DEXUS (ASX:DXS) reported its half year FY26 results, outlining a period marked by improving property valuations, stronger leasing activity in office and industrial, continued balance sheet divestments, and ongoing work to address fund-specific redemption matters. Management also reaffirmed FY26 earnings guidance and announced an on-market securities buyback of up to 10%.
Half year result and guidance reaffirmed
Group CEO and Managing Director Ross Du Vernet said the company delivered AFFO of AUD 253 million for the half, with distributions per security of AUD 0.193. CFO Kieran reported the distribution reflected a payout ratio of 82%.
Looking ahead, Du Vernet said Dexus reaffirmed its expectations for the twelve months ending 30 June 2026 of AFFO of 44.5–45.5 cents per security and distributions of 37 cents per security, “barring unforeseen circumstances.”
Valuations stabilize as rental growth drives uplift
Kieran said it was positive to see a second six-month period of valuation growth across the office and industrial portfolios, with the overall portfolio up 1% for the six months to 31 December. He said capitalization rates had stabilized and the valuation movement was “predominantly driven by rental growth.”
By segment, he said the office portfolio (77% weighted to core CBD markets) increased 0.7%, while the industrial portfolio (90% weighted to core industrial estates and distribution centers) increased 1.6%.
Office recovery narrative supported by leasing momentum and development progress
Office portfolio manager Andy said Dexus’ office portfolio occupancy was 92.2%, which he said remained well above the market average. He reported average incentives of 29%, describing them as below market, while effective like-for-like income declined 2.3% due primarily to downtime on select vacancies, including Eighty Collins Street and Thirty Hickson Road.
Leasing volumes were over 95,000 square meters, nearly double the prior corresponding period, and the office portfolio delivered a one-year total return of 5.7% at December. Andy said FY27 expiries improved to 12.3% following the divestment of 100 Mount Street, with key expiries remaining in Australia Square and 385 Bourke Street.
On leasing spreads, Andy said face spreads were positive across all markets and that for the portfolio, face spreads were up 9%. He added that effective spreads had improved materially and were -5% for the first half; in Brisbane, he said Dexus achieved positive 10% effective spreads.
On the outlook, Andy said evidence suggested the office market had “passed the bottom of the cycle” and was in the early stages of recovery, citing employment growth, return-to-work mandates, and centralization trends. He also pointed to positive net absorption across the four major CBDs and low upcoming supply relative to long-term averages. Within Dexus’ own portfolio, he cited examples of 15% net effective rent growth on comparable lease deals struck 12 months apart.
Development updates included:
- Atlassian Central (Sydney): Andy said construction was progressing, with completion on schedule for late 2026. The project is 100% pre-leased on a 15-year lease with 4% per annum fixed increases. In Q&A, Du Vernet said Dexus plans to introduce third-party capital into the asset, likely closer to practical completion.
- Waterfront Brisbane: Andy said Riverwalk opened earlier in the month and the vertical structure was rising. He said the project was 71% pre-leased, with a recent deal reflecting a 40% improvement in net effective rent compared with the previous Waterfront deal struck two years earlier.
Andy said 83% of the committed development book was pre-leased with contracted 3.7% average fixed increases per annum, and that fixed price contracts were in place with tier one contractors. He also said Central Place Sydney moved out of the uncommitted pipeline as the scheme is being reconsidered.
Industrial portfolio posts strong growth and re-leasing spreads
Industrial portfolio manager Chris said the industrial portfolio delivered a strong result, including a one-year total return of 8.8%. He reported occupancy by income increased to 97% and like-for-like income strengthened to 8.7%, which he said was in line with expectations.
Chris said Dexus achieved re-leasing spreads of 33% across the stabilized portfolio. Average incentives increased to around 21%–21.5%, which he attributed primarily to lease-up of key expiries in Melbourne’s West and Sydney’s Outer West. He also noted the portfolio was 8.9% under-rented, with 20% set to access rental reversion upon expiry by FY27.
On development, Chris said Dexus completed 102,000 square meters during the period and continued construction across a further 110,000 square meters. He said the company leased 63,000 square meters across 10 development deals and that 68% of the committed development book was pre-leased with contracted annual increases of around 3%.
Capital management: divestments, funding flexibility, buyback, and funds platform actions
Du Vernet said Dexus completed AUD 800 million of divestments for the balance sheet during the half, including the recently agreed divestment of One Hundred Mount Street in North Sydney. He added Dexus has secured AUD 1.4 billion of divestments since 30 June 2024, progressing toward a AUD 2 billion target.
Kieran said the balance sheet remained solid, with look-through gearing toward the lower end of the 30%–40% target range. During the half, Dexus issued AUD 500 million of subordinated notes; in Q&A management described the issuance as prudent and opportunistic, with 50% equity credit from rating agencies. Management also said refinancing activity left a weighted average debt maturity of 4.6 years, AUD 2.5 billion of headroom, and 95% of debt hedged at an average rate of 2.9% during the half.
Du Vernet announced an on-market securities buyback of up to 10% of Dexus securities, citing a “sustained disconnect” between the company’s equity market valuation and underlying assets and businesses. He said the buyback would be executed at a pace consistent with maintaining balance sheet discipline as asset sales and other capital release initiatives progress.
On the funds management business, Michael said Dexus manages AUD 36 billion in third-party capital across more than 150 institutional clients, with average gearing across pooled funds around 32%. He said Dexus reduced the real estate redemption queue by about AUD 1 billion over the six months to December and continues to rationalize subscale funds. Management said total redemptions were around AUD 2 billion at period end, now “evenly spread between real estate and the infrastructure exposures,” and that progress on infrastructure redemptions is expected following an APAC court case scheduled for April 2026, with mediation in March 2026.
Dexus raised over AUD 950 million of equity, including AUD 640 million of new equity commitments and more than AUD 280 million in secondary unit transactions. Michael said DWPF outperformed its benchmark across all time periods and by about 200 basis points for the 12 months to 31 December, while the Shops Fund has outperformed its benchmark since joining the Dexus platform.
About DEXUS (ASX:DXS)
Dexus (ASX: DXS) is a leading Australasian fully integrated real asset group, managing a high-quality Australasian real estate and infrastructure portfolio valued at $61.0 billion (pro forma post final completion of the AMP Capital acquisition). We believe that the strength and quality of our relationships will always be central to our success and are deeply connected to our purpose: Unlock potential, create tomorrow. We directly and indirectly own $17.4 billion of office, industrial, healthcare, retail and infrastructure assets and investments.
