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

 

Investing responsibly

Dexus's sustainability approach incorporates the UNPRI ‘six principles’ relating to responsible investment and active property management. The approach is aligned with our corporate strategy through its overarching goal to create Sustained Value.

This framework incorporates five objectives which describe goals, while the three themes provide 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.

Integrating sustainability

We create sustained value by taking a systematic approach that links our strategy and vision to our actions and performance outcomes through policies and governance frameworks, setting targets and embedding these into day-to-day operations.

Engagement Policies Commitments Practices Measure and report
We engage with stakeholders to identify and manage material issues which have the greatest impact on our stakeholders Dexus’s Environmental, Social and Governance (ESG) policies encapsulate our ‘Sustained Value’ vision and inform all stakeholders of their legal and corporate responsibilities for the management of environmental, social and governance issues We set measurable performance targets across our key stakeholder groups in line with our strategy, and drive ethical and responsible performance in all areas of operations We integrate ESG management practices within day-to-day operations, developments and investment decision making to enhance corporate performance and create sustained value Within our annual sustainability performance pack, we report our performance across each of our key objectives including achievements against targets.
We report our management approaches within our disclosure under GRI Standards

Our move into sustainable healthcare

For Dexus, FY18 has been a landmark year in terms of diversification into the healthcare property sector and for sustainability-driven investment.

We believe that the healthcare property sector is supported by compelling demand drivers and will benefit strongly from Australia’s ageing population, longer life-expectancy, population growth and advances in treatment capabilities.

The healthcare property sector is largely non-discretionary and insulated from economic cycles, offering longer-term leases of 10-30 years, often with well-credentialed operators bearing a large percentage of operational capital expenditure.

During the year Dexus, together with Commercial & General (C&G), launched the Healthcare Wholesale Property Fund (HWPF) with two seed investment partners, the Clean Energy Finance Corporation (CEFC) and Australian Ethical Investment (Australian Ethical).

Dexus establishes sustainable healthcare fund
The Healthcare Wholesale Property Fund is targeting emission reductions of 45% in both new and existing buildings when compared with the Council of Australian Government (COAG) Baseline Energy Consumption in commercial buildings. New HWPF buildings will be designed to achieve a Green Star Design and As Built rating of 5 stars.

Seed asset: Calvary Adelaide Hospital

Pipeline asset: North Shore Health Hub

CEFC’s and Australian Ethical’s investment is an endorsement of Dexus’s strong Environmentally Sustainable Design (ESD) principles.

“We look forward to our investment helping drive new standards in energy efficiency in the energy-intensive healthcare sector. Dexus has a well-earned reputation for its leadership in building energy efficiency and sustainability. We are pleased to be part of this important Australian first initiative as we progress towards a net zero carbon future in our built environment.”

Ian Learmonth - CEO, Clean Energy Finance Corporation

“We are very happy to be a foundation investor in HWPF to help develop the healthcare property sector in this country, and to grow this fund into Australia’s premier healthcare property fund.”

David Macri – CIO, Australian Ethical Investment

HWPF’s Clean Energy Policy sets out ambitious targets for design and operation of existing and pipeline assets.

Engaging with investors

Dexus has been very active during the year engaging with investors who have an increasing appetite to discuss how we incorporate sustainability into our strategy and operations, and on how we are performing overall.

With responsible investment in mind, we recently launched our New Energy, New Opportunities strategy which outlines our goal to achieve net zero carbon emissions across our managed portfolio by 2030. This ambitious goal forms part of our climate resilience strategy as we transition to a low carbon economy.

We recognise the value of the Task Force on Climate-related Financial Disclosures (TCFD) framework and the growing investor interest to understand the financial impacts to Dexus stemming from climate-related risks and opportunities.

We have reviewed our alignment against TCFD reporting expectations to benchmark our practices and determine how we can further integrate climate change impacts within our leading approach to sustainability.

Read more about these initiatives within the Enriched Environment section.

Recognition for sustainability performance

Dexus responded to the Global Real Estate Sustainability Benchmark (GRESB), which assesses the sustainability performance of real estate entities globally. In our 2017 GRESB assessment, Dexus Office Trust ranked third globally among over 850 participants and achieved first place in its Listed Office peer group globally.

In addition, each year Dexus is invited by RobecoSAM to respond to its Corporate Sustainability Assessment. This year we continued our strong performance, with RobecoSAM awarding Dexus a Silver Sustainability Award in recognition of Dexus’s demonstrated strengths in the area of corporate sustainability.

Dexus is included in RobecoSAM’s 2018 Sustainability Yearbook which showcases the world’s most sustainable companies from their submissions.

Delivering FY18 sustained value commitments

 = Achieved   = Not achieved  = Underway
Commitment Status FY18 achievements
Investors
Deliver 4.0-5.0% growth in distribution per security  Delivered 5.1% growth in distribution per security, exceeding our revised guidance target of 4.5-5.0%, up from original guidance of 4-5%
Office and Industrial
Continue selective forward leasing to manage expiry risk Reduced FY19 lease expiries from 12.0% at FY17 to 6.8% at FY18
Target $165-170 million of capital expenditure   FY18 capital expenditure of $167.8 million within the target range of $165-170 million
Target like-for-like income growth in office of 4.5-5% Achieved 4.5% like-for-like income growth for the office portfolio in line with our target of 4-5%
Target like-for-like income growth in industrial of 3-4% Delivered 3.0% like-for-like income growth for the industrial portfolio in line with our target of 3-4%
Third Party Funds Management           
Finalise new Healthcare Wholesale Property Fund In December 2017 the Healthcare Wholesale Property Fund completed its first round of equity raising, securing two new investors along with Commercial & General, the initial partner in the fund. Development of Calvary Hospital Adelaide has progressed, and planning approval was received for the North Shore Health Hub in St Leonards
Deliver continued unlisted fund outperformance All funds delivered strong performance with Dexus Wholesale Property Fund delivering top quartile performance and a one-year total return of 13.8%, outperforming its benchmark over all time periods. The Dexus Office Partnership delivered a one-year unlevered total property return of 16.0%
Trading    
Target trading profits of $35-40 million net of tax Dexus delivered $36.6 million of trading profits net of tax, achieving our FY18 target of $35-40 million net of tax.

For more financial information refer to the 2018 Dexus Annual Report.

Sustained value - performance data

Sustainability benchmark FY18 performance summary

In 2018, PRI awarded Dexus:

  • ‘A+’ perfect score for our strategy and governance
  • A rating for our approach to responsible investment across our Direct Property portfolio
  • ­Dexus Office Trust ranked 3rd globally among over 850 participants, and achieved 1st place across Listed Office peers globally
  • Dexus Wholesale Property Fund (DWPF) was named Global Sector Leader, achieving 1st place for Diversified (Office/Retail) peer group
  • Both entities maintained their Green Star status recognising best practice at setting management strategy and policy and achieving successful outcomes through implementation
  • Dexus was awarded ‘A- Leadership’ status in 2017. This result places Dexus in the top 18% of companies responding to CDP
  • Dexus retained its position in the 2017 DJSI World, Asia Pacific and Australian indices
  • Dexus was awarded a Silver Class Sustainability Award in the RobecoSAM 2018 Sustainability Yearbook

Financial highlights

Key metrics FY14 FY15 FY16 FY17 FY18
Net profit after tax ($m) 406.6 618.7 1,259.8 1,264.2 1,728.9
Adjusted Funds From Operations ($m) 310.7 369.8 413.9 439.7 485.5
Adjusted Funds From Operations (cents per security) 37.9 40.4 42.7 45.4 47.7
Funds From Operations ($m) 446.6 544.5 610.8 617.7 653.3
Funds From Operations (cents per security) 41.71 59.52 63.1 63.8 64.2
Distribution (cents per security) 37.561 41.04 43.51 45.47 47.8
Return on Equity (%) 6.7 11.5 19.3 18.2 19.8
Return on Contributed Equity (%) n/a n/a n/a 7.6 7.6
NTA per security ($) 6.361 6.681 7.53 8.45 9.64
Gearing (%)2 33.7 28.5 30.7 26.73 24.1
Duration of debt (years) 5.2 5.7 5.5 5.6 7.0
Total security holder return (%) 9.9 15.8 30.3 10.1 7.5
  1. Dexus completed a one-for-six Security Consolidation in November 2014.
  2. Adjusted for cash and for debt in equity accounted investments.  
  3. Pro forma gearing is adjusted for post balance date acquisitions. Actual gearing (look-through) was 22.1%.

Dexus performance against Property Index

Annual compound returns.
Source: UBS Australia for year to 30 June 2018.

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

Source: UBS Australia for year to 30 June 2018.

Dexus portfolio snapshot

Key metrics  FY14
(Pre-CPA)
FY14
(Post-CPA)
FY15  FY16 FY17 FY18
Portfolio value ($A) Dexus portfolio $7.3bn $9.1bn $9.5bn $11.0bn $12.2bn $13.3bn
Office $5.7bn $7.7bn $7.8bn $9.2bn $10.2bn $11.0bn
Industrial $1.6bn $1.4bn $1.7bn $1.8bn $2.0bn $2.2bn
Healthcare  - - - - - $0.1bn
Net lettable area (sqm) Dexus portfolio 1,775,487¹ 1,993,729 2,697,990 2,842,797 2,866,358 2,869,403
Office 682,207 1,490,070 1,403,255 1,566,111 1,581,646 1,495,238
Industrial 1,254,588 1,254,588 1,294,735 1,276,685 1,284,712 1,322,557
Healthcare - - - - - 51,608
Funds From Operations1 Office n/a $455.4m $533.3m $567.2m $567.4m $603.8m
Industrial n/a $122.8m $112.3m $106.1m $1114.8m $132.7m
Like-for-like income growth Office 1.8% - 0.2% 1.0% 2.6% 4.5%
Industrial 1.1% 1.5% 0.7% (7.1%) 3.6% 3.0%
Occupancy
(by income)
Dexus portfolio 94.9% - -  - - -
Office 94.6% 94.6% 95.3% 96.3% 97.2% 96.0%
Industrial 96.1% 93.0% 92.4% 90.4% 96.5% 98.3%
Occupancy
(by area)
Dexus portfolio 95.3% - - - - -
Office 94.4% 94.3% 95.5% 96.3% 97.0% 95.7%
Industrial 95.9% 93.1% 91.7% 91.7% 96.6% 98.8%
Lease duration (by income) Dexus portfolio 4.8 years - -  - - -
Office 5.0 years 4.7 years 4.3 years 4.7 years 4.8 years 4.6 years
Industrial 4.1 years 4.0 years 4.0 years 4.1 years 5.1 years 4.8 years
Weighted average capitalisation rate Dexus portfolio 7.47% - 6.88% 6.33% 5.95% 5.52%
Office 7.17% - 6.71% 6.16% 5.78% 5.37%
Industrial 8.55% 8.32% 7.77% 7.38% 6.88% 6.40%
1 year total return Office 10.6% - 9.6% 16.0% 14.1% 16.9%
Industrial 8.8% 9.0% 11.3% 16.0%  12.6% 13.6%
  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. 

Capital management

Key metrics
  FY14 FY15 FY16 FY17 FY18
Cost of debt¹ 5.4% 5.2% 4.8% 4.1% 4.2%
Duration of debt 5.2 years 5.7 years 5.5 years 5.6 years2 7.0 years
Hedged debt3 60% 69% 64% 65% 71%
Gearing 33.7% 28.5% 30.7%4 26.7%4 24.1%
Headroom (approximately)6 $0.5bn $0.8bn $0.4bn $1.1bn $0.6bn
S&P/Moody's credit rating A-/A3 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. Pro forma gearing is adjusted for post balance date acquisitions. Actual gearing (look-through) was 22.1%
  5. Undrawn facilities plus cash. Excluding forward start commitments.    

Debt maturity profile1

  1. Average amount hedged for the period.

Diversified mix of debt

Interest rate hedging maturity profile¹

  1. Average amount hedged for the period.

Interest rate hedging profile1

  FY18 FY19 FY20 FY21 FY22 FY23
A$ net fixed coupon debt² 1154 1045 939 887 824 623
A$ interest rate swaps 442 717 692 617 217 -
A$ interest rate caps 940 870 1,072 915 732 359
Total hedged A$m 2,536 2,632 2,702 2,418 1,773 982
Hedge rate (excluding margin)³ 2.92% 2.90% 2.73% 2.65% 2.66% 2.77%
  1. Average amount hedged for the period.
  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   520 50 FY20 A$
  280 220 FY21 A$
  150 50 FY22 A$
  250 100 FY23 A$
  250 100 FY27 A$
Commercial paper2   100 100 FY22 A$
Medium term notes             205 205 FY19 A$
  160 160 FY23 A$
  185 185 FY26 A$
  130 130 FY27 A$
US senior notes (144A)3    305 305 FY21 US$
US senior notes (USPP)3 Series 1 291 291 Jul 23-Jul 28 US$
Series 2 225 225 Feb 24-Feb 27 US$
Series 3 286 286 Dec 24-Dec 26 US$
Series 4 (A$) 100 100 Jun 28 A$
Series 5 503 503 Nov 29-Nov 32 US$
Series 5 (A$) 150 150 Nov 29-Nov 32 A$
Subtotal   4,089 3,159
Currency translation and fair value adjustments   212 212
Deferred borrowing costs   (11) (11)
Total interest bearing liabilities   4,290 3,360
Bank guarantee utilised     (43)    
Cash     33    
Headroom including cash     920    
  1. Does not include debt facilities in equity accounted investments: $74.8 million (December 2019), $11.5 million (December 2022), $42.8 million (August 2022).
  2. Maturity date of commercial paper standby facility.
  3. 144A and USPP amount shown at the cross-currency swap contract rate.