37.5-39.5 cents: Dexus guides to lower FY27 AFFO

Lower FY27 earnings set the tone

Dexus (ASX:DXS) has told security holders to expect lower earnings in FY27, with AFFO forecast at 37.5-39.5 cents per security and distributions held at 37.0 cents per security for the year ending 30 June 2027, barring unforeseen circumstances. The reduction reflects minimal performance fees and trading profits, higher financing costs, the practical completion of Atlassian Central and a materially lower expected contribution from funds under review or consultation.

The guidance gives investors a relatively clear measure of the cost of Dexus’s transition. Management says the core portfolio should benefit from leasing momentum, but that benefit will not fully offset the fading contribution from one-off or less repeatable earnings sources. The company’s FY26 result included A$483.9 million of AFFO and a 37.0 cents per security distribution.

Infrastructure review moves towards asset sales

Dexus’s strategic review of infrastructure funds acquired through the 2023 AMP Capital transaction has now produced directional pathways for the A$7.3 billion platform. The Dexus Diversified Infrastructure Trust and Dexus Core Infrastructure Fund will focus in FY27 on asset sales to provide liquidity to clients, while consultation continues on the best options for other infrastructure funds and mandates.

The Dexus Healthcare Property Fund is separately considering asset sales, alternative capital, other ownership structures or a wind-up. The fund has A$1.1 billion of third-party funds under management and Dexus holds a A$180 million co-investment interest. The review follows Dexus’s earlier announcement of an infrastructure reset, covered in the infrastructure strategic review, and leaves the group with a substantial amount of work before the earnings profile of the affected funds becomes clearer.

Management said Dexus will refocus on office, industrial and retail real estate, alongside a targeted alternatives platform. That platform will concentrate on emerging real asset sectors linked to the group’s existing capabilities, including data centres, selected living subsectors and multi-sector opportunities such as healthcare precincts. Existing commitments across healthcare, public-private partnerships and transport are expected to continue.

Capital recycling becomes the main value lever

Dexus has exceeded its earlier divestment target, completing or securing about A$2.5 billion of divestments since FY24 against a target of approximately A$2 billion across FY25-FY27. The group now aims to release more than A$2 billion of capital during FY27 and FY28 by bringing third-party capital into existing holdings and continuing asset sales. Earlier office disposals had already pushed the company beyond its original divestment goal, including the A$715 million office sales.

The intended uses are familiar but consequential: debt repayment, investment alongside partners and further securities buybacks. Dexus says its securities were trading at a 35% discount to net tangible assets at 26 October, before assigning value to the funds management business. The buyback is therefore being positioned as one possible way to narrow the gap, although execution remains dependent on transaction markets, gearing and the terms available for asset sales.

APAC appeal keeps legal and governance risk alive

The APAC dispute remains an unresolved overhang. Dexus manages the interests of investors in the Dexus Bloc, which holds interests in APAC, the owner of Melbourne and Launceston airports. Following an adverse NSW Supreme Court judgment in May concerning a sale process, the Dexus Bloc investors have appealed, with the hearing scheduled to commence on 30 November 2026.

Dexus said it has stood down relevant employees, adjusted remuneration where appropriate, introduced governance-related performance measures and strengthened the reporting line of its chief risk officer. The company also said KPMG remains its external auditor after additional safeguards were agreed around Dexus’s confidential information. These steps address the control environment, but they do not resolve the financial and operational uncertainty attached to the appeal or the infrastructure funds affected by it.

Portfolio operations remain comparatively resilient

Operationally, the listed portfolio continues to provide some support. September-quarter office occupancy was 94.2%, above the cited Australian CBD market average of 85.1%, while industrial occupancy was 94.0%. Industrial leasing covered more than 113,000 square metres and releasing spreads were about 36%, with the portfolio still 8.1% under-rented. Rent collections across office and industrial assets were 99.5%.

Atlassian Central remains on track for practical completion later this year and is fully pre-leased for 15 years. Waterfront Brisbane is a more complicated proposition: completion has been pushed to late 2029, Dexus’s share of total cost has increased mainly because of interest costs and leasing incentives, and the project is 71% pre-leased. Management nevertheless says it remains profitable, with yield on cost expected to stay within 5-6%.

The next tests are therefore unusually concrete: whether capital can be released without weakening the portfolio, how quickly infrastructure assets can be sold or otherwise restructured, and what the APAC appeal means for the affected funds. Dexus has outlined the direction of travel; the harder question is how much value survives the journey.