Dexus Navigates Rising Costs and Market Cycles While Maintaining Strong Portfolio Occupancy

Financial Recovery and Distribution Stability

Dexus (ASX: DXS) has delivered a notable turnaround in its half-year results for the six months ended 31 December 2024, reporting a statutory net profit after tax of $10.3 million compared to a substantial loss of $597.2 million in the previous corresponding period. This recovery was largely driven by stabilising capitalisation rates which reduced fair valuation losses across its property portfolio.

The company confirmed a distribution of 19.0 cents per security, reflecting an 81.2% payout ratio aligned with its updated distribution policy. Adjusted funds from operations (AFFO) stood at $251.8 million or 23.4 cents per security, in line with market expectations despite headwinds from higher interest rates and lower trading profits.

Portfolio Resilience Amid Market Dynamics

Dexus’s high-quality property portfolio, valued at $14.5 billion, continues to demonstrate resilience. The office portfolio occupancy remains robust at 93.5%, supported by prime locations in Sydney and Melbourne, while the industrial portfolio maintains an even stronger occupancy of 95.7%. Rent collections remain near perfect at 99.6%, underscoring tenant stability despite broader economic uncertainties.

Leasing activity showed mixed trends: office leasing volumes were weighted towards smaller deals with reduced incentives, while industrial leasing momentum was strong, more than doubling volumes from the prior period. Notably, the industrial portfolio remains materially under-rented by 13.5%, presenting potential upside through rent resets on vacancies and upcoming lease expiries.

Strategic Balance Sheet Management and Funds Platform Growth

Dexus has actively managed its balance sheet, contracting over $515 million in divestments since the FY24 results and maintaining pro forma gearing at a conservative 31.3%, at the lower end of its 30-40% target range. The company holds $2.9 billion in cash and undrawn facilities, with a weighted average debt maturity of 4.5 years and strong credit ratings from S&P and Moody’s.

On the funds management front, Dexus’s diversified platform continues to deliver. The Dexus Real Estate Partnership 2 (DREP2) has raised approximately $470 million in equity commitments across its initial closes, with further capital expected in FY25. Flagship funds outperformed benchmarks, and the platform secured $975 million in transactions, primarily divestments to enhance portfolio quality and meet redemption requests.

Development Pipeline and Sustainability Initiatives

Dexus’s development pipeline remains substantial at $15.6 billion, including city-shaping office projects like Atlassian Central and Waterfront Brisbane, both with significant leasing pre-commitments. Industrial developments also progressed well, with several fully leased projects completed or underway.

Sustainability remains a core focus, with initiatives spanning renewable energy sourcing, community engagement, and climate action. Dexus’s entities achieved multiple 5-Star GRESB ratings, reflecting leadership in environmental, social, and governance performance within real estate and infrastructure sectors.

Outlook and Market Positioning

Looking ahead, Dexus reiterates its AFFO guidance of circa 44.5 to 45.5 cents per security and distributions of approximately 37.0 cents per security for the full year ending 30 June 2025. CEO Ross Du Vernet emphasised the company’s positioning to navigate the turning point in real asset markets, underpinned by strong population growth and demand fundamentals.

While the company faces ongoing challenges from higher interest rates and subdued capital markets, its strategic initiatives to modernise funds, stabilise the balance sheet, and capitalise on development opportunities position it well for delivering long-term, risk-adjusted returns.