communities
Our ability to create value relies on strong and enduring
relationships with our customers, suppliers and the communities
where we operate.
Future enabled customers
We understand the importance of
high-performing workspaces for
employee productivity and business
success, and our comprehensive
customer product and service offering
supports our customers’ success today
and into the future.
We know that our customers are more
likely to be satisfied when we listen to
their concerns and address their needs.
Our customer-centric approach is
underpinned by our Customer Promise to:
– Listen, understand and respond to
customer needs
– Make things ‘simple and easy’
– Innovate to enrich customer experience
This year we evolved the Dexus
experience, which is our suite of customer
benefits that includes access to a range
of products and services designed to
make our customers’ work lives easier,
healthier and more enjoyable. This
includes priority access to childcare,
concierge services, end-of-trip facilities
and a growing program of building
community events and wellbeing
activities through our Wellplace offering.
Our customer focus has delivered
positive results for our customers and
for Dexus. This year our customer Net
Promoter Score increased to +46, a
strong improvement on the FY18 result
of +32. Half of the customers who
responded to our annual customer
survey said that they were ‘highly likely’
to renew their lease (up from 43% in 2018
and 28% in 2013).
Our customers told us that they are
more satisfied because we have:
– Enhanced consistency in service
delivery across the portfolio
– Reduced operational issues
by improving the resolution of
service requests
– Implemented tailored action plans
on the back of a thorough analysis of
customer feedback
Data-driven decisions
With the evolution of data collection
and analytics, we are able to act upon
deeper insights into how our customers
are consuming spaces and services.
Over the past three years we have
integrated more than 270,000 data
points across our portfolio into a fault
detection and analytics platform,
which enables us to quickly identify
opportunities and ensure our properties
are performing optimally.
With the help of sensors and data
analytics at our SuiteX flexible offering,
we have identified usage trends which
were not envisaged and can adapt the
space to suit. By sharing these insights,
we can enhance the experience for the
people who spend most of their days in
our properties.
Our smart
building blueprint
At Dexus, we leverage technological
change for the long-term benefit of
our workspaces, avoiding the gimmicks
and securing the game changers that
enhance the customer experience.
Our smart building blueprint relies on six
interconnected pillars that we know are
important to our customers including
safety, sustainability, productivity,
experience, wellbeing and connectivity.
At 100 Mount Street, our new 35-level
office tower in North Sydney, we have
combined the latest in smart sensors
and connectivity including a dedicated
Internet of Things network. This provides
the ability to plug and play technology
as it becomes available without
impacting day-to-day operations.
The suite of technologies is designed
to boost customer experience through
optimising the use of space and
supporting occupant comfort and
wellbeing. A further driver is energy
efficiency, where technology enhances
the building’s sustainability performance
and progresses our pathway to net zero
carbon emissions by 2030.
We determine the best use of technology
not just for its suitability for one
building, but its scalability across our
portfolio. By applying our scale, we
gain great commercial outcomes and
ultimately offer a smooth and consistent
experience for our customers.
>4,700
Customers
To learn more about our progress against our FY19
Future Enabled Customers and Strong Communities
commitments, refer to the 2019 Sustainability
Performance Pack available at www.dexus.com
Dexus 2019 Annual Report
55
55
Future Enabled
Customers
and Strong
Communities
+46
Customer Net Promoter Score
>$1.2m
Value of community contribution
>$550m
Operational procurement spend
Board focus
Our customer and communities are stakeholders
that are a continued focus for the Board. In FY19
the Board was involved in:
– Reviewing and discussing the annual customer
survey results and associated actions
– Discussing Management’s approach to
customer compliments and complaints
– Discussing Dexus’s customer centric
aspirations and alignment with group strategy
– Discussing Dexus’s charitable initiatives
– Discussing and reviewing the group’s
approach in relation to Modern Slavery Act
2018 legislation
Future focus
– Maintain a customer Net Promoter
Score at or above +40
– Strengthen customer communities
through a program of activations
within the foyers of our office properties
– Implement a new workplace consulting
offer to help our customers to leverage
their premises for business success
– Support the communities in which we
operate through contributions valued
at more than $1,000,000
– Implement the Property Council
of Australia’s modern slavery due
diligence tool and target engagement
on modern slavery with at least
100 suppliers.
Realising the potential of our
customers’ workspace
Across our customer community, we provide products and services to
satisfy a strong desire to improve their workforce engagement and
productivity. To further entrench our unique customer offer, we have
acquired the Australian operations of Six Ideas, a strategic workplace and
change management consulting service.
Six Ideas by Dexus will utilise expertise to tackle complex problems arising
from continual change around the way we work. Senior practitioners
with international experience will work alongside our customers to create
environments that support organisational and cultural innovation, while
maximising the potential of change events.
This service complements our in-house Project Delivery Group which
provides project management and capital works delivery for office fit-outs.
We are now able to provide an end-to-end service that will help our
customers to leverage their premises for business success.
56
Performance / Customers and communities
Customers and communities
Partnering with our
suppliers
Every year, we engage hundreds of
suppliers to assist us in undertaking
our business activities of transacting,
managing and developing.
Building a network of supplier
relationships helps us create value
through our development activities
and managing our properties more
efficiently. This can be through the
engagement of suppliers to provide
cleaning, maintenance or security
services at our properties, or through
partnerships with suppliers to deliver
elements of our customer offer, such as
wellbeing service providers as part of
our Wellplace offering.
Over the year we worked with our
suppliers to understand modern slavery
risk and prepare for the reporting
requirements of the Australian Modern
Slavery Act 2018. We have collaborated
with industry peers through the Property
Council of Australia to develop a
common supplier due diligence tool
that can be used across the industry
to assess supplier modern slavery risk
and enhance industry practice. We will
deploy the tool to our suppliers to obtain
information on their labour management
practices from FY20.
Strong communities
Our capacity to create value is
influenced by the strength of our
relationships with local communities.
That’s why we focus on supporting
well-connected, prosperous and
engaged communities in and around
our properties.
Many of our retail centres act as
community hubs, providing essential
spaces for people to gather, shop, and
play. We work with local authorities and
community groups on issues ranging from
economic development to community
safety, both enhancing our relationships
and creating positive impact.
We also leverage our scale to amplify
the important work of community
organisations. We welcome the use of
lobby space in our office properties by
the community, supporting campaigns
including Foodbank, the Cancer
Council’s Biggest Morning Tea and
RSPCA awareness.
Over the year we contributed $1,205,035
financially and in-kind to communities
across Australia.
We continued two major annual
initiatives that raised funds for children
in need, Dexus Diamond Week and
Big Change for Small Change. Dexus
Diamond Week is a volunteering
campaign for our people to raise
funds in building foyers to support the
Sydney Children’s Hospital Foundation,
coinciding with the Foundation’s premier
Diamond Event. Our Big Change for
Small Change campaign takes place at
our local shopping centres, contributing
funds raised to local hospitals around
the country.
To support our engagement with
charities, we enable our people one
day of leave each year to volunteer at
charities such as the Sydney Children’s
Hospital, Ronald McDonald House,
Landcare, OzHarvest, or a charity of their
choosing. Our employees volunteered
a total of 1,711 hours using Dexus
volunteering leave to support causes
of their choosing.
$1,205,035
FY19 community contribution
$1,205,035
FY19 community contribution
Direct and indirect
corporate donations 22%
Employee volunteering
activities 12%
In kind support 66%
Direct and indirect
corporate donations 22%
Employee volunteering
activities 12%
In kind support 66%
To learn more about our approach
to Future Enabled Customers and
Strong Communities management
approach, visit www.dexus.com
The Dexus experience
Listening to our customers, we have curated a range of
services that are carefully designed to satisfy the everyday
needs and enhance the experience of the people who work
in our properties. The services we provide are grouped into
the four key pillars of Convenience, Community, Wellbeing
and Sustainability.
Convenience
Delivering a convenient work
experience through five-star
concierge, priority access
to childcare, transport
solutions, simple and easy
leases, and access to Dexus
Place, a tailored extension
of our customers’ work
environment that includes
meeting, training and
conference facilities as well
as bespoke event space
supported by state-of-the-
art technology.
Community
Creating customer
communities through
activations in our office
foyers, convenient
local shops, and online
building community
platforms providing
workplace news and
information, events and
retail offerings.
Wellbeing
Offering services and
amenities that promote the
health and wellbeing of
customers through quality
end-of-trip facilities, yoga,
Pilates and fitness classes.
Sustainability
Working with our
customers to achieve
energy, water and waste
efficiencies for their
tenancies along with
sustainable fit-out designs.
Dexus 2019 Annual Report
57
Case study
Inspiring the next
generation through
a community initiative
An industry partnership initiative that actively
promoted Science, Technology, Engineering
and Mathematics (STEM) to girls through
experiencing a live build at Dexus’s 100 Mount
Street, North Sydney (100 Mount) has encouraged
girls to consider a career in property.
STEM industries are vital to Australia’s
economic growth however women are significantly
under-represented in STEM education, comprising
just 16% of those with STEM qualifications.
STEM+ is a partnership initiative of Dexus,
100 Mount’s builder Laing O’Rourke, and project
delivery partners Rider Levett Bucknall and
Savills. The program immersed students from
the local girls’ secondary school, Monte Sant’
Angelo Mercy College into the construction and
engineering industry.
The program’s modules aligned with the construction
of 100 Mount, a premium office tower that was
completed in May 2019. The modules included
content such as innovative technologies and
sustainability in construction, involving onsite
participation and engagement throughout the year
via Google Classroom.
More than 60 girls across years 8 to 12 participated in
the two-year program, involving direct interactions
with the industry partners. Students were provided
key insights into STEM careers that were not typical
science-based careers including digital engineering,
construction, research and development,
law, quantity surveying, commerce, property
management, human resources and marketing.
As a result of the program, there were fundamental
changes to the students’ school subject selections
and university pathways, with 25% of 2018 graduates
pursuing science related careers.
STEM+ demonstrates Dexus’s commitment to
leverage its development projects for social impact,
with students realising a pathway into an industry
that they never thought was possible.
STEM+ students have been offered work experience
places with Dexus and Laing O’Rourke. They have
the opportunity to continue to participate in the
program throughout their tertiary studies and a
graduate position will also be offered.
“This program has had a palpable, culture shift with
regards to women in the construction and property
industry – when they could see it, they could be it.”
Nicole Christensen,
Principal of Monte Sant’ Angelo Mercy
58
58
Performance / Environment
Environment
Our capacity to create value is built on an efficient portfolio
that minimises our environmental footprint and enhances our
resilience to environmental risks.
Efficient use of natural resources
creates value for Dexus and supports
our customers to achieve their own
corporate sustainability goals. We
integrate energy, water and waste
efficiency into the design and operation
of our properties and regularly
benchmark property performance using
independent building certifications such
as NABERS and Green Star.
Our commitment to achieve net zero
emissions by 2030 supports the transition
to a low-carbon economy, creates
benefits for the bottom line, and aligns
with the ambitions of our third party
capital partners. We are also focused
on understanding the impacts of climate
change on our properties and invest in
initiatives to enhance portfolio resilience.
Our pathway to
net zero emissions
We achieved our target to reduce
like-for-like energy consumption and
emissions by 10% (FY15 baseline), a
year earlier than the target of 2020, as
our focus shifts towards our long-term
objective to achieve net zero emissions
by 2030 across the group’s managed
portfolio.
In June 2019, we received certification
from the Science Based Targets
initiative, confirming that our net zero
target is aligned with the ambition
required to meet the objectives of
the Paris Agreement. The certification
recognises the group’s efforts to go
beyond managing our own emissions
and engaging with suppliers and
customers to manage the emissions
across our value chain.
Transforming this target into action,
during the year we secured a new
Energy Supply Agreement with Red
Energy to purchase 46 gigawatt hours
(per annum) of renewable energy
generated offsite for over 40 properties
across our NSW portfolio.
This arrangement is one of the first
supply-linked deals for an Australian
property group and satisfies the
demand from both customers and
investors for more environmentally
responsible energy. From 1 January 2020,
50% of our NSW energy use will be
sourced from Red Energy’s wind and
solar projects supported by the Snowy
Hydro scheme. Beyond reducing
emissions, the agreement provides
long-term price certainty to insulate
Dexus and our customers from
electricity market volatility.
An efficient portfolio
We progressed our targets of achieving
1,000,000 square metres of office property
at a minimum 5 star NABERS Energy rating
and 4 star NABERS Water rating by 2020.
At the end of FY19, we had 950,351 square
metres of office space committed to or
rated at 5 star NABERS Energy or higher,
and 757,423 square metres of office space
rated 4 star NABERS Water or higher. We
are mindful of the challenge in achieving
our 4 star NABERS Water target by 2020.
Factors such as hot weather, extended
operating hours, increased occupant
density and end-of-trip facilities have
increased demand for water use across
our portfolio. In FY19, we gained momentum
towards our target and will continue to
implement water efficiency measures and
programs to educate our customers on
water conservation.
Waste management remained a priority
as we continued to focus on re-use and
recycling across tenancy fit out projects.
We also delivered a series of customer
education programs to build awareness
on the benefits of effective recycling and
implementation of industry operational
waste guidelines, developed by the City
of Sydney’s Better Business Partnership.
Resource efficiency is embedded into
our smart building blueprint which we
successfully implemented at 100 Mount
Street in North Sydney. Smart, practical
investments such as occupancy sensors
within the building regulate lighting
and air conditioning only when needed,
and automated blinds optimise the
indoor environment by managing shade
and glare.
Case study
Solar benefits Dexus
and its customers
100 Harris Street in Pyrmont has had
an interesting history dating back to
the late 1890s when it served as one
of Sydney’s original woolsheds.
The heritage building was
redeveloped into high quality office
space in 2017 and following Dexus’s
acquisition of the property, the
building has been taken to the next
level through the installation of 606
rooftop solar PV panels.
When Dexus acquired the heritage
building, it identified that the building
was well suited for solar panels due
to its distinctive sawtooth roof which
was a typical design of manufacturing
properties of its time.
The solar PV panels have the capacity
to generate up to 250,000 kilowatt
hours of energy per year which
contributes to powering the base
building services. The investment has
a payback period of around five years
and will contribute to increasing the
building’s NABERS Energy rating.
This solar PV system at 100 Harris
Street also contributes to Dexus’s
target of net zero emissions across
its managed portfolio by 2030, with
Dexus progressing plans to rollout
additional onsite renewable projects
across its property portfolio.
To learn more about our progress against
our FY19 Enriched Environment commitments,
refer to the 2019 Sustainability Performance
Pack available at www.dexus.com
Dexus 2019 Annual Report
59
Enriched
Environment
Board focus
Sustainability and the environment are a key focus
area for the Board and the Board Risk Committee.
In FY19, the Board and Board Risk Committee were
involved in:
– Reviewing the group’s progress in relation to
2020 targets
– Discussing the renewable Energy Supply
Agreement
– Discussing and reviewing Dexus’s position in
relation to on-site and offsite renewables
– Discussing the recommendations of the Task
Force on Climate-related Financial Disclosures
(TCFD)
– Reviewing the group’s activities to enhance
climate resilience
Future focus
– Deliver 1,000,000 square metres to
a minimum 5 star NABERS Energy
rating and 4 star NABERS Water
rating across the group’s office
portfolio by 2020
– Establish new 2025 energy and
emissions reduction targets as
part of our pathway to net zero
emissions by 2030
– Consistently demonstrate a
resource recovery rate of 80%
by 2020 from de-fitting vacated
space, actively identifying resources
for re-use and increasing waste
diversion from landfill
10.9%Reduction in like-for-like energy consumption since FY15 12.4%Reduction in like-for-like greenhouse gas emissions since FY15 950,351sqmof office space rated 5 star NABERS Energy or above 60 Performance / Environment
Environment
To enhance disclosure on climate-related impacts,
we report our approach to climate-related issues in
accordance with the Task Force on Climate-related
Financial Disclosures (TCFD) recommendations.
Governance
Strategy
The Dexus Board oversees all strategic risks including climate
change, with the Board Risk Committee overseeing the
group’s enterprise risk management practices, as well as
environmental management and work health and safety. The
Sustainability team, led by the Executive General Manager,
Investor Relations, Communications and Sustainability, and
the Senior Manager, Group Sustainability and Energy oversee
the group’s management response and reporting, presenting
on a quarterly basis to the Board Risk Committee on progress
against targets and to the Board as key topics emerge.
Our corporate strategy considers climate-related risks
and opportunities across short, medium and long-term
timeframes. We have applied the Intergovernmental Panel
on Climate Change RCP 8.5 scenario to assess exposure
to physical risks and the IEA 2°C scenario to understand
exposure to transition risks.
Key climate-related risks and opportunities are integrated
into annual investment planning processes to enhance
portfolio resilience across a range of possible climate futures.
We continue to enhance our
understanding of climate-related risks
and opportunities across the group’s
property portfolio. Over the past year,
we updated our portfolio-wide climate
exposure assessment and worked to
understand site-specific vulnerabilities.
We will use these insights in adaptation
planning at priority locations, further
integrating climate resilience into our
Environmental Management System.
Risk management
Metrics and targets
Assessment of climate-related risks is integrated within
our standard framework for managing risks, and climate
change is acknowledged as a strategic corporate risk.
When considering a potential acquisition, we review the
sustainability risks as part of due diligence, taking into
account environmental performance, climate change-
related physical risk exposure and building upgrade and
improvement plans. Any required upgrades are undertaken in
line with the group’s NABERS Energy and net zero emissions
targets. For properties under management, we review
property exposure to climate risks, and other vulnerabilities,
and work to enhance adaptation planning at more
vulnerable locations.
We have set an ambitious pathway for emissions
reduction through the goal of net zero emissions by
2030 across the group’s managed portfolio. This goal has
been certified by the Science Based Targets initiative as
meeting objectives of the UN Paris Agreement. We monitor
and report on absolute, like-for-like greenhouse gas
emissions and emissions intensity for all properties under
our operational control.
As part of our ongoing TCFD journey, we are bringing
together teams across Dexus to combine data for new
insights on the financial impacts of climate change on
asset valuation, operating costs, revenue and capital
purchases that will be used to inform portfolio strategy
and asset resilience planning.
Refer to our 2019 Sustainability
Performance Pack for additional
detail on our approach to
climate-related issues, available
at www.dexus.com
>$136m
Saved through enhancing portfolio
energy efficiency since FY08
Dexus 2019 Annual Report
61
The summary of the key risks and opportunities that we have identified
relating to climate change, as well as a high level summary of their
potential financial impacts is detailed below.
Key climate-related risks
Potential financial impacts
Higher taxes on energy
Increased operating costs
Physical damage to assets
resulting from extreme weather
Increased remediation costs
and insurance premiums in
specific locations
Rising mean temperatures
and heat stress
Increased operating and
maintenance costs
Lower investor and customer
confidence in Dexus if it does
not meet expectations regarding
climate risk management
Loss in investment and/or
customer demand
Key climate-related opportunities
Potential financial impacts
Availability of emissions reduction
incentives
Access to new market revenue
opportunities, particularly through
self-generation and on-selling of
renewable energy
Enhanced competitive positioning
resulting from sound climate risk
management
Additional sources of revenue
Additional sources of revenue
Increased investor and/or
customer confidence
To learn more about our
Enriched Environment approach
visit www.dexus.com
62
Governance / Governance
Governance
Good 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.
Our Board and Group Management
Committee are committed to excellence
in corporate governance and aspire to
the highest standards of conduct and
disclosure. To support this aspiration, we
have embedded a set of well-defined
policies and processes that enhance
corporate performance and protect the
interests of all key stakeholders.
We continue to focus on organisational
culture by encouraging an environment
where our people feel comfortable in
raising issues and ensuring our Board
and management are kept informed of
incidents that may impact the business.
Our Board and its respective Board
Committees have overall responsibility
for corporate governance and are
collectively responsible for the long
term success of the group. Areas of
specific responsibility include financial
performance, setting strategy and
overseeing its implementation, providing
leadership and direction on workforce
culture and values, and agreeing and
monitoring the risk framework and
risk appetite. During the year a Head
of Governance function was created
within the business with a core focus
on ensuring the Dexus Board and
our people operate under leading
governance policies and procedures.
Our Board regularly reviews its
corporate governance policies and
processes to ensure they are appropriate
and meet governance standards and
regulatory requirements.
For the 2019 financial year, the group’s
governance practices complied with the
ASX Corporate Governance Council’s
Corporate Governance Principles and
Recommendations (third edition).
We are improving our policies and
procedures to ensure compliance
against the recently published fourth
edition which takes effect for the first
full financial year commencing on or
after 1 January 2020 (for Dexus, the
FY21 financial year concluding 30 June
2021). Further details are set out in the
Corporate Governance Statement, which
outlines key aspects of our corporate
governance framework and practices,
which is available at
www.dexus.com/corporategovernance.
The Dexus Board and Board Committee membership
Director
Board
Audit
Committee
Risk
Committee
People &
Remuneration
Committee
Nomination
Committee
Richard Sheppard
Darren Steinberg
Penny Bingham-Hall
John Conde
Tonianne Dwyer
Mark Ford
The Hon. Nicola Roxon
Peter St George
Chair and member
Member
Dexus 2019 Annual Report
63
Board of Directors
Our Board comprises a majority of
Independent Directors with all directors
other than the CEO being Independent
Non-Executive Directors. The Board
currently consists of seven Independent
Non-Executive Directors and one
Executive Director.
The Board renewal process over the
past several years has produced an
experienced Board of Directors with a
broad and diverse skill set. Our Board has
determined that, along with individual
director performance, diversity is integral
to a well-functioning board. We also
acknowledge that an effective Board relies
on board members with different tenures.
Our current focus is on Board renewal
centred around the skills and experience
needed to complement other directors.
The members of the Board of
Directors and the relevant business
and management experience the
Directors bring to the Board is detailed
on pages 64-66 and available at
www.dexus.com/corporategovernance.
Board skills and experience
Our Board has determined the skills,
expertise and experience required as a
collective to ensure diversity of thought
and vigorous debate on key decisions.
The collective experience of the current
directors has been outlined against the
categories in the table below and the
Board believes that the current Board
composition 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
– Experience in analysing and challenging accounting material and
financial statements and assessing financial viability
– Experience in understanding financial drivers/funding and business models
Governance
– Experience with corporate governance and standards of complex organisations
– Ability to assess and commitment to ensure the effectiveness of governance
structures
People Management
& Remuneration
– Experience in relation to remuneration and the legislation/framework governing
remuneration
– Experience in managing people and influencing organisational culture
Property Experience
(Including Developments)
property development
– Understanding of stakeholder needs and industry trends
– Experience and industry knowledge in the management of properties including
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
Sustainability
– Experience in merger and acquisition activities
– Ability to guide and review strategy through constructive questioning
and suggestions
– Experience in developing and successful implementing strategy
– Experience in implementing sustainability policies and practices, adopting
a long-term approach to decision making
– Understanding of environmental and social topics relevant to the property sector
64 Governance / Board of Directors
Governance
Board of Directors
From L to R: Penny Bingham-Hall, Mark Ford, The Hon. Nicola Roxon, Darren Steinberg, Richard Sheppard, Tonianne Dwyer, Peter St George, John Conde
Board composition
Board professional qualifications
Board tenure
Board gender diversity
8%
17%
17%
Science
MBA
Economics
Law
25%
38%
8%
25%
25%
Commerce/
Accounting
Other
25%
12%
38%
62%
0–3 years
6–9 years
3–6 years
9+ years
Female
Male
Dexus 2019 Annual Report
65
Richard Sheppard
Penny Bingham-Hall
John Conde AO
Chair and Independent Director
BEc Hons, FAICD
Independent Director
BA (Industrial Design), FAICD, SF (Fin)
Independent Director
BSc, BE (Hons), MBA, FAICD
Appointed to Board on 1 January 2012
Appointed to Board on 10 June 2014
Appointed to Board on 29 April 2009
Richard Sheppard is both Chair and
Independent Director of Dexus Funds
Management Limited, Chair of the
Board Nomination Committee and
a member of the Board People &
Remuneration Committee.
Richard is a Director of Snowy Hydro
Limited, Star Entertainment Group and
the Bradman Foundation.
Richard brings to the Board extensive
experience in banking and finance
and as a director and Chairman of
listed and unlisted property trusts.
He was Managing Director and Chief
Executive Officer of Macquarie Bank
Limited and Deputy Managing Director
of Macquarie Group Limited from 2007
until late 2011. Following seven years at
the Reserve Bank of Australia, Richard
joined Macquarie Group’s predecessor,
Hill Samuel Australia in 1975, initially
working in Corporate Finance. Richard
became Head of the Corporate Banking
Group in 1988 and headed a number
of the Bank’s major operating Groups,
including the Financial Services Group
and the Corporate Affairs Group. He
was a member of the Group Executive
Committee since 1986 and Deputy
Managing Director since 1996. Richard
was also Chairman of the Australian
Government’s Financial Sector Advisory
Council, Macquarie Group Foundation,
Eraring Energy and Green State Power
Pty Limited.
Penny Bingham-Hall is an Independent
Director of Dexus Funds Management
Limited, Chair of the Board People &
Remuneration Committee and a member
of the Board Nomination Committee and
Board Risk Committee.
John Conde is an Independent
Director of Dexus Funds Management
Limited and Dexus Wholesale
Property Limited and a member of
the Board Audit Committee and
Board Nomination Committee.
Penny is a Non-executive Director of
Fortescue Metals Group Ltd, BlueScope
Steel Limited, Port Authority of NSW and
Taronga Conservation Society Australia.
She is also an independent director of
Crescent Foundation and Macquarie
Specialised Asset Management Limited.
Penny has broad industry experience
having spent more than 20 years
in a variety of senior management
roles with Leighton Holdings Limited
including Executive General Manager
Strategy, responsible for the Group’s
overall business strategy and Executive
General Manager Corporate, responsible
for business planning, corporate
affairs including investor relations
and governance systems. She is a
former director of the Australian Postal
Corporation, SCEGGS Darlinghurst
Limited and the Global Foundation.
Penny also served as the inaugural Chair
of Advocacy Services Australia Limited
from 2008 to 2011.
John is the Chairman of Cooper Energy
Limited and the McGrath Foundation.
He is President of the Commonwealth
Remuneration Tribunal (as President,
John automatically serves as a Member
of the Independent Parliamentary
Expenses Authority) and Deputy
Chairman of Whitehaven Coal Limited.
John brings to the Board extensive
experience across diverse sectors
including commerce, industry and
government. He was previously Chairman
of Bupa Australia Holdings Pty Limited,
Ausgrid (formerly EnergyAustralia),
Destination NSW, Sydney Symphony
Orchestra and the Australian Olympic
Committee (NSW) Fundraising
Committee. John was Director of BHP
Billiton and Excel Coal Limited, Managing
Director of Broadcast Investment
Holdings Pty Limited, Director of Lumley
Corporation and President of the
National Heart Foundation of Australia.
Board focus during the year
The key areas of focus for the Board and Board Committees
during FY19 are aligned to each of our key resources.
RISK
The Board Risk Committee is involved in
reviewing and monitoring our key risks.
p. 24
FINANCIAL
PROPERTIES
PEOPLE AND
CAPABILITIES
CUSTOMER AND
COMMUNITIES
ENVIRONMENT
The Board and Board
Audit Committee are
involved in focusing on
financial performance
The Board is involved in
approving transactions
and developments
across the portfolio.
p. 28
p. 38
The Board and
Board People and
Remuneration
Committee are
involved in aspects
relating to employees.
p. 50
The Board is involved
in reviewing aspects
relating to customers
and community
related activities.
p. 54
The Board and Board
Risk Committee are
involved in reviewing
aspects relating to
climate change and
the environment.
p. 58
66 Governance / Board of Directors
Governance
Board of Directors
Mark Ford
Independent Director
Dip. Tech (Commerce), CA, FAICD
The Hon. Nicola Roxon
Independent Director
BA/LLB (Hons), GAICD
Tonianne Dwyer
Independent Director
BJuris (Hons), LLB (Hons)
Appointed to Board on 24 August 2011
Tonianne Dwyer is an Independent
Director of Dexus Funds Management
Limited and Dexus Wholesale Property
Limited, Chair of the Board Risk
Committee and a member of the Board
Audit Committee.
Tonianne is a Director of OZ Minerals
Limited, ALS Limited, Metcash Limited
and Queensland Treasury Corporation.
She is also Deputy Chancellor and a
member of the Senate of the University
of Queensland.
Tonianne brings to the Board significant
experience as a company director and
executive working in listed property,
funds management and corporate
strategy across a variety of international
markets. She was a Director from 2006
until 2010 of Quintain Estates and
Development - a listed United Kingdom
property company comprising funds
management, investment and urban
regeneration - and was Head of Funds
Management from 2003. Prior to joining
Quintain, Tonianne was a Director of
Investment Banking at Hambros Bank,
SG Cowen and Societe Generale based
in London. She also held directorships
on Cardno Limited, the Bristol & Bath
Science Park Stakeholder Board, and
on a number of boards associated with
Quintain’s funds management business
including the Quercus, Quantum and iQ
Property Partnerships.
Appointed to Board on 1 November 2016
Appointed to Board on 1 September 2017
Mark Ford is an Independent Director of
Dexus Funds Management Limited and
a member of the Board Audit Committee
and Board Risk Committee.
Mark is Chair of Kiwi Property Group and
Non-executive Director of the manager
for China Commercial Trust. He is a
Director of Prime Property Fund Asia.
Mark has extensive property industry
experience and has been involved in
Real Estate Funds Management for over
25 years. He was previously Managing
Director, Head of DB Real Estate
Australia, where he managed more
than $10 billion in property funds and
sat on the Global Executive Committee
for Deutsche Bank Real Estate and
RREEF. Mark was also a Director in the
Property Investment Banking division of
Macquarie and was involved in listing
the previous Macquarie Office Fund. His
previous directorships include Comrealty
Limited, Property Council of Australia,
Deutsche Asset Management Australia
and he was also Founding Chair of Cbus
Property Pty Limited and South East Asia
Property Company. Mark previously held
senior roles with Price Waterhouse and
Macquarie Bank.
Darren Steinberg
Chief Executive Officer
and Executive Director
BEc, FAICD, FRICS, FAPI
Appointed to Board on 1 March 2012
Darren Steinberg is the CEO of Dexus
and an Executive Director of Dexus
Funds Management Limited.
Darren has over thirty years’ experience
in the property and funds management
industry with an extensive background
in office, industrial and retail property
investment and development. He has
a Bachelor of Economics from the
University of Western Australia.
Darren is a Fellow of the Australian
Institute of Company Directors, the Royal
Institution of Chartered Surveyors and
the Australian Property Institute. He is a
former National President of the Property
Council of Australia and a founding
member of Property Male Champions
of Change. He is also a Director of VGI
Partners Limited and a Trustee of the
Museum of Applied Arts & Sciences.
Nicola Roxon is an Independent Director
of Dexus Funds Management Limited
and a member of the Board People &
Remuneration Committee and Board
Risk Committee.
Nicola is an Independent Chair of HESTA
and Non-executive director of Lifestyle
Communities Limited. She is a Patron
for the BreastWest Foundation. Nicola
was previously Chair of Cancer Council
Australia, Bupa Australia Holdings Pty
Limited and the Accounting Professional
and Ethical Standards Board.
Nicola has more than 20 years’
experience with background in the
public sector and significant expertise
in highly regulated consumer industries,
professional services and the not-for-
profit sector. She has deep industry
knowledge of the health, government
and professional service sector in
positions including Federal Attorney
General, Federal Minister for Health
and Ageing, Member for Gellibrand
and Industrial lawyer and advocate
at Maurice Blackburn and the National
Union of Workers.
Peter St George
Independent Director
CA(SA), MBA
Appointed to Board on 29 April 2009
Peter is an Independent Director of
Dexus Funds Management Limited, Chair
of the Board Audit Committee and a
member of the Board Risk Committee.
Peter is a Director of First Quantum
Minerals Limited (listed on the Toronto
Stock Exchange).
Peter has more than 20 years’
experience in senior corporate advisory
and finance roles within NatWest
Markets and Hill Samuel & Co in
London. He acted as Chief Executive/
Co-Chief Executive Officer of Salomon
Smith Barney Australia/NatWest
Markets Australia from 1995 to 2001.
Peter was previously a Director of
Boart Longyear, Spark Infrastructure
Group, its related companies and
SFE Corporation Limited.
Dexus 2019 Annual Report
67
68
Remuneration
Report
We are pleased to present the
remuneration report which focuses
on our remuneration strategy and
outcomes, in addition to our people
and culture highlights for the financial
year ending 30 June 2019.
A year of outperformance
This year, Dexus continued to deliver
strong results against key financial
and non-financial measures set by
the Board. Distribution per security
growth was 5.0%, Return on Contributed
Equity (ROCE) was 10.1%, and growth in
Adjusted Funds From Operations (AFFO)
per security was 5.5%. This result was
achieved through the performance
of our property portfolio, selective
asset acquisitions, growth in our funds
management business and the delivery
of trading profits. Security holders were
delivered outstanding returns in FY19
and our CEO and his management
team were rewarded with above target
incentive outcomes.
Importantly, this year’s outperformance
was achieved while enhancing our
platform’s footprint to grow in the
future, as well as strong outcomes in
safety, customer satisfaction, employee
engagement and sustainability
measures.
In our office portfolio we continue to
outperform benchmarks over three and
five years through higher rents and lower
incentives. The securing of $3.1 billion
of quality acquisitions increased our
office exposure in core markets while
enhancing our embedded pipeline of
office development projects in both
the Melbourne and Sydney CBDs.
This was achieved while maintaining a
strong and conservative balance sheet.
Our funds management business grew
to $16.2 billion through the introduction
of significant new funds management
partners and all funds achieved
strong performance.
We are on track to achieve our gender
diversity target of at least 40% female
representation in senior and executive
management roles by 30 June 2021.
We have also been recognised
externally by the Workplace Gender
Equality Agency for our diversity
achievements and as a pay equity
ambassador.
Our customer Net Promoter score
increased to +46 and our strong
culture and engaged workforce was
demonstrated through an employee
Net Promoter score of +40. This year we
progressed our goal to achieve net zero
carbon emissions by 2030 and secured
one of Australia’s first supply-linked
Renewable Energy Supply Agreements.
Our remuneration approach
Our Remuneration framework
supports our business strategy, where
performance and Security holder returns
are paramount. Increasing equity
ownership among executives and staff
to better align their interests with our
Security holders, and to strengthen
engagement within the organisation
is a key element of our remuneration
framework.
The Board sets hurdles where, if
achieved, Dexus will deliver sustained
value and returns for Security holders.
We have made enhancements to our
disclosures in this report to improve our
transparency on how we set objectives
which align executive remuneration
to superior risk-adjusted returns for
investors.
Our approach to executive
remuneration continues to be a key
factor in driving our success. In order
to attract and retain top talent to lead
the Group over the long term, Dexus
has developed and embedded a
competitive remuneration strategy to
deliver long term performance and drive
an appropriate risk culture.
This Remuneration Report forms part of
the Directors’ Report and outlines the
remuneration framework and outcomes
for KMP for FY19.
FY19 awards
In line with Dexus’s outperformance in
FY19, STI outcomes for Executive Key
Management Personnel (KMP) will range
from 110% to 125% of target. As disclosed
in FY18, LTI outcomes for Executive KMP
resulted in a vesting outcome of 95% for
the 2014 LTI Plan and 100% for the 2015
LTI Plan.
Changes to FY20 remuneration
Overall fixed remuneration increases for
Executive KMP (excluding the CEO) for
FY20 will average 3.5% and there will be
no fixed remuneration increase for the
CEO in FY20.
During the year an external review was
completed on Board fees after several
years of no increases for Non-Executive
Directors (NEDs). A moderate fee increase
has been approved from 1 July 2019. The
NED fee pool remains unchanged.
To further embed NED equity ownership
a fee sacrifice program will be
implemented in FY20.
Our people are at the centre of what
we do and we will continue to invest
in their development and reward their
achievement of sustainable business
outcomes that add value for all our
stakeholders.
I hope you find this report informative
and we look forward to receiving your
support for the resolution approving
this report at the 2019 AGM.
Penny Bingham‑Hall
Chair – People and Remuneration
Committee
The report has been prepared and audited
in accordance with section 308(3C) of the
Corporations Act 2001.
Directors’ Report / Remuneration Report Dexus 2019 Annual Report
69
Board focus
The main objective of the Board People and Remuneration
Committee (PRC) is to assist the Board in fulfilling its
responsibilities by developing the remuneration strategy,
framework and policies for Non-Executive Directors,
Executive KMP and the Group Management Committee
(GMC), for Board approval. In FY19, the PRC were involved in:
– Considering how the talent management strategy supports
business and cultural goals
– Reviewing the risk culture framework, metrics and
assessment approach
– Monitoring employee engagement and corporate
culture metrics
– Approving performance objectives and Key Performance
Indicators for the CEO, KMP and other executives
– Undertaking a review of CEO and KMP remuneration,
including assessment of benchmarks and market trends
– Reviewing executive and key talent assessments for
succession planning and talent management
– Monitoring programs to increase security ownership
for staff and key talent
– Introducing a security salary sacrifice program for
NEDs to increase equity ownership
– Reviewing performance against business objectives and
strategic goals
– Enhancing disclosures to address investor feedback
– Assessing performance on inclusion and diversity strategy
and progress towards gender diversity target
– Reviewing new ASX Corporate Governance guidelines to
assess alignment
FY20 focus areas
– Monitoring succession planning and
talent programs
– Monitoring and assessing group,
CEO, Executive KMP and other
executives’ performance
– Reviewing and approving the Group
balanced scorecard
– Strengthening our inclusion and
diversity approach
– Overseeing the implementation of
Purpose and Values programs
– Overseeing Executive and staff
remuneration strategies and
frameworks to align rewards to
performance results
– Monitoring Risk and organisational
culture
Our focus on diversity has kept us on track to achieve our gender diversity target. In FY19 we reached37%female representation in senior and executive management roles 70 Directors’ Report / Remuneration Report
Contents
70
1. Introduction
71
2. Remuneration strategy and governance
75
3. Remuneration structure
78
4. FY19 Dexus performance highlights
79
5. FY19 Group scorecard and STI outcomes
80
6. Historical performance highlights
7. Executive KMP remuneration outcomes
81
8. Terms of Executive KMP service agreements 84
85
9. Non-Executive Directors’ remuneration
87
10. Additional disclosures
1. Introduction
1.1 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 below outlines KMP
of the group during FY18 and FY19. There have been no changes to KMP
since the end of the reporting period.
Independent Non-Executive
Directors
KMP
FY18
KMP
FY19
W Richard Sheppard
Non-Executive Chair
Elizabeth A Alexander AM
Non-Executive Director
To
24 October 2017
From
1 September 2017
Penny Bingham-Hall
Non-Executive Director
John C Conde AO
Non-Executive Director
Tonianne Dwyer
Non-Executive Director
Mark H Ford
Non-Executive Director
Nicola Roxon
Non-Executive Director
Peter B St George
Non-Executive Director
Executive Director
Darren J Steinberg
Chief Executive Officer
Other Executives
Alison C Harrop
Chief Financial Officer
Ross G Du Vernet
Chief Investment Officer
Kevin L George
Executive General Manager,
Office
Deborah C Coakley
Executive General Manager,
Funds Management
71
2. Remuneration strategy and governance
2.1 Our remuneration strategy
Our Vision
To be globally recognised
as Australia’s leading real
estate company
Our Strategy
To deliver superior risk-adjusted
returns for investors from high
quality real estate in Australia’s
major cities
Our Remuneration Strategy
To attract, retain and motivate the best
people to create a great culture that delivers
our business strategy and contributes to
sustainable long-term returns
Remuneration principles
CULTURE
We align reward to our strong
risk, high performance, diverse
and inclusive culture
ALIGNMENT TO
PERFORMANCE
We reward for performance
aligned to our business
strategy with an emphasis on
equity ownership
MARKET
COMPETITIVE
We position reward
opportunity to attract and
retain the best talent
SUSTAINABLE
We appropriately reward
for both financial and
non-financial outcomes
SIMPLE AND
TRANSPARENT
We keep it simple and set
clear expectations
Executive remuneration components
Purpose
Link to
performance
Performance
measures
Alignment
Delivery
Fixed
Remuneration (FR)
Short-Term
Incentive (STI)
Long-Term
Incentive (LTI)
Attract and retain executives
with the capability and
experience to deliver
our strategy.
Reward for performance
against annual objectives
and key performance
indicators (KPIs).
Align performance focus with
the long-term business strategy
to drive sustained earnings and
security holder returns.
Motivation to drive a great
culture and deliver on the
business strategy.
Strategic annual objectives
embedded in each
executive’s personalised
scorecard of KPIs.
Performance hurdles are set
by the Board over three and
four-year periods to deliver
sustained security holder value.
Significant position
accountabilities that
support the execution
of the business strategy.
Group financials, customer,
culture, environmental
sustainability, safety and
individual objectives.
Attract and retain the best
people based upon the
competitive landscape
among relevant peers.
Reward year-on-year
performance achieved
in a balanced and
sustainable manner.
Adjusted
Funds from
Operations
per security
growth
Return on
Contributed
Equity
Encourage sustainable,
long-term value creation
through equity ownership.
Competitive market based
fixed remuneration.
(Base Salary and Statutory
Superannuation and other
benefits).
Annual cash
payment
(75%)
Security Rights
(25%)
Performance Rights with
allocation calculated at
Face Value
12.5%
12.5%
50%
1 year
2 years
3 years
50%
4 years
Deferred
Dexus 2019 Annual Report
72
2.2 Remuneration delivery and mix
The Executive KMP remuneration mix is structured so that a substantial portion of remuneration is delivered as Dexus securities
through either deferred STI or LTI. The total remuneration opportunity provides for higher remuneration outcomes only if
outperformance is delivered. The following diagram (which is not to scale) sets out the remuneration structure and delivery timing
for Executive KMP.
Remuneration delivery
Fixed
Remuneration
STI
(Target is 100% of fixed
remuneration)
LTI delivered as
Performance Rights
(150% of fixed remuneration
for CEO or 75% of fixed
remuneration for KMP)
Year 1
Year 2
Year 3
Year 4
100%
Base Salary,
Superannuation
and Other
Benefits1
75% paid in Cash
Cash STI
25% deferred into
Security Rights
50% subject to a 3 year
performance period
50% subject to a 4 year
performance period
i
s
t
h
g
R
d
e
t
s
e
v
n
U
e
r
u
t
i
e
f
r
o
f
o
t
j
t
c
e
b
u
S
12.5% deferred for 1 year
delivered as Security Rights
12.5% deferred for 2 years delivered as Security Rights
25% subject to Adjusted Funds from Operations
(AFFO) per security growth
25% subject to average Return on Contributed
Equity (ROCE) performance
25% subject to AFFO per security growth
25% subject to average ROCE performance
1. Other Benefits comprise wellbeing and insurance arrangements provided to all employees. These benefits do not flow into the STI and LTI calculations.
Remuneration mix
The remuneration components for each KMP are expressed as a percentage of total remuneration, with the STI value varied to
reflect target performance (100% of target amount) and outperformance (125% of target amount).
The following diagram sets out the remuneration mix for Executive KMP.
CEO
Target
Outperformance
Executive KMP
Target
Outperformance
29%
21%
7%
27%
25%
8%
36%
27%
9%
33%
31%
10%
43%
40%
28%
26%
Fixed Remuneration (Cash)
STI (Cash)
STI Deferred (Security Rights)
Maximum LTI (Performance Rights)
Directors’ Report / Remuneration Report
73
2.3 Changes for FY20
Executive KMP remuneration
FIXED REMUNERATION
VARIABLE PAY
To ensure the total remuneration opportunity remains
competitive and to improve internal equity, the Board
approved an average increase of 3.5% for Executive KMP
(excluding the CEO) fixed remuneration for FY20.
In FY20 there will be no fixed remuneration increase for
the CEO.
NED remuneration
INCREASE TO FEES
NED fees have been increased based on a review
of relevant ASX listed peers in order to reflect the
responsibilities and workload of the Board and Committee
Chairs and members. NED base fees were last increased
in 2016, and Committee fees last increased in 2013. The NED
remuneration pool will remain unchanged.
There are no changes to the remuneration
structure or opportunity levels for the CEO or
Executive KMP.
SIMPLIFICATION OF THE MINIMUM SECURITY
HOLDING GUIDELINE
To align to the approach for Executive KMP, where the
minimum value of security holding has been set as a
percentage of fixed remuneration, the NED guidelines
were adjusted from 16,500 DXS securities to the
equivalent of 100% of NED Base fees, within five years
from appointment.
To further support NED ownership of DXS securities,
a security fee sacrifice program will be implemented
in FY20.
2.4 Securities Trading Policy
The Securities Trading Policy provides guidance to Directors, Employees (including Key Management Personnel), Contractors and
Associates for ongoing compliance with legal obligations relating to trading or investing in financial products managed by Dexus.
The Policy prohibits employees from trading in financial products while they are in possession of Inside Information (non-public
price sensitive information) and hedging their exposure to unvested DXS securities. Trading in DXS securities or related products is
only permitted with the permission of the Chair (for Directors and CEO) or the CEO (for Executive KMP and all other staff).
The Group also has Conflict of Interest and Insider Trading policies in place which extend to family members and associates
of employees.
Dexus 2019 Annual Report 74
2.5 Remuneration governance
Board
Approves and has oversight of Dexus’s Remuneration Policy, Non-Executive Director and Executive KMP
remuneration and culture indicators.
People & Remuneration Committee
Members
Penny Bingham-Hall
The Hon. Nicola Roxon
Richard Sheppard
Audit Committee
Review the calculation of financial
incentive plan performance measures.
Management
Propose executive appointments,
succession plans, policies, remuneration
structures and remuneration outcomes
to the PRC for review and approval or
recommendation to the Board.
Risk Committee
Advises the PRC of material risk issues,
behaviours and/or compliance breaches.
Two joint meetings are held each year
with the PRC to review Risk Culture
frameworks, metrics and audit information.
Independent external advisors
The Board’s independent remuneration advisor,
EY, provides market practice insights and
trends in relation to executive remuneration
approaches. EY did not make any remuneration
recommendations in FY19.
Any advice provided by EY, or any other
remuneration consultant, is used as an input
in making remuneration decisions, and is not a
substitute for consideration of relevant issues by
each member of the PRC.
People & Remuneration Committee (PRC)
Members
The PRC is responsible for developing the remuneration
strategy, framework and policies for Non-Executive Directors,
Executive KMP and the Group Management Committee (GMC)
for Board approval.
The PRC members have experience in remuneration, people,
leadership, human resources, risk management and compliance
which enables effective oversight and governance of Dexus’s
remuneration framework.
The responsibilities of the PRC are outlined in the PRC’s Terms
of Reference available at www.dexus.com/boardcommittees
which is reviewed and approved annually by the Board. The
primary accountabilities of the PRC are:
– Reviewing and recommending to the Board for approval
Dexus’s Remuneration Policy, which covers Executive KMP,
GMC members and all other Dexus employees
– Reviewing and approving the Group Scorecard, annual
performance objectives and KPIs of the CEO and
GMC members
– Recommending to the Board for approval CEO and
GMC members’ remuneration and incentive payments
– Reviewing and approving aggregate fixed remuneration
changes and annual incentive payments for all Dexus
employees
Meetings
The PRC is required to meet at least three times per year. In FY19,
the PRC met six times to discuss and review remuneration, and
people and culture related matters.
Accurate and complete Committee papers are provided to all
PRC members prior to meetings to enable timely, considered
and effective decision making. The PRC may request additional
information from management or external advisors where required.
The PRC uses a range of inputs when assessing Executive KMP
performance and determining remuneration outcomes:
– Financial performance, measured using audited financial
measures
– Management providing detailed examples of how
non-financial outcomes have been achieved
– Reviewing and recommending to the Board for approval the
– Demonstrated leadership of the Dexus values and behaviours
Code of Conduct and Diversity Principles
– External remuneration benchmarking, provided by
– Reviewing and approving processes and information
on talent assessments, leadership development and
succession planning
– Reviewing processes and metrics for measuring culture and
behaviours, including risk culture areas
independent external advisors
Under certain circumstances, the PRC and Board may adjust
proposed remuneration outcomes or forfeit Rights issued under
the Dexus LTI or STI Plans.
Directors’ Report / Remuneration Report 75
3. Remuneration structure
3.1 Fixed Remuneration
Our fixed remuneration strategy is to pay at market competitive rates to attract and retain top talent. Remuneration levels are
set based on role size, complexity, scope and leadership accountability. We adhere to the principle of pay equity, which has led
to gender pay equity across Dexus in like-for-like roles in FY19. To determine fixed remuneration levels, we benchmark externally
against A-REIT ASX100 companies, and compare similar roles in organisations with similar market capitalisation.
3.2 Short-Term Incentive (STI)
The STI plan is aligned to security holder interests by:
– Encouraging executives to achieve year-on-year performance in a balanced and sustainable manner
– Mandatory deferral of 25% of each STI award into Security Rights deferred over two years, acting as a retention mechanism
$
80% Financial
Adjusted Funds From Operations (AFFO)
Return on Contributed Equity (ROCE)
Office and funds management
financial outcomes (relative measures)
20% Non-Financial
Customer, culture, environmental
sustainability, safety and
individual objectives
Short-Term Incentive (at risk)
↓
Cash
Annual cash payment (75%)
↓
Equity
Deferred Rights (25%)
12.5%
1 year
12.5%
2 years
Subject to forfeiture
provisions and continued
employment during the
vesting period.
Fixed
Remuneration
STI Target
Group Result on
Financial and Non-
financial measures
Individual
Contribution
Factor
Individual STI
Outcome (Capped
at 125% of Target)
Each Executive KMP is awarded an individual STI outcome between zero and 125% of their target.
Individual STI outcomes are based on group performance and individual contribution, which includes a behavioural gateway.
The maximum STI opportunity for Executive KMP is 125% of Fixed Remuneration.
STI plan structure
The financial measures have been selected so that the overall focus is on the annual financial execution of business plans by
KMP. AFFO per security growth and ROCE reflect the Group’s overall financial performance. Further inclusion of Office and Funds
Management financial outcomes ensure each business area has achieved required results. The Office and Funds management
outcomes have been categorised in FY19 under the Financial category, resulting in the 80% Financial weighting (these outcomes
were previously categorised as part of the Non-Financial measures resulting in the categories having a weighting of 50% Financial
and 50% Non-Financial in FY18). The remaining items provide the Board with a mechanism to ensure that the sustainability of annual
results are reflected in remuneration outcomes for KMP. A behavioural gateway underpins the STI award. If a participant of the STI
plan does not meet behavioural expectations, then the individual’s award may be forfeited regardless of company performance.
How much of the STI award is deferred?
25% of any award under the STI plan is deferred into Rights
to DXS securities.
The rights vest in two equal tranches, 1 and 2 years after
being granted. Rights deferred under the STI plan are subject
to forfeiture and vest based on continued employment.
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.
The remaining 75% of any award is paid in cash in August
following the announcement of the Group’s annual results.
DXS securities are purchased on market to satisfy the
deferred rights for the STI plan.
Are distributions paid on unvested Rights awarded under
the STI plan?
For the portion of STI deferred as Rights, participants are
entitled to the benefit of distributions paid on the underlying
DXS securities prior to vesting, through the issue of
additional Rights at the time of vesting.
When are STI awards forfeited?
Forfeiture will occur should the participant’s employment
terminate within 6 months of the grant date for any reason,
or if the participant voluntarily resigns or is terminated for
cause prior to the vesting date.
Rights may be reduced or cancelled at the Board’s
discretion including in circumstances such as a participant
committing an act of fraud, wilful misconduct, reputational
damage to Dexus, serious or wilful negligence or
incompetence, being convicted of a criminal offence or
if there has been a material misstatement of the group’s
financial accounts as a consequence of a deliberate
misrepresentation or fraud.
Notwithstanding the above, if a participant’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’.
Dexus 2019 Annual Report 76
3.3 Long-Term Incentive (LTI)
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 with security holders through exposure to DXS securities
50% Adjusted Funds
From Operations (AFFO)
per security growth
50% Return on
Contributed Equity (ROCE)
Performance Rights
with allocation calculated
at Face Value
Long-Term Incentive (at risk)
↓
Equity
50%
3 year
Performance
Period
50%
4 year
Performance
Period
Subject to hurdles, forfeiture, and
continued employment during
the vesting period
Fixed
Remuneration
LTI Allocation
50%
AFFO per security
growth performance
50%
Average ROCE
performance
Individual LTI Outcome
(Capped at 100%
of Allocation)
Each Executive KMP is allocated an LTI opportunity subject to performance hurdles. The award may vest between 50% to 100%
of the allocation amount based on performance. LTI awards do not vest if performance targets are not met for both measures.
The maximum LTI opportunity for the CEO is 150% of Fixed Remuneration,
and for other Executive KMP is 75% of Fixed Remuneration.
LTI performance hurdles
The two performance conditions under the LTI plan are Adjusted Funds From Operations (AFFO) per security growth (implied
CAGR)1 and average Return on Contributed Equity (ROCE)2 over both three and four-year periods. These performance conditions
are weighted equally and align the plan outcomes with the commercial long-term performance that is within the executive’s
ability to influence. If these hurdles are met, the Board’s view is that Security holders will be rewarded over time by superior market
performance.
AFFO per security growth 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.
ROCE represents the annualised average 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.
The two absolute measures provide 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 than would general relative measures. AFFO per security growth and
ROCE remove 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. We include these two measures in both the STI and LTI plans as
we believe they contribute significantly to Security holder returns both in the short-term and long-term.
Each year, the Board reviews existing performance measures and their hurdles to ensure they align with Security holder
expectations and the current Dexus Strategy. In FY19 the Board reviewed the measures and resolved to retain AFFO per security
growth and ROCE as these are the critical business metrics which will drive market performance and Security holder returns.
1. The implied compound annual growth rate refers to the nominal growth per annum that is required to achieve the target AFFO per security
over the vesting period.
2. The ROCE calculation excludes the impact of asset revaluations.
Directors’ Report / Remuneration Report 77
LTI performance ranges
The Board sets the performance range for both LTI hurdles over three and four-year periods. The Board does not reset or change
the ranges during the performance period. The Board aligns the target setting with the Group’s key operational metrics of
maintaining a through the cycle AFFO per security growth range of 3% to 5% and ROCE of 7% to 10%. Actual AFFO per security
growth and average ROCE performance achieved relative to the targets are disclosed retrospectively at the end of the
performance period. Dexus does not publish details of the hurdles prior to the testing of the first tranche at the end of the first
performance period (year 3) as this would result in the disclosure of commercially sensitive information in connection with the
group’s forecasts.
Vesting under both the AFFO per security growth and average ROCE measures
are on a sliding scale against performance conditions set by the Board.
AFFO and ROCE Performance
Vesting Outcome
Hurdle setting
Below Target Performance
Nil vesting
Below target set by Board
Target performance
50% vesting
Target set between the
‘through the cycle’ ranges of:
– AFFO per security growth 3% to 5%
– ROCE 7% to 10%
Between Target and Outperformance
Straight line vesting
Outperformance
100% vesting
Within or above the
‘through the cycle’ range
The Group aims to continually deliver AFFO per security growth and ROCE performance year on year, but fluctuations are to be
expected. Factors that may cause fluctuation in AFFO are built into business forecasting and include the development pipeline,
leasing assumptions, economic forecasts, management’s actions in applying rent-free periods, incentives and maintenance
expenditure.
LTI plan structure
How is the number of Performance Rights determined?
The number of Performance Rights granted is equal to the participant’s LTI grant value (based on a percentage of fixed
remuneration) divided by the VWAP of DXS 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’.
From FY19, the maximum LTI opportunity is set at 150% of fixed remuneration for the CEO and 75% for other Executive KMP.
Do participants receive distributions on unvested
LTI awards?
Participants are not entitled to distributions paid on
underlying DXS securities during the performance period prior
to Performance Rights being tested for vesting.
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. The Board maintains the
discretion to forfeit unvested Performance Rights in the
case of significant misconduct or material misstatement
of performance.
Additionally, forfeiture will occur should the participant’s
employment terminate within 12 months of the grant date
for any reason, or if the participant voluntarily resigns or is
terminated for cause prior to the vesting date.
Notwithstanding the above, if a participant’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 participant
remain in the plan as a ‘good leaver’.
How is the LTI Plan administered
The administration of the LTI plan is supported by the
LTI plan rules.
DXS securities are purchased on market (for all participants
including the CEO) to satisfy the Performance Rights for the
LTI plan. The Board retains the right to amend, suspend or
cancel the LTI plan at any time.
Dexus 2019 Annual Report
78
4. FY19 Dexus performance highlights
In FY19, Dexus continued to deliver strong results and outperformance across key metrics.
Financial performance
Group performance
AFFO per security growth
50.3 cps
47.7 cps
5.5%
growth
FY18
FY19
Leadership in office
ROCE (%)
7.6%
10.1%
FY18
FY19
Dexus office portfolio performance versus benchmark1 (%)
14.0%
14.0%
13.0%
13.0%
13.3%
12.8%
13.3%
12.8%
Three years
Three years
Funds performance
MSCI benchmark
Dexus office portfolio
Dexus office portfolio
MSCI benchmark
Five years
Dexus office portfolio
MSCI benchmark
Dexus office portfolio
MSCI benchmark
Five years
Dexus Wholesale Property Fund (DWPF) versus benchmark2 (%)
12.63%
12.48%
10.24%
10.39%
10.75%
11.45%
10.11%
10.69%
9.24%
7.21%
1 year
3 years
5 years
7 years
10 years
Non-financial performance
Customer, Environment & Culture
Average safety audit score
Customer NPS3
Employee NPS3
98%
FY18: 97%
+46
FY18: +32
+40
DWPF return
Benchmark return
Female representation in senior and
executive management roles
37%
FY18: 34%
(40% female by FY21 target)
5 star NABERS Energy rating or above across
950,351sqm
FY18: 892,000sqm (1 million sqm by FY20 target)
✔
WGEA Employer of Choice
for Gender Equality and
maintained pay equity in
like‑for‑like roles
4 star NABERS Water rating or above across
Increased renewables through securing an
757,423sqm
FY18: 615,000sqm
(1 million sqm by FY20 target)
Energy Supply Agreement
which will purchase offsite renewable energy
from 1 January 2020
1. As at 31 March 2019 compared to MSCI Australian Quarterly Digest for Office Sector benchmark.
2. As at 30 June 2019 compared to MSCI/Mercer Australia Core Wholesale Monthly Property Fund Index (Net returns, Net Asset weighted).
3. The Net Promoter Score (NPS) is calculated as the difference between the percentage of Promoters and Detractors. The NPS is not expressed as a
percentage, but as an absolute number between -100 and +100. There was no FY18 baseline for eNPS.
Financial performance (80%)
Group performance
AFFO per security growth
ROCE
Leadership in office
Dexus office portfolio
performance versus external
benchmarks over 3 and 5 years
Funds performance
DWPF versus benchmarks over
3 and 5 year returns
All other funds outperforming
financial objectives and targets
Non-financial performance (20%)
Customer, Environment & Culture
Zero fatalities from incidents
Safety audit score
Customer NPS
Progress environmental targets
Employee NPS
Senior management gender
diversity
Overall
– AFFO per security of 50.3 cents, achieving growth of 5.5%.
(Threshold 4.0% growth, Target 5.0% growth and Outperformance
– ROCE of 10.1% achieved. (Threshold 7%, Target 8% and
5.5% growth).
Outperformance 9%).
– Dexus office portfolio continued to outperform the MSCI
office benchmark over three and five years.
– To fully achieve Target performance, the Dexus office portfolio
needed to reach the stretch target of 66th to 75th percentile
which was not met.
– Achieved strong performance across all funds with DWPF
outperforming benchmark over 1, 3, 5, 7 and 10 years.
– 100% of funds outperforming benchmarks over 3 and 5 years.
– Zero fatalities and an average safety audit score of 98% across
Dexus’s corporate and management workplaces (Outperformance
90%).
– Customer NPS increased to +46 in FY19 (Outperformance +34 NPS).
– Secured one of Australia’s first supply-linked renewable Energy
Supply Agreements and delivered 950,351sqm of office space rated
minimum 5 star NABERS Energy (Target).
– Employee NPS of +40 (Outperformance).
– 37% Female representation in senior and executive management
roles (Target 40% by 2021).
Directors’ Report / Remuneration Report
Financial performance
Group performance
AFFO per security growth
Leadership in office
Dexus office portfolio performance versus benchmark1 (%)
Funds performance
Dexus Wholesale Property Fund (DWPF) versus benchmark2 (%)
Non-financial performance
Customer, Environment & Culture
5. FY19 Group scorecard and STI outcomes
5.1 FY19 Group scorecard
For FY19 the Board considered a range of Financial and Non-Financial measures and targets that, if achieved, would be key
indicators of company performance and drivers of Security holder value. The Board set Threshold, Target and Outperformance
hurdles at the beginning of the financial year which remained unchanged throughout the performance period.
Category
Measurements
FY19 Result
Comments
79
Financial performance (80%)
Group performance
AFFO per security growth
ROCE
Leadership in office
Dexus office portfolio
performance versus external
benchmarks over 3 and 5 years
Funds performance
DWPF versus benchmarks over
3 and 5 year returns
All other funds outperforming
financial objectives and targets
Non-financial performance (20%)
Customer, Environment & Culture
Zero fatalities from incidents
Safety audit score
Customer NPS
Progress environmental targets
Employee NPS
Senior management gender
diversity
– AFFO per security of 50.3 cents, achieving growth of 5.5%.
(Threshold 4.0% growth, Target 5.0% growth and Outperformance
5.5% growth).
– ROCE of 10.1% achieved. (Threshold 7%, Target 8% and
Outperformance 9%).
– Dexus office portfolio continued to outperform the MSCI
office benchmark over three and five years.
– To fully achieve Target performance, the Dexus office portfolio
needed to reach the stretch target of 66th to 75th percentile
which was not met.
– Achieved strong performance across all funds with DWPF
outperforming benchmark over 1, 3, 5, 7 and 10 years.
– 100% of funds outperforming benchmarks over 3 and 5 years.
– Zero fatalities and an average safety audit score of 98% across
Dexus’s corporate and management workplaces (Outperformance
90%).
– Customer NPS increased to +46 in FY19 (Outperformance +34 NPS).
– Secured one of Australia’s first supply-linked renewable Energy
Supply Agreements and delivered 950,351sqm of office space rated
minimum 5 star NABERS Energy (Target).
– Employee NPS of +40 (Outperformance).
– 37% Female representation in senior and executive management
roles (Target 40% by 2021).
Overall
Key
Category
Culture
Alignment to performance
Market competitive
Sustainable
Simple and transparent
FY19 Result
Outperformance
(above target)
Target
(full achievement
against targets)
Partial
(between Threshold and
Target achievement)
Threshold
(minimum achievement
against targets)
Not achieved
5.2 STI outcomes for Executive KMP
Based on Group Performance and factoring in individual scorecards and weightings, the Board awarded the CEO 125% of target
incentive in FY19. The weightings were 80% Financial (50% for Group Financial Performance, 15% for Office performance, and 15% for
Funds performance) and 20% for Customer, Environment, Culture and individual scorecard components.
For other Executive KMP the STI outcomes ranged from 110% to 125% of Target. For all other Executive KMP, Group Financial
Performance was also weighted at 50%. The other category weightings were varied based on areas of responsibility and
accountabilities. Detailed STI outcomes for FY19 are provided in section 7.1.
Dexus 2019 Annual Report
80
6. Historical performance highlights
Five year financial performance
Funds From Operations (FFO)
Adjusted Funds From Operations (AFFO)
Net Profit After Tax
AFFO per security
AFFO per security growth
Distribution per security
Return on Equity (ROE)
Return on Contributed Equity (ROCE)
Closing Dexus security price
NTA per security
Total Security holder return (TSR)
Dexus
($m)
($m)
($m)
(cents)
(%)
(cents)
(%)
(%)
($)
($)
FY19
681.5
517.2
FY18
653.3
485.5
FY17
617.7
439.7
FY16
610.8
413.9
1,281.0
1,728.9
1,264.2
1,259.8
50.3
5.5
50.2
13.9
10.1
12.98
10.48
47.7
5.1
47.8
19.8
7.6
9.71
9.64
45.4
6.3
45.47
18.2
7.6
9.48
8.45
42.7
5.7
43.51
19.3
n/a
9.02
7.53
FY15
544.5
369.8
618.7
40.4
6.6
41.04
11.5
n/a
7.30
6.68
1 Year
3 Years*
5 Years*
10 Years*
39.4% p.a.
18.2% p.a.
20.0% p.a.
17.4% p.a.
S&P/ASX 200 Property Accumulation Index
19.3% p.a.
8.1% p.a.
13.6% p.a.
14.0% p.a.
Source: UBS Australia as at 30 June 2019.
* Annual compound returns.
Relative TSR since listing in 2004
500
400
300
200
100
0
4
0
-
p
e
S
5
0
-
n
u
J
6
0
-
r
a
M
6
0
-
c
e
D
7
0
-
p
e
S
8
0
-
n
u
J
9
0
-
r
a
M
9
0
-
c
e
D
0
1
-
p
e
S
1
1
-
n
u
J
2
1
-
r
a
M
2
1
-
c
e
D
3
1
-
p
e
S
4
1
-
n
u
J
5
1
-
r
a
M
5
1
-
c
e
D
6
1
-
p
e
S
7
1
-
n
u
J
8
1
-
r
a
M
8
1
-
c
e
D
9
1
-
n
u
J
Dexus
Total
Return
S&P/ASX 200
Property
Accumulation
Index
Source: UBS Australia to 30 June 2019.
Directors’ Report / Remuneration Report 81
7. Executive KMP remuneration outcomes
7.1 STI awards for FY19 performance
The STI awards made to each Executive KMP with respect to their performance during the year ended 30 June 2019 are provided
below. The People and Remuneration Committee reviewed the results of the FY19 performance scorecard and recommended the
STI awards for Executive KMP. The Board then approved the STI awards in the table below. The 75% cash component will be paid
in August 2019 following the approval of statutory accounts and announcement of the group’s annual results. This payment will
form a part of the FY20 cash earnings for Executive KMP.
Executive KMP
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop
Deborah C Coakley
STI target
% of fixed
remuneration
STI max
% of fixed
remuneration
STI award
($)
% of
target
STI awarded
% of
maximum
STI awarded
% of
maximum
STI forfeited
% of
STI award
deferred
100%
100%
100%
100%
100%
125%
$2,000,000
125%
125%
125%
125%
$937,500
$825,000
$797,500
$750,000
125%
125%
110%
110%
125%
100%
100%
88%
88%
100%
0%
0%
12%
12%
0%
25%
25%
25%
25%
25%
7.2 Deferred STI and LTI grants
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 2019, which was $13.4759. The minimum value of the LTI grant is nil if
the performance conditions are not met. The maximum value is based on the estimated fair value calculated at the time of the
LTI grant and amortised in accordance with the accounting standard requirements.
The below details the number of Rights granted to Executive KMP on 1 July 2019 under the Deferred STI and LTI plans.
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.
Executive KMP
Plan name
Maximum
award as
a % of fixed
remuneration
Performance
measure
Number
of security
rights
granted
Fair Value
per security
right $1
Maximum
total value
of grant $2
1st vesting
date 50%
2nd vesting
date 50%
Darren J
Steinberg
Ross G Du
Vernet
Kevin L
George
Alison C
Harrop
Deborah C
Coakley
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
25%
150%
25%
75%
25%
75%
25%
75%
25%
75%
Nil
AFFO
ROCE
Nil
AFFO
ROCE
Nil
AFFO
ROCE
Nil
AFFO
ROCE
Nil
AFFO
ROCE
37,103
89,047
89,047
17,392
20,870
20,870
15,305
20,870
20,870
14,794
20,870
20,870
13,913
18,783
18,783
$13.10
486,049
1 July 2020
1 July 2021
$11.62
1,034,726
$11.16
993,765
1 July 2022
1 July 2023
$13.10
$11.62
$11.16
227,835
1 July 2020
1 July 2021
242,509
232,909
1 July 2022
1 July 2023
$13.10
200,496
1 July 2020
1 July 2021
$11.62
242,509
$11.16
232,909
1 July 2022
1 July 2023
$13.10
193,801
1 July 2020
1 July 2021
$11.62
242,509
$11.16
232,909
1 July 2022
1 July 2023
$13.10
182,260
1 July 2020
1 July 2021
$11.62
218,258
$11.16
209,618
1 July 2022
1 July 2023
1. Value for the Deferred STI reflects the valuation of $13.10. Fair value for the LTI reflects the valuation of Tranche 1 ($11.62) and Tranche 2 ($11.16).
Valuations were provided by EY under the Black-Scholes Analytic model.
2. The maximum total value of the grant reflects the numbers of rights granted multiplied by the fair value per Security Right.
Dexus 2019 Annual Report 82
7.3 LTI awards which vested during FY19
AFFO per security growth and ROCE were established as the performance hurdles in 2016, simplifying the LTI plan and providing
greater alignment with the business strategy and the metrics that drive long-term company performance. Prior grants had four
performance hurdles including two relative measures (TSR and ROE). We compared ourselves to companies within the following
indices:
– Relative TSR – S&P/ASX200 A-REIT Index
– Relative ROE – Mercer IPD Core Wholesale Property Fund Index
The second tranche of the 2014 LTI plan and the first tranche of the 2015 LTI plan vested for participating Executive KMP on
1 July 2018. The vesting outcomes of 95% and 100% respectively was determined by the Board, referencing the previously approved
performance hurdles.
Results of each performance condition for the second tranche of the 2014 LTI Plan:
Performance condition
Weighting
Hurdle range
Group result
Vesting outcome
Funds from Operations growth1
Average Return on Equity2
Relative Total Security holder Return3
Relative Return on Equity4
25%
25%
25%
25%
4.0% to 6.0%
9.0% to 10.0%
Median to 75th
percentile
Median to 75th
percentile
5.7%
19.9%
6th out of 17
2nd out of 16
Overall Result due to Weighting
93.1%
100%
87.5%
100%
95%
Results of each performance condition for the first tranche of the 2015 LTI Plan:
Performance condition
Weighting
Hurdle range
Group result
Vesting outcome
Funds from Operations growth5
Average Return on Equity 6
Relative Total Security holder Return7
Relative Return on Equity8
25%
25%
25%
25%
3.0% to 5.0%
9.0% to 10.0%
Median to 75th
percentile
Median to 75th
percentile
5.8%
19.1%
5th out of 17
2nd out of 16
Overall Result due to Weighting
100%
100%
100%
100%
100%
1. Funds from Operations (FFO) growth hurdle was measured on a linear scale for testing, with a 4.0% Compound Annual Growth Rate (CAGR) set
as the Target (where 50% would vest) and 6.0% set as the Outperformance hurdle (where 100% would vest). Dexus’s FFO growth result over the
four-year performance period was 5.7% resulting in partial vesting from 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 10.0% set as the Outperformance hurdle (where 100% would vest). Dexus’s average ROE result was 19.9% over the four-year
performance period, resulting in full vesting from 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 of the
S&P/ASX 200 A-REIT Index. 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). Dexus’s relative TSR rank of 6th out of 17 listed A-REIT peers over the four-year performance
period, resulted in full vesting from this performance condition.
4. Relative ROE was measured with reference to the average ROE result achieved by DXS against a comparator group comprising the members of
the Mercer IPD Core Wholesale Property Fund Index. 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). Dexus’s relative ROE rank of 2nd out of 16 unlisted property peers over the
four-year performance period, resulting in full vesting from this performance condition.
5. FFO growth hurdle was measured on a linear scale for testing, with a 3.0% CAGR set as the Target (where 50% would vest) and 5.0% set as the
Outperformance hurdle (where 100% would vest). Dexus’s FFO growth result over the three-year performance period was 5.8% resulting in full
vesting from this performance condition.
6. Average 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
10.0% set as the Outperformance hurdle (where 100% would vest). Dexus’s average ROE result was 19.1% over the three-year performance period,
resulting in full vesting from this performance condition.
7. Relative TSR was measured with reference to the TSR percentile rank of DXS against a comparator group comprising members of the S&P/
ASX 200 A-REIT Index. 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). Dexus’s relative TSR rank of 5th out of 17 listed A-REIT peers over the three-year performance
period, resulting in full vesting from this performance condition.
8. Relative ROE was measured with reference to the average ROE result achieved by DXS against a comparator group comprising the members of
the Mercer IPD Core Wholesale Property Fund Index. 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), Dexus’s relative ROE rank of 2nd out of 16 unlisted property peers over the
three-year performance period, resulting in full vesting from this performance condition.
Directors’ Report / Remuneration Report 83
7.4 Actual remuneration based on performance and service through FY19
The actual remuneration awarded during the year comprises the following elements:
– Cash salary including any salary sacrifice arrangements
– Superannuation benefits
– Other short-term benefits comprised of the wellbeing allowance and insurance arrangements provided to all employees
– STI cash payment to be made in August 2019 in recognition of performance during FY19 (noting that 25% of the award is
deferred and will be reported in future years)
– Deferred STI vested: the value of the deferred STI from prior years that vested on 1 July 2019 (being the number of rights that
vested multiplied by the VWAP for the five days prior to the vesting date)
– LTI vested: the value of performance rights that vested on 1 July 2019 (being the number of performance rights that vested
multiplied by the VWAP for the five days prior to the vesting date)
These values differ from the executive statutory remuneration table which has been prepared in accordance with statutory
requirements and accounting standards. The actual LTI awards reflect the significant increase in security price (+81% for the 2015
LTI grant, and +46% for the 2016 grant), demonstrating the alignment between Security holder value and rewards.
Executive
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop
Deborah C Coakley
Cash salary
($)
1,579,468
729,468
729,468
704,468
579,468
Super-
annuation
benefits
($)
Other
short-term
benefits
($)
STI cash
payment
($)
Deferred
STI
vested
($)
LTI
vested
($)
Total
($)
20,532
20,532
20,532
20,532
20,532
5,075
2,181
4,440
5,411
2,301
1,500,000
648,685
2,678,945
6,432,705
703,125
618,750
598,125
562,500
271,179
265,024
245,878
212,389
513,105
2,239,590
571,508
391,330
359,932
2,209,722
1,965,744
1,737,123
7.5 Statutory remuneration
The total remuneration paid to Executive KMP for FY19 and FY18 is calculated in accordance with the AASB 124 Related Party
Disclosures. 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.
Short-term benefits
Long-term benefits
Security-based
benefits
Executive
KMP
Year
Cash
salary
($)
STI cash
award
($)
Annual
Leave
movement1
Other
short-term
benefits
($)
Super
benefits
($)
Term-
ination
benefits
($)
Long
Service
Leave
movement1
Deferred
STI plan
accrual
($)
LTI plan
accrual
($)
Total
($)
Darren J
Steinberg
Ross G Du
Vernet
Kevin L
George
Alison C
Harrop
Deborah C
Coakley
Total
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
1,579,468 1,500,000
-18,224
1,579,951
1,380,000
-32,569
729,468
703,125
6,991
679,951
577,500
-4,275
729,468
618,750
11,222
679,951
551,250
-19,949
5,075
4,689
2,181
2,042
4,440
4,054
20,532
20,049
20,532
20,049
20,532
20,049
704,468
598,125
13,547
5,411
20,532
654,951
531,563
-21,661
5,340
20,049
579,468
562,500
17,799
554,951
452,813
–
2,301
2,236
20,532
20,049
FY19 4,322,340 3,982,500
31,334
19,408
102,660
FY18 4,149,755 3,493,125
-78,454
18,362
100,244
–
–
–
–
–
–
–
–
–
–
–
–
35,113
522,092
2,472,707
6,146,763
31,995
19,035
13,771
428,351
1,502,853
4,915,319
241,128
538,160 2,260,620
176,723
316,129
1,781,890
16,344
224,948
553,614
2,179,319
34,318
173,247
333,083
1,776,003
–
–
214,195
491,636
2,047,915
155,775
260,401
1,606,418
11,722
190,497
438,630 1,823,449
25,702
138,291
240,356
1,434,398
82,214
1,422,861 4,494,747 14,458,065
105,786
1,072,387 2,652,823 11,514,028
1. The accounting value of leave movements may be negative; for example, where an Executive’s annual leave balance decreases as a result of
taking more than the 20 days’ annual leave they accrue during the current year. Long service leave accrues from five years of service and the
movement may be high in the first year of accrual.
Dexus 2019 Annual Report 84
7.6 Changes for FY20
There are no changes to the remuneration structure or opportunity levels for the CEO in FY20. There are no changes to the
STI and LTI plans, and levels, for Executive KMP. We review market and peer benchmarking information each year to keep fixed
and total remuneration levels competitive. As a result of the benchmarking the following increases for Executive KMP will be
implemented in FY20:
– Alison Harrop, CFO; from $725,000 to $750,000
– Deborah Coakley, EGM Funds Management; from $600,000 to $675,000
8. Terms of Executive KMP service agreements
KMP service agreements detail the individual terms and conditions of employment applying to Executive KMP. The quantum
and structure of remuneration arrangements are detailed elsewhere in this report, with the termination scenarios and other key
employment terms detailed below:
Employment
agreement
Resignation by the
Executive
CEO
Other Executive KMP
An ongoing Executive Service Agreement
An ongoing Executive Service Agreement or
individual contract
Resignation by Mr Steinberg requires a
six-month notice period. The group may
choose to place Mr Steinberg on leave or
make a payment in lieu of notice at the
Board’s discretion.
Resignation by other Executive KMP 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.
All unvested STI and LTI awards are forfeited.
In the case of resignation, through mutual agreement, e.g. retirement, the Board has the ability
to treat the Executive KMP as a ‘good leaver’, which may result in the Executive KMP retaining
same or all of the unvested deferred STI or LTI.
Termination by the
group without cause
If the group terminates the Executive without cause, the Executive is entitled to a combined
maximum notice and severance payment of 12 months fixed remuneration. The Board may
(in its absolute discretion) also approve a pro-rata STI payment.
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 the unvested Deferred STI or LTI.
Termination by the
group with cause
Other contractual
provisions and
restrictions
No notice or severance is payable.
All KMP service agreements include standard clauses covering intellectual property,
confidentiality, moral rights and disclosure obligations.
Directors’ Report / Remuneration Report 85
9. Non-Executive Directors’ (NED) remuneration
NED 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 ASX 100 A-REITs
– Information supplied by external remuneration advisors, including EY
Other than the Chair who receives a single base fee, NEDs receive a base fee plus additional fees for membership of Board
Committees. NEDs do not participate in incentive plans or receive any retirement benefits other than statutory superannuation
contributions.
9.1 Fee structure
The Board fee structure (inclusive of statutory superannuation contributions) for FY18 and FY19 is provided below.
Committee
Directors base fee (DXFM)
Board Risk Committee
Board Audit Committee
Board Nomination Committee
Board People & Remunerations Committee
DWPL Board
Year
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
Chair
($)
400,0001
400,0001
30,000
30,000
30,000
30,000
15,000
15,000
30,000
30,000
n/a
n/a
Member
($)
170,000
170,000
15,000
15,000
15,000
15,000
7,500
7,500
15,000
15,000
30,000
30,000
1. The Board Chair receives a single fee for service, including service on Board Committees.
Total fees paid to NEDs for the year ended 30 June 2019 remained within the aggregate fee pool of $2,500,000 per annum which
was approved by Security holders at the AGM in October 2017.
9.2 Security holding requirement
In FY19 NEDs were expected to hold a minimum of 16,500 DXS securities. Commencing in FY20, NEDs will be expected to hold the
equivalent of 100% of their base fees in DXS Securities, to be acquired over 5 years from appointment date. To further facilitate
NEDs’ ability to acquire Dexus equity, we will introduce a fee sacrifice program in FY20.
Securities held by NEDs are subject to the group’s security and insider trading policies. No additional remuneration is provided to
NEDs to purchase these securities.
The relevant interests of each NED in DXS securities are shown in section 9.5.
9.3 Security movements
Non-Executive Director
KMP
W Richard Sheppard
Penny Bingham-Hall
John C Conde AO
Tonianne Dwyer
Mark H Ford1
Nicola Roxon2
Peter St George
Number of
securities
held at
1 July 2018
($)
Number of
securities
held at
30 June 2019
($)
Movement
($)
70,090
16,534
16,667
16,667
1,667
–
17,334
1,239
1,239
1,239
Nil
Nil
Nil
1,239
71,329
17,773
17,906
16,667
1,667
–
18,573
FY19
Requirements
for Minimum
number of
securities
($)
16,500
16,500
16,500
16,500
16,500
16,500
16,500
1. Mark H Ford was appointed in 2017 and has additional time to reach the requirement.
2. Nicola Roxon was appointed in 2018 and has additional time to reach the requirement.
Dexus 2019 Annual Report
86
9.4 Actual remuneration
This summary of the actual cash and benefits received by each Non-Executive Director for the year ended 30 June 2019 is
prepared in accordance with AASB 124 Related Party Disclosures.
Non-Executive Director
KMP
W Richard Sheppard
Elizabeth A Alexander AM2
Penny Bingham-Hall
John C Conde AO
Tonianne Dwyer
Mark H Ford
Nicola Roxon
Peter St George
Total
Post
employment
benefits
(super-
annuation)
($)
Short-term
benefits1
($)
Other long-
term benefits
379,468
379,951
–
173,516
204,531
198,396
203,196
194,635
226,182
221,097
184,287
184,610
183,513
143,706
196,347
196,347
20,532
20,049
–
16,484
19,304
18,653
19,304
18,490
20,532
20,227
17,352
17,352
17,352
13,592
18,653
18,653
1,577,524
1,692,258
133,029
143,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Year
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
Total
($)
400,000
400,000
–
190,000
223,835
217,049
222,500
213,125
246,714
241,324
201,639
201,962
200,865
157,298
215,000
215,000
1,710,553
1,835,758
Includes Director fees and insurance contributions.
1.
2. In FY18, Elizabeth A Alexander AM ceased being a NED for Dexus Group but continues to be independent Chair of DWPF.
9.5 Changes for FY20
For FY20 increases will be made to the Board Chair fees, member base fees and committee fees. These increases bring Dexus
closer to the market median based on A-REIT and relevant ASX-listed comparator companies. In particular, the Chair fee was
shown to be well below market median. NED base fees were last increased in 2016. NED Committee fees were last increased in
2013. The NED fee pool remains unchanged.
The following increase of fees for Non-Executive Directors based on Board and Committee role effective 1 July 2019:
– Board Chair fees increase from $400,000 to $450,000
– NED base fees increase from $170,000 to $175,000
– Committee Chair fees increase from $30,000 to $35,000
– DWPL Board fees increase from $30,000 to $35,000
– Committee Member fees increase from $15,000 to $17,500 (except the Nomination Committee which did not increase).
Directors’ Report / Remuneration Report 87
10. Additional disclosures
10.1 Performance of LTI awards vesting in FY20 after the reporting period
On 1 July 2019, the second tranche of the 2015 LTI plan and the first tranche in the 2016 LTI plan vested for participating Executive KMP.
The vesting outcome was determined by the Board, referencing the previously approved performance hurdles set and
communicated to participants upon the original Grant Dates of 1 July 2015 and 1 July 2016 respectively.
Results of each performance condition within tranche 2 of the 2015 LTI plan:
Performance condition
Weighting
Hurdle range
Group result
Vesting outcome
Funds from Operations growth
Average Return on Equity
Relative Total Security Holder Return
Relative Return on Equity
25%
25%
25%
25%
3.0% to 5.0%
9.0% to 10.0%
Median to 75th
percentile
Median to 75th
percentile
5.7%
17.1%
3rd of 16
2nd of 16
100%
100%
100%
100%
Overall Result due to Weighting 100%
Results of each performance condition within tranche 1 of the 2016 LTI plan:
Performance condition
Weighting
Hurdle range
Group result
Vesting outcome
Adjusted Funds from Operations per
security growth
Average Return on Contributed Equity
50%
50%
3.5% to 4.5%
7.5% to 8.0%
5.6%
8.5%
100%
100%
Overall Result due to Weighting 100%
Further details and quantification in dollars of these vesting tranches will be provided in the FY20 Remuneration Report.
10.2 Deferred STI and LTI awards which vested during FY19
The summary below outlines the number of Rights which vested under the Deferred STI and LTI plans during FY19. The vesting date
for all Rights was 1 July 2018. No rights lapsed during FY19.
Executive KMP
Plan name
Grant date
Tranche
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop2
Deborah Coakley
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
Deferred STI
LTI
1/07/2016
1/07/2017
1/07/2014
1/07/2015
1/07/2016
1/07/2017
1/07/2014
1/07/2015
1/07/2016
1/07/2017
1/07/2014
1/07/2015
1/07/2016
1/07/2017
1/07/2015
1/07/2016
1/07/2017
1/07/2014
1/07/2015
2
1
2
1
2
1
2
1
2
1
2
1
2
1
1
2
1
2
1
1. Market value at vesting is the VWAP of DXS securities for the five-day period before the vesting date.
2. Alison Harrop was not employed at the time of the 2014 LTI grant.
Number of
rights which
vested
Market value
at vesting1
($)
21,342
23,656
285,649
316,619
97,957
1,311,084
101,689
1,361,043
8,087
9,879
17,492
18,643
8,148
9,879
21,865
21,694
5,721
8,820
11,186
6,290
7,728
8,396
9,660
108,238
132,220
234,122
249,525
109,051
132,220
292,653
290,356
76,574
118,056
149,715
84,185
103,436
112,379
129,299
Dexus 2019 Annual Report
88
10.3 KMP unvested security rights outstanding
The table below shows the number of unvested Rights held by Executive KMP as at 30 June 2019 under the Deferred STI and
LTI plans. The STI and LTI awards in respect of which the elements below are deferred elements were disclosed in prior year
remuneration reports.
Executive KMP
Plan name
Grant date Vesting date
Tranche
Darren J Steinberg
Ross G Du Vernet
Kevin L George
Alison C Harrop
1/07/2017
1/07/2019
Deferred STI
1/07/2018
1/07/2019
1/07/2018
1/07/2020
1/07/2015
1/07/2019
1/07/2016
1/07/2019
1/07/2016
1/07/2020
LTI
1/07/2017
1/07/2020
1/07/2017
1/07/2021
1/07/2018
1/07/2021
1/07/2018
1/07/2022
1/07/2017
1/07/2019
Deferred STI
1/07/2018
1/07/2019
1/07/2018
1/07/2020
1/07/2015
1/07/2019
1/07/2016
1/07/2019
1/07/2016
1/07/2020
LTI
1/07/2017
1/07/2020
1/07/2017
1/07/2021
1/07/2018
1/07/2021
1/07/2018
1/07/2022
1/07/2017
1/07/2019
Deferred STI
1/07/2018
1/07/2019
1/07/2018
1/07/2020
1/07/2015
1/07/2019
1/07/2016
1/07/2019
1/07/2016
1/07/2020
LTI
1/07/2017
1/07/2020
1/07/2017
1/07/2021
1/07/2018
1/07/2021
1/07/2018
1/07/2022
1/07/2017
1/07/2019
Deferred STI
1/07/2018
1/07/2019
1/07/2018
1/07/2020
1/07/2015
1/07/2019
1/07/2016
1/07/2019
1/07/2016
1/07/2020
LTI
1/07/2017
1/07/2020
1/07/2017
1/07/2021
1/07/2018
1/07/2021
1/07/2018
1/07/2022
Number of
rights which
vested
22,556
23,285
23,285
101,689
98,466
98,466
98,426
98,426
121,487
121,487
9,420
9,744
2
1
2
2
1
2
1
2
1
2
2
1
2 9,744
2 18,643
1
2
1
2
1
2
2
1
2
2
1
2
1
2
1
2
2
1
2
2
1
2
1
2
1
2
19,693
19,693
21,531
21,531
28,474
28,474
9,420
9,301
9,301
21,694
21,006
21,006
21,531
21,531
28,474
28,474
8,410
8,969
8,969
11,186
18,052
18,052
19,224
19,224
27,524
27,524
Directors’ Report / Remuneration Report Executive KMP
Plan name
Grant date Vesting date
Tranche
1/07/2017
1/07/2019
Deferred STI
1/07/2018
1/07/2019
1/07/2018
1/07/2020
1/07/2015
1/07/2019
1/07/2016
1/07/2019
1/07/2016
1/07/2020
LTI
1/07/2017
1/07/2020
1/07/2017
1/07/2021
1/07/2018
1/07/2021
1/07/2018
1/07/2022
2
1
2
2
1
2
1
2
1
2
Deborah Coakley
10.4 Equity Investments
89
Number of
rights which
vested
7,369
7,640
7,640
9,660
17,232
17,232
17,686
17,686
22,779
22,779
Held at 1 July 2018
Net Change
Held as at 30 June 2019
Securities
Deferred
STI
Total
Balance1 Securities
Deferred
STI
Total
Balance1 Securities
Deferred
STI
Total
Balance1
Market
value as at
30 June
20192
$
Minimum
security
holding
guideline3
$
Darren J
Steinberg
Ross G
Du Vernet
Kevin L
George
Alison C
Harrop
Deborah C
Coakley
454,836
64,600 519,436
45,164
4,526
49,690 500,000
69,126
569,126
7,617,363
2,400,000
101,266
26,224
127,490
1,239
2,684
3,923
102,505
28,908
131,413 1,758,873
562,500
63,113
26,279
89,392
0
1,743
1,743
63,113
28,022
91,135
1,219,780
562,500
0 22,045
22,045
5,836
4,303
10,139
5,836
26,348
32,184
430,761
543,750
0 20,482
20,482
23,627
2,167
25,794
23,627
22,649
46,276
619,373
450,000
1. The following securities are included in the balance for the purpose of the guideline (1) Any DXS securities that the Executive or their related
person or entity hold (e.g. Family Trust), (2) Securities that the Executive acquires on vesting of awards granted under Dexus’s equity incentive
plans; and (3) Unvested equity granted that the Executive holds under Dexus’s equity incentive plans which are not subject to performance
hurdles (e.g. deferred short-term incentives).
2. Market value as at 30 June 2019 is the VWAP of DXS securities for the five-day period up to and including 30 June 2019 ($13.38).
3. A minimum security holding guideline was introduced on 1 July 2018, with all Executive KMP targeting to attain the minimum security holding
by 1 July 2023. The value is calculated by reference to the 12-month average fixed remuneration for the relevant financial year. For existing
Executive KMP as at 1 July 2018, the guide is based on fixed remuneration as at 1 July 2018.
10.5 Other Transactions
There were no transactions involving an equity instrument (other than share based payment compensation) to KMP or
related parties.
10.6 Loans
No loans were provided to KMP or related parties.
Dexus 2019 Annual Report
90
Directors’ Report
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 2019. 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
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
The Hon. Nicola L Roxon, BA/LLB (Hons), GAICD
Darren J Steinberg, BEc, FRICS, FAPI, FAICD
Peter B St George, CA(SA), MBA
Appointed
1 January 2012
10 June 2014
29 April 2009
24 August 2011
1 November 2016
1 September 2017
1 March 2012
29 April 2009
Company Secretaries
The names and details of the Company Secretaries of DXFM as at 30 June 2019 are as follows:
Brett D Cameron LLB/BA (Science and Technology), GAICD, FGIA
Appointed: 31 October 2014
Brett is the General Counsel and a 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 22 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 and a Fellow of the Governance Institute of Australia.
Scott Mahony BBus (Acc), Grad Dip (Business Administration), MBA (eCommerce), Grad Dip (Applied Corporate
Governance) FGIA, FCIS
Appointed: 5 February 2019
Scott is the Head of Governance of Dexus and is responsible for the development, implementation and oversight of Dexus’s
governance policies and practices. Prior to being appointed the Head of Governance in 2018, Scott had oversight of Dexus’s
risk and compliance programs.
Scott joined Dexus in October 2005 after two years with Commonwealth Bank of Australia as a Senior Compliance Manager.
Prior to this, Scott worked for over 11 years for Assure Services & Technology (part of AXA Asia Pacific) where he held various
management roles.
91
Attendance of Directors at Board Meetings and Board Committee Meetings
The number of Directors’ meetings held during the year and each Director’s attendance at those meetings is set out in the table
below. The Directors met 12 times during the year. Ten board meetings were main meetings and two meetings were held to
consider specific business.
W Richard Sheppard
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Mark Ford
The Hon. Nicola L Roxon
Darren J Steinberg
Peter B St George
Main meetings
held
Main meetings
attended
Specific meetings
held
Specific meetings
attended
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
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 2019.
Board Audit
Committee
Board Risk
Committee
Board Nomination
Committee
Board People
and Remuneration
Committee
Held
Attended
Held
Attended
Held
Attended
Held
Attended
–
–
4
4
4
–
4
–
–
4
4
4
–
4
–
4
–
4
4
4
4
–
4
–
4
4
4
4
3
3
3
–
–
–
–
3
3
3
–
–
–
–
6
6
–
–
–
6
–
6
6
–
–
–
6
–
W Richard Sheppard
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Mark Ford
The Hon. Nicola L Roxon
Peter B St George
John Conde and Tonianne Dwyer were also Directors of Dexus Wholesale Property Limited (DWPL) and attended DWPL Board
meetings during the year ended 30 June 2019.
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
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Mark Ford
The Hon. Nicola L Roxon
Darren J Steinberg 1
Peter B St George
1.
Includes interests held directly and through performance rights (refer note 21).
No. of securities
71,329
17,773
17,906
16,667
1,667
Nil
1,307,574
18,573
Dexus 2019 Annual Report 92
Directors’ Report
Operating and financial review
Information on the operations and financial position of the Group and its business strategies and prospects is set out in on
pages 28-37 of the Annual Report and forms part of this Directors’ Report.
Remuneration Report
The Remuneration Report is set out on pages 68-89 of the Annual Report and forms part of this Directors’ 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
Penny Bingham-Hall
John C Conde, AO
Tonianne Dwyer
Company
Star Entertainment Group
BlueScope Steel Limited
Fortescue Metals Group Ltd
Whitehaven Coal Limited
Cooper Energy Limited
Metcash Limited
ALS Limited
Oz Minerals Limited
The Hon. Nicola L Roxon
Lifestyle Communities Limited
Peter B St George
Mark Ford
Darren J Steinberg
First Quantum Minerals Limited 1
Kiwi Property Group Limited 2
VGI Partners Limited
1. Listed for trading on the Toronto Stock Exchange in Canada.
2. Listed for trading on the New Zealand Stock Exchange.
Date Appointed
21 November 2012
29 March 2011
16 November 2016
3 May 2007
25 February 2013
24 June 2014
1 July 2016
21 March 2017
1 September 2017
20 October 2003
16 May 2011
12 May 2019
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 2019
was $16,521.3 million (2018: $14,017.3 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 2019 were 50.2 cents per security
(2018: 47.8 cents per security) as outlined in note 7
of the Notes to the Financial Statements.
Directors’ Reportcontinued 93
DXFM fees
Details of fees paid or payable by the Group to DXFM are
eliminated on consolidation for the year ended 30 June 2019.
Details are outlined in note 22 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 2019
are detailed in note 15 of the Notes to the Financial Statements
and form part of this Directors’ Report.
Details of the number of interests in the Group held by DXFM or
its associates as at the end of the financial year are outlined in
note 22 of the Notes to the Financial Statements and form part
of this Directors’ Report.
The 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 21. The Group did not have any options on
issue as at 30 June 2019 (2018: nil).
Environmental regulation
The 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.
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 19 of the Notes to the Financial Statements.
The Board Audit Committee is satisfied that the provision of
non-audit services provided during the year by the Auditor (or
by another person or firm on the Auditor’s behalf) is compatible
with the standard of independence for auditors imposed by the
Corporations Act 2001.
The reasons for the Directors being satisfied are:
– 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 94 and forms part of this Directors’ Report.
Corporate governance
DXFM’s Corporate Governance Statement is available at:
www.dexus.com/corporategovernance
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 13 August 2019.
W Richard Sheppard
Chair
13 August 2019
Darren J Steinberg
Chief Executive Officer
13 August 2019
Dexus 2019 Annual Report 94
Auditor’s Independence Declaration
Auditor’s Independence
Declaration
95
Financial Report
30 June 2019
Contents
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
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
Commitments and contingencies
Note 15
Contributed equity
Note 16
Reserves
Note 17 Working capital
Other disclosures
Note 18
Intangible assets
Note 19
Audit, taxation and transaction service fees
Note 20 Cash flow information
Note 21
Security-based payment
Note 22
Related parties
Note 23
Parent entity disclosures
Note 24 Changes in accounting policies
Note 25
Subsequent events
Director’s Declaration
Independent Auditor’s Report
96
97
98
99
100
103
109
109
110
110
112
113
114
117
120
121
122
131
133
134
135
136
138
139
140
141
143
144
145
148
149
150
Dexus 2019 Annual Report 96
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2019
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 foreign currency interest bearing liabilities
Net fair value gain of derivatives
Other income
Total income
Expenses
Property expenses
Development costs
Finance costs
Impairment of inventories
Net fair value loss of derivatives
Net loss on sale of investment properties
Net fair value loss of foreign currency 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):
Items that may be reclassified to profit or loss
Changes in the fair value of cash flow hedges
Changes in the foreign currency basis spread reserve
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
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
Note
2019
$m
2018
$m
2
10
9
2
10
4
3
5(a)
16
16
6
6
6
6
547.4
96.9
1.0
149.8
795.1
455.4
535.6
0.4
–
146.1
0.1
577.2
133.1
0.7
129.6
840.6
854.2
535.8
1.7
85.8
–
0.5
1,932.7
2,318.6
(157.6)
(47.4)
(151.9)
–
–
–
(127.8)
(3.1)
(121.1)
(608.9)
1,323.8
(42.8)
1,281.0
(155.9)
(80.8)
(128.5)
(0.6)
(79.9)
(0.3)
–
(1.1)
(106.3)
(553.4)
1,765.2
(36.3)
1,728.9
0.4
(4.6)
(19.4)
–
1,276.8
1,709.5
315.7
965.3
1,281.0
311.5
965.3
1,276.8
Cents
30.69
30.45
124.54
122.36
468.8
1,260.1
1,728.9
449.4
1,260.1
1,709.5
Cents
46.08
46.08
169.95
169.95
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
Financial Report Consolidated Statement of Financial Position
As at 30 June 2019
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 financial assets at fair value through profit or loss
Other
Total non-current assets
Total assets
Current liabilities
Payables
Interest bearing liabilities
Derivative financial instruments
Current tax liabilities
Provisions
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
97
2018
$m
33.3
63.4
2.0
37.6
24.1
27.8
188.2
8,242.6
16.0
507.1
4,432.9
310.8
314.6
2.8
2.3
13,829.1
14,017.3
149.7
205.1
6.7
5.2
271.7
638.4
2019
$m
29.8
147.5
–
170.4
15.5
17.1
380.3
8,170.0
15.0
287.3
6,823.7
517.1
322.1
3.9
1.9
16,141.0
16,521.3
188.8
70.0
17.9
21.5
284.2
582.4
3,996.6
3,154.5
105.6
89.4
1.9
2.1
4,195.6
4,778.0
11,743.3
2,399.0
13.2
923.4
78.6
93.7
2.0
2.7
3,331.5
3,969.9
10,047.4
2,127.3
(12.5)
788.5
3,335.6
2,903.3
4,954.5
40.5
3,412.7
8,407.7
11,743.3
4,277.0
39.7
2,827.4
7,144.1
10,047.4
Note
17(a)
17(b)
11
10
12(c)
17(c)
8
10
9
12(c)
18
17(d)
13
12(c)
17(e)
13
12(c)
5(d)
15
16
15
16
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
Dexus 2019 Annual Report 98
Consolidated Statement of Changes in Equity
For the year ended 30 June 2019
Attributable to unitholders of the Trust
(parent entity)
Attributable to unitholders of
other stapled entities
Note
Contri-
buted
equity
$m
2,126.7
Reserves
$m
Retained
profits
$m
Total
$m
Contri-
buted
equity
$m
Reserves
$m
Retained
profits
$m
Total
$m
Total
equity
$m
427.2
2,560.8
4,275.7
41.8
1,946.2
6,263.7
8,824.5
–
–
–
–
–
(7.1)
5.0
–
1,260.1
1,260.1
1,728.9
–
–
(19.4)
1,260.1
1,260.1
1,709.5
–
–
–
–
2.7
(1.4)
(7.1)
5.0
3.8
(1.9)
(7.1)
5.0
(378.9)
(378.9)
(486.4)
(107.5)
(107.5)
(107.5)
(106.9)
1.3
(2.1)
(378.9)
(379.7)
(486.6)
2,127.3
(12.5)
788.5
2,903.3
4,277.0
39.7
2,827.4
7,144.1
10,047.4
2,127.3
(12.5)
788.5
2,903.3
4,277.0
39.7
2,827.4
7,144.1
10,047.4
Change in accounting policy
–
29.9
(31.4)
(1.5)
–
–
(0.4)
(0.4)
(1.9)
757.1
2,901.8
4,277.0
39.7
2,827.0
7,143.7
10,045.5
15
15
1.1
2.7
(0.5)
(1.4)
Opening balance as at
1 July 2017
Net profit/(loss) for the year
Other comprehensive
income/(loss) for the year
Total comprehensive income
for the year
Transactions with owners in
their capacity as owners
Issue of additional equity,
net of transaction costs
Buy-back of contributed equity,
net of transaction cost
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 per
30 June 2018
Opening balance as at
1 July 2018
–
–
–
1.1
(0.5)
–
–
–
0.6
Restated opening balance
as at 1 July 2018
Net profit/(loss) for the year
Other comprehensive
income/(loss) for the year
Total comprehensive income
for the year
Transactions with owners in
their capacity as owners
Issue of additional equity,
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 2019
2,127.3
–
–
–
15
271.7
–
–
–
271.7
6.9
–
468.8
468.8
(19.4)
–
(19.4)
(19.4)
468.8
449.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17.4
–
315.7
315.7
(4.2)
–
(4.2)
(4.2)
315.7
311.5
271.7
677.5
–
–
–
–
(7.6)
8.4
–
965.3
965.3
1,281.0
–
–
(4.2)
965.3
965.3
1,276.8
–
–
–
677.5
949.2
(7.6)
(7.6)
8.4
8.4
(379.6)
(379.6)
(529.0)
(149.4)
(149.4)
(149.4)
122.3
677.5
0.8
(379.6)
298.7
421.0
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
2,399.0
13.2
923.4
3,335.6
4,954.5
40.5
3,412.7
8,407.7
11,743.3
Financial Report Consolidated Statement of Cash Flows
For the year ended 30 June 2019
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 property classified as inventory
Payments for property classified as inventory and development services
Net cash inflow/(outflow) from operating activities
20
Cash flows from investing activities
Proceeds from sale of investment properties
Proceeds from sale of investments accounted for using the equity method
Payments for capital expenditure on investment properties
Proceeds from sale of underlying investments
Payments for investments accounted for using the equity method
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
Repayment of loan with related party
Payments for buy-back of contributed equity
Proceeds from issue of additional equity, net of transaction costs
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
99
2018
$m
809.0
(351.7)
0.7
(137.5)
323.6
(44.0)
147.9
(138.3)
609.7
347.3
30.2
(192.8)
–
(429.3)
(369.3)
(3.1)
(11.0)
2019
$m
713.5
(290.2)
1.0
(149.1)
214.8
(30.8)
88.3
(54.4)
493.1
625.8
–
(261.2)
27.4
(1,447.4)
(359.1)
(0.8)
(6.0)
(1,421.3)
(628.0)
4,914.0
(4,407.3)
–
–
949.2
(9.2)
(522.0)
924.7
(3.5)
33.3
29.8
2,599.0
(1,931.6)
(149.0)
(1.9)
3.8
(7.1)
(482.8)
30.4
12.1
21.2
33.3
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
Dexus 2019 Annual Report 100 Financial Report
Notes to the
Financial Statements
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.
About this report
Basis of preparation
The financial statements are general purpose financial
reports which have been prepared in accordance with the
requirements of the Constitutions of the entities within the
Group, the Corporations Act 2001, AASB’s issued by the
Australian Accounting Standards Board and International
Financial Reporting Standards adopted by the International
Accounting Standard Board.
Unless otherwise stated the financial statements have been
prepared using consistent accounting policies in line with
those of the previous financial year and corresponding interim
reporting period.
The financial statements are presented in Australian dollars,
with all values rounded to the nearest tenth of a million dollars
in accordance with ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191, unless otherwise stated.
The financial statements have been prepared on a going
concern basis using historical cost conventions, except for
investment properties, investment properties within the equity
accounted investments, derivative financial instruments, and
other financial liabilities which are stated at their fair value.
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. All entities within
the Group are for profit 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.
Working capital deficiency
The Group has unutilised facilities of $921.0 million (2018:
$886.6 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 2019 of $202.1 million
(2018: $450.2 million). The deficiency is largely driven by the
provision for distribution due to be paid in August 2019 and
pending expiry of medium term notes.
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
Page 114
Page 120
Note 12 Capital and Financial Risk Management
Page 122
Note 18
Intangible assets
Note 21
Security-based payment
Page 138
Page 141
101
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
AASB 16 Leases (effective application for the
Group is 1 July 2019).
AASB 16 has been published however is not mandatory for the
30 June 2019 reporting period. The Group’s assessment of the
impact of AASB 16 is set out below.
With respect to leases where the Group is a lessee, all leases,
including ground leases, will be required to be recognised
on balance sheet with the exception of short term or low
value leases. An asset (the right to use the leased item) and
a financial liability to pay rentals will be recognised with an
associated depreciation expense and finance costs to be
recognised in the Consolidated Statement of Comprehensive
Income. This differs to the current operating lease treatment
where lease payments are recognised on a straight-line basis
over the lease term.
The transition impact on 1 July 2019 has been assessed to
be an increase in assets and liabilities of approximately
$20 - $30 million. As the Group has adopted the modified
retrospective approach, comparatives will not be restated and
the cumulative effect will be recognised on initial application.
The Group will apply the standard from 1 July 2019.
Principles of consolidation
These consolidated Financial Statements incorporate
the assets, liabilities and results of all subsidiaries as at
30 June 2019.
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.
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 2019, the Group had no investments in foreign
operations.
Dexus 2019 Annual Report 102
Notes to the Financial Statements
continued
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.
The notes are organised into the following sections:
Group performance
Property portfolio assets
1. Operating segments
2. Property revenue and expenses
3. Management operations, corporate and
administration expenses
4. Finance costs
5. Taxation
6. Earnings per unit
7. Distributions paid and payable
Investment properties
Investments accounted for using the equity method
8.
9.
10. Inventories
11. Non-current assets classified as held for sale
Capital and financial risk management
and working capital
Other disclosures
12. Capital and financial risk management
13. Interest bearing liabilities
14. Commitments and contingencies
15. Contributed equity
16. Reserves
17. Working capital
18. Intangible assets
19. Audit, taxation and transaction service fees
20. Cash flow information
21. Security-based payment
22. Related parties
23. Parent entity disclosures
24. Changes in accounting policies
25. Subsequent events
Financial Report / Notes to the Financial Statements Group performance
103
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 development services for third party clients
and inventory.
All other segments
Corporate expenses associated with maintaining and operating the Group. This segment also
includes the centralised treasury function and direct property portfolio value of the Group’s
Healthcare investments.
Dexus 2019 Annual Report 104
Group performance
continued
Note 1 Operating segments continued
30 June 2019
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses and 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 guarantees, coupon income and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Amortisation of intangible assets
Net fair value gain/(loss) of derivatives
Transaction costs
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Non FFO tax expense
Rental guarantees, coupon income and other
Net profit/(loss) attributable to stapled security holders
Investment properties
Inventories
Equity accounted investment properties
Direct property portfolio
Office
$m
Industrial
$m
724.8
164.0
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
–
–
724.8
(218.6)
–
(13.3)
–
–
–
106.5
–
11.1
610.5
594.6
–
–
–
–
–
(106.5)
–
(11.1)
1,087.5
6,984.4
–
5,966.4
12,950.8
–
–
–
164.0
(33.7)
–
(3.3)
–
–
–
10.3
–
–
137.3
170.3
–
–
–
1.8
–
(10.3)
–
–
299.1
1,185.6
–
935.6
2,121.2
28.5
–
–
40.1
68.6
(19.6)
(31.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
64.1
64.1
(24.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17.4
39.8
17.4
39.8
96.9
9.1
106.0
(11.7)
(47.4)
(14.8)
32.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32.1
457.7
457.7
–
–
–
–
–
–
–
(30.2)
–
2.3
(119.4)
–
(12.3)
4.0
(155.6)
8.2
(6.1)
109.4
(3.1)
(127.8)
(15.7)
(4.2)
(194.9)
–
–
–
–
85.8
85.8
Total
$m
885.8
28.5
96.9
113.3
1,124.5
(271.9)
(67.6)
(43.8)
(47.4)
2.3
(119.4)
116.8
(27.1)
15.1
681.5
773.1
(6.1)
109.4
(3.1)
1.8
(127.8)
(116.8)
(15.7)
(15.3)
1,281.0
8,170.0
457.7
6,987.8
15,615.5
(3.0)
(3.0)
3.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Financial Report / Notes to the Financial Statements Note 1 Operating segments continued
30 June 2019
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses and 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
Rental guarantees, coupon income and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Amortisation of intangible assets
Net fair value gain/(loss) of derivatives
Transaction costs
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Non FFO tax expense
Rental guarantees, coupon income and other
Net profit/(loss) attributable to stapled security holders
Investment properties
Inventories
Equity accounted investment properties
Direct property portfolio
Office
$m
Industrial
$m
724.8
164.0
724.8
(218.6)
(13.3)
106.5
–
11.1
610.5
594.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(106.5)
(11.1)
1,087.5
6,984.4
5,966.4
12,950.8
164.0
(33.7)
(3.3)
10.3
137.3
170.3
1.8
–
(10.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
299.1
1,185.6
935.6
2,121.2
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
28.5
–
40.1
68.6
(19.6)
(31.6)
–
–
–
–
–
–
–
–
–
–
64.1
64.1
–
(24.3)
–
–
–
–
–
–
–
17.4
39.8
–
–
–
–
–
–
–
–
–
17.4
–
–
–
–
–
–
–
–
–
–
–
–
–
39.8
–
–
–
–
–
–
96.9
9.1
106.0
–
(11.7)
–
(47.4)
–
–
–
(14.8)
–
32.1
–
–
–
–
–
–
–
–
–
32.1
–
457.7
–
457.7
–
–
–
–
–
–
–
(30.2)
–
2.3
(119.4)
–
(12.3)
4.0
(155.6)
8.2
(6.1)
109.4
(3.1)
–
(127.8)
–
(15.7)
(4.2)
(194.9)
–
–
85.8
85.8
(3.0)
–
–
–
(3.0)
–
–
3.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
105
Total
$m
885.8
28.5
96.9
113.3
1,124.5
(271.9)
(67.6)
(43.8)
(47.4)
2.3
(119.4)
116.8
(27.1)
15.1
681.5
773.1
(6.1)
109.4
(3.1)
1.8
(127.8)
(116.8)
(15.7)
(15.3)
1,281.0
8,170.0
457.7
6,987.8
15,615.5
Dexus 2019 Annual Report 106
Group performance
continued
Note 1 Operating segments continued
30 June 2018
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses and 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 guarantees, coupon income and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Amortisation of intangible assets
Impairment of inventories
Net fair value gain/(loss) of derivatives
Transaction costs
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Non FFO tax expense
Rental guarantees, coupon income 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
Office
$m
Industrial
$m
712.3
152.0
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
–
–
712.3
(195.3)
–
(12.8)
–
–
–
87.1
–
12.5
603.8
1,054.0
–
–
–
–
(0.9)
–
(87.1)
–
(15.0)
1,554.8
6,437.2
–
–
4,327.0
10,764.2
–
–
–
152.0
(30.4)
–
(3.2)
–
–
–
14.3
–
–
132.7
141.9
–
(0.6)
–
–
–
–
(14.3)
–
–
259.7
1,805.4
2.0
–
167.2
1,974.6
16.1
35.9
29.2
–
–
38.8
68.0
(19.5)
(32.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
58.0
58.0
(22.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
133.1
5.0
138.1
(4.5)
(80.8)
(15.7)
37.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
544.7
544.7
–
–
–
–
–
–
–
(27.4)
–
1.4
(135.8)
–
(13.3)
2.8
(172.3)
5.9
(5.5)
–
(77.5)
(1.1)
85.8
–
–
(7.3)
(2.7)
–
–
–
54.1
54.1
16.1
35.9
37.1
(174.7)
Total
$m
861.5
29.2
133.1
101.8
1,125.6
(245.2)
(59.0)
(40.6)
(80.8)
1.4
(135.8)
101.4
(29.0)
15.3
653.3
1,201.8
(5.5)
(0.6)
(77.5)
(1.1)
(0.9)
85.8
(101.4)
(7.3)
(17.7)
1,728.9
8,242.6
2.0
544.7
4,548.3
13,337.6
(2.8)
(2.8)
2.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Financial Report / Notes to the Financial Statements Incentive amortisation and rent straight-line
87.1
14.3
Note 1 Operating segments continued
30 June 2018
Segment performance measures
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Property expenses and property management salaries
Management operations expenses
Corporate and administration expenses
Development costs
Interest revenue
Finance costs
FFO tax expense
Rental guarantees, coupon income and other
Funds From Operations (FFO)
Net fair value gain/(loss) of investment properties
Amortisation of intangible assets
Impairment of inventories
Net fair value gain/(loss) of derivatives
Transaction costs
Net gain/(loss) on sale of investment properties
Net fair value gain/(loss) of interest bearing liabilities
Incentive amortisation and rent straight-line
Non FFO tax expense
Rental guarantees, coupon income 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
Office
$m
Industrial
$m
712.3
152.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
712.3
(195.3)
(12.8)
12.5
603.8
1,054.0
(0.9)
(87.1)
(15.0)
1,554.8
6,437.2
4,327.0
10,764.2
152.0
(30.4)
(3.2)
132.7
141.9
(0.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(14.3)
259.7
1,805.4
2.0
–
167.2
1,974.6
Property
management
$m
Funds
management
$m
Development
and trading
$m
All other
segments
$m
Eliminations
$m
–
29.2
–
38.8
68.0
(19.5)
(32.4)
–
–
–
–
–
–
–
–
–
–
58.0
58.0
–
(22.1)
–
–
–
–
–
–
–
16.1
35.9
–
–
–
–
–
–
–
–
–
–
16.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35.9
–
–
–
–
–
–
–
133.1
5.0
138.1
–
(4.5)
–
(80.8)
–
–
–
(15.7)
–
37.1
–
–
–
–
–
–
–
–
–
–
37.1
–
–
544.7
–
544.7
–
–
–
–
–
–
–
(27.4)
–
1.4
(135.8)
–
(13.3)
2.8
(172.3)
5.9
(5.5)
–
(77.5)
(1.1)
–
85.8
–
(7.3)
(2.7)
(174.7)
–
–
–
54.1
54.1
(2.8)
–
–
–
(2.8)
–
–
2.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
107
Total
$m
861.5
29.2
133.1
101.8
1,125.6
(245.2)
(59.0)
(40.6)
(80.8)
1.4
(135.8)
101.4
(29.0)
15.3
653.3
1,201.8
(5.5)
(0.6)
(77.5)
(1.1)
(0.9)
85.8
(101.4)
(7.3)
(17.7)
1,728.9
8,242.6
2.0
544.7
4,548.3
13,337.6
Dexus 2019 Annual Report 108
Group performance
continued
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 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
Property lease revenue
Property services revenue 1
Property revenue
Property management fees
Development revenue
Management fee revenue
Total operating segment revenue
Share of property lease revenue from joint ventures
Share of property services revenue from joint ventures
Share of management fees charged to joint ventures
Interest revenue
Total revenue from ordinary activities
2019
$m
771.5
114.3
885.8
28.5
96.9
113.3
1,124.5
(321.3)
(45.5)
36.4
1.0
795.1
2018
$m
861.5
–
861.5
29.2
133.1
101.8
1,125.6
(313.5)
–
27.8
0.7
840.6
1. The Group applied AASB 15 Revenue from Contracts with Customers on 1 July 2018. A portion of the consideration within lease arrangements
has been allocated to service revenue which has previously been disclosed as part of property lease revenue. Refer to note 24 Changes in
accounting policies.
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
2019
$m
2018
$m
15,615.5
13,337.6
29.8
147.5
322.1
532.6
15.0
(141.2)
33.3
63.4
314.6
334.9
16.0
(82.5)
16,521.3
14,017.3
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.
Financial Report / Notes to the Financial Statements 109
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.
Within its lease arrangements, the Group provides certain services to tenants (such as utilities, cleaning, maintenance and certain
parking arrangements) which are accounted for within AASB 15. A portion of the consideration within the lease arrangements is
therefore allocated to revenue for the provision of services. Refer to note 24 for further information relating to revenue policies
adopted under AASB 15 Revenue from Contracts with Customers.
Rent and recoverable outgoings
Services revenue
Incentive amortisation
Other revenue
Total property revenue
2019
$m
471.7
68.8
(66.8)
73.7
547.4
2018
$m
585.4
–
(80.7)
72.5
577.2
Property expenses of $157.6 million (2018: $155.9 million) includes rates, taxes and other property outgoings incurred in relation to
investment properties.
Note 3 Management operations, corporate and administration expenses
Audit, taxation, legal and other professional fees
Depreciation and amortisation
Employee benefits expense and other staff expenses
Administration and other expenses
Total management operations, corporate and administration expenses
2019
$m
6.0
10.3
87.9
16.9
121.1
2018
$m
5.3
9.2
78.0
13.8
106.3
Dexus 2019 Annual Report 110
Group performance
continued
Note 4 Finance costs
Finance costs include interest, amortisation or other costs incurred in connection with arrangement of borrowings and net fair
value movements of interest rate swaps. Finance 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 are 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
Amount capitalised
Net fair value (gain)/loss of interest rate swaps
Other finance costs
Total finance costs
2019
$m
124.5
(24.4)
46.4
5.4
151.9
2018
$m
122.4
(13.1)
12.9
6.3
128.5
The average capitalisation rate used to determine the amount of finance costs eligible for capitalisation is 5.25% (2018: 5.75%).
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 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.
Financial Report / Notes to the Financial Statements 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 benefit/(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% (2018: 30%)
Tax effect of amounts which are not deductible/(assessable) 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
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
111
2018
$m
(28.5)
(7.8)
(36.3)
2.2
(10.0)
(7.8)
2018
$m
1,765.2
(1,628.3)
136.9
(41.1)
4.8
(36.3)
2018
$m
13.6
1.9
15.5
13.3
2.2
2.2
15.5
2019
$m
(47.1)
4.3
(42.8)
2.3
2.0
4.3
2019
$m
1,323.8
(1,172.8)
151.0
(45.3)
2.5
(42.8)
2019
$m
15.9
1.9
17.8
15.5
2.3
2.3
17.8
Dexus 2019 Annual Report 112
Group performance
continued
Note 5 Taxation continued
d) Deferred tax liabilities
The balance comprises temporary differences attributable to:
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
2019
$m
74.8
31.5
0.9
107.2
109.2
(2.0)
(2.0)
107.2
2019
$m
17.8
107.2
89.4
2018
$m
74.8
34.2
0.2
109.2
99.2
10.0
10.0
109.2
2018
$m
15.5
109.2
93.7
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 security
Profit attributable to unitholders of the Trust (parent entity) for basic and diluted earnings per security
Profit attributable to stapled security holders for basic earnings per security
Effect on exchange of Exchangeable Notes
2019
$m
315.7
1,281.0
(12.6)
2018
$m
468.8
1,728.9
–
Profit attributable to stapled security holders for diluted earnings per security
1,268.4
1,728.9
b) Weighted average number of securities used as a denominator
Weighted average number of units outstanding used in calculation of basic earnings per unit
1,028,577,220
1,017,299,246
Effect on exchange of Exchangeable Notes
8,046,239
–
Weighted average number of units outstanding used in calculation of diluted earnings per unit
1,036,623,459
1,017,299,246
2019
No. of
securities
2018
No. of
securities
Financial Report / Notes to the Financial Statements Note 7 Distributions paid and payable
Distributions are recognised when declared.
a) Distribution to security holders
31 December (paid 28 February 2019)
30 June (payable 29 August 2019)
Total distribution to security holders
b) Distribution rate
31 December (paid 28 February 2019)
30 June (payable 29 August 2019)
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
113
2019
$m
276.7
252.3
529.0
2018
$m
241.1
245.3
486.4
2019
Cents per
security
2018
Cents per
security
27.2
23.0
50.2
2019
$m
57.0
30.8
(21.4)
66.4
23.7
24.1
47.8
2018
$m
33.4
45.0
(21.4)
57.0
As at 30 June 2019, the Group had a current tax liability of $21.5 million, which will be added to the franking account balance once
payment is made.
Dexus 2019 Annual Report 114
Property portfolio assets
In this section
The following table summarises the property portfolio assets detailed in this section.
30 June 2019
Investment properties
Equity accounted investments
Inventories
Total
Note
8
9
10
Office
$m
6,984.4
5,966.4
241.7
Industrial
$m
Healthcare
$m
1,185.6
935.6
216.0
–
85.8
–
85.8
Total
$m
8,170.0
6,987.8
457.7
15,615.5
13,192.5
2,337.2
Property portfolio assets are used to generate the Group’s performance and are considered to be the most relevant to the
understanding of the operating performance 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 joint ventures
and investments with significant influence. The Group’s interests in its joint venture 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.
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.
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.
a) Reconciliation
Opening balance at the beginning of the year
6,437.3
1,805.3
8,242.6
Note
Office
$m
Industrial
$m
2019
$m
Additions
Acquisitions
Lease incentives
Amortisation of lease incentives
Rent straightlining
Disposals
259.6
169.2
44.7
(61.5)
6.7
24.4
190.0
12.9
(10.4)
3.2
284.0
359.2
57.6
(71.9)
9.9
(232.9)
(395.4)
(628.3)
Transfer to non-current assets classified as held for sale
Transfers from investment property to investments
accounted for using the equity method
Transfer to inventories
Transfer from inventories
Net fair value gain/(loss) of investment properties
11
9
10
10
–
–
–
–
361.3
–
–
(642.7)
(642.7)
–
–
104.2
94.1
–
(295.9)
104.2
455.4
–
850.7
8,242.6
Closing balance at the end of the year
6,984.4
1,185.6
8,170.0
2018
$m
7,169.1
168.4
398.1
62.9
(76.9)
12.2
(44.0)
(2.0)
Financial Report / Notes to the Financial Statements 115
Acquisitions
On 12 July 2018, settlement occurred for the acquisition of 586 Wickham Street, Fortitude Valley for $92.1 million excluding
acquisition costs.
On 13 September 2018, settlement occurred for the acquisition of 54 Ferndell Street, South Granville for $61.5 million excluding
acquisition costs.
On 31 October 2018, settlement occurred for the acquisition of 60 Collins Street, Melbourne for $160.0 million excluding
acquisition costs.
On 14 February 2019, the Group acquired 112 Cullen Avenue, Eagle Farm from Dexus Industrial Trust Australia (DITA) for $26.1 million
excluding acquisition costs.
Disposals
On 21 June 2019, settlement occurred for the disposal of 11 Talavera Road, Macquarie Park for net proceeds of $231.2 million
excluding transaction costs.
On 30 November 2018, Dexus established a new unlisted logistics vehicle, in joint venture with GIC, which was seeded with various
industrial assets from the Group. See note 9 for more information on Dexus’s investment in Dexus Australian Logistics Trust and
Dexus Australian Logistics Trust No. 2. As part of the transaction, the Group also disposed of a 25% interest in various industrial
assets to GIC for $395.4 million as part of the establishment of a new unlisted logistics vehicle.
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 except properties under development and co-owned properties. 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. At 30 June 2019, all investment properties were independently externally valued.
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.
Dexus 2019 Annual Report 116
Property portfolio assets
continued
Note 8 Investment properties continued
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
Office 1
Fair value
hierarchy
Inputs used to measure fair value
2019
2018
Range of unobservable inputs
Level 3
Adopted capitalisation rate
4.50% – 7.00%
4.63% – 9.00%
Adopted discount rate
Adopted terminal yield
6.50% – 7.50%
6.25% – 10.50%
4.75% – 7.50%
5.13% – 9.75%
Current net market rental (per sqm)
$383 – $1,398
$346 – $1,338
Industrial
Level 3
Adopted capitalisation rate
5.00% – 10.75%
5.50% – 11.00%
Development – Industrial
Level 3
Land rate (per sqm)
$51 – $710
$38 – $677
Adopted discount rate
Adopted terminal yield
6.50% – 10.75%
6.75% – 11.00%
5.25% – 10.75%
6.00% – 11.00%
Current net market rental (per sqm)
$38 – $588
$38 – $445
1.
Includes office developments and excludes car parks, retail and other.
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
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.
Financial Report / Notes to the Financial Statements 117
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 while a strengthening may have a positive impact on the value under the same approach.
e) Investment properties pledged as security
Refer to note 13 for information on investment properties pledged as security.
Note 9 Investments accounted for using the equity method
a) Interest in joint ventures
Investments are accounted for in the Financial Statements using the equity method of accounting (refer to the ‘About this Report’
section). The proportion of ownership interest and the carrying amount of Dexus’s interest in these entities is set out below. The
below entities were formed in Australia and their principal activity is property investment in Australia.
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 (DOTA)
Dexus Industrial Trust Australia (DITA)
Dexus Eagle Street Pier Trust
Healthcare Wholesale Property Fund
Dexus Australian Logistics Trust (DALT) 4
Dexus Australian Logistics Trust No.2 (DALT2) 4
Dexus 80C Trust 5
Ownership interest
2019
%
33.3
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
23.8
75.0
51.0
75.0
2018
%
33.3
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
23.8
–
–
–
2019
$m
349.5
176.6
826.9
469.7
42.9
54.2
386.5
220.7
2,410.9
202.4
31.2
56.1
657.5
65.2
873.4
2018
$m
344.7
161.8
376.9
452.3
33.6
47.2
380.5
216.3
2,164.7
172.3
33.0
49.6
–
–
–
Total assets – investments accounted for using the equity method 6
6,823.7
4,432.9
1. On 1 April 2019, settlement occurred for the acquisition of a further 25% of MLC Centre, 19 Martin Place, Sydney for $400 million excluding
acquisition costs. This represents the Group’s 50% interest.
2. These entities are 50% owned by DOTA. The Group’s economic interest is therefore 75% when combined with the interest held by DOTA.
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. On 30 November 2018, the Group established a new unlisted logistics vehicle which was seeded with various industrial assets from the Group.
These investments were previously wholly owned by the Group, prior to the disposal to the joint venture and joint venture partner, GIC. The
Group equity accounts its investments as it has joint control of the joint venture with GIC.
5. On 9 May 2019, settlement occurred for the acquisition of 80 Collins Street, Melbourne for $1.09 billion excluding acquisition costs. This represents the
Group’s 75% interest.
6. The Group’s share of investment properties in the investments accounted for using the equity method was $6,987.8 million (2018: $4,548.3 million).
These investments are accounted for using the equity method as a result of contractual arrangements requiring unanimous decisions on all
relevant matters.
b) Summarised financial information for joint ventures
The following table provides summarised financial information for the joint ventures which, in the opinion of the directors, are
material to the Group. The information disclosed reflects the amounts presented in the financial statements of the relevant joint
ventures and not Dexus’s share of those amounts.
Dexus 2019 Annual Report 118
Property portfolio assets
continued
Note 9 Investments accounted for using the equity method continued
b) Summarised financial information for joint ventures continued
Dexus Office
Trust Australia
Dexus 80C
Trust
Dexus Australian
Logistics Trust
Grosvenor Place
Holding Trust
Dexus Martin
Place Trust
Dexus 480Q
Holding Trust
Bent Street
Trust
Summarised Statement of Financial Position
Current assets
Cash and cash equivalents
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
2019
$m
14.6
110.6
125.2
2018
$m
40.5
7.9
48.4
4,346.3
566.8
44.5
4,016.9
533.0
0.8
2019
$m
2.9
35.0
37.9
1,211.6
–
–
4,957.6
4,550.7
1,211.6
22.2
149.3
51.9
223.4
22.6
22.6
34.1
149.1
49.5
232.7
22.1
22.1
7.6
–
27.8
35.4
49.5
49.5
4,836.8
4,344.3
1,164.6
Reconciliation to carrying amounts:
Opening balance at the beginning of the year
4,344.3
3,969.9
Additions
Profit for the year
Distributions received/receivable
Closing balance at the end of the year
Group's share in $m
Elimination of downstream transactions
Group's carrying amount
Summarised Statement of Comprehensive Income
Property revenue
Property revaluations
Gain on sale of investment properties
Interest income
Other income
Finance costs
Other expenses
Net profit/(loss) for the year
Total comprehensive income/(loss) for the year
199.9
508.5
(215.9)
4,836.8
2,418.4
164.7
626.6
(416.9)
4,344.3
2,172.2
(7.5)
(7.5)
2,410.9
2,164.7
279.3
276.1
2.7
0.7
56.2
(9.9)
(96.6)
508.5
508.5
278.4
362.6
(5.2)
0.5
90.8
(9.7)
(90.8)
626.6
626.6
–
1,169.2
3.0
(7.6)
1,164.6
873.4
–
873.4
3.5
1.2
–
–
–
–
(1.7)
3.0
3.0
2018
$m
2018
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
876.7
939.4
904.6
1,653.7
753.7
773.0
761.0
1,049.6
1,034.1
2019
$m
26.4
3.1
29.5
876.5
–
0.4
876.9
22.4
–
7.3
29.7
–
–
–
812.8
86.2
(22.3)
876.7
657.5
–
657.5
35.9
60.8
–
0.1
–
–
(10.6)
86.2
86.2
937.5
905.0
1,644.0
744.5
768.5
1,070.0
1,049.9
937.5
905.1
1,644.2
744.5
768.6
1,070.0
1,049.9
2019
$m
2.2
3.0
5.2
–
–
–
–
–
–
3.3
3.3
904.6
5.1
76.8
(47.1)
939.4
469.7
–
469.7
52.8
36.4
–
0.1
–
–
(12.5)
76.8
76.8
2018
$m
0.2
4.2
4.4
–
0.1
–
–
4.9
4.9
–
–
771.1
3.8
172.1
(42.4)
904.6
452.3
–
452.3
50.5
132.8
–
0.1
(0.1)
–
(11.2)
172.1
172.1
2019
$m
8.3
24.0
32.3
–
0.2
22.8
22.8
–
–
–
–
753.7
870.6
66.0
(36.6)
1,653.7
826.9
–
826.9
56.0
27.6
0.2
–
–
–
(17.8)
66.0
66.0
2018
$m
18.4
12.0
30.4
–
–
–
–
–
–
21.2
21.2
332.5
438.6
7.8
(25.2)
753.7
376.9
–
376.9
40.4
(19.8)
–
0.2
(0.1)
–
(12.9)
7.8
7.8
2019
$m
1.0
7.9
8.9
781.0
–
0.2
781.2
–
–
17.1
17.1
–
–
761.0
2.9
38.3
(29.2)
773.0
386.5
–
386.5
65.7
14.3
–
0.8
(0.1)
–
(42.4)
38.3
38.3
2018
$m
4.6
5.8
10.4
–
0.1
18.0
18.0
–
–
–
–
733.5
7.7
58.4
(38.6)
761.0
380.5
–
380.5
53.8
21.7
–
0.1
–
–
(17.2)
58.4
58.4
2019
$m
2.1
1.9
4.0
–
–
–
–
16.4
–
8.0
24.4
1,034.1
–
73.1
(57.6)
1,049.6
349.5
–
349.5
52.5
33.6
–
0.1
–
–
(13.1)
73.1
73.1
2018
$m
4.7
1.2
5.9
–
–
12.4
–
9.3
21.7
–
–
957.4
–
131.7
(55.0)
1,034.1
344.7
–
344.7
53.0
90.1
–
0.1
(0.1)
–
(11.4)
131.7
131.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Financial Report / Notes to the Financial Statements 119
Note 9 Investments accounted for using the equity method continued
b) Summarised financial information for joint ventures continued
Dexus Office
Trust Australia
Dexus 80C
Trust
Dexus Australian
Logistics Trust
Grosvenor Place
Holding Trust
Dexus Martin
Place Trust
Dexus 480Q
Holding Trust
Bent Street
Trust
Investments accounted for using the equity method
4,346.3
566.8
44.5
4,016.9
533.0
0.8
4,957.6
4,550.7
1,211.6
Opening balance at the beginning of the year
4,344.3
3,969.9
4,836.8
4,344.3
1,164.6
Summarised Statement of Financial Position
Current assets
Cash and cash equivalents
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 to carrying amounts:
Additions
Profit for the year
Distributions received/receivable
Closing balance at the end of the year
Group's share in $m
Elimination of downstream transactions
Group's carrying amount
Summarised Statement of Comprehensive Income
Property revenue
Property revaluations
Gain on sale of investment properties
Interest income
Other income
Finance costs
Other expenses
Net profit/(loss) for the year
Total comprehensive income/(loss) for the year
2019
$m
14.6
110.6
125.2
22.2
149.3
51.9
223.4
22.6
22.6
2018
$m
40.5
7.9
48.4
34.1
149.1
49.5
232.7
22.1
22.1
199.9
508.5
(215.9)
4,836.8
2,418.4
164.7
626.6
(416.9)
4,344.3
2,172.2
(7.5)
(7.5)
2,410.9
2,164.7
279.3
276.1
2.7
0.7
56.2
(9.9)
(96.6)
508.5
508.5
278.4
362.6
(5.2)
0.5
90.8
(9.7)
(90.8)
626.6
626.6
2019
$m
2.9
35.0
37.9
1,211.6
–
–
7.6
–
27.8
35.4
49.5
49.5
–
1,169.2
3.0
(7.6)
1,164.6
873.4
–
873.4
3.5
1.2
–
–
–
–
(1.7)
3.0
3.0
2018
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2019
$m
26.4
3.1
29.5
876.5
–
0.4
876.9
22.4
–
7.3
29.7
–
–
876.7
–
812.8
86.2
(22.3)
876.7
657.5
–
657.5
35.9
60.8
–
0.1
–
–
(10.6)
86.2
86.2
2018
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2019
$m
2.2
3.0
5.2
2018
$m
0.2
4.2
4.4
2019
$m
8.3
24.0
32.3
2018
$m
18.4
12.0
30.4
937.5
905.0
1,644.0
744.5
–
–
–
0.1
–
0.2
–
–
937.5
905.1
1,644.2
744.5
–
–
3.3
3.3
–
–
–
–
4.9
4.9
–
–
–
–
22.8
22.8
–
–
–
–
21.2
21.2
–
–
2019
$m
1.0
7.9
8.9
781.0
–
0.2
781.2
–
–
17.1
17.1
–
–
2018
$m
4.6
5.8
10.4
2019
$m
2.1
1.9
4.0
2018
$m
4.7
1.2
5.9
768.5
1,070.0
1,049.9
–
0.1
–
–
–
–
768.6
1,070.0
1,049.9
–
–
18.0
18.0
–
–
16.4
–
8.0
24.4
–
–
12.4
–
9.3
21.7
–
–
939.4
904.6
1,653.7
753.7
773.0
761.0
1,049.6
1,034.1
904.6
5.1
76.8
(47.1)
939.4
469.7
–
469.7
52.8
36.4
–
0.1
–
–
(12.5)
76.8
76.8
771.1
3.8
172.1
(42.4)
904.6
452.3
–
452.3
50.5
132.8
–
0.1
(0.1)
–
(11.2)
172.1
172.1
753.7
870.6
66.0
(36.6)
1,653.7
826.9
–
826.9
56.0
27.6
–
0.2
–
–
(17.8)
66.0
66.0
332.5
438.6
7.8
(25.2)
753.7
376.9
–
376.9
40.4
(19.8)
–
0.2
(0.1)
–
(12.9)
7.8
7.8
761.0
2.9
38.3
(29.2)
773.0
386.5
–
386.5
65.7
14.3
–
0.8
(0.1)
–
(42.4)
38.3
38.3
733.5
7.7
58.4
(38.6)
761.0
380.5
–
380.5
53.8
21.7
–
0.1
–
–
(17.2)
58.4
58.4
1,034.1
–
73.1
(57.6)
1,049.6
349.5
–
349.5
52.5
33.6
–
0.1
–
–
(13.1)
73.1
73.1
957.4
–
131.7
(55.0)
1,034.1
344.7
–
344.7
53.0
90.1
–
0.1
(0.1)
–
(11.4)
131.7
131.7
Dexus 2019 Annual Report 120
Property portfolio assets
continued
Note 9 Investments accounted for using the equity method continued
c) Individually immaterial joint ventures
In addition to the interests in the joint ventures disclosed in Note 9(b), the Group also has interests in a number of individually
immaterial joint ventures that are accounted for using the equity method.
Aggregate carrying amount of individually immaterial joint ventures
Aggregate amounts of the Group's share of:
Profit from continuing operations
Other comprehensive income/(loss)
Total comprehensive income
2019
$m
849.4
99.6
–
99.6
2018
$m
713.8
59.8
–
59.8
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.
Financial Report / Notes to the Financial Statements 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
Transfer to investment properties
Disposals
Impairment
Additions
Closing balance at the end of the year
121
2018
$m
37.6
37.6
507.1
507.1
544.7
2018
$m
211.3
295.9
–
(10.0)
(0.6)
48.1
544.7
2019
$m
170.4
170.4
287.3
287.3
457.7
2019
$m
544.7
–
(104.2)
(40.3)
–
57.5
457.7
Note
8
8
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 2019, there were no assets classified as held for sale. The balance as at 30 June 2018 related to Truganina land lots
which were disposed of during 2019.
Dexus 2019 Annual Report 122
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, and Commitments and contingencies in note 14;
– Equity: Contributed equity in note 15 and Reserves in note 16.
Note 17 provides a breakdown of the working capital balances held in the Statement of Financial Position.
Note 12 Capital and financial risk management
Capital and financial risk management is carried out through a centralised treasury function which is governed by a Board
approved Treasury Policy. The Group has an established governance structure which consists of the Group Management
Committee and Capital Markets Committee.
The Board has appointed a Group Management Committee responsible for achieving Dexus’s goals and objectives, including the
prudent financial and risk management of the Group. 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
2019
$m
3,648.7
15,666.6
23.3%
24.0%
2018
$m
3,164.5
13,367.8
23.7%
24.1%
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.
Financial Report / Notes to the Financial Statements 123
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 2019 and 2018 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.
DWPL, a wholly owned entity, has been issued with an AFSL as it is the Responsible Entity for Dexus Wholesale Property Fund
(DWPF). Dexus Wholesale Management Limited (DWML), a wholly owned entity, has been issued with an AFSL as it is the trustee
of third party managed funds. These entities are subject to the capital requirements described above. Dexus Wholesale Funds
Limited (DWFL), a wholly owned entity, has been issued with an AFSL as it is the Responsible Entity for Healthcare Wholesale
Property Fund (HWPF). Dexus Investment Management Limited (DIML), a wholly owned entity, has been issued with an AFSL as
the Responsible Entity for Dexus Industrial Fund (DIF), a wholly owned entity. 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, using
standard valuation techniques with market inputs.
As at 30 June 2019, 83% (2018: 88%) of the interest bearing liabilities of the Group were hedged. The average hedged percentage
for the financial year was 73% (2018: 70%).
Dexus 2019 Annual Report 124
Capital and financial risk management and working capital
continued
Note 12 Capital and financial risk management continued
b) Financial risk management continued
i) Market risk continued
Interest rate risk continued
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 derivative 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:
A$ fixed rate debt
A$ hedged 1
Combined fixed rate debt and derivatives (A$ equivalent)
Hedge rate (%)
June 2020
$m
June 2021
$m
June 2022
$m
June 2023
$m
June 2024
$m
1,425.8
1,525.9
2,951.7
2.28%
1,405.0
1,648.3
3,053.3
2.15%
1,342.5
1,223.3
2,565.8
2.32%
1,148.3
1,000.0
2,148.3
2.38%
953.3
850.0
1,803.3
2.38%
1. Amounts do not include fixed rate debt that has been swapped to floating rate debt through cross currency swaps.
Sensitivity analysis on interest expense
The table below shows the impact on the Group’s net interest expense of a 50 basis point movement in market interest rates. The
sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Group’s floating rate debt and
derivative cash flows on average during the financial year. Net interest expense is only sensitive to movements in market rates to
the extent that floating rate debt is not hedged.
+/- 0.50% (50 basis points)
Total A$ equivalent
2019
(+/-) $m
2018
(+/-) $m
8.4
8.4
7.5
7.5
The movement in interest expense is proportional to the movement in interest rates.
Sensitivity analysis on fair value of interest rate derivatives
The sensitivity analysis on interest rate derivatives below shows the effect on net profit or loss of changes in the fair value of
interest rate derivatives for a 50 basis point movement in short-term and long-term market interest rates. The sensitivity on fair
value arises from the impact that changes in market rates will have on the valuation of the interest rate derivatives.
The fair value of interest rate derivatives is calculated as the present value of estimated future cash flows on the instruments.
Although interest rate derivatives are transacted for the purpose of providing the Group with an economic hedge, the Group has
elected not to apply hedge accounting to these instruments. Accordingly, gains or losses arising from changes in the fair value are
reflected in the profit or loss.
+/- 0.50% (50 basis points)
Total A$ equivalent
2019
(+/-) $m
2018
(+/-) $m
25.1
25.1
19.1
19.1
Financial Report / Notes to the Financial Statements 125
Sensitivity analysis on fair value of cross currency swaps
The sensitivity analysis on cross currency interest rate swaps below shows the effect on net profit or loss for changes in the fair
value for a 50 basis point increase and decrease in market rates. The sensitivity on fair value arises from the impact that changes
in short-term and long-term market rates will have on the valuation of the cross currency swaps. The sensitivity analysis excludes
the impact of hedge accounted cross currency swaps.
+/- 0.50% (50 basis points)
Total A$ equivalent
Foreign currency risk
US$ (A$ equivalent)
2019
(+/-) $m
2018
(+/-) $m
2.7
2.7
4.5
4.5
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 holder equity and net tangible assets.
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.
Dexus 2019 Annual Report 126
Capital and financial risk management and working capital
continued
Note 12 Capital and financial risk management continued
b) Financial risk management continued
ii) Liquidity risk continued
Refinancing risk continued
2019
2018
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
After
five
years
$m
Payables
(188.8)
–
–
–
(149.7)
–
–
–
Interest bearing liabilities & interest
Fixed interest rate liabilities
Floating interest rate liabilities
(190.9)
(418.5)
(437.3)
(1,110.8)
(2,300.1)
(329.0)
(190.5)
(821.1)
(310.0)
(35.8)
(171.2)
(517.8)
(914.4)
(2,253.1)
(699.2)
(256.4)
Total interest bearing liabilities & interest 1
(609.4)
(627.8)
(1,931.9)
(2,610.1)
(364.8)
(689.0)
(1,613.6)
(2,509.5)
Derivative financial liabilities
Cash receipts
Cash payments
84.1
433.5
254.1
1,760.3
(54.7)
(355.2)
(203.6)
(1,594.2)
Total net derivative financial instrument 2
29.4
78.3
50.5
166.1
77.7
(65.0)
12.7
78.2
(65.5)
12.7
543.2
1,793.0
(513.4)
(1,911.9)
29.8
(118.9)
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 derivatives, only the net interest cash flows (not the notional principal) are included.
Refer to note 12(c) for fair value of derivatives. Refer to note 14(b) for financial guarantees.
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;
– 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 2019 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
determined that no significant concentrations of credit risk exists for trade receivables balances. The maximum exposure to credit
risk at 30 June 2019 is the carrying amounts of the trade receivables recognised on the Statement of Financial Position.
Financial Report / Notes to the Financial Statements
127
iv) Fair value
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 derivative financial instruments and investments in equity instruments (where the group neither controls nor has significant
influence) 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.
Since cash, receivables and payables are short-term in nature, their fair values are not materially different from their carrying
amounts. For the majority of the borrowings, the fair values are not materially different to their carrying amounts, since the
interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature. Material
differences are identified only for the following borrowings:
Type
USD borrowing
USD borrowing
USD borrowing
USD borrowing
USD borrowing
USD borrowing
USD borrowing
USD borrowing
2019
Carrying Amount
($m)
Maturity
2019
Fair Value
($m)
2018
Carrying Amount
($m)
2018
Fair Value
($m)
FY21
FY24
FY25
FY26
FY27
FY29
FY30
FY33
356.2
64.2
156.9
228.2
442.0
178.2
299.4
249.5
373.9
66.5
165.5
232.3
471.2
185.1
309.9
257.8
337.9
60.9
148.8
216.5
419.4
169.1
284.1
236.8
355.0
60.1
148.4
205.6
416.0
161.0
267.4
219.4
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.
Dexus 2019 Annual Report 128
Capital and financial risk management and working capital
continued
Note 12 Capital and financial risk management continued
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), along with its
risk management objectives and its strategy for undertaking various hedge transactions.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the financial instrument
is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk. The hedging
relationship is deemed effective when all of the following requirements are met:
– there is an economic relationship between the hedged item and the hedging instrument;
– the effect of credit risk does not dominate the value changes that result from that economic relationship; and
– the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The Group uses cross currency interest rate swap contracts to hedge interest rate risk and foreign exchange risk. The Group
designates the cross currency interest rate swap contracts in:
– fair value hedges against changing interest rates on foreign currency fixed rate borrowings;
– cash flow hedges or fair value hedges against foreign currency exposure on foreign currency borrowings;
The foreign currency basis spread of a cross currency interest rate swap is excluded from the designation of that financial
instrument as the hedging instrument. Changes in fair value of the foreign currency basis spread of a financial instrument is
accumulated in the foreign currency basis spread reserve, and are amortised to profit or loss on a rational basis over the term of
the hedging relationship.
As the critical terms of the cross currency interest rate swap contracts and their corresponding hedged items match, the Group
performs a qualitative assessment of effectiveness. The main source of hedge ineffectiveness in these hedge relationships is the
effect of the counterparty and the Group’s own credit risk on the fair value of the cross currency interest rate swap contracts,
which is not reflected in the fair value of the hedged item attributable to the change in interest rates. No other sources of
ineffectiveness emerged from these hedging relationships.
The Group has applied the hedge ratio of 1:1 to all hedge relationships.
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.
Financial Report / Notes to the Financial Statements 129
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
Other derivatives
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
Cross currency swap contracts
Other derivatives
Total current liabilities – derivative financial instruments
Non-current liabilities
Interest rate derivative contracts
Cross currency swap contracts
Exchangeable note contracts 1
Total non-current liabilities – derivative financial instruments
Net derivative financial instruments
1. Refer to note 13 (f) for description of this derivative financial instrument.
2019
$m
2018
$m
–
15.5
–
15.5
0.9
516.2
517.1
17.8
–
0.1
17.9
47.8
43.4
14.4
105.6
409.1
2.6
14.9
6.6
24.1
2.8
308.0
310.8
5.5
1.2
–
6.7
21.5
57.1
–
78.6
249.6
Effects of hedge accounting on the financial position and performance – Quantitative information
The following table details the notional principal amounts and remaining terms of the hedging instrument (cross currency interest
rate swap) at the end of the financial year:
Foreign exchange risk and interest rate risk – Cross currency interest
rate swap (hedging foreign currency debt) 1
Average contracted FX rate (AUD/USD)
Average contracted fixed USD rate
Average notional amount
Interest rate risk – Cross currency interest rate swap
(hedging foreign currency debt) 1
Average contracted fixed USD rate
Average notional amount
Notional Amount of the Hedging Instrument ($m)
Under 1 year
1–2 years
2–5 years
Over 5 years
0.8699
2.6433
1,304.7
0.8699
2.6433
1,304.7
0.8693
2.6402
3,887.7
1.3889
1,304.7
1.3889
1,304.7
1.3875
3,887.7
0.7984
2.4229
5,012.7
1.4012
5,012.7
1. Cross currency interest rate swaps totalling $1,135.0 million (notional) have been split into cash flow hedge and fair value hedge relationships.
Dexus 2019 Annual Report 130
Capital and financial risk management and working capital
continued
Note 12 Capital and financial risk management continued
c) Derivative financial instruments continued
Effects of hedge accounting on the financial position and performance – Quantitative information continued
The following tables detail information regarding the cross currency interest rate swaps designated in cash flow hedge or fair
value hedge relationships at the end of the reporting period and their related hedged items.
Current notional principal value of the hedging instrument
Carrying amount of the hedging instrument assets/(liabilities) 1
Change in fair value of the hedging instrument used for calculating hedge ineffectiveness
Current notional amount of the hedged item
Change in value of the hedged item used for calculating hedge ineffectiveness
Balance in cash flow hedge reserve
Hedge ineffectiveness recognised in the Statement of Comprehensive Income 2
Cash flow
hedges
Cross
currency
interest
rate swaps
($m)
1,135.0
17.8
17.8
(17.8)
(30.5)
(17.8)
–
Fair value
hedges
Cross
currency
interest
rate swaps
($m)
1,135.0
367.7
372.3
(1,688.4)
(383.8)
n/a
(5.7)
1. The carrying amount is Included in the “Derivative Financial Instruments” line items in the Statement of Financial Position.
2. Included in the “Net fair value loss of derivatives” line item in the Statement of Comprehensive Income.
The cash flow hedge reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective
in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when the
hedged transaction impacts the profit or loss.
Cash flow hedge reserve
Balance at 1 July 2018 (before tax)
Movement
Gain/(loss) arising on changes in fair value of hedging instruments during the period
Changes in fair value of foreign currency basis spread during the period
Transfer out
(Gain)/loss reclassified to profit or loss – hedged item has affected profit or loss
(Gain)/loss arising on changes in fair value of foreign currency basis spread during the period
Balance at 30 June 2019 (before tax)
Foreign
exchange
risk
($m)
17.4
10.6
(14.3)
(5.4)
4.8
13.1
Financial Report / Notes to the Financial Statements
131
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
Bank loans
Medium term notes
Total unsecured
Total current liabilities – interest bearing liabilities
Non-current
Unsecured
US senior notes 1
Bank loans
Commercial paper
Medium term notes
Exchangeable notes
Total unsecured
Deferred borrowing costs
Total non-current liabilities – interest bearing liabilities
Total interest bearing liabilities
Note
2019
$m
2018
$m
(e)
70.0
–
70.0
70.0
–
205.1
205.1
205.1
(a),(b)
2,369.6
2,065.7
(c)
(d)
(e)
(f)
640.0
100.0
509.3
395.2
4,014.1
(17.5)
3,996.6
4,066.6
520.0
100.0
480.3
–
3,166.0
(11.5)
3,154.5
3,359.6
1.
Includes cumulative fair value adjustments amounting to $70.0 million (2018: $57.8 million) in relation to effective fair value hedges.
Financing arrangements
The following table summarises the maturity profile of the Group’s financing arrangements:
Type of facility
Notes
Currency
Security
Maturity Date
Utilised 1
$m
Facility Limit
$m
US senior notes (144A)
US Senior notes (USPP) 1
US Senior notes (USPP)
Medium term notes
Exchangeable note
Commercial paper
(a)
(b)
(b)
(e)
(f)
(d)
US$
US$
A$
A$
A$
A$
Unsecured
Mar-21
Unsecured
Jul-23 to Nov-32
Unsecured
Jun-28 to Oct-38
Unsecured
Nov-22 to Aug-38
Unsecured
Unsecured
Jun-26
Sep-22
Multi-option revolving credit facilities
(c)
Multi Currency
Unsecured
Nov-19 to Nov-24
Total
Bank guarantee in place
Unused at balance date
356.2
1,618.4
325.0
509.3
395.2
100.0
1,700.0
5,004.1
356.2
1,618.4
325.0
509.3
395.2
100.0
710.0
4,014.1
(69.0)
921.0
1.
Includes drawn amounts and excludes fair value adjustments recorded in interest bearing liabilities in relation to effective fair value hedges.
Each of the Group’s unsecured borrowing facilities are supported by guarantee arrangements, and have negative pledge
provisions which limit the amount and type of encumbrances that the Group can have over their assets and ensures that all senior
unsecured debt ranks pari passu.
Dexus 2019 Annual Report 132
Capital and financial risk management and working capital
continued
Note 13 Interest bearing liabilities continued
Financing arrangements continued
a) US senior notes (144A)
This includes a total of US$250.0 million (A$356.2 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.
b) US senior notes (USPP)
This includes a total of US$1,135.0 million and A$325.0 million (A$1,943.4 million) of US senior notes with a weighted average maturity
of October 2028. US$1,135.0 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 17 facilities maturing between November 2019 and November 2024 with a weighted average maturity of July 2022.
A$69.0 million is utilised as bank guarantees for AFSL requirements and other business requirements including developments.
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
maturity of September 2022. The standby facility has same day availability.
e) Medium term notes
This includes a total of A$505.0 million of Medium Term Notes with a weighted average maturity of January 2026. The remaining
A$4.3 million is the net premium on the issue of these instruments.
f) Exchangeable notes
On 19 March 2019, the Group issued Exchangeable Notes with a face value totalling $425 million. The notes are exchangeable into
approximately 28.2 million securities after 40 days from settlement, at the election of the holder, until 19 March 2024. The holders
have an option to put the notes to the issuer for face value 60 days prior but not later than 30 days after 19 March 2024. On
expiration of the put option, the notes continue to be exchangeable until 10 days prior to maturity on 19 June 2026. Any securities
issued on exchange will rank equally with existing securities. As at 30 June 2019, no notes have been exchanged.
Exchange price 1
Coupon (per annum)
Notes on issue at 30 June 2019
$15.00
2.30%
4,250,000
1. The exchange price has been adjusted for any subsequent equity raises completed at greater than 5% discount to the five day VWAP prior to
the raise. The price will also be adjusted in the event of any Dexus distributions which exceed quoted thresholds in the Exchangeable Note terms
and conditions.
The exchangeable notes contain an embedded derivative as the issuer has the option to settle the exchange in shares or cash to
an equivalent value. The embedded derivative, which is measured at fair value, is deducted from the host contract and recorded
separately. The host contract is subsequently measured at amortised cost.
Financial Report / Notes to the Financial Statements 133
Note 14 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
2019
$m
129.6
108.1
276.5
514.2
Lease amounts to be paid includes future amounts to be paid on non-cancellable operating leases, not recognised in the
financial statements at balance date. 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
2019
$m
3.8
9.0
8.4
21.2
2019
$m
489.8
1,862.0
627.0
2,978.8
b) Contingencies
DDF, together with DIT, DOT and DXO, is a guarantor of A$5,004.1 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 $69.0 million, comprising $43.2 million held to comply with the terms of the Australian Financial
Services Licences (AFSL) and $25.8 million largely in respect of developments.
The above guarantees are issued in respect of the Group and represent an additional liability to those already existing in interest
bearing liabilities on the Consolidated 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.
Outgoings are excluded from contingencies as they are expensed when incurred.
2018
$m
289.5
1.2
48.6
339.3
2018
$m
7.4
21.7
3.4
32.5
2018
$m
508.3
1,864.9
625.0
2,998.2
Dexus 2019 Annual Report 134
Capital and financial risk management and working capital
continued
Note 15 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
2019
No. of
securities
2018
No. of
securities
1,017,196,877
1,016,967,300
79,660,788
–
437,242
(207,665)
1,096,857,665
1,017,196,877
Each stapled security ranks equally with all other stapled securities for the purposes of distributions and on termination of the Group.
Each stapled security entitles the holder to vote in accordance with the provisions of the Constitutions and the Corporations Act 2001.
Transaction costs arising on the issue of equity instruments are recognised directly in equity (net of tax) as a reduction of the
proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection
with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.
On 3 May 2019, Dexus successfully completed a $900 million institutional placement to partly fund the acquisition of a 75% interest
in 80 Collins Street, Melbourne (refer note 9). In satisfaction of the placement, Dexus issued 74.4 million new securities at a fixed
price of $12.10. These securities rank equally with existing Dexus securities and will be entitled to the full distribution for the six
months ended 30 June 2019.
In June 2019, Dexus completed a Security Purchase Plan (SPP) where it raised $63.9 million of equity, issuing 5.3 million new
securities at a fixed price of $12.10. These securities rank equally with existing Dexus securities and will be entitled to the full
distribution for the six months ended 30 June 2019.
Financial Report / Notes to the Financial Statements 135
2018
$m
42.7
(12.5)
–
12.5
(15.5)
27.2
42.7
42.7
6.9
–
(19.4)
(12.5)
–
–
–
10.8
(3.3)
5.0
12.5
(11.7)
3.3
(7.1)
(15.5)
2019
$m
42.7
17.8
(4.6)
16.3
(18.5)
53.7
42.7
42.7
(12.5)
29.9
0.4
17.8
–
(4.6)
(4.6)
12.5
(4.6)
8.4
16.3
(15.5)
6.4
(9.4)
(18.5)
Note 16 Reserves
Asset revaluation reserve
Cash flow hedge reserve
Foreign currency basis spread 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
Change in accounting policy adjustment (AASB 9 opening balance restatement)
Changes in the fair value of cash flow hedges
Closing balance at the end of the year
Foreign currency basis spread reserve
Opening balance at the beginning of the period
Changes in cost of hedge reserve
Closing balance at the end of the period
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
Nature and purpose of reserves
Asset revaluation reserve
The asset revaluation reserve is used to record the fair value adjustment arising on a business combination.
Cash flow hedge reserve
The cash flow hedge reserve is used to record the effective portion of changes in the fair value of derivatives that are designated
as cash flow hedges.
Foreign currency basis spread reserve
The foreign currency basis spread reserve is used to record the changes in the fair value of cross currency derivatives attributable
to movements in foreign currency basis spreads, and represents a cost of hedging.
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 21 for further details.
Treasury securities reserve
The treasury securities reserve is used to record the acquisition of securities purchased to fulfil the obligations of the Deferred
Short Term Incentive Plans (DSTI) and the Long Term Incentive Plans (LTI). As at 30 June 2019, DXS held 1,580,175 stapled securities
which includes acquisitions of 813,443 and unit vesting of 680,177 (2018: 1,645,469).
Dexus 2019 Annual Report 136
Capital and financial risk management and working capital
continued
Note 17 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 income and management fees 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 recognised for expected credit losses on trade receivables and contract assets. The expected
credit losses are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that
are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction
of conditions at the reporting date. The provision for doubtful debts is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term
receivables are not discounted as the effect of discounting is immaterial.
Rent receivable 1
Less: provision for doubtful debts
Total rental receivables
Distributions receivable
Fee receivable
Other receivables
Total other receivables
Total receivables
1. Rent receivable includes outgoings.
c) Other current assets
Prepayments
Other
Total other current assets
2019
$m
17.3
(0.1)
17.2
49.1
58.5
22.7
130.3
147.5
2019
$m
15.4
1.7
17.1
2018
$m
13.3
–
13.3
22.9
20.5
6.7
50.1
63.4
2018
$m
16.6
11.2
27.8
Financial Report / Notes to the Financial Statements d) Payables
Trade creditors
Accruals
Accrued capital expenditure
Prepaid income
Accrued interest
Other payables
Total payables
137
2018
$m
21.2
11.7
63.2
20.6
30.1
2.9
149.7
2019
$m
43.5
12.1
86.1
13.3
30.4
3.4
188.8
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 21.
Provision for distribution
Provision for employee benefits
Total current provisions
2019
$m
252.3
31.9
284.2
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
2019
$m
245.3
529.0
(522.0)
252.3
2018
$m
245.3
26.4
271.7
2018
$m
241.6
486.4
(482.7)
245.3
A provision for distribution has been raised for the period ended 30 June 2019. This distribution is to be paid on 29 August 2019.
Dexus 2019 Annual Report 138
Other disclosures
In this section
This section includes other information that must be disclosed to comply with the Accounting Standards, the Corporations
Act 2001 or the Corporations Regulations, but which are not considered critical in understanding the financial performance
or position of the Group.
Note 18 Intangible assets
Management rights represent the asset management rights owned by Dexus Holdings Pty Limited, a wholly owned subsidiary
of DXO, which entitles 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 $3.3 million (2018: $3.7 million) are measured at cost and amortised using
the straight-line method over their estimated remaining useful lives of 10 years. Management rights that are deemed to have
an indefinite life are held at a value of $286.0 million (2018: $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
2019
$m
289.8
(0.4)
289.4
294.4
(5.0)
289.4
1.1
(0.1)
1.0
3.0
(2.0)
1.0
23.7
14.0
(6.0)
31.7
48.7
(17.0)
(7.2)
7.2
31.7
322.1
2018
$m
290.1
(0.3)
289.8
294.4
(4.6)
289.8
1.2
(0.1)
1.1
3.0
(1.9)
1.1
18.2
10.9
(5.4)
23.7
37.5
(13.8)
(2.8)
2.8
23.7
314.6
Financial Report / Notes to the Financial Statements
139
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).
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
and applying a terminal value in year five. Forecasts were based on projected returns of the business in light of current
market conditions.
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 of between 10.0%–20.0% (2018: 10.0%–20.0%) was used incorporating an appropriate risk
premium for a management business.
– Cash flows have been discounted at 9.0% (2018: 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% (2018: 1.0%) decrease in the discount rate would
increase the valuation by $24.0 million (2018: $20.0 million).
Note 19 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 Healthcare establishment
Fees paid to PWC Australia in respect of the acquisition of 80 Collins St
Fees paid to PwC Australia – other
Total transaction services fees paid to PwC
Total audit, taxation and transaction services fees paid to PwC
2019
$'000
2018
$'000
1,596
122
213
90
2,021
30
30
1,404
138
378
75
1,995
24
24
2,051
2,019
–
90
112
202
2,253
30
–
99
129
2,148
Dexus 2019 Annual Report 140
Other disclosures
continued
Note 20 Cash flow information
a) 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
Impairment of inventories
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
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
2019
$m
1,281.0
(24.4)
10.3
–
(455.4)
(535.6)
(146.1)
34.9
3.9
(0.4)
127.8
214.8
(56.6)
11.3
(17.4)
(1.8)
0.3
38.6
5.5
6.7
(4.3)
493.1
2018
$m
1,728.9
(13.1)
9.2
0.6
(854.2)
(535.8)
79.9
(2.4)
3.9
(1.7)
(85.8)
331.0
8.9
(4.0)
(37.8)
(9.0)
22.5
(24.4)
(13.4)
(1.4)
7.8
609.7
Financial Report / Notes to the Financial Statements
b) Net debt reconciliation
Reconciliation of net debt movements:
Opening balance
Changes from financing cash flows
Proceeds from borrowings
Repayment of borrowings
Repayment of loan with related party
Non cash changes
Movement in deferred borrowing costs and other
The effect of changes in foreign exchange rates
Fair value hedge adjustment
Closing balance
141
2019
2018
Interest
bearing
liabilities
$m
Interest
bearing
liabilities
$m
Loans with
related
parties
$m
3,359.8
2,697.8
149.0
4,914.0
(4,399.8)
–
(36.0)
100.8
127.8
2,599.0
(1,921.2)
–
–
–
(149.0)
(1.2)
71.2
(85.8)
–
–
–
–
4,066.6
3,359.8
Note 21 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 Adjusted Funds from Operations (AFFO), Return on Contributed Equity (ROCE) 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.
Dexus 2019 Annual Report 142
Other disclosures
continued
Note 21 Security-based payment continued
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
– 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 2019 was 410,171 (2018: 263,222) and the fair value
of these performance rights is $12.98 (2018: $9.88) per performance right. The total security-based payment expense recognised
during the year ended 30 June 2019 was $3,395,774 (2018: $2,585,116).
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 2019 was 594,094 (2018: 465,701). The weighted
average fair value of these performance rights is $11.75 (2018: $9.02) per performance right. The total security-based payment
expense recognised during the year ended 30 June 2019 was $3,470,130 (2018: $3,231,041).
Financial Report / Notes to the Financial Statements 143
Note 22 Related parties
Responsible Entity and Investment Manager
DXH is the parent entity of DXFM, the Responsible Entity of DDF, DIT, DOT and DXO and the Trustee of DOTA and the investment
manager for DITA.
DXH is also the parent entity of DWPL and DWFL, the Responsible Entities of DWPF and HWPF respectively.
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
2019
$'000
106,022
40,106
3,012
19,224
9,505
11,415
2018
$'000
70,450
24,841
2,760
6,572
2,612
5,552
2019
$'000
2018
$'000
9,933
318
5,918
16,169
9,275
350
3,725
13,350
Information regarding individual Directors’ and Senior Executives’ remuneration is provided in the Remuneration Report on pages
68 to 89 of the Annual Report.
There have been no other transactions with key management personnel during the year.
Dexus 2019 Annual Report 144
Other disclosures
continued
Note 23 Parent entity disclosures
The financial information for the parent entity of Dexus Diversified Trust has been prepared on the same basis as the
Consolidated Financial Statements except as set out below.
Distributions received from associates are recognised in the parent entity’s Statement of Comprehensive Income, rather than
being deducted from the carrying amount of these investments.
Interests held by the parent entity in controlled entities are measured at fair value through profit and loss to reduce a
measurement or recognition inconsistency.
a) Summary financial information
The individual Financial Statements for the parent entity show the following aggregate amounts:
Total current assets
Total assets
Total current liabilities – payables
Total liabilities
Equity
Contributed equity
Reserves
Retained profits
Total equity
Net profit/(loss) for the year
Total comprehensive income/(loss) for the year
2019
$m
51.6
5,873.3
130.7
2,538.2
2,398.5
13.2
923.4
2018
$m
33.5
5,095.6
75.9
2,192.6
2,127.1
(12.5)
788.4
3,335.1
2,903.0
315.7
311.5
468.8
449.4
b) Guarantees entered into by the parent entity
Refer to note 14(b) for details of guarantees entered into by the parent entity.
c) Contingent liabilities
Refer to note 14(b) for details of the parent entity’s contingent liabilities.
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
2019
$m
60.0
60.0
2018
$m
102.8
102.8
e) Going concern
The parent entity is a going concern and its net current asset deficiency has been addressed in ‘About this Report’.
Financial Report / Notes to the Financial Statements 145
Note 24 Changes in accounting policies
AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments are effective for annual periods beginning on
or after 1 January 2018. Both these standards were adopted by the Group on 1 July 2018. As the Group has adopted the modified
retrospective approach upon implementation of these standards, comparatives have not been restated, however the Group has
disclosed below the restatement of the 1 July 2018 opening retained earnings balance and respective balance sheet positions
impacted as a result of this change. The changes and considerations are detailed below.
AASB 15 Revenue from Contracts with Customers
AASB 15 provides new guidance for determining when the Group should recognise revenue. The new revenue recognition model
is based on the principle that revenue is recognised when control of a good or service is transferred to a customer – either 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.
Per the new requirements of AASB 15, revenue is recognised over time if:
– the customer simultaneously receives and consumes the benefits as the entity performs;
– the customer controls the asset as the entity creates or enhances it; or
– the seller’s performance does not create an asset for which the seller has an alternative use and there is a right to payment for
performance to date.
Where the above criteria is not met, revenue is recognised at a point in time.
The impact of applying the new standard has been assessed on each of the following major revenue streams:
Property revenue
Within its lease arrangements, the Group provides certain services to tenants (such as utilities, cleaning, maintenance and certain
parking arrangements) which are accounted for within AASB 15. A portion of the consideration within the lease arrangements
are therefore allocated to revenue for the provision of services. The service revenue is recognised over time as the services are
provided and as such, the timing of recognition of income is not affected. Such revenue has, however, been disclosed separately
in Note 1 Operating segments.
Management fees and other revenue
Where the Group earns investment, property management fees and development fees the fees continue to be recognised
monthly over the duration of the agreements. Management have determined that there are no impacts of the new guidance on
property management contracts.
Development revenue
AASB 15 provides an expedient whereby contracts that are completed as of the date of transition (1 July 2018) are not required
to be re-assessed. Management have chosen to apply this expedient. There is no impact on transition as the Group had no
uncompleted inventory or development contracts at 1 July 2018 which required re-assessment.
It is therefore concluded that apart from providing more extensive disclosures, the initial application of this new accounting
standard has not had a material impact on the financial reporting of the Group and therefore no restatement is required.
Dexus 2019 Annual Report 146
Other disclosures
continued
Note 24 Changes in accounting policies continued
AASB 9 Financial Instruments
AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities and introduces
new requirements for:
– the classification and measurement of financial assets;
– the classification and measurement of financial liabilities;
– impairment of financial assets;
– hedge accounting.
The impact of applying the new standard has been assessed on each of the following:
Classification and measurement of financial assets
All recognised financial assets that are within the scope of AASB 9 are required to be measured subsequently at amortised
cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow
characteristics of the financial assets. The Group has assessed which business models and cash flow characteristics apply to
the financial assets held by the Group and has classified its financial instruments into the appropriate AASB 9 categories. The
adoption of AASB 9 has not impacted the carrying value of financial assets but has resulted in classification changes on initial
application at 1 July 2018 which is shown in the following table
Financial Assets
AASB 139 Classification
AASB 9 Classification
Cash and cash equivalents
Loans and receivables at amortised cost
Financial assets at amortised cost
Rent receivable
Loans and receivables at amortised cost
Financial assets at amortised cost
Distributions receivable
Loans and receivables at amortised cost
Financial assets at amortised cost
Fees receivable
Other receivables
Loans and receivables at amortised cost
Financial assets at amortised cost
Loans and receivables at amortised cost
Financial assets at amortised cost
Other financial assets
Fair value through profit and loss
Fair value through profit and loss
Classification and measurement of financial liabilities
Under AASB 9 the classification of financial liabilities held by the Group does not change from that previously prescribed in
AASB 139 Financial Instruments: Recognition and Measurement. The main change introduced by AASB 9 is in relation to the
accounting treatment for a gain or loss arising from a modification of a financial liability that does not result in the derecognition
thereof. The requirements of AASB 9 state that the gain or loss on modification needs to be recognised immediately within profit or
loss. The Group has assessed the impact resulting from the initial application of AASB 9 and has determined that non-substantial
modifications to interest bearing liabilities have occurred in the past, thereby requiring an adjustment of $1.9 million to decrease
retained earnings and to increase the interest bearing liabilities. Refer below for a reconciliation of retained earnings and the
impacts on the Consolidated Statement of Financial Position.
Impairment of financial assets
In relation to the impairment of financial assets, AASB 9 requires an expected credit loss model as opposed to an incurred credit
loss model under AASB 139. The expected credit loss model requires the Group to account for expected credit losses and changes in
those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets.
AASB 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected
credit losses (ECL). The Group has assessed the impact resulting from the initial application of AASB 9, by considering the historical
actual write off rates for relevant types of financial assets, and taking into account forward looking indicators that might impact
the recoverability of currently recognised financial assets. Based on this assessment, it was determined that the credit risk of trade
receivables is low and therefore the application of an ECL model in determining the loss allowance for expected credit losses on
trade receivables, has resulted in an immaterial impact on the financial reporting of the Group. Therefore, no restatement is evident.
Financial Report / Notes to the Financial Statements 147
Hedge Accounting
The new hedge accounting requirements retain the three types of hedge accounting. However, greater flexibility has been
introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that
qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting.
In addition, the effectiveness test has been replaced with the principle of an ‘economic relationship’. Enhanced disclosure
requirements about the Group’s risk management activities have been introduced (refer note 12).
The Group’s qualifying hedging relationships in place as at 1 July 2018 still qualify for hedge accounting in accordance with
AASB 9 and were therefore regarded as continuing hedging relationships. No rebalancing of any of the hedging relationships
was necessary on 1 July 2018. As the critical terms of the hedging instruments match those of their corresponding hedged items,
all hedging relationships continue to be effective under AASB 9’s effectiveness assessment requirements. The Group has also not
designated any hedging relationships under AASB 9 that would not have met the qualifying hedge accounting criteria under
AASB 139.
The Group uses cross currency interest rate swaps to manage interest rate and foreign currency risk exposures arising from
external debt obligations. Historically, changes in foreign currency basis spreads were not included in the hedging relationship
between the hedging instrument and the hedged item. Under AASB 139 the changes in the fair value of hedge instruments
attributable to changes in foreign currency basis spreads were recognised immediately in profit or loss. Under AASB 9, the changes
in foreign currency basis spreads are recognised in other comprehensive income and accumulated in the foreign currency basis
spread reserve within equity. The amounts accumulated in equity are either reclassified to profit or loss when the hedged item
affects profit or loss or removed directly from equity and included in the carrying amount of non-financial item. AASB 9 allows for
the accounting impact of changes in foreign currency basis spreads to be applied retrospectively. This only applies to hedging
relationships that existed at 1 July 2018 or were designated thereafter. The Group has assessed the impact resulting from the
initial application of AASB 9 and has determined an adjustment of $29.9 million is required to decrease retained earnings and to
increase the foreign currency basis spread reserve. Refer below for a reconciliation of retained earnings and the impacts to the
Consolidated Statement of Financial Position.
Apart from this, the application of the AASB 9 hedge accounting requirements has had no impact on the results and financial
position of the Group.
The table below reconciles the changes in retained earnings upon implementation of the new accounting standards:
Closing retained earnings balance as at 30 Jun 2018 – AASB 139
(Increase)/Decrease in debt investments at amortised cost 1
(Increase)/Decrease in foreign currency basis spread reserve 2
Opening retained earnings balance as at 1 Jul 2018 – AASB 9
Attributable
to unitholders
of the trust
(parent entity)
$m
Attributable
to unitholders
of other
stapled entities
$m
788.5
(1.5)
(29.9)
757.1
2,827.4
(0.4)
–
2,827.0
Total
Retained
Earnings
$m
3,615.9
(1.9)
(29.9)
3,584.1
1. Opening retained earnings impact resulting from historical non-substantial modifications to terms of interest bearing liabilities.
2. Opening retained earnings impact resulting from historical changes in foreign currency basis spreads not included in the cash hedge relationship.
Dexus 2019 Annual Report 148
Other disclosures
continued
Note 24 Changes in accounting policies continued
AASB 9 Financial Instruments continued
The table below details the impacts to the Consolidated Statement of Financial Position on implementation of the new
accounting standards:
Non-current liabilities
Interest bearing liabilities 1
Total non-current liabilities
Total liabilities
Net assets
Equity
Equity attributable to unitholders of the Trust (parent entity)
Reserves 2
Retained profits
Parent entity unitholders' interest
Equity attributable to unitholders of other stapled entities
Retained profits
Other stapled unitholders' interest
Total equity
30 Jun 2018
$m
AASB 9
$m
3,154.5
3,331.5
3,969.9
10,047.4
(12.5)
788.5
2,903.3
2,827.4
7,144.1
10,047.4
1.9
1.9
1.9
(1.9)
29.9
(31.4)
(1.5)
(0.4)
(0.4)
(1.9)
1 Jul 2018
Restated
$m
3,156.4
3,333.4
3,971.8
10,045.5
17.4
757.1
2,901.8
2,827.0
7,143.7
10,045.5
1. Opening retained earnings impact resulting from historical non-substantial modifications to terms of interest bearing liabilities.
2. Opening retained earnings impact resulting from historical changes in foreign currency basis spreads not included in the cash flow hedge relationship.
Note 25 Subsequent events
On 31 July 2019, settlement occurred for the acquisition of 52 Collins Street, Melbourne for $70.0 million excluding acquisition costs.
On 9 August 2019, the Group exchanged contracts to sell a 25% interest in 201 Elizabeth Street, Sydney for $157.5 million, excluding
disposal costs and entered into a put and call option to sell its remaining 25% in late 2020.
Post 30 June 2019, Dexus reached agreement to restructure the investment management joint venture with Commercial & General
for HWPF, resulting in a streamlined governance structure and Dexus continuing as the sole investment manager of the Fund.
Dexus has also agreed to purchase Commercial & General’s units in HWPF.
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 Trust, the results of those operations, or state of the Trust’s affairs in future financial periods.
Financial Report / Notes to the Financial Statements 149
Director’s
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 96 to 148:
(i)
(ii)
comply with Australian Accounting Standards, the Corporations Act 2001 and other mandatory professional reporting
requirements; and
give a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance, as represented by the
results of its operations and their cash flows, for the year ended on that date.
In the Directors’ opinion:
(a) the Financial Statements and notes are in accordance with the Corporations Act 2001;
(b) there are reasonable grounds to believe that the Group and its consolidated entities will be able to pay their debts as and
when they become due and payable; and
(c)
the Group has operated in accordance with the provisions of the Constitution dated 15 August 1984 (as amended) during the
year ended 30 June 2019.
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
13 August 2019
Dexus 2019 Annual Report 150
Independent Auditor’s Report
Independent Auditor’s Report
Independent auditor’s report
To the stapled security holders of Dexus Diversified Trust
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Dexus Diversified Trust (the Trust) and its controlled entities
(together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 30 June 2019 and of its
financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
For the purposes of consolidation accounting, the Trust is the deemed parent entity and acquirer of
Dexus Industrial Trust (DIT), Dexus Office Trust (DOT) and Dexus Operations Trust (DXO). The
financial report represents the consolidated financial results of the Trust and includes the Trust and its
controlled entities, DIT and its controlled entities, DOT and its controlled entities, and DXO and its
controlled entities.
The Group financial report comprises:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the Consolidated Statement of Financial Position as at 30 June 2019
the Consolidated Statement of Comprehensive Income for the year then ended
the Consolidated Statement of Changes in Equity for the year then ended
the Consolidated Statement of Cash Flows for the year then ended
the Notes to the Financial Statements, which include significant accounting policies
the Directors’ Declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
151
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
Materiality
Audit scope
Key audit matters
(cid:120) Amongst other relevant topics,
we communicated the following
key audit matters to the Board
Audit Committee:
(cid:16) Valuation of investment
properties, including those
investment properties in
investments accounted for
under the equity method
(cid:16) Carrying amount of indefinite
life management rights
(cid:16) Carrying amount of inventory
These are further described in
the Key audit matters section of
our report.
(cid:120)
(cid:120)
The Group is a stapled entity
with operations in Australia. In
a stapled group the securities
of two or more entities are
'stapled' together and cannot
be traded separately. In the
case of the Group, the stapled
entity includes the Trust, DIT,
DOT and DXO and their
respective controlled entities.
(cid:120) Our audit focused on where
the Group made subjective
judgements; for example,
significant accounting
estimates involving
assumptions and inherently
uncertain future events.
(cid:120) We audited each of the
individual stapled trusts that
form the Group as well as the
consolidation of the Group.
(cid:120)
For the purpose of our audit
we used overall materiality of
$33.9 million, which
represents approximately 5%
of the Group’s adjusted profit
before tax (Funds From
Operations or FFO).
(cid:120) We applied this threshold,
together with qualitative
considerations, to determine
the scope of our audit and the
nature, timing and extent of
our audit procedures and to
evaluate the effect of
misstatements on the financial
report as a whole.
(cid:120) We chose FFO because, in our
view, it is the key performance
measure of the Group. An
explanation of what is included
in FFO is outlined in Note 1,
Operating segments.
(cid:120) We utilised a 5% threshold
based on our professional
judgement, noting it is within
the range of commonly
acceptable profit related
thresholds.
Dexus 2019 Annual Report
152
Independent Auditor’s Report
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context.
Key audit matter
How our audit addressed the key audit matter
Valuation of investment properties,
including those investment properties in
investments accounted for under the equity
method
(Refer to Note 8 and 9)
The Group’s investment property portfolio comprises:
(cid:120) Directly held properties included in the
Consolidated Statement of Financial Position as
Investment Properties valued at $8,170.0 million
as at 30 June 2019 (2018: $8,242.6 million).
(cid:120)
The Group’s share of investment properties held
through associates and joint ventures included in
the Consolidated Statement of Financial Position
as Investments accounted for using the equity
method valued at $6,987.8 million as at 30 June
2019 (2018: $4,548.3 million).
Investment properties are carried at fair value at
reporting date using the Group’s policy as described
in Note 8. The valuation of investment properties is
dependent on a number of assumptions and inputs
including tenant information, property age and
location, expected future rental profiles, and
prevailing market conditions. Amongst others, the
following assumptions are key in establishing fair
value:
(cid:120)
(cid:120)
The capitalisation rate
The adopted discount rate.
We considered the valuation of investment properties
to be a key audit matter due to the:
(cid:120)
(cid:120)
Financial significance of investment properties in
the Consolidated Statement of Financial
Position.
Potential for changes in the fair value of
investment properties to have a significant effect
in the Consolidated Statement of Comprehensive
To assess the valuation of investment properties we
performed the following procedures amongst others:
(cid:120) We compared the valuation methodology adopted by
the Group with commonly accepted valuation
approaches used for investment properties in the
industry, and with the Group’s stated valuation
policy.
(cid:120) We obtained recent independent property market
reports to develop an understanding of the prevailing
market conditions in which the Group invests. We
leveraged this knowledge to form independent
expectations of likely movements in investment
property values and underlying key assumptions
such as capitalisation rates and discount rates.
(cid:120) For a sample of leases, we compared the rental
income used in the investment property valuations to
the tenancy schedules.
(cid:120) We compared the capitalisation rates and discount
rates used by the Group in their investment property
valuations to market data we determined reasonable
based on location and asset grade. Where
capitalisation rates, discount rates and/or
movements in individual property valuations fell
outside of our expectation, we performed the
following procedures, amongst others:
(cid:2020) Met with the Group’s Senior Valuation Manager
and discussed the specifics of the selected
individual properties including, amongst other
things, any new leases entered into during the
year, lease expiries, capital expenditure and
vacancy rates.
(cid:2020) Agreed significant changes in inputs from
previous valuations to supporting
documentation such as new lease agreements.
(cid:2020) Assessed key inputs in the investment property
valuations to observable external market data.
Independent Auditor’s Reportcontinued
153
Key audit matter
How our audit addressed the key audit matter
Income.
(cid:120)
(cid:120)
Inherently subjective nature of investment
property valuations arising from the use of
assumptions in the valuation methodology.
Sensitivity of valuations to key input
assumptions, including capitalisation rates, and
discount rates.
(cid:120) As the Group engaged external experts to determine
the fair value of investment properties, we
considered the independence, experience and
competency of the Group’s independent experts as
well as the results of their procedures.
Carrying amount of indefinite life
management rights
(Refer to Note 18)
To assess the impairment models used to determine the
recoverable amount, we performed the following audit
procedures, amongst others:
At 30 June 2019 indefinite life management rights
(management rights) amounting to $286.0 million
(2018: $286.0 million) were recognised by the Group
(included in the intangible assets balance). In
accordance with the requirements of Australian
Accounting Standards, indefinite life management
rights are not amortised and are tested at least
annually for impairment.
The Group performed impairment testing of the
management rights by comparing the recoverable
amount of the management rights to their carrying
amount. The Group concluded that management
rights were not impaired.
We considered the carrying amount of indefinite life
management rights a key audit matter given the:
(cid:120)
(cid:120)
(cid:120)
Financial significance of the balance in the
Consolidated Statement of Financial Position
Significant judgement required by the Group in
estimating the recoverable amount of indefinite
life management rights
Sensitivity of the Group’s assessment of the
recoverable amount of indefinite life
management rights to changes in key
assumptions such as growth rates, discount
rates, and future cash flows.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Assessed whether the division of the Group's
management rights into cash generating units
(CGU), was in line with the Australian Accounting
Standards and consistent with our knowledge of
the Group's operations and internal Group
reporting.
Tested the mathematical accuracy of each
impairment model's calculations.
Evaluated the Group’s methodology and selected
inputs and assumptions in the impairment models,
such as discount rate, revenue and expense growth
rates by comparing to observable market
expectations.
Compared forecast cash flows used in each
impairment model with the most up-to-date
budgets approved by the Board. For cash flows
beyond year three that were not covered by formal
budgets, we compared the growth rates applied to
observable market expectations.
Evaluated the Group's historical ability to forecast
future cash flows by comparing budgets to reported
actual results.
Considered the Group's sensitivity analysis on key
assumptions used in the impairment models to
assess under which assumptions an impairment
would occur and whether this was reasonably
possible.
Together with PwC valuation experts we considered
whether the discount rate applied in each model
was consistent with observable market
expectations.
Dexus 2019 Annual Report
154
Independent Auditor’s Report
Key audit matter
How our audit addressed the key audit matter
Carrying amount of inventory
(Refer to Note 10)
To assess the carrying amount of inventory we performed
the following procedures amongst others:
(cid:120)
Tested that a sample of costs, transfers to inventory
and acquisitions capitalised to inventory were in
accordance with the Group’s policy/methodology
and the requirements of Australian Accounting
Standards.
(cid:120) We used a risk based approach to select a sample of
inventory assets on which to perform net realisable
value testing. For the selected assets we:
(cid:2020) Discussed with management the life cycle of the
project, key project risks, changes to project
strategy, current and future estimated sales
prices, construction progress and costs and any
new and previous impairments.
(cid:2020) Compared the market capitalisation rates and
net market income used by the Group to
calculate net realisable value to market
capitalisation rates and rental rates published
by external independent valuation experts.
(cid:2020) Compared the carrying amount of inventory
against the Group’s estimate of net realisable
value as at 30 June 2019.
The Group develops a portfolio of office and
industrial sites for future sale, which are classified as
inventory.
At 30 June 2019 the carrying amount of the Group’s
inventory was $457.7 million (2018: $544.7 million).
The Group’s inventories are held at the lower of the
cost or net realisable value for each inventory asset.
The cost of inventory is calculated using actual
acquisition costs, construction costs, development
related costs and interest capitalised for eligible
projects.
Net realisable value is determined by using the
valuation techniques referred to in the key audit
matter: Valuation of investment properties,
including those properties in investments accounted
for under the equity method to determine the
estimated future selling price, and adjusted for the
estimated cost to complete and transaction costs.
We considered the carrying amount of inventory to be
a key audit matter given the:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Judgement required in determining the fair value
of properties transferred from investment
properties to inventory at the date of transfer, or
used in net realisable value calculations. Refer to
key audit matter: Valuation of investment
properties, including those properties in
investments accounted for under the equity
method for key judgements in determining the
fair value.
Judgements required by the Group in
determining the costs to complete and
transaction costs used in net realisable value
calculations.
Financial significance of the inventory balance in
the Consolidated Statement of Financial
Position.
The subsequent impact to FFO from the disposal
of inventory.
Independent Auditor’s Reportcontinued
155
Other information
The Directors of Dexus Funds Management Limited as Responsible Entity of the Trust, DIT, DOT and
DXO (the Directors) are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 30 June 2019, but does not include the
financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the financial report
The Directors are responsible for the preparation of the financial report that gives a true and fair view
in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the Directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the Directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
Dexus 2019 Annual Report
156
Independent Auditor’s Report
Independent Auditor’s Report
continued
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 68 to 89 of the Directors’ Report for the
year ended 30 June 2019.
In our opinion, the remuneration report complies with section 300A of the Corporations Act 2001.
Responsibilities
The Directors are responsible for the preparation and presentation of the remuneration report in
accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the remuneration report, based on our audit conducted in accordance with Australian
Auditing Standards.
PricewaterhouseCoopers
Matthew Lunn
Partner
Sydney
13 August 2019
Investor
Information
157
Dexus recognises the importance of effective communication
with existing and potential institutional investors, sell-side
analysts and retail investors.
Our Executives and the Investor Relations team maintain a strong rapport with the investment community through proactive and
regular engagement initiatives. We are committed to delivering high levels of transparency and disclosure by:
– Releasing accurate and relevant information to investors to ensure they can make informed investment decisions
– Providing regular access to senior management through one-on-one meetings, presentations, property tours, conferences,
dedicated investor roadshows, conference calls and webcasts
We adopt strong governance practices including a policy that ensures a minimum of two Dexus representatives participate in
any institutional investor or sell-side broker meetings and that a record of the meeting is maintained on an internal customer
relationship management database.
During FY19, senior management together with the Investor Relations team held 273 engagements with investor/broker groups to
discuss the group’s business strategy, operational and financial performance. These engagements were undertaken across a wide
range of investor activities including telephone calls, conferences, roadshows, one-on-one meetings, dinners, investor briefings
and roundtables.
Investor contact method (by number)
Security holders by geography (%)
5
19
47
40
162
6%
7%
12%
26%
41%
8%
One-on-one
meeting
Group meeting
Telephone call
Tour
Panel/presentation
Australia
Europe (ex UK)
UK
Asia
North America
Rest of World
We participated in investor conferences and roadshows in Australia, Singapore, Hong Kong, Japan and London.
These conferences and roadshows enabled access to potential new investors and assisted with strengthening existing
relationships with long term investors.
The Investor Relations team arranged two group property tours for institutional investors and sell-side brokers to strengthen
the awareness of the quality of the portfolio, understand our active asset management approach and importantly how we
create value. In Perth, 240 St Georges Terrace, 58 Mounts Bay Road, Kings Square and Carillon City, attracted 22 attendees,
while in the Sydney North Shore tour, the North Shore Health Hub and the recently completed development at 100 Mount Street,
attracted 28 attendees.
Dexus 2019 Annual Report 158
Investor Information
Investor
relations events
2018
August
– Release of Dexus’s FY18 results
– FY18 results roadshow:
(Sydney and Melbourne)
September
– Conferences: JP Morgan (London),
Morgan Stanley (London)
October
– Investor briefing with Dexus Chair
(Hong Kong)
– Institutional investor roadshow
(Singapore, Hong Kong)
– Annual General Meeting (Sydney)
– Conferences: Citi (Sydney),
Bank of America Merrill Lynch (Sydney)
November
– Institutional investor and broker
property tour (Perth)
– Conference: UBS (Sydney)
2019
February
– Release of Dexus’s HY19 results
– HY19 results roadshow
(Sydney and Melbourne)
March
– Conference: JP Morgan
(Singapore, Hong Kong, Tokyo)
– Institutional investor roadshow
(London, Singapore)
April
– Conference: Macquarie (Sydney)
May
– Debt and unlisted institutional investor tour
(North Sydney)
June
– Institutional investor and broker property tour
(North Sydney)
– Institutional investor roadshow
(Hong Kong, Singapore)
We regularly commission independent investor perception
studies to gather feedback from the institutional investment
community. These studies involve independent surveys and
interviews with institutional investors and sell-side brokers to
measure perceptions on a number of attributes and report on
the findings. The results help the Board and Executive team
understand the investment community’s views and concerns
and assists in the enhancement of the group’s Investor
Relations and communications activities.
In 2018 the Australasian Investor Relations Association (AIRA)
awarded Dexus second place in the Designate Award for Most
Progress in Investor Relations by an Australasian Company at
their annual awards evening.
Our Treasury team held non-deal specific meetings with
institutional debt investors in Asia in November 2018 and
the US in May 2019. In addition, the team participates in the
Property Treasurers’ Round Table events facilitated by the
Property Council of Australia.
Annual General Meeting
On Wednesday, 30 October 2019, commencing at 2.00pm,
Dexus’s Annual General Meeting (AGM) will be held in Sydney.
Details relating to the meeting, including the venue location
will be provided to all investors in the Notice of Meeting. We
invite you to attend the AGM in person to meet the Board of
Directors and members of the Executive team. The AGM will
be webcast at www.dexus.com for investors who are unable
to attend in person.
Distribution payments
Dexus’s payout policy is to distribute in line with free cash flow.
Distributions are paid for the six-month periods to 31 December
and 30 June each year. Distribution statements are available
in print and electronic formats and distributions are paid only
by direct credit into nominated bank accounts for all Australian
and New Zealand Security holders and by cheque for other
international Security holders.
To update the method of receiving distributions, please visit the
investor login facility at www.dexus.com/update
Unclaimed distribution income
Unpresented cheques or unclaimed distribution income can be
claimed by contacting the Dexus Infoline on +61 1800 819 675.
For monies outstanding greater than seven years, please
contact the NSW Office of State Revenue on +61 1300 366 016,
8.30am-5.00pm Monday to Friday, use their search facility at
osr.nsw.gov.au/ucm or email unclaimedmoney@osr.nsw.gov.au
159
Key dates – notifies investors on key events and reporting dates
LinkedIn – We engage with our followers on LinkedIn
www.dexus.com/LinkedIn and click follow us
Twitter – We engage with our followers on Twitter
Search Dexus on Twitter and follow us
Facebook – We engage with our followers on Facebook
Search Dexus on Facebook and follow us
Dexus IR App – provides users access to our investor
communications and security price. Download for free from
Apple’s App Store or Google Play
Making contact
If you have any questions regarding your security holding or
wish to update your personal or distribution payment details,
please contact the Registry by calling the Dexus Infoline on
+61 1800 819 675. This service is available from 8.30am to 5.30pm
(Sydney time) on all business days. All correspondence should
be addressed to:
Dexus
C/- Link Market Services Limited
Locked Bag A14
Sydney South NSW 1235
Email: dexus@linkmarketservices.com.au
We are committed to delivering a high level of service to all
investors. If you feel we could improve our service or you would
like to make a suggestion or a complaint, your feedback is
appreciated. Our contact details are:
Investor Relations
Dexus
PO Box R1822
Royal Exchange NSW 1225
Email: ir@dexus.com
Dexus Funds Management Limited is also a member of
the Australian Financial Complaints Authority (AFCA), an
independent dispute resolution scheme. If you are not satisfied
with the resolution of your complaint, you may refer your
complaint to AFCA.
Australian Financial Complaints Authority
GPO Box 3
Melbourne VIC 3001
Phone: +61 1800 931 678 (free call within Australia)
Fax: +61 3 9613 6399
Email: info@afca.org.au
Website: www.afca.org.au
Attribution Managed Investment Trust Member
Annual Statement (previously the Annual
Taxation Statement)
An Attribution Managed Investment Trust Member Annual
Statement (AMMA) is sent to investors at the end of August
each year. The statement summarises distributions provided
during the financial year and includes information required to
complete your tax return. AMMA statements are also available
online at www.dexus.com/update
2020 Reporting calendar1
2019 Annual General Meeting
30 October 2019
2020 Half year results
6 February 2020
2020 Annual results
19 August 2020
2020 Annual General Meeting
28 October 2020
Distribution calendar1
Period end
31 December 2019
30 June 2020
ASX announcement
23 December 2019
24 June 2020
Ex-distribution date
30 December 2019
29 June 2020
Record date
31 December 2019
30 June 2020
Payment date
28 February 2020
28 August 2020
1. Please note that these dates are indicative and are subject to
change without prior notice. Any changes in our key dates will be
published on our website.
Go electronic for convenience and speed
Did you know that you can receive all or part of your security
holder communications electronically? You can change your
communication preferences at any time by logging in at
www.dexus.com/update or by contacting Link Market Services
on +61 1800 819 675.
Investor communications
We are committed to ensuring all investors have equal access to
information. In line with our commitment to long term integration
of sustainable business practices, investor communications are
provided via various electronic methods including:
Dexus’s website – www.dexus.com
Other investor tools available include:
Online enquiry – www.dexus.com/enquire
is an easy online enquiry form
Investor login – www.dexus.com/update
enables investors to update their details and download
statements
Subscribe to alerts – www.dexus.com/subscribe
enables investors to receive Dexus communications
immediately after release
Dexus 2019 Annual Report 160
Investor Information
Additional Information
Top 20 security holders at 31 July 2019
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 Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
Citicorp Nominees Pty Limited
AMP Life Limited
HSBC Custody Nominees (Australia) Limited GSCO ECA
Australian Executor Trustees Limited
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited
Pacific Custodians Pty Limited Perf Rights Plan TST
Avanteos Investments Limited
BNP Paribas Nominees (NZ) Ltd
One Managed Investment Funds Limited
Cs Third Nominees Pty Limited
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd Hub24 Custodial Services Ltd DRP
20
Avanteos Investments Limited
Sub total
Balance of register
Total of issued capital
No. of units
491,678,945
276,169,077
102,713,173
48,201,391
34,813,192
19,469,161
11,192,576
7,453,248
4,606,227
3,128,078
3,017,852
2,561,117
1,669,226
1,474,773
1,135,152
1,115,000
982,952
848,361
802,847
652,742
% of issued
capital
44.83
25.18
9.36
4.39
3.17
1.77
1.02
0.68
0.42
0.29
0.28
0.23
0.15
0.13
0.10
0.10
0.09
0.08
0.07
0.06
1,013,685,090
83,172,575
1,096,857,665
92.42
7.58
100.00
Substantial holders at 31 July 2019
The names of substantial holders, at 31 July 2019 that have notified the Responsible Entity in accordance with section 671B of the
Corporations Act 2001, are:
Date
Name
8 Apr 2019
State Street Corporation
21 Dec 2018
Vanguard Group
23 Nov 2018
Blackrock Group
Number
of stapled
securities
70,998,322
102,882,077
89,843,853
% voting
6.98
10.11
8.83
Note: Dexus issued capital changed from 1,017,196,877 to 1,096,857,665 between April and June 2019 following the completion of the Institutional
Placement and Security Purchase Plan as announced to the ASX.
Class of securities
Dexus has one class of stapled security trading on the ASX with Security holders holding stapled securities at 31 July 2019.
161
Securities
% No. of Holders
1,024,068,530
2,343,801
17,810,471
17,667,581
30,220,513
4,746,769
93.36
0.21
1.62
1.61
2.76
0.43
1,096,857,665
100.00
58
35
1,052
2,591
12,581
9,858
26,175
Spread of securities at 31 July 2019
Range
100,000 and over
50,000 to 100,000
10,001 to 50,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
At 31 July 2019, the number of security holders holding less than a marketable parcel of 39 Securities ($500) was 394 and they held
a total of 1,772 securities.
Voting rights
At meetings of the security holders of Dexus Diversified Trust, Dexus Industrial Trust, Dexus Office Trust and Dexus Operations
Trust, being the Trusts that comprise Dexus, on a show of hands, each Security holder of each Trust has one vote. On a poll, each
Security holder of each Trust has one vote for each dollar of the value of the total interests they have in the Trust.
Securities restricted or subject to voluntary escrow
There are no stapled securities that are restricted or subject to voluntary escrow.
On-market buy-back
There was no on market buy-back in the financial year to 30 June 2019.
Cost base apportionment
For capital gains tax purposes, the cost base apportionment details for Dexus securities for the 12 months ended 30 June 2019 are:
Date
1 Jul 2018 to 31 Dec 2018
1 Jan 2019 to 30 Jun 2019
Historical cost base details are available at www.dexus.com
Dexus
Diversified
Trust
Dexus
Industrial
Trust
28.87%
28.62%
9.37%
8.55%
Dexus
Office
Trust
59.54%
59.98%
Dexus
Operations
Trust
2.22%
2.85%
Dexus 2019 Annual Report 162
Investor Information
Key ASX announcements
26 Jun 2019 $250 million valuation uplift achieved across
06 Feb 2019 HY19 Distribution details
Dexus's portfolio
21 Jun 2019 Notice of Distribution Appendix 3A
21 Jun 2019 Distribution for the six months ending 30 June 2019
21 Jun 2019
Settlement of 11 Talavera Road Macquarie Park
18 Jun 2019 100 Mount Street sets a new benchmark for
North Sydney
13 Jun 2019 Dexus plans a mixed-use transformation of the
MLC Centre
07 Jun 2019 Appendix 3Y - Change of Director’s Interest
Notice for John Conde
07 Jun 2019 Appendix 3Y - Change of Director’s Interest
Notice for Richard Sheppard
07 Jun 2019 Appendix 3Y - Change of Director's Interest
Notice for Penny Bingham-Hall
06 Feb 2019 HY19 Results presentation
06 Feb 2019 HY19 Results release
06 Feb 2019 HY19 Property Synopsis
06 Feb 2019 Appointment of Company Secretary
21 Dec 2018 New investor secured for existing Dexus
Industrial Partnership
14 Dec 2018 Notice of Distribution Appendix 3A
14 Dec 2018 Distribution details for the six months
to 31 December 2018
14 Dec 2018 $405 million valuation uplift across Dexus
portfolio
10 Dec 2018 Settlement of industrial acquisition
30 Nov 2018 Settlement of seed portfolio for JV with GIC
07 Jun 2019 Appendix 3Y - Change of Director's Interest
26 Nov 2018 Dexus establishes JV with GIC for a wholesale
Notice for Peter St George
05 Jun 2019 North Shore Property Tour
04 Jun 2019 Revised Appendix 3B
04 Jun 2019 Appendix 3B SPP
03 Jun 2019 Dexus announces successful completion of
Security Purchase Plan
09 May 2019 Initial settlement of 80 Collins Street Melbourne
08 May 2019 Institutional placement allotment and cleansing
statement
unlisted logistics trust
07 Nov 2018 Perth Property Tour
06 Nov 2018 Appendix 3Y - Change of Director's Interest
Notice for Darren Steinberg.
31 Oct 2018 Amendment to Constitutions
31 Oct 2018 Settlement of acquisition of 60 Collins Street
Melbourne
24 Oct 2018 2018 Annual General Meeting results
24 Oct 2018 2018 Annual General Meeting
08 May 2019 Despatch of Dexus Security Purchase Plan
24 Oct 2018 September 2018 quarter portfolio update
07 May 2019 Appendix 3B
03 May 2019 Successful completion of $900m institutional
placement
05 Oct 2018 Dexus extends presence in healthcare sector
through strategic investment
02 Oct 2018 Investor roadshow presentation
02 May 2019 Acquisition and equity raising 80 Collins Street
19 Sep 2018 2018 Notice of Annual General Meeting
Melbourne
30 Apr 2019 March 2019 quarter portfolio update
30 Apr 2019 2019 Macquarie Conference Australia
19 Sep 2018 Dexus secures prime development site in
Melbourne CBD
30 Aug 2018 30 June 2018 distribution payment
01 Apr 2019 Settlement of acquisition of remaining interest in
21 Aug 2018 Settlement of 32 Flinders Street Melbourne
MLC Centre, Sydney
17 Aug 2018 Appendix 3Y - Change of Director’s Interest
28 Mar 2019 Media reports regarding 80 Collins Street
Melbourne
20 Mar 2019 Appendix 3B
18 Mar 2019 Enhanced Cleansing Notice
Notice for Darren Steinberg
15 Aug 2018 Appendix 4E
15 Aug 2018 2018 Final Distribution Details
15 Aug 2018 FY18 Annual Results Release
13 Mar 2019 Pricing of $425 million exchangeable notes
15 Aug 2018 FY18 Annual Results Presentation
offering
12 Mar 2019 Dexus and DWPF acquire remaining interest in
MLC Centre Sydney
28 Feb 2019 31 December 2018 distribution payment
25 Feb 2019 Sale of 11 Talavera Road Macquarie Park
14 Feb 2019 Appendix 3Y - Change of Director's Interest
Notice for Darren Steinberg.
06 Feb 2019 HY19 Appendix 4D and Financial Accounts
15 Aug 2018 2018 Annual Report
15 Aug 2018 2018 Financial Statements
15 Aug 2018 2018 Property Synopsis
15 Aug 2018 Appendix 4G and Corporate Governance
Statement
14 Aug 2018 Replenishing industrial development pipeline in
core locations
Directory
Dexus Diversified Trust
ARSN 089 324 541
Dexus Industrial Trust
ARSN 090 879 137
Dexus Office Trust
ARSN 090 768 531
Dexus Operations Trust
ARSN 110 521 223
Responsible Entity
Dexus Funds Management Limited
ABN 24 060 920 783
AFSL 238163
Directors of the Responsible Entity
W Richard Sheppard, Chair
Penny Bingham-Hall
John C Conde AO
Tonianne Dwyer
Mark H Ford
The Hon. Nicola Roxon
Darren J Steinberg, CEO
Peter B St George
163
Secretaries of the Responsible Entity
www.dexus.com
Brett Cameron
Scott Mahony
Registered office of the
Responsible Entity
Level 25, Australia Square
264 George Street
Sydney NSW 2000
PO Box R1822
Royal Exchange
Sydney NSW 1225
Phone: +61 2 9017 1100
Fax: +61 2 9017 1101
Email: ir@dexus.com
www.dexus.com
Auditors
PricewaterhouseCoopers
Chartered Accountants
201 Sussex Street
Sydney NSW 2000
Security Registry
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Locked Bag A14
Sydney South NSW 1235
www.linkmarketservices.com.au
Open Monday to Friday between 8.30am
and 5.30pm (Sydney time). For enquiries
regarding security holdings, contact the
security registry, or access security holding
details at www.dexus.com/investor-centre
Australian Securities Exchange
ASX Code: DXS
LinkedIn, Twitter, Facebook
Dexus now engages with its followers
via LinkedIn, Twitter and Facebook
Investor Enquiries
Registry Infoline: +61 1800 819 675
Investor Relations: +61 2 9017 1330
Email: dexus@linkmarketservices.com.au
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About this report
The 2019 Annual Report is a consolidated
summary of Dexus’s performance for the
financial year ended 30 June 2019. This
report should be read in conjunction
with the reports that comprise the 2019
Annual Reporting Suite available from
www.dexus.com/investor-centre
In this report, unless otherwise stated,
references to ‘Dexus’ ‘the group’, ‘we’,
‘us’ and ‘our’ refer to Dexus comprising
the ASX listed entity and the Funds
Management business. Any reference
in this report to a ‘year’ relates to the
financial year ended 30 June 2019. All
dollar figures are expressed in Australian
dollars unless otherwise stated.
Dexus referred to the Global Reporting
Initiative (GRI) Sustainability Reporting
Guidelines to determine the report’s
boundaries for guidance on identifying
and reporting its material issues,
management approaches and reporting
key performance indicators across
stakeholder groups including investors,
employees, customers, suppliers and
the community.
The 2019 Annual Reporting Suite has
been prepared in accordance with
the GRI Standards: Core option and
nominated indicators have been
externally assured. The GRI index is
provided with the 2019 Sustainability
Performance Pack available from
www.dexus.com/investor-centre
Dexus’s Funds From Operations (FFO)
is in line with Property Council of
Australia’s definition and comprises
net profit/loss after tax attributable to
stapled security holders calculated in
accordance with Australian Accounting
Standards and adjusted for: property
revaluations, impairments, derivative and
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, rental
guarantees, coupon income and
distribution income net of funding costs.
Report scope
The Annual Report covers financial
performance at all locations.
Environmental data only includes
properties under the Group’s
operational control as defined under
the National Greenhouse and Energy
Reporting System (NGER Act). All
resource performance figures in this
report display consumption and GHG
emissions on an intensity (per square
metre) basis. Absolute consumption
and additional information is
provided in the 2019 Sustainability
Performance Pack available from
www.dexus.com/investor-centre
Independent assurance
In addition to auditing Dexus’s Financial
Statements, PricewaterhouseCoopers
(PwC) has provided limited assurance
over select environmental and social data
within the integrated online reporting suite
covering the 12 months to 30 June 2019. The
assurance statement, the GRI verification
report and associated reporting criteria
documents will be available from the online
reporting suite in August 2019.
Dexus 2019 Annual Report 164
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