Dexus Faces Divestment and Litigation Challenges Despite Strong 2025 Results

A Resilient Platform Amid Market Inflection

Dexus (ASX, DXS) has released its 2025 annual results, painting a picture of steady financial performance and strategic progress as real asset markets begin to recover. The company reported adjusted funds from operations (AFFO) of $483.9 million, reflecting a disciplined approach to capital and operations amid a shifting economic backdrop. The distribution payout was adjusted to align with a revised policy targeting 80-100% of AFFO, signaling a balanced focus on income and reinvestment.

Occupancy rates remain a highlight, with the office portfolio achieving 92.3% occupancy; well above the Australian CBD market average of 85.7%; and the industrial portfolio at an impressive 96.2%. These figures underscore Dexus’s ability to maintain tenant demand and lease renewals in key sectors, even as broader market conditions fluctuate.

Turning Point in Property Valuations

After a period of valuation pressure, Dexus’s property portfolio saw a positive revaluation in the second half of FY25. This shift reflects a stabilization in cap rates and growing investor confidence in prime real estate assets. Approximately 70% of the broader real estate platform experienced valuation uplifts, a testament to the quality and location of Dexus’s holdings.

The company’s $13.3 billion development pipeline, including marquee projects like Atlassian Central in Sydney and Waterfront Brisbane, continues to advance, with a significant portion pre-leased and on track for completion. These developments are expected to enhance portfolio quality and drive future income growth.

Funds Management Momentum and Capital Efficiency

Dexus’s funds management business remains a cornerstone of its strategy, raising over $480 million in equity commitments for its Dexus Real Estate Partnership 2 (DREP2) fund and facilitating $1.8 billion in investor redemptions. The business demonstrated strong performance, with flagship funds outperforming benchmarks across multiple time periods, reinforcing Dexus’s reputation as a trusted investment partner.

Capital management remains prudent, with gearing maintained at 31.7% and 86% of debt hedged, providing flexibility to fund committed developments while preserving balance sheet strength. The company also executed over $1.5 billion in debt extensions and new funding with long tenors, mitigating refinancing risks.

Sustainability Leadership and Community Impact

Dexus continues to lead on sustainability, maintaining net zero emissions across Scope 1, 2, and some Scope 3 categories and achieving high NABERS ratings for energy, water, and indoor environment quality. The company’s Climate Transition Action Plan outlines its strategic approach to climate-related risks and opportunities, aligning with global standards.

Community engagement remains a priority, with partnerships supporting mental health initiatives and local activations that foster social wellbeing. These efforts complement Dexus’s purpose to unlock potential and create tomorrow, reflecting a holistic approach to value creation.

Outlook, Positioned for Growth as Markets Recover

Looking ahead to FY26, Dexus projects AFFO of 44.5-45.5 cents per security and distributions of 37.0 cents per security, assuming stable market conditions. The company is focused on completing divestments totaling around $2 billion through FY27, investing alongside capital partners, and leveraging its sector expertise to drive asset and fund outperformance.

With real estate markets past an inflection point and structural trends favoring quality assets, Dexus’s integrated platform and disciplined execution position it well to capitalize on emerging opportunities.