Our sustainability approach is aligned with Dexus’s strategy through the overarching goal of delivering sustained value for our stakeholders

 

Integrating sustainability

Dexus's sustainability approach incorporates the UNPRI ‘six principles’ relating to responsible investment and active property management, and is aligned with our corporate strategy through its overarching goal to create sustained value. Sustainability is also a key enabler that supports our strategy.

This framework incorporates five objectives which describe the stakeholders for whom we implement sustainability initiatives, while the three themes are a frame of reference for initiatives and programs.

Key themes:

  • Connectivity - using technology to enable connectivity between people and places and smart operations of Dexus's business and buildings
  • Liveability - creating vibrant, inspiring and flexible work places which enhance productivity and foster the well-being of employees and customers
  • Resilience - increasing resilience so that buildings and spaces are adaptive and customers and Dexus can prosper long term

 

 

 

Together, the three key themes and five key objectives, form the basis from which sustainability commitments and targets are formed, and how achievement is measured.

Our approach evolves

In 2017 our sustainability approach took on new life as part of our corporate rebranding. Our new brand speaks to who we are – an innovative company that is redefining the workplace through our customer offering.

We are working alongside our customers to understand their needs, making things simple and easy, and providing products and services that genuinely add value.

Engaging with investors

Over the course of the year we have seen an increasing number of new and existing investors engage with us on our sustainability strategy, operational management and performance outcomes.

This reflects a broader shift we observe as a member of the Investor Group on Climate Change (IGCC). Since the signing of the Paris Climate Agreement, the climate change debate is rapidly evolving away from justifying the science, towards understanding the physical, social and financial impacts.

Future-focused investors seek greater transparency of sustainability risks and opportunities, and are placing greater emphasis on performance measurement tools like the Global Real Estate Sustainability Benchmark.

With our established strategy, we are focused on continuous improvement. While we work towards meeting our medium term targets, we are thinking ahead to the workplace of the future in a low carbon economy.

Delivering FY17 sustained value commitments

 = Achieved   = Not achieved  = Underway
Commitment Status FY17 achievements
Investors
Deliver 3.0-4.5% (previously 3.0-3.5%) growth in Underlying FFO per security 

Delivered 4.2% growth in Underlying FFO per security in line with our target and 4.5% growth in distribution per security at the top end of our guidance range      

Office and Industrial
Target Office like-for-like growth of 2.5-3% (previously 2-3%) and Industrial 3-4% like-for-like income growth in Dexus’s industrial portfolio Achieved 2.6% like-for-like growth in the office portfolio and 3.6% like-for-like growth in the industrial portfolio
Reduce FY19 office lease expiries to 12% by end of FY17   Implemented forward leasing strategies to reduce FY19 office lease expiries to 12% at 30 June 2017 from 14.2% at 30 June 2016.
Third Party Funds Management           
Deliver on third party clients’ investment objectives, leverage transaction capabilities and seek new development and enhanced return opportunities to satisfy investment strategies All funds delivered strong performance with DWPF outperforming its benchmark over one, three, five, seven and ten years. Dexus Office Partnership delivered a one year unlevered total property return of 14.7% and an annualised unlevered total property return of 14.6% since inception.
Development
Seek new development and enhanced return opportunities to satisfy investment strategies   Dexus progressed its $4.3 billion development pipeline through the year with 100 Mount Street North Sydney and 105 Phillip Street Parramatta reaching key milestones. Seven industrial developments were activated. A new healthcare property fund was also launched seeded with the Calvary Adelaide Hospital which is currently under construction.
Trading    
Target FY17 trading profits of circa $45-50 million (post tax) and progress priority projects Delivered $47.2 million in trading profits net of tax in FY17 including the sale of 105 Phillip Street, Parramatta which also secured approximately 60% of FY18 trading profits.
Capital Management    
Maintain strong balance sheet and target a weighted average cost of debt of circa. 4.2% (previously 4.6%) Maintained strong balance sheet with 26.7%1 gearing and reduced cost of debt to 4.1% (FY16: 4.8%)

For more financial information refer to the 2017 Dexus Annual Report.

Sustained value performance data

Financial highlights

Key metrics FY12 FY13 FY14 FY15 FY16 FY17
Net profit after tax ($m) 181.1 514.5 406.6 618.7 1,259.8 1,264.2
Funds From Operations ($m) 367.8 365.4 446.6 544.5 610.8 617.7
Funds From Operations (cents per security) 7.65 7.75 8.34 59.51 63.1 63.8
Distribution (cents per security) 5.35 6.00 6.26 41.041 43.51 45.47
NTA per security ($) 1.00 1.05 1.06 6.681 7.53 8.45
Gearing (%)2 27.0 29.0 33.7 28.5 30.73 26.74
Total shareholder return (%) 12.2 22.1 9.9 15.8 30.3 10.1
  1. Dexus completed a one-for-six Security Consolidation in November 2014.
  2. Adjusted for cash and for debt in equity accounted investments. Refer to 2017 Dexus Annual Report for gearing definition.
  3. Gearing was expected to reduce to circa 27% post the receipt from recent divestments. This includes the sale of 57-65 Templar Road, Erskine Park (trading property); The Zenith, Chatswood; 108 North Terrace, Adelaide; the first 50% tranche of Southgate Complex, Melbourne; and 79-99 St Hilliers Road, Auburn (trading property).
  4. Pro forma gearing is adjusted for the acquisitions of MLC Centre, Sydney, 100 Harris Street, Pyrmont, 90 Mills Road, Braeside and the sales of 30-68 Taras Avenue, Altona North and 46 Colin Street, West Perth, including the impact of transactions costs. Actual gearing (look-through) is 22.1% at 30 June 2017.

Dexus portfolio snapshot

Key metrics  FY13 FY14
(Pre-CPA)
FY14
(Post-CPA)
FY15  FY16 FY17
Portfolio value ($A) Dexus portfolio $7.4bn $7.3bn $9.1bn $9.5bn $11.0bn $12.2bn
Office $5.9bn $5.7bn $7.7bn $7.8bn $9.2bn $10,2bn
Industrial $1.4bn $1.6bn $1.4bn $1.7bn $1.8bn $2.0bn
Industrial US* (US$) $549.5m - - - - -
Net lettable area (sqm) Dexus portfolio 1,724,800 1,775,487¹ 1,993,729 2,697,990 2,842,797 2,866,358
Office 951,380 682,207 1,490,070 1,403,255 1,566,111 1,581,646
Industrial 1,251,152 1,254,588 1,254,588 1,294,735 1,276,685 1,284,712
Funds From Operations1 Office n/a n/a $455.4m $533.3m $567.2m $567.4m
Industrial n/a n/a $122.8m $112.3m $106.1m $1114.8m
Like-for-like income growth Office 3.6% 1.8% - 0.2% 1.0% 2.6%
Industrial 1.5% 1.1% 1.5% 0.7% (7.1%) 3.6%
Occupancy
(by income)
Dexus portfolio 94.7% 94.9% - -  - -
Office 95.2% 94.6% 94.6% 95.3% 96.3% 97.2%
Industrial 93.0% 96.1% 93.0% 92.4% 90.4% 96.5%
Occupancy
(by area)
Dexus portfolio 94.1% 95.3% - - - -
Office 94.7% 94.4% 94.3% 95.5% 96.3% 97.0%
Industrial 93.1% 95.9% 93.1% 91.7% 91.7% 96.6%
Lease duration (by income) Dexus portfolio 4.7 years 4.8 years - -  - -
Office 4.9 years 5.0 years 4.7 years 4.3 years 4.7 years 4.8 years
Industrial 4.0 years 4.1 years 4.0 years 4.0 years 4.1 years 5.1 years
Weighted average capitalisation rate Dexus portfolio 7.13% 7.47% - 6.88% 6.33% 5.95%
Office 6.87% 7.17% - 6.71% 6.16% 5.78%
Industrial 8.32% 8.55% 8.32% 7.77% 7.38% 6.88%
1 year total return Office 9.2% 10.6% - 9.6% 16.0% 14.1%
Industrial 9.0% 8.8% 9.0% 11.3% 16.0%  12.6%
  1. On 1 July 2014, the group adopted the Property Council of Australia definition of FFO. The Directors consider 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 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.

* The Industrial US portfolio was completely sold as at 30 June 2013.

Total return of Dexus securities

The chart below illustrates Dexus’s performance against the S&P/ASX 200 Property Accumulation Index since listing in 2004



Dexus performance against A-REIT index

Capital management

Key metrics

  FY13 FY14 FY15 FY16 FY17
Cost of debt¹ 5.9% 5.4% 5.2% 4.8% 4.1%
Duration of debt 5.4 years 5.2 years 5.7 years 5.5 years 5.6 years2
Hedged debt3 64% 60% 69% 64% 65%
Gearing 29.0% 33.7% 28.5% 30.7%4 26.7%5
Headroom (approximately)6 $0.3bn $0.5bn $0.8bn $0.4bn $1.1bn
S&P/Moody's credit rating BBB+/Baa1 A-/A3 A-/A3  A-/A3  A-/A3

  1. Weighted average across the period, inclusive of fees and margins on a drawn basis.
  2. Includes $60 million of Medium Term Notes issued in July 2017 and three bank facilities for $325 million that commenced in July 2017.
  3. Average for the year (excluding caps). Average for the year (including caps) was 71%.
  4. Gearing was expected to reduce to circa 27% post the receipt from recent divestments. This includes the sale of 57-65 Templar Road, Erskine Park (trading property); The Zenith, Chatswood; 108 North Terrace, Adelaide; the first 50% tranche of Southgate Complex, Melbourne; and 79-99 St Hilliers Road, Auburn (trading property).
  5. Pro forma gearing is adjusted for the acquisitions of MLC Centre, Sydney, 100 Harris Street, Pyrmont, 90 Mills Road, Braeside and the sales of 30-68 Taras Avenue, Altona North and 46 Colin Street, West Perth, including the impact of transactions costs. Actual gearing (look-through) is 22.1% at 30 June 2017. 
  6. Undrawn facilities plus cash. Excluding forward start commitments.

Debt maturity profile1

  1. Includes $60 million Medium Term Notes issued in July 2017 and three bank facilities for $325 million that commenced in July 2017.

Diversified mix of debt

Interest rate hedging maturity profile¹

Interest rate hedging profile

  FY17 FY18 FY19 FY20 FY21 FY22
A$ net fixed coupon debt² 879 1,066 895 789 736 674
A$ interest rate caps 969 927 805 596 280 240
A$ interest rate swaps 187 442 717 692 450 33
Total hedged A$m 2,034 2,435 2,417 2,076 1,467 947
Hedge rate (excluding margin)³ 3.19% 2.97% 2.96% 2.815 2.67% 2.56%
  1. Average amount hedged for the period (including caps) was 65%. Average for the full year ended 30 June 2016 (including caps) was 71%.
  2. Gross fixed coupon less the amount converted to floating rate basis via coupon matched swaps.
  3. Weighted average rate of fixed debt, swaps and caps for the period. Caps included at a rate equal to the lower of cap strike and forecast floating rate for the applicable period.

Debt facilites1

Facility limit
A$m
Drawn
A$m
Maturity dates Currency
Bilateral bank debt 150.0 - Jan 18 A$
50.0 - Aug 18 A$
150.0 - Nov 19 A$
520.0 186.0 Jan 20-Jun 20 A$
280.0 220.0 May 21 A$
100.0 - Nov 21-Jun 21 A$
50.0 50.0 Jun 22 A$
100.0 100.0 Aug 22 A$
100.0 - Jun 24 A$
100.0 100.0 Sep 18 A$
Commercial paper2 205.0 205.0 Sep 18 A$
Medium term notes           100.0 100.0 Nov 22 A$
185.0 185.0 Nov 25 A$
130.0 130.0 May 27 A$
US senior notes (144A)3  304.9 304.9 Jul 23-Jul 28 US$
US senior notes (USPP)3 290.9 290.9 Feb 24-Feb 27 US$
225.0 225.0 Feb 24-Feb 27 US$
285.9 285.9 Dec 24-Dec 26 US$
100.0 100.0 Jun 28 A$
Subtotal 3,576.7 2,428.7
Currency translation and fair value adjustments 225.4 225.4
Deferred borrowing costs (10.3) (10.3)
Total interest bearing liabilities 3,791.8 2,697.8
Bank guarantee utilised   (33.5)    
Cash   21.4    
Headroom including cash   1,081.9    
  1. Debt facilities do not include Medium Term Notes included in an equity accounted investment: A$74.8m December 2019, A$11.5m December 2022.
  2. Maturity date of commercial paper standby facility.
  3. 144A and USPP amount shown at the cross-currency swap contract rate.